Updated October 3, 2026 · DF Property Management
Why the label matters less than the wording
“Net”, “triple-net” and “semi-gross” are industry shorthand, not legal categories. No Ontario statute defines them. What binds the parties is the cost-sharing language in the lease itself: which expenses the tenant pays, how they're calculated, and what's excluded. Two leases both called “net” can allocate a new roof completely differently.
That said, the labels describe real patterns, and knowing them makes it much easier to read an offer to lease from a broker or a tenant's lawyer.
The four common structures
| Structure | Tenant pays | Landlord carries | Typical in the GTA |
|---|---|---|---|
| Gross (full-service) | One rent figure; sometimes its own hydro | Taxes, insurance, maintenance, often utilities | Small offices, executive suites, some older walk-up retail |
| Semi-gross / modified gross | Base rent plus increases over a base year, or a fixed share of some costs | Costs up to the base-year level | Multi-tenant office, smaller mixed-use buildings |
| Net / triple-net (NNN) | Base rent plus its share of realty taxes, insurance and common area maintenance (CAM) | Structural items and capital, depending on wording | Neighbourhood plazas, industrial condos and multi-bay units |
| Absolute net / “carefree” | Everything, including structural repair and capital replacement | Very little beyond its own financing | Single-tenant buildings, national covenants, land leases |
Base rent and additional rent
In a net lease, the tenant pays two streams:
- Base rent (or minimum rent) — usually quoted per square foot per year, with fixed steps over the term.
- Additional rent — the tenant's proportionate share of operating costs and realty taxes, paid monthly on the basis of an annual estimate and reconciled after year-end.
Most Ontario leases define additional rent as “rent”. That matters: it means unpaid CAM or tax recoveries can be treated like unpaid base rent when it comes to default remedies. If your lease doesn't say so, ask your lawyer to fix it at the next amendment.
Additional rent typically includes:
- Realty taxes for the property (or the unit, if separately assessed).
- Building insurance premiums — property, liability and often rental-income insurance.
- Common area costs: snow and ice, landscaping, parking lot sweeping and line painting, common hydro, security, garbage, fire and life-safety inspections, repairs.
- A management or administration fee, if the lease allows one.
A detail from the Commercial Tenancies Act
Under Ontario's Commercial Tenancies Act, a tenant's covenant to pay “taxes” does not include taxes for local improvements unless the lease specifically says so (for leases made after 1897 — which is every lease you'll see). If you expect tenants to share a local-improvement charge, the lease has to name it.
Where net leases go wrong
Most disputes between landlords and net tenants come from five places:
- Capital vs operating. Is a new parking lot surface or rooftop unit an operating cost or a capital cost? Many leases let the landlord recover capital items only by amortizing them over their useful life, with interest. Without that clause, the tenant can argue the whole thing is the landlord's cost.
- Proportionate share. Usually the tenant's rentable area divided by the rentable area of the property. Watch for buildings where a large tenant has negotiated a cap or exclusion — someone has to absorb the difference, and it shouldn't silently be the other tenants.
- Gross-up for vacancy. In an office building that's 70% leased, some costs (cleaning, hydro in common areas) vary with occupancy. A gross-up clause adjusts those to a deemed occupancy so that tenants pay a fair share and the landlord isn't left with the rest. It has to be in the lease to apply.
- HVAC. In retail and industrial units, the tenant often maintains its own rooftop unit, but replacement is negotiated. Spell it out: who maintains, who replaces, and at what age.
- Exclusions. Typical exclusions are the landlord's financing costs, leasing commissions, costs to correct original construction defects and costs recovered from insurance. A clear exclusion list prevents most CAM arguments before they start.
Semi-gross and base-year leases
In a base-year lease, the tenant pays a gross rent that includes operating costs and taxes at the level of the first lease year, plus its share of any increase above that. It's common in small office buildings along Yonge Street, in Midtown and in North York, where tenants want a predictable number.
The risk is choosing a bad base year. If the first year had unusually low costs — a mild winter, a temporary tax reduction, a building that was half empty — the tenant ends up paying increases on top of an artificially low base. If costs were unusually high, the landlord absorbs more than it should. A gross-up clause for the base year helps.
Which structure fits which property?
- Neighbourhood plaza (think a strip of six to twelve units on Lawrence Avenue East, Steeles Avenue or Hurontario Street): net leases with full CAM and tax recovery are the norm. Snow and parking-lot liability alone make gross leases risky.
- Light industrial bay in Concord, Bramalea or the Mississauga airport corridor: usually net, with the tenant maintaining its own unit, doors and HVAC.
- Street-front retail with apartments above on Queen Street West, the Danforth or Roncesvalles: often net or semi-gross for the shop, while the apartments are governed by entirely different rules. See our guide to mixed-use building management.
- Small office suites: gross or semi-gross, because small tenants can't budget for a fluctuating additional rent.
HST on commercial rent
Commercial rent — base and additional — is generally subject to HST at 13% in Ontario if the landlord is registered, and most commercial landlords must register once taxable rents pass the small supplier threshold. We cover the details in HST on commercial rent in Ontario.
What a manager adds
A net lease only works if someone actually prepares an operating budget, bills estimates monthly, keeps invoices and reconciles after year-end. That's ordinary work in our commercial property management service, and it's where most owners recover money they didn't know they were leaving on the table. For the year-end mechanics, see our CAM reconciliation guide.
General information, not legal or tax advice. Have a lawyer review any commercial lease or offer to lease before you sign it.