NNN passes everything through, maximizing both transparency and overcharge risk. Modified gross absorbs some costs into rent, reducing audit scope but creating reclassification disputes.
A triple net lease passes all operating expenses to the tenant, including property taxes, insurance, and CAM. The tenant pays base rent plus their proportionate share of every expense category, with annual reconciliation adjustments.
A modified gross lease splits operating expenses between landlord and tenant. Typically, the landlord covers certain categories (often taxes and insurance) within the base rent, while the tenant pays their share of remaining expenses like CAM and utilities.
| Dimension | NNN (Triple Net) Lease | Modified Gross Lease |
|---|---|---|
| Expense responsibility | All operating expenses pass through | Some expenses included in base rent |
| Base rent level | Lowest, since all expenses are separate | Mid-range, partially inclusive |
| Reconciliation complexity | High, many line items to review | Moderate, fewer pass-through categories |
| Audit scope | Broad, covers taxes, insurance, CAM, utilities | Narrower, limited to pass-through categories |
| Overcharge risk | Highest across all expense types | Moderate, concentrated in pass-through items |
Both lease types create CAM audit opportunities, but NNN leases have a wider attack surface because every category flows through to the tenant. Modified gross leases concentrate overcharge risk in the specific categories not absorbed by the landlord. Tenants on modified gross leases should pay special attention to which expense categories their lease defines as pass-throughs, because landlords sometimes reclassify absorbed costs as pass-throughs.
NNN leases are riskier overall because no expense category is shielded. However, modified gross leases carry a unique risk: ambiguous language about which categories are "included" vs. "excluded" can lead to double-charging, where the landlord collects for an expense in both the base rent and the pass-through reconciliation.
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Find My OverchargesThis page provides general educational information. It is not legal advice and may not reflect the most current law in your state. Consult a licensed attorney for advice specific to your situation.
