NNN Lease Structures Every Industrial Owner Should Understand

The lease structure you sign does more than set the rent—it decides who pays the taxes, insurance, and repairs, how much of your “income” is really yours, and ultimately what your building is worth when you sell. Most industrial leases here are some form of triple-net, but the details vary, and the details are where owners win or lose. (We covered the tenant’s side in our Industrial Lease Guide for East Bay Tenants; this is the landlord’s view.)

The three structures, plainly

Triple-Net (NNN). The tenant pays base rent plus their share of the three “nets”—property taxes, building insurance, and common-area maintenance (CAM). Your rent is closer to true net income, and most cost increases pass through. This is the default for multi-tenant industrial and the structure investors prefer.

Modified Gross. The tenant pays base rent plus some, but not all, expenses—often with a base-year stop. More owner exposure to rising costs than NNN.

Full-Service / Gross. You cover the operating costs out of the rent. Simpler for the tenant, but you absorb every tax hike, insurance jump, and repair. Rare in industrial, common in office.

Why NNN protects your income

The reason NNN dominates industrial is risk transfer. California property taxes, insurance premiums, and maintenance costs have all climbed. Under a true NNN lease, those increases flow to the tenant rather than eroding your return. Under a gross lease, you eat them—and a couple of bad expense years can quietly turn a good rent into a mediocre one.

The phrase that matters is “true” or “absolute” net. Many leases called “NNN” still leave the landlord on the hook for the roof, structure, and sometimes major systems. Those carve-outs are negotiable—and exactly where a buyer’s attorney will look—so get them right when you sign, not when you sell.

The clauses that actually move value

Annual escalations. A fixed 3% (or CPI-based) bump keeps income growing and is one of the first things a buyer underwrites; a flat rent is a value drag. CAM reconciliation. Make sure the lease lets you recover actual common-area costs, not a fixed estimate that falls behind. Expense exclusions. Every cost you exclude from pass-through is a cost you keep paying—define them deliberately. Roof and structure. The single biggest carve-out; whoever owns it owns a six-figure risk. Term and credit. A longer lease to a stronger tenant lowers the cap rate a buyer will pay—which raises your sale price.

Before you commit

If you’re renewing a tenant or signing a new one, it’s worth a quick review before you sign. Material lease terms warrant review by counsel—but a broker’s read on how the structure affects your income and your eventual sale price is a useful first pass.