NNN vs. Gross vs. Modified Gross Leases in Los Angeles

The lease types, side by side

These labels are not standardized, and the same term can mean different things in different markets. The lease language controls, not the label. This is how they are generally used in Southern California:

What NNN actually covers

The three nets are property taxes, building insurance, and common area maintenance. CAM is the broadest: landscaping, parking lot repair, common utilities, security, trash, and often a management fee. Each tenant pays a share, usually its square footage divided by the building's.

Tenants pay a monthly NNN estimate based on the landlord's budget. After year end, the landlord compares the estimate to actual costs and either bills the shortfall or credits the overpayment. That is the CAM reconciliation, and it is where most NNN disputes start. A good lease gives the tenant the right to audit it.

For a sense of scale: recent industrial LOIs we negotiated in the San Fernando Valley and Glendale carried NNN estimates of $0.35 to $0.50 per square foot per month on top of base rent. That is our deal data, not a market survey. Every building's tax basis, insurance, and common areas are different, so get the current estimate in writing for the space you are looking at.

How Los Angeles rents are quoted

Brokerage research in Los Angeles quotes each property type on a different basis, which is why comparing them directly is misleading. From Kidder Mathews' Q3 2026 Los Angeles reports:

Watch the units. Some reports quote annual rents, so $15.24 per foot NNN annually is $1.27 monthly. And an office rent quoted full service already includes the operating costs an industrial NNN rent leaves out.

More current figures are in our Los Angeles commercial real estate statistics reference.

Base years and expense stops

Modified gross and full service leases usually include a base year. The landlord pays operating costs up to the level of the first lease year, and the tenant pays its share of any increase above that. An expense stop works the same way with a fixed dollar amount instead of a year.

Two things to check: that the base year is a full, normally occupied year, since a half empty base year makes every later year look like an increase, and whether a tax reassessment after a sale counts as an increase you pay.

The California rules that change the math

Proposition 13 and reassessment on sale

Under Proposition 13, property is taxed at about 1% of its assessed value, and that value can rise no more than 2% a year until the property sells or is newly built. When a building sells, it is reassessed to the sale price. On an NNN lease, most leases let the landlord pass that higher tax through to tenants.

For a tenant in a building owned by the same family for decades, a sale can raise the tax line sharply overnight. Ask for a cap on reassessment pass throughs, or at least a limit to the first sale during your term. Leases with 35 or more years remaining are a separate case and can avoid reassessment.

SB 1103 and small commercial tenants

Since January 1, 2025, California Civil Code section 1950.9, added by SB 1103, limits how landlords pass operating costs to qualified commercial tenants: microenterprises with five or fewer employees, restaurants with fewer than 10, and nonprofits with fewer than 20, who give the landlord written notice of their status.

For those tenants, passed through costs must be allocated proportionately, backed by invoices or contracts, and limited to costs from the prior 18 months or expected in the next 12. The landlord must tell the tenant before signing that it can inspect the documentation. A violation can be raised as a defense to eviction. If you rent to small businesses, your NNN billing process needs to meet this standard.

How to compare two proposals

1. Convert both to the same unit, monthly per square foot.
2. Add the NNN estimate to any NNN rent, in writing.
3. Check which costs the gross rent still passes through above a base year.
4. Multiply by the rentable square footage, and confirm how it was measured.
5. Compare the total monthly cost, then the escalations, then the caps and audit rights.

Before you sign, the same discipline applies to the LOI. See how to read a retail lease LOI, clause by clause.

Sources

1. Kidder Mathews, 3Q 2026 Los Angeles Industrial Market Report (opens in a new tab)
2. Kidder Mathews, 3Q 2026 Los Angeles Office Market Report (opens in a new tab)
3. Kidder Mathews, 3Q 2026 Los Angeles Retail Market Report (opens in a new tab), data: CoStar
4. California State Board of Equalization, Publication 306 (opens in a new tab), Proposition 13 basics
5. Squire Patton Boggs, SB 1103 alert (opens in a new tab)
6. Faegre Drinker, long term lease exception to reassessment (opens in a new tab)