Buyer and Tenant Guide
Commercial Lease Agreements: Gross, Net and Triple-Net
The lease structure determines who carries the operating-cost risk. South African commercial leases fall into four broad categories: gross, net, double-net, triple-net. The choice has direct financial consequences for both tenant and landlord, and shapes the effective yield on a commercial investment.
Authored by the Africa Estate commercial specialist team.
Gross lease
The landlord covers all operating expenses. The tenant pays one all-in rental. Common on multi-tenant office buildings, where shared services (cleaning, security, common-area maintenance, lift servicing, water and lights for common areas) are bundled into a single rental rate per square metre. The landlord absorbs operating-cost volatility.
Net lease (single-net)
The tenant pays the rental plus property rates and taxes. The landlord covers insurance, structural maintenance and common-area expenses. Single-net is the lightest of the net structures, and is now uncommon in South Africa because most commercial leases have moved to double-net or triple-net.
Double-net lease
The tenant pays the rental plus rates and taxes plus building insurance. The landlord retains responsibility for structural maintenance. Common on standalone retail and smaller industrial buildings where the tenant occupies the whole property.
Triple-net (NNN) lease
The tenant pays rental plus rates, taxes, insurance and maintenance of the structure. Common on standalone industrial buildings, warehouses, and long-lease retail with anchor tenants. The landlord receives a relatively low base rental but is shielded from cost volatility for the entire lease term.
Triple-net is the most landlord-friendly structure. It also commands the highest cap rates because the landlord effectively transfers operating risk to the tenant. See the dedicated Triple-net leases explained guide for the South African worked examples.
Escalation clauses
Every commercial lease has an escalation clause that determines how the rental rises each year. South African market norms run 7 to 9 percent per annum, sometimes linked to CPI, sometimes fixed. The escalation rate compounds: a 7 percent escalation on a R100/m² rent reaches R140/m² in year 6 of the lease. Always model the full lease income, not just the year-one rental, when valuing the asset.
Rent reviews and renewal options
Longer commercial leases (10 years or more) typically include a market rent review at the midpoint, where the rent resets to current market levels. Renewal options give the tenant the right to extend the lease at the end of the initial term, often at a renegotiated rate. Both clauses materially affect the landlord's income stability and the asset valuation.
Restoration on exit
Most commercial leases require the tenant to return the premises in the condition they received it, fair wear and tear excepted. A restoration schedule should be attached to the lease so that disputes at exit are minimised. Photographic record at lease commencement is standard practice.
Need help structuring a commercial lease?
Whether you are letting your building, signing a new tenancy or assigning a lease as part of a sale, the structure choices shape your cash flow for years. Contact Africa Estate before you sign.