Triple Net vs Gross Lease in BC: What Investors Should Know
If you're comparing a triple net vs gross lease in BC, here's the short answer. With a gross lease, your tenant pays one flat rent and you, the landlord, cover the building's operating costs. With a triple net lease, the tenant pays base rent plus their share of costs like property taxes, insurance and common area maintenance. Rising costs get passed through instead of eating into your return.
For most investors, triple net is the structure that protects you over the long run. I learned that the hard way. I own a commercial building where I inherited gross leases. When we replaced the roof and the boiler, I had no way to pass any of that on to tenants partway through their leases.
To dig into how commercial leases work here in the Okanagan, I sat down on the Kelowna Real Estate Podcast with my co-host Matt Glen (Century 21 Assurance Realty) and twin brothers Chris and Jason Wills. They founded Venture Commercial, a Kelowna brokerage that does only commercial real estate. Here's what I took away.
Triple Net vs Gross Lease in BC: How Each One Works
Gross lease
Under a gross lease, the tenant pays a single rent amount. Property taxes, building insurance, maintenance and repairs are the landlord's responsibility. Tenants like it because it's predictable.
Landlords sometimes like it too. Chris pointed out that some long-time owners chose gross leases when the market was down because the rent was stable and the tenants were happy. The catch is that your costs don't stand still. When taxes, insurance or maintenance go up, the difference comes out of your pocket until the lease is renegotiated.
Triple net lease explained
In a triple net (NNN) lease, the tenant pays base rent plus their share of the building's operating costs. That typically means property taxes, insurance and common area maintenance (CAM) [VERIFY]. As Chris explained, a triple net lease lets a landlord recover costs that change over the years. Those costs are usually charged back to tenants on an annual basis through CAM reconciliations.
Every lease is different, though. What you can actually charge back depends on the wording in your lease, not the label on it.
Commercial vs Residential Landlord in BC: Why the Rules Feel So Different
Matt and I have heard from a lot of residential landlords over the past year who are frustrated and want to move into commercial. A big reason is the rules.
Residential tenancies in BC fall under the Residential Tenancy Act, which sets rules on things like deposits, rent increases and ending a tenancy. As Jason put it, residential is governed by the Act, while a commercial deal is governed by the lease itself, and every landlord's lease can be different.
Chris owns both residential and commercial property, and he steers toward being a commercial landlord. His reasoning: two parties can agree on pretty much any terms, including how deposits are held, how a lease can be ended, possession dates and rent increases. In his words, commercial rent increases aren't capped; they're set by the market.
That flexibility cuts both ways. Chris also noted that commercial leases are generally hard to get out of. They can be a few pages or dozens of pages long, and whatever you sign, you live with. Have a lawyer review any commercial lease before you commit.
My Experience: Inheriting Gross Leases on a Commercial Building
Here's where this got real for me. My commercial building came with gross leases. Since buying it, we've done the roof and the boiler system, and the building needs to be painted. Under those leases, I can't go to a tenant and say, 'We just replaced the roof, so your rate is going up.'
I've found it difficult to move tenants over to triple net. Honestly, I understand why. Insurance, property taxes and general maintenance have been climbing with inflation, and tenants are nervous about taking on costs they can't control. I feel for them. But those costs shouldn't sit entirely on the landlord either.
What I've done for years is invest in the business owners in my building. If their businesses succeed, they can afford higher lease rates, and you get a more cohesive community. Chris backed that up. A thoughtful landlord looks at how a new tenant fits the existing mix, not just what they'll pay this month.
My other lesson: I see the most opportunity when I'm buying, because that's when I turn over every stone. Own a property for a few years and it's easy to get complacent. That's exactly what a good lease review can catch.
Where the Value Hides in a Commercial Lease
Both brothers kept coming back to one idea: the lease is where the value is. Here are the examples they shared.
Re-measuring rentable area
Chris described a client on Bernard Avenue in downtown Kelowna who didn't realize they could gross up from usable to rentable area under industry measurement standards (BOMA). As the leases matured and moved to a new program, the client's leasable area grew by about 15%. They were simply charging for space they had the right to include.
Mezzanines
Jason works mostly in industrial. With land and construction so expensive, he's seen landlords add mezzanines to maximize billable area and charge for that space much like the ground floor.
But markets shift. After a wave of small-bay industrial units built with large mezzanines, Jason said the feedback from tenants is that they'd rather have four walls and room for high racking and warehouse use.
Below-market leases and renewal options
When Jason works with an investor buyer, he digs into what income they're actually buying. A great tenant with several renewal options at preset rates means your income is effectively capped, and that belongs in your pro forma. A short lease that's well under market with no renewal rights could be the real opportunity.
I asked whether a lease buyout ever comes up during a purchase, for example when a lease is so low it makes financing hard. Jason said absolutely, though those are difficult conversations.
Chris also shared a cautionary tale. He saw a portfolio marketed on the ability to build on vacant land, but a national anchor tenant's lease didn't allow building on the parking. Read the leases before you believe the listing.
Have a strategy, not just lipstick
Chris doesn't advise buying a building, putting lipstick on it and hoping tenants show up. He looks at why past tenants struggled and fixes it, whether that's more power, a better HVAC system so a café can operate, or exterior upgrades. Then he builds a tenant mix that draws people in.
Commercial Real Estate Investing in the Okanagan: The Main Asset Classes
Venture Commercial focuses on retail, industrial, office and multifamily. Here's how we each saw them when we recorded. Treat these as opinions, not predictions or advice.
Office: Chris said it's not as bad as people think; it's evolving. One of their larger deals converted an office floor with a patio into a daycare. He also said he personally wouldn't build a new office building here, given the established developers in that space.
Industrial: Jason saw huge demand during COVID but expects small-bay industrial could become oversaturated over the next few years.
Retail: Chris's passion. He's watched restaurants get leaner since COVID, with some moving to smaller footprints.
Multifamily: My own view: with a lot of units coming online in the Okanagan, it feels saturated right now.
On geography, the guests see more room outside central Kelowna. Jason pointed to the north and south Okanagan, where more affordable land in Vernon and Penticton drew industrial investment. Chris is especially keen on Vernon commercial real estate opportunities. He compared downtown Vernon's historic buildings to what Bernard Avenue was like years ago.
Investing in Commercial Property in Kelowna: How to Get Started
Chris was upfront that the point of entry isn't cheap. A small office or industrial unit around $200,000 is very rare. You're usually talking multiple millions. A few takeaways from the conversation:
Know which buyer you are. Jason's first question is whether you're an owner-occupier or an investor, because that shapes your risk profile.
Owner-occupiers can think bigger. Jason suggested building more space than you need and leasing out the rest. Either it earns income or your business grows into it.
Look for a mentor. Chris has several long-time Okanagan owners with no succession plan, and he thinks some would welcome someone eager to learn.
Be patient. As Chris put it, there's no such thing as a quick, easy commercial deal.
Commercial Mortgages and the Debt Coverage Ratio
People often ask me what they're approved for on a commercial mortgage. My answer: it's largely driven by the property's debt coverage ratio (DCR), rather than mainly by your personal income the way a residential mortgage is.
In simple terms, DCR compares a property's net operating income to its annual mortgage payments. Lenders want income to comfortably cover the debt, and each lender sets its own minimum. This is why lease structure matters. Triple net leases at market rents tend to produce more predictable net income than below-market gross leases, which can limit how much financing a property supports. Every property and lender is different, so run the numbers with a broker before you write an offer.
Frequently Asked Questions
What is a triple net lease in Canada?
It's a commercial lease where the tenant pays base rent plus their share of operating costs, typically property taxes, insurance and common area maintenance. Costs are often reconciled annually. The exact terms depend on the lease.
Is a gross lease bad for landlords?
Not necessarily. It offers stable, simple rent. The risk is that rising taxes, insurance and repair costs fall on you until the lease is renegotiated, as I found with my own building.
Does the Residential Tenancy Act apply to commercial leases in BC?
No. Commercial tenancies aren't covered by the Residential Tenancy Act; they're governed by the lease and other applicable law. Get legal advice before signing.
How do lenders qualify a commercial mortgage?
Largely on the property's income through the debt coverage ratio, along with factors like the leases, the borrower and the asset type. For tax questions on rental income or big repairs, check with your accountant and the Canada Revenue Agency.
Thinking About Your First Commercial Property?
Whether you're a residential landlord looking at commercial or you've inherited a building with old leases, I'm happy to walk through how a lender might look at the deal, depending on your situation. Book a free discovery call with me here.
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