The lease label tells you how rent is quoted. The expense and repair clauses tell you what you will actually pay. Here is how the three structures work for industrial space in Kern County.
In a triple net (NNN) lease, the tenant pays base rent plus its share of property taxes, insurance and maintenance. In a modified gross lease, some of those costs sit inside the rent and the rest are split by negotiation. In a full service gross lease, the landlord covers nearly everything. For any NNN vs modified gross lease decision, compare total occupancy cost, not the quoted rent.
Key takeaways
- Lease labels are shorthand. The expense, tax, insurance and repair clauses decide who pays.
- Industrial rents in Bakersfield and nationally are typically quoted NNN, while office rents are usually quoted on a gross basis.
- In a California NNN lease, a sale of the building can trigger a Prop 13 reassessment that flows through to the tenant.
- A modified gross lease with a base year passes cost increases to the tenant much as NNN does, just from a higher starting rent.
- Convert every quote to an all-in monthly cost per square foot before comparing buildings.
What is the difference between NNN vs modified gross lease structures?
All three structures answer one question: who pays the costs of owning and operating the building? The “net” or “gross” label describes how rent is quoted, but the lease language controls. Holland & Knight’s March 2026 analysis makes the same point: actual obligations depend on the lease itself, not the descriptive terms the parties use.
The table shows the typical split. Treat it as a list of questions to ask, not a rule, because any line can be negotiated.
| Cost item | NNN (triple net) | Modified gross | Full service gross |
|---|---|---|---|
| Base rent | Tenant | Tenant (higher rate) | Tenant (highest rate) |
| Property taxes | Tenant | Landlord, often with increases passed through | Landlord, increases over a base year often passed through |
| Building insurance | Tenant | Landlord, often with increases passed through | Landlord, same as taxes |
| Common area maintenance | Tenant | Negotiated | Landlord |
| Utilities and janitorial | Tenant | Usually tenant | Landlord |
| HVAC service and repair | Tenant | Usually tenant | Landlord |
| Roof and structure | Varies; often tenant shares replacement cost | Usually landlord | Landlord |
| Where you see it | Industrial, retail, single-tenant buildings | Small industrial units, flex, some office | Multi-tenant office |
For a deeper look at how landlords bill these costs, see our guides to operating expense pass-throughs and CAM charges and year-end reconciliations.
What does a triple net (NNN) lease make the tenant pay?
A NNN lease adds three categories of cost on top of base rent: property taxes, building insurance and maintenance. Many California industrial leases use forms from AIR CRE, a Southern California real estate association. Its Standard Industrial/Commercial Single-Tenant Lease, Net shows how far a NNN lease can go.
Under the November 2017 version of that form, the tenant keeps the premises in good repair at its own expense. It must also carry service contracts for items such as HVAC, fire sprinklers, roof covering, drains and clarifiers. Paragraph 7.2 states that the landlord is intended to have no obligation to repair or maintain the premises.
The form has one cushion. When a covered item such as an HVAC unit or roof covering must be replaced rather than repaired, the tenant pays 1/144th of the replacement cost each month for the rest of the term, instead of the full bill. On a short lease, that limits the tenant’s share of a big capital item. AIR revises its forms from time to time, so the version a landlord uses may differ from the 2017 text.
What is a modified gross lease?
A modified gross lease is a hybrid. Some operating costs are bundled into the rent, and the lease allocates the rest. Holland & Knight describes that allocation as fully negotiable, which is why two modified gross quotes can mean very different things.
In California industrial leasing, gross rarely means all-inclusive. AIR describes its single-tenant gross form as one where the tenant pays increases in property taxes and insurance after the first year and reimburses the landlord for maintaining the building. Its multi-tenant gross form charges the tenant a share of common area costs plus any increase over the base-year taxes and base insurance premium.
Some brokers call this structure “industrial gross.” Whatever the name, the expense paragraph decides what the tenant pays, so compare it line by line before comparing rents. Our guide to base year vs. expense stop explains how those increases are measured.
What is a full service gross lease, and why is it rare for warehouses?
In a full service gross lease, the landlord pays taxes, insurance, maintenance, utilities and usually janitorial, and builds those costs into one rent. It is standard for multi-tenant office buildings, where the landlord runs shared systems and common areas. A national office market report quotes office asking rents on a gross basis, averaging $38.38 per square foot per year in Q2 2026.
Warehouses are different. A distributor running forklifts on two shifts or an ag processor running refrigeration in Delano uses power in ways a landlord cannot predict, so utilities stay with the tenant. Even office gross leases usually pass through increases over a base year.
Which lease type is most common for industrial property in Kern County?
NNN is the norm for industrial space in Kern County, as it is nationally. A regional brokerage report shows an average Bakersfield industrial NNN asking rate of $10.05 per square foot in Q2 2026, with vacancy at 9.55%. The report does not state a period for the rate; this article treats it as annual, about $0.84 per square foot per month. The national industrial average was $10.32 per square foot NNN in the same quarter.
Single-tenant buildings in Bakersfield, Shafter and along I-5 near Tejon are typically quoted NNN. Smaller units in multi-tenant parks are more likely to be quoted modified gross or gross, because the landlord already manages shared costs and small tenants often prefer one predictable check. For how these rents are expressed, see how industrial rent is quoted in California.
California adds a twist. Under Prop 13, the property tax rate is limited to 1% plus voter-approved bond rates, and assessed value generally rises no more than 2% a year until the property changes ownership or is newly built, according to the State Board of Equalization. A sale during your lease can reset the assessment to market value, and in a NNN lease that higher tax bill becomes your cost. Our article on Prop 13 reassessment and NNN tenants covers how to protect yourself.
How do you compare NNN and modified gross quotes fairly?
Convert every option to an all-in monthly cost per square foot, then look at who carries the risk of increases. A lower NNN rent can cost more than a higher gross rent once taxes, insurance and repairs are added.
- Ask for the current NNN or operating expense estimate and the last two years of actual reconciliations.
- Ask when the property last sold. That shows whether a Prop 13 reassessment is already in the numbers.
- Find out who pays for roof, HVAC, parking lot and structural replacement, and how capital costs are spread.
- Note whether utilities are separately metered.
- In a gross or modified gross lease, identify the base year and which costs pass through above it.
Which lease type is better for tenants and owners?
It depends on who carries the risk. Owners and investors generally prefer NNN because rising costs stay with the tenant and net income is easier to underwrite. That is why single-tenant net lease buildings trade as investment products, a topic our guide to single-tenant net lease investing covers.
Tenants trade predictability for price. NNN usually carries the lower quoted rent and gives a tenant who controls its own building some control over costs. Gross structures cost more up front but cap the surprises, which suits a small business that budgets month to month. For a 50,000 SF user with a long horizon, NNN is usually the practical choice. The work is negotiating caps, exclusions and audit rights.
Worked example: a 20,000 SF Bakersfield warehouse under three structures
Assume a 20,000 SF single-tenant warehouse. The NNN rent is $0.84 per SF per month, in line with the Q2 2026 Bakersfield average from regional brokerage reports, plus an assumed $0.16 per SF per month for taxes, insurance and maintenance. The modified gross quote is $1.00 per SF with year-one expenses built in and increases over the base year passed through. A gross landlord quotes $1.05 to cover its risk. The expense, modified gross and gross figures are illustrative assumptions, not market data. Annual rent bumps are ignored to isolate the structure.
In year three, the building sells and is reassessed, and insurance renews higher, so expenses rise to $0.20 per SF per month. The roof covering also needs a $60,000 replacement with 36 months left on the lease.
Monthly cost to the tenant (illustrative)
| Scenario | NNN | Modified gross (base year) | Gross |
|---|---|---|---|
| Year 1 rent plus expenses | $16,800 + $3,200 = $20,000 | $20,000 | $21,000 |
| Year 3 after expense increase | $16,800 + $4,000 = $20,800 | $20,000 + $800 = $20,800 | $21,000 |
| $60,000 roof covering replacement | About $416.67 per month (1/144th) for 36 months, $15,000 total | Usually landlord | Landlord |
Frequently asked questions
Is NNN rent the total amount I will pay each month?
No. NNN rent is the base rent only. You also pay your share of property taxes, building insurance and maintenance, usually as a monthly estimate reconciled at year end, plus your own utilities. Get the landlord’s current estimate and add it to the base rent to find your real monthly cost.
What is the difference between a gross lease and a modified gross lease?
A true gross lease bundles taxes, insurance and maintenance into one rent, and the landlord absorbs increases. A modified gross lease bundles some of those costs and passes others to the tenant, often any increase over a base year. Many California industrial leases labeled gross still pass through tax and insurance increases, so read the expense paragraph.
Who pays for a new roof in a NNN lease?
It depends on the lease. Some NNN leases make the tenant responsible for everything, including replacement. The 2017 AIR single-tenant net form takes a middle path: for items such as HVAC and roof covering that must be replaced, the tenant pays 1/144th of the cost each month for the rest of the term. Negotiate this point before signing, especially on an older building.
Can a building sale raise my costs under a NNN lease in California?
Yes. Prop 13 reassesses property to market value when it changes ownership. If the building sells for more than its prior assessed value, the tax bill rises, and a NNN tenant typically pays the increase. Tenants can negotiate protection against reassessment increases during the initial term.
What are typical NNN charges for industrial space in Bakersfield?
There is no single reliable figure. Charges vary with each building’s assessed value, insurance, age and shared areas, and a recently purchased building carries a higher tax bill than one held for decades. The landlord’s current estimate and the last two years of actual reconciliations are the best guide to a specific building.
Can a tenant negotiate a cap on NNN charges?
Often, yes. A common approach caps annual increases in controllable expenses such as landscaping, repairs and management, while leaving taxes, insurance and utilities uncapped because the landlord cannot control them. Tenants also negotiate exclusions for capital items, audit rights and a limit on management fees. Leverage depends on vacancy, your credit and the lease term, and a real estate attorney can review the final language.
If you are comparing industrial space in Bakersfield or anywhere in Kern County, we can help you convert each quote to a true all-in cost and flag the expense clauses worth negotiating before you sign. Call Kern CRE at 661-885-6949 or contact us. Get Kern County CRE news monthly: subscribe to the Kern CRE report.
Sources
- Q2 2026 Bakersfield, CA Industrial Market Overview, Lee & Associates, July 2026.
- U.S. Industrial MarketBeat Q2 2026, Cushman & Wakefield, Q2 2026.
- U.S. Office MarketBeat Q2 2026, Cushman & Wakefield, Q2 2026.
- Who Pays for What? Understanding Key Differences in Triple Net, Gross and Modified Gross Commercial Leases, Holland & Knight, March 2026.
- Standard Industrial/Commercial Single-Tenant Lease, Net (STN-27.10), AIR CRE, November 2017.
- Standard Industrial/Commercial Multi-Tenant Lease, Gross (MTG-24.10), AIR CRE, November 2017.
- Standard Industrial/Commercial Multi-Tenant Lease, Net (MTN-26.10), AIR CRE, November 2017.
- List of Contracts (form descriptions), AIR CRE.
- California Property Tax: An Overview (Publication 29), California State Board of Equalization, March 2025.
About this article
Kern CRE prepared this article with help from AI research and writing tools. An editor reviewed the draft, checked its facts against the sources linked above and edited it for accuracy and clarity. It is general information, not legal, tax, investment or financial advice; talk with a qualified professional about your situation.