Search "gross lease vs net lease" and you get law-firm explainers and landlord glossary pages. Useful for tenants. Incomplete for buyers. The labels are not defined the same way in every state, and the brochure almost never shows how outgoings allocation changes the cash you keep or the price you should offer.
This piece is the buyer read. What a commercial buyers agent does covers the job. Commercial vs residential property investment covers why net and gross yields are not the same unit. Here I grade how the lease passes costs, because that is half of The Deal Grade™ income score before anyone argues about the facade.
The labels are not the contract
In Australian commercial practice, "gross" usually means more costs are bundled into the rent figure the tenant pays. "Net" usually means the tenant pays base rent plus some or all recoverable outgoings. Triple net (NNN) language shows up in marketing, especially on industrial, to signal that rates, insurance, and maintenance sit with the tenant.
None of those words are a statute. Retail leases in some states also restrict what a landlord can recover. The only source of truth is the lease schedule: which costs are recoverable, how they are estimated and reconciled, who pays land tax, and what happens when outgoings spike mid-term.
If a listing says "net lease" and the schedule still leaves you holding insurance, structural works, or a large unrecovered share, you bought a marketing word, not a net income stream.
Who pays what in practice
Think in three buckets, not two slogans.
Typically landlord-retained on a true gross structure. Council rates, water rates, building insurance, land tax (where recoverable at all), common-area maintenance, and often day-to-day repairs get priced into one rent figure. You take the risk that those costs rise during the term. Your "yield" on the listing is closer to a gross residential quote until you rebuild it after costs.
Typically tenant-recovered on a standard net structure. Base rent plus a schedule of outgoings: rates, insurance, and often maintenance and management. Structural and capital items often stay with the landlord unless the lease says otherwise. Net yield is easier to forecast if the recovery schedule is clean and the historical outgoings pack is real.
Heavy recovery (NNN-style). Tenant pays base rent plus the bulk of operating costs. Cash yield can sit close to the brochure number. You still need to read make-good, capital works, and any items the landlord kept. "NNN" on a flyer is not a substitute for the schedule.
State retail rules can override marketing. Queensland and NSW retail regimes, among others, limit or regulate certain recoveries. Always check whether the tenancy is retail-regulated before you treat a US-style NNN story as gospel.
How outgoings change the number you offer
Commercial value lives in the income. Income quality is not only the tenant name and the years left on the lease. It is also who pays the running costs when rates or insurance move.
On every commercial deal I run The Deal Grade™: a letter A to C on the building, a number 1 to 3 on the income. Outgoings allocation sits inside the income grade with covenant strength, lease length, WALE, and escalations. A strong building on a short, soft, gross lease with unrecovered cost risk is a worse buy-zone deal than an average building on a long net lease to a covenant that is not going anywhere.
Worked the wrong way, investors capitalise the brochure rent as if it were cash after costs. Worked the right way, you:
1. Rebuild annual rent from the lease, not the flyer.
2. Subtract non-recovered outgoings you will actually wear.
3. Stress a vacancy year and an outgoings spike.
4. Only then price the asset against your net yield buy zone.
That is why commercial vs residential insists net commercial and gross residential are different units. A 6% "net" that still leaves you with $40k of unrecovered costs is not 6% in your hand.
What to demand in the diligence pack before you capitalise yield
Before you argue price, ask for:
- The full lease and any variations, not a summary email.
- The current outgoings budget and the last 12 to 24 months of actuals with reconciliation.
- Clarity on land tax, insurance, management fees, and capital vs operating lines.
- How estimates are billed and when over/under recoveries settle.
- Any retail lease disclosure obligations that apply in that state.
- Make-good and structural responsibility in plain English.
If the selling agent cannot produce actuals, treat the "net" claim as provisional. Price the risk or walk. Formal legal review stays with your solicitor. My job is to make sure the commercial question is asked before emotional capital is spent on the tour.
For trustees buying commercial inside an SMSF, lease and outgoings sit after fund readiness and the business real property test. Sequence that path in SMSF commercial property after the residential LRBA ban, not in a lender brochure.
Gross traps and net traps for buyers
Gross trap. The rent looks high and "simple". You underwrite it like a net yield. Mid-term, rates and insurance rise and your cash yield compresses with no recovery lever. Vacancy still hits you as landlord, and you discover you paid for simplicity that was never modelled.
Net trap. The rent looks lower and the yield looks clean. The schedule recovers less than the flyer implied, or historical outgoings were understated. You also inherit admin: reconciliations, disputes, and tenant pushback on estimates. Net is not "set and forget" unless the lease and the tenant covenant support that story.
NNN marketing trap. US language pasted on an Australian asset. Read the schedule. If structural works or land tax sit with you, the risk stack is not the Instagram version of triple net.
I have bought and sold commercial as an own project (including the Dry Creek warehouse on results). The lesson that survives every deal is the same: grade the income document before you romance the building.
How this sits in a commercial brief
If you are graduating from residential, start with capital, income need, and risk posture on the Commercial Ready Check. Then ask whether the next asset's job is income that survives a rates shock. Gross versus net is not trivia. It is whether the yield you are buying is the yield you will keep.
Fee structure and process for commercial representation sit on the commercial page and in the commercial buyers-agent insight linked above. Site CTA is Book a strategy call. Bring the lease pack if you have one. If you do not, that is the first diligence gap we close.
Frequently asked questions
What is the difference between a gross lease and a net lease?
A gross lease usually bundles more property costs into one rent figure. A net lease usually splits base rent from recoverable outgoings the tenant pays. The lease schedule decides the real split, not the marketing label.
Is a triple net lease the same as a net lease in Australia?
Not reliably. NNN language is marketing shorthand for heavy tenant recovery of rates, insurance, and maintenance. Australian leases vary by state and by retail regulation. Read the outgoings schedule line by line.
Why do commercial yields get quoted net?
Because many commercial leases pass a large share of outgoings to the tenant, so the income figure is closer to cash after those costs. Residential yields are usually quoted gross. Compare both on a cash-in-hand basis before you decide which asset class wins.
Does a net lease remove vacancy risk?
No. Vacancy still sits with the landlord when the tenant leaves. A net lease mainly shifts operating-cost risk while the tenant is in place. Covenant strength, lease length, and location depth still decide vacancy exposure.
What should I ask for before I accept a "net yield" on a listing?
The lease, the outgoings budget, historical actuals with reconciliation, and a clear map of non-recovered costs. If those are missing, do not capitalise the brochure number.
*General information only. Not personal financial advice. Lease terms and recovery rules vary by state, asset, and retail regulation. Property outcomes depend on your brief, capital, timing, and the asset. Get advice specific to your situation before acting. Individual results vary.*
