Gross Lease vs Net Lease: NYC Office Leasing, Explained

Q: Which is standard in Manhattan offices?

Modified gross with a base year is the common shape. True triple-net is more a retail and industrial structure.

The distinction is about who pays the building’s costs. In a gross lease, often called full-service, the rent includes operating expenses and real estate taxes, and the tenant picks up only the increases above a base year; in its modified form that structure is the New York office norm. In a net lease the tenant pays its share of taxes, insurance, and maintenance on top of a lower base rent. Price the total occupancy cost either way, because the lease type only changes where the costs appear.

Updated 2026-10-01 · NYC leasing glossary · Nomad Group

How the split actually works in a New York office lease

Almost no Manhattan office lease is purely gross or purely net. The working standard is modified gross with a base year: the landlord quotes one asking rent that absorbs operating expenses and real estate taxes at current levels, and the tenant pays its proportionate share of any growth above the base year, typically the first year of the term. The tenant is protected from the present cost of running the building and exposed to its future growth.

Electricity usually sits outside this framework, billed through a submeter or as a rent-inclusion charge, and it deserves its own line in any comparison. True net structures remain more common in retail and industrial deals than in Manhattan office buildings.

A worked comparison at the citywide median

The citywide median asking rent on our book is $75 per square foot per year, quoted, like most Manhattan office rents, on a modified gross basis. A tenant signing at that number pays $72 in year one, then $72 plus its share of operating and tax increases each year after, so the deal’s real trajectory depends on the base year and the escalation language, not the face rent alone.

A space offered net at a face rent below $72 can still cost more once the tenant’s share of taxes, insurance, and maintenance is loaded on, so the only honest comparison converts both deals to total occupancy cost per square foot over the full term. We run that math on every deal; the cheaper-looking lease is frequently the more expensive one.

What is negotiable, and where we push

The escalation clauses move as much money as the face rent. We push to set the base year as the first full calendar year of the term, grossed up to a fully occupied building, so the starting bar for pass-throughs is honest. We negotiate the operating expense definition to exclude capital improvements, financing and ownership costs, and leasing commissions, and we ask for audit rights.

On the tax side the same discipline applies: which fiscal year serves as the tax base, how reassessments flow through, and whether the tenant shares in refunds the landlord wins on appeal. None of it reads the same from building to building, so confirm each mechanic on the specific lease.

The traps that cost tenants money

The most expensive trap is a distorted base year. One set during low occupancy, or over a partial first year, understates the building’s normal expenses, and every later year then shows artificial growth the tenant pays for. A gross-up provision, restating expenses as if the building were substantially occupied, is the protection, and its absence is a red flag.

Operating expense definitions drafted broadly enough to sweep in capital projects convert the landlord’s upgrades into tenant charges, and rent-inclusion electric can carry a markup over what a submeter would show. Comparing a gross face rent against a net face rent without converting both to total occupancy cost is the mistake that makes a bad deal look good. Read the escalation exhibit as carefully as the rent schedule.

Which is standard in Manhattan offices?

Modified gross with a base year is the standard shape: one rent that includes operating costs and taxes, with the tenant paying increases above the base year. True triple-net remains largely a retail and industrial structure.

Who negotiates this for the tenant?

On a tenant-only mandate the escalation language is argued for you by someone with no stake in the landlord’s side of the ledger. Nomad represents tenants exclusively, never landlords, across 300+ delivered New York offices.

Is a gross lease always cheaper than a net lease?

No. A gross lease folds the building’s costs into the rent while a net lease itemizes them, and either can come out ahead. Convert both offers to total occupancy cost over the full term, and confirm the escalation mechanics on the specific lease.

What is a base year and why does it matter?

The base year is the reference year for escalations in a gross lease; the tenant pays its share of increases above that year’s costs. A fully grossed-up base year keeps pass-throughs honest, while a low or partial one quietly raises every later year.

What should I check before comparing two asking rents?

Confirm what each rent includes: gross or net, where the base year sits, how electricity is billed, and what the operating expense definition sweeps in. The citywide median asking rent on our book is $75 per square foot per year; a quote means little until you know what sits inside it.