Net Lease vs Gross Lease: The Clause That Decides Your Return
General information only, not financial, tax or legal advice. Lease structures, recoverable outgoings and retail leases legislation vary by state and by the wording of each individual lease, so never rely on a label or a summary without reading the document itself. Speak to a licensed adviser about your own situation.
TL;DR
The difference between a net lease vs gross lease is simply who pays the outgoings. Under a gross lease, the tenant pays one rent figure and the landlord absorbs council rates, insurance, management and repairs. Under a net lease, the tenant pays the rent plus the recoverable outgoings on top. A semi-gross lease sits in between, with the landlord carrying a base amount and the tenant paying increases. Two buildings can advertise the same face rent and deliver very different net income, because outgoings on commercial property commonly run from roughly 15% to 30% of gross rent. The lease type, not the headline rent, decides your actual return.
Net lease vs gross lease: why one clause moves the number
Face rent is the figure in the advertisement. Net income is the figure that pays your loan. The gap between the two is outgoings, and the lease decides who wears them.
That is why experienced buyers read the lease before the price. A building on a net lease at $100,000 per year is a different asset to the same building on a gross lease at $100,000, even though the marketing looks identical.
Outgoings are not trivial. Across most asset classes they sit between roughly 15% and 30% of gross rent, depending on the building's age, its services, the land tax position and how much management it needs. On a gross lease, every dollar of that is yours.
The three lease types you will see in Australia
Australian practice is less standardised than many investors expect. Agents use the same three words for quite different documents, so treat the label as a starting point.
Gross lease
The tenant pays a single rent. The landlord pays all outgoings out of that rent and absorbs any increases in rates, insurance, strata levies and maintenance over the term.
Gross leases are common in smaller office suites and fitted tenancies where the landlord wants to keep the offer simple. They are the easiest to administer and the riskiest to own, because cost inflation lands entirely on the owner.
Semi-gross lease
The tenant pays a single rent, but the landlord's exposure to outgoings is capped at a base amount, usually set by a base year. Increases above that base are passed on to the tenant.
This is the most common structure in suburban and secondary office buildings. It looks gross to the tenant and behaves like a partial net lease to the landlord. The base year and the cap are where the value sits.
Net lease
The tenant pays rent plus the recoverable outgoings, either as a monthly estimate reconciled annually or on direct invoice. The landlord's income is closer to a true net figure from day one.
Net leases dominate industrial property, freestanding retail, service stations, childcare and medical premises. The landlord still carries structural and capital items, a point many first-time buyers miss.
Who pays what: the three lease types compared
Council and water rates: Gross lease: Landlord; Semi-gross lease: Landlord to base, tenant pays increases; Net lease: Tenant
Building insurance: Gross lease: Landlord; Semi-gross lease: Landlord to base, tenant pays increases; Net lease: Tenant
Land tax (where recoverable): Gross lease: Landlord; Semi-gross lease: Usually landlord, check the lease; Net lease: Tenant, subject to state rules
Property management fees: Gross lease: Landlord; Semi-gross lease: Often landlord, varies; Net lease: Usually tenant, varies
Day to day repairs and maintenance: Gross lease: Landlord; Semi-gross lease: Shared, per the lease; Net lease: Tenant
Structural repairs: Gross lease: Landlord; Semi-gross lease: Landlord; Net lease: Landlord
Capital works and replacement of plant: Gross lease: Landlord; Semi-gross lease: Landlord; Net lease: Landlord
Owner's costs, such as accounting and depreciation: Gross lease: Landlord; Semi-gross lease: Landlord; Net lease: Landlord
Land tax recovery from a tenant is restricted or prohibited in some states and for some lease categories. Confirm the current position with the relevant state revenue office or your solicitor before pricing it into a yield.
What "triple net lease" really means in Australia
A triple net lease, in American usage, means the tenant pays rates, insurance and maintenance, and in practice often carries structural and capital items as well. The term travels into Australian marketing material because it sounds strong.
It does not map cleanly onto Australian practice. Most Australian leases described as triple net still leave structural repairs, major plant replacement and capital expenditure with the landlord, because that is how our lease forms and retail legislation are built. A lease where the tenant funds a roof replacement is rare here.
So treat "triple net lease Australia" as a sales phrase, not a definition. The only reliable way to know what you own is to read the outgoings clause, the repair and maintenance clause, the make good clause and the recoverable expense definitions.
The three questions that settle it
Which outgoings are listed as recoverable, and is the list exhaustive or inclusive?
Who replaces plant at the end of its life, and who funds structural work?
Are there caps, exclusions or a base year limiting what you can actually recover?
A worked example: same building, same face rent, three returns
The numbers below are illustrative round figures, not a real transaction. Say a small industrial unit with a face rent of $100,000 per year and outgoings of $25,000. Assume the tenant pays all recoverable outgoings under the net lease, and about $10,000 of increases above the base year under the semi-gross lease.
Face rent: Gross lease: $100,000; Semi-gross lease: $100,000; Net lease: $100,000
Outgoings borne by landlord: Gross lease: $25,000; Semi-gross lease: $15,000; Net lease: Nil recoverable
Net income to landlord: Gross lease: $75,000; Semi-gross lease: $85,000; Net lease: $100,000
Net yield at a $1.25m price: Gross lease: 6.0%; Semi-gross lease: 6.8%; Net lease: 8.0%
Value at a 6.5% required net yield: Gross lease: $1,154,000; Semi-gross lease: $1,308,000; Net lease: $1,538,000
Same building. Same tenant. Same advertised rent. A spread of nearly $400,000 in value, driven entirely by the outgoings clause.
It also explains why comparing yields across listings only works once you know whether each figure is gross or net.
Why a strong face rent can still deliver a weak return
Vendors and leasing agents are rewarded on face rent, because it is the number that sets valuation in a simple capitalisation. That creates a pattern worth watching for.
A building leased at an above-market face rent on a gross basis, with incentives behind it, looks strong on rent per square metre. The net income, after the owner funds rates, insurance, management and a growing repairs bill, is well below what the headline implies. The inverse happens too, and a modest face rent on a clean net lease can out-earn a flashier asset.
Underwrite the net figure, and build your own outgoings estimate rather than accepting the vendor's.
Base years and outgoings caps: where semi-gross leases leak
In a semi-gross lease, the base year is the reference period that fixes how much of the outgoings the landlord absorbs for the rest of the term. It sounds administrative. It is one of the most commonly mispriced clauses in Australian commercial property. Watch for these:
A stale base year. A base set years ago may still anchor the landlord's absorbed amount to old figures, or may have been reset in the tenant's favour at renewal.
A base year reset on option. Some leases reset the base to the current year whenever an option is taken up, quietly returning the full outgoings burden to the landlord.
Caps on recoverable increases. A CPI cap on recoverable outgoings looks modest until insurance or council rates jump well above CPI, which they periodically do.
Exclusions buried in definitions. Management fees, land tax and capital-adjacent repairs are often carved out without appearing in the heads of agreement.
Reconciliation practice. A recovery clause is worth little if estimates were never issued and annual reconciliations never done. Ask for three years of outgoings statements.
What tenants typically accept: retail, office and industrial
Lease structure is partly negotiating leverage and partly market convention by sector.
Industrial. Net leases are the default. Tenants in warehousing, logistics and light manufacturing expect to pay outgoings and will usually accept a net structure on a single-occupancy site.
Retail. Net or substantially net is normal for freestanding and strip retail, with outgoings apportioned in multi-tenancy centres. State retail leases legislation constrains what can be passed on, which matters more than the label.
Office. The most variation sits here. Larger tenancies in better buildings are typically net or net-plus-services. Smaller suburban suites and strata offices are frequently gross or semi-gross, because small tenants want one predictable number.
Specialised premises. Childcare, medical and service station assets are usually net, often on long terms, because the tenant has invested heavily in the fitout.
Retail leases legislation: check before you assume recovery
Retail tenancies in Australia are governed by state and territory retail leases legislation, which sits above the lease and overrides inconsistent clauses. These Acts commonly require a disclosure statement before signing, prohibit recovery of certain costs such as some land tax and the landlord's lease preparation expenses, require annual reconciliations of outgoings, and limit recovery of capital expenditure.
The detail differs by jurisdiction and changes over time. The practical consequence is that a retail lease described as net may be considerably less net than it reads, because parts of the recovery are unenforceable.
Before you underwrite a retail asset, have your solicitor confirm which Act applies, whether the tenancy falls within it, and which outgoings are actually recoverable in that state.
Converting semi-gross to net at renewal: the most direct value lever
If a property's outgoings sit with the landlord and the convention for that asset type is net, renewal or re-letting is where that gets corrected. It is one of the cleanest ways to lift value, because it adds net income without changing the building.
Return to the worked example. Moving from semi-gross to net lifted net income from $85,000 to $100,000, and at a 6.5% required yield, lifted value by around $230,000. No construction, no rezoning, no rent review above market. Just a different allocation of costs.
Two cautions. The tenant will treat the change as an effective rent increase and may seek a lower face rent in exchange, so model the total outcome, not the outgoings line alone. And it only works where the market supports it. Pushing a net structure in a sector that leases gross risks a vacancy that costs more than the recovery is worth.
Where to go from here
Lease structure is one of several things that separate a commercial property that performs from one that only looks like it should. The others are tenant quality, lease term and review mechanism, the land value underneath, and the discipline you bring to due diligence.
If you want to go deeper, Cal Doggett's Fortify Your Wealth video series walks through how he assesses commercial property, including how lease terms feed into value (https://investorcode.com.au/fortify-your-wealth-series). The Commercial Property Mastery course covers the same ground in more structured detail (https://investorcode.com.au/online-course). Cal has spent 20-plus years in Australian commercial property and has transacted around $550M, and the lease is usually the first document he reads.
Frequently asked questions
What is a net lease in commercial property?
A net lease is one where the tenant pays the rent plus the recoverable outgoings, such as council and water rates, building insurance and maintenance. The landlord generally still funds structural repairs and capital works. The result is an income stream closer to a true net figure, which is why net leases are usually valued more highly.
Is a gross lease bad for the landlord?
Not automatically, but it shifts cost risk to the owner. Under a gross lease the landlord absorbs every increase in rates, insurance, strata levies and repairs for the whole term, so inflation erodes net income even while the face rent rises. Gross leases can still suit small tenancies where one simple rent figure helps keep the space occupied.
What is a semi-gross lease in Australia?
A semi-gross lease is a middle structure where the landlord pays outgoings up to a base amount, usually fixed by a base year, and the tenant pays increases above it. It is common in suburban and strata office buildings. The value depends on how the base year is set, whether it resets on option, and what the lease excludes.
Does triple net lease mean the same thing in Australia?
No. The American triple net concept, where the tenant carries rates, insurance, maintenance and often structural and capital costs, does not translate directly. Most Australian leases marketed as triple net still leave structural repairs and capital works with the landlord. Read the outgoings, repairs and recoverable expense definitions rather than relying on the label.
Can a landlord recover land tax from a tenant?
Sometimes, but it depends on the state and the type of tenancy. Some jurisdictions restrict or prohibit recovering land tax from retail tenants, and the rules differ for other lease categories. Because the position varies and changes, confirm the current rule with the relevant state revenue office or your solicitor before including land tax recovery in your numbers.
How do outgoings affect a commercial property yield?
Outgoings sit between the face rent and the income you keep, and commonly run from roughly 15% to 30% of gross rent. A gross lease means you absorb them, so your net yield is materially lower than the quoted gross yield. Always confirm whether an advertised yield is gross or net before comparing listings.