NNN vs Base Year Stop vs Modified Gross: A Complete Guide
Recovery types determine how operating expenses are shared between landlord and tenant. Understanding the difference is critical for accurate proforma modeling and lease negotiation.
Three Recovery Types, Three Risk Profiles
Net (NNN)
Lowest Landlord Risk
Tenants pay base rent plus their pro-rata share of all operating expenses — property taxes, insurance, and CAM.
Landlord pays: Nothing above base rent (all expenses passed through)
Tenant pays: Base rent + 100% of allocated expenses
Common in: Industrial, retail, single-tenant
Base Year Stop
Shared Risk
Landlord absorbs expenses up to the base year amount. Tenants pay their share of any increases above the base year.
Landlord pays: Expenses up to base year level
Tenant pays: Base rent + increases over base year × pro-rata %
Common in: Multi-tenant office
Modified Gross
Highest Landlord Risk
Landlord pays most expenses, grossing up to a target occupancy (e.g., 95%). Tenants reimburse specific variable categories like utilities and janitorial.
Landlord pays: Fixed expenses + grossed-up variable
Tenant pays: Base rent + allocated variable portion
Common in: Full-service office, mixed-use
Side-by-Side Comparison
| Attribute | NNN | Base Year Stop | Modified Gross |
|---|---|---|---|
| Who pays operating expenses? | Tenant (all) | Shared | Landlord (mostly) |
| Base year required? | No | Yes | No |
| Gross-up calculation? | No | No | Yes (typically 95%) |
| Landlord expense risk | Lowest | Moderate | Highest |
| NOI predictability | Highest | Moderate | Lower |
| Tenant preference | Lower | Moderate | Higher |
| Common property type | Retail, Industrial | Office | Office, Mixed-Use |
How Each Type Affects Your NOI
Same property, three different recovery structures — see how the numbers change.
Scenario: 50,000 SF Office, $500K Operating Expenses, 80% Occupied
| Line Item | NNN | Base Year Stop | Mod Gross |
|---|---|---|---|
| Base Rent Income | $1,200,000 | $1,200,000 | $1,200,000 |
| Recovery Income | $400,000 | $60,000 | $95,000 |
| Operating Expenses | ($500,000) | ($500,000) | ($500,000) |
| Net Operating Income | $1,100,000 | $760,000 | $795,000 |
NNN recovery = 80% pro-rata × $500K expenses. Base Year Stop = increases over $440K base year. Modified Gross = variable portion grossed up to 95%.
How Solsten Automates Recovery Calculations
Create Recovery Pools
Define NNN, Base Year Stop, or Modified Gross pools and assign specific expenses to each.
Assign to Tenants
Each tenant's lease specifies which recovery pool applies. Market assumptions define it for renewals.
Automatic Calculation
Solsten calculates recovery income per tenant using ML-calibrated expense forecasts — not static assumptions.
See in Proforma
Recovery income flows into EGI on your operating statement. Monthly and annual breakdowns available.
Model Any Recovery Structure
NNN, Base Year Stop, Modified Gross — Solsten handles them all with ARGUS-grade accuracy and ML-powered expense forecasting.
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