Gross Lease vs Net Lease: Key Differences for ECE Owners
If you’re an early childhood education business owner navigating real estate decisions, understanding the structure of your lease is critical, regardless of whether you’re operating, expanding, or planning to sell.
Depending on your goals, lease structure can impact your business in different ways. For operators focused on growth or expansion, it affects cash flow and responsibilities. For those preparing to sell, it can influence buyer perception, valuation, and deal terms. Knowing the difference between gross and net leases helps you make more strategic, financially sound decisions as you grow or prepare for a future transition.
What is a Gross Lease?
In a gross lease, the tenant pays a single, flat monthly rental fee, and the landlord covers most or all property-related expenses, including property taxes, insurance, maintenance, and utilities.
Gross leases are more commonly found in older buildings, multi-tenant strip centers, or in unique community-based settings such as co-ops or faith-based facilities. Below are some common pros and cons of a gross lease structure for ECE operators.
Advantages:
Predictable monthly costs
Less responsibility for property management
Easier to budget, especially for newer operators
Tradeoffs:
Higher base rent, since expenses are bundled
Less control over maintenance and service quality
For early education real estate owners who lease their properties, the effects are reversed (e.g., more responsibility but greater control over how expenses are managed).
What is a Net Lease?
With a net lease, the tenant pays a lower base rent plus some or all the property expenses. There are different types of net leases:
Single Net (N) – Tenant pays rent and property taxes
Double Net (NN) – Tenant pays rent plus taxes and insurance
Triple Net (NNN) – Tenant pays rent plus taxes, insurance, and maintenance
Net leases have become the standard in early education real estate and are common across single- and multi-site operations, as well as in sale-leaseback transactions. Below are some common advantages and tradeoffs of a net lease structure for ECE operators to consider.
Advantages:
Greater control over service vendors and repairs
Lower base rent with clearer visibility into total property costs
Tradeoffs:
Variable monthly costs
Responsibility for property issues
Requires more active management
For owner-landlords, net leases often mean fewer responsibilities but also less visibility into how the property is maintained.
Impact on Business Profitability
If you’re an early education operator, a landlord, or both, lease structure can have a big impact on your bottom line and how your business is viewed by future buyers or partners.
EBITDA and Cash Flow – Lease structure determines which operating expenses you’re responsible for, directly impacting margins and financial performance.
Appraisal and Valuation – For owners considering a future sale, lease terms will influence how buyers assess the business and property value.
Flexibility and Transferability – Gross leases offer simplicity, which can benefit new operators or make transitions smoother. Net leases generally suit more experienced parties seeking a clearer way to control the operational and property maintenance responsibilities.
Which Lease Structure Is Better for ECE Owners?
As an ECE owner, the right lease structure can support your operational goals and long-term plans.
If you operate your school in a leased space, a gross lease may simplify operations and budgeting, especially if you’re newer to ownership.
If you lease your building to your own business or another operator, a triple net lease (NNN) may offer stability and reduce landlord responsibilities, but only if the tenant is financially strong and the lease is properly structured.
If you’re planning to sell your business and real estate, understanding how lease terms affect value and buyer interest is critical. Experienced buyers often prefer leases that clearly separate operational and property responsibilities.
Navigating the Lease Decision
Whether you lease your facility, own and operate your property, or are preparing to sell, aligning your lease structure with your short- and long-term business goals is key.
Need help navigating your lease or planning a real estate strategy? Whether you’re looking to sell, expand, or hold your property as a long-term investment, HINGE Early Education Advisors’ real estate services are designed to help early education owners unlock value and make informed decisions. If you’re ready to take the next step, contact us to learn more.