Triple Net Lease vs Gross Lease for Childcare Centres: Which Pays More?

A 100-place metro Sydney childcare centre with $300,000 base rent looks identical from the street whether the lease is gross or triple net. The reported rent is the same. The building is the same. The operator’s signage is the same. But on the operator’s P&L and on the landlord’s cap rate, the two leases are different businesses entirely. On a triple net lease, the operator typically carries an additional $90,000–$150,000 a year of outgoings on top of the base rent. On a gross lease, the landlord absorbs most of those costs and rebuilds them into a higher headline rent.

The structure decides who carries land tax, insurance, structural capex, and the long-run risk of inflation in the property’s running costs. It also decides the cap rate the freehold trades on, the EBITDA multiple the business trades on, and who has the harder negotiation when something breaks. This article works through the three lease structures common in Australian childcare — gross, net, and triple net — and what each actually means for operators, landlords, buyers, and sellers.

The lease structure spectrum

Australian commercial leases sit on a spectrum from gross to triple net (often abbreviated NNN). The labels do not have a single legal definition — every lease is a contract, and what one document calls “net” another calls “semi-gross” — but in practice three patterns recur across childcare deals. For a full walk-through of how a childcare lease is built at the headline level, our Childcare Centre Lease Explained guide is the starting point.

Gross lease. The operator pays a single headline rent. The landlord pays statutory rates, land tax, building insurance, structural and operational repairs, and most other property running costs out of that rent. The landlord builds in a premium to cover those costs and the uncertainty around them. Gross leases are uncommon in modern purpose-built childcare. They show up most often on conversions inside older shopping strips and on small leasehold deals where the landlord is an unsophisticated private owner who has never separated rent from outgoings.

Net lease (single or double net). The operator pays base rent plus a defined list of outgoings — typically rates, water, building insurance and operational repairs — while the landlord retains land tax and structural capex. The list of what is “net” varies deal-to-deal. This sits in the middle of the market and is common where the landlord is a private investor and the centre is mid-sized.

Triple net lease. The operator pays base rent plus substantially every property outgoing the lease allows to be passed through — rates, water, land tax (subject to state retail-leases legislation), building insurance, operational repairs, common-area costs, audit and compliance costs, often even minor structural items unless explicitly excluded. The landlord retains only the major structural and capital items typically reserved in any well-drafted lease (roof, façade, end-of-useful-life replacement of major plant). Triple net is the dominant structure on institutional and REIT-owned childcare freeholds. Charter Hall Social Infrastructure REIT and Arena REIT both report long-WALE triple net portfolios (11.9 and 18.5 years respectively in FY25) because triple net is what makes a childcare freehold underwritable as a passive long-duration income asset.

Who actually pays what

In practice, the question “is this a gross or triple net lease?” resolves into six recovery decisions. Each one can be allocated to the landlord, the operator, or split, and the lease’s structure label is just a summary of how those six decisions resolved. We covered the buckets in detail in our outgoings guide — what follows is how a typical childcare deal sees each one in each structure.

Statutory rates and water. Triple net: operator. Net: operator. Gross: landlord (built into the rent). Rarely contested.

Land tax. Triple net: operator, unless a state Retail Leases Act applies, in which case it cannot be legally recovered. Net: split or landlord. Gross: landlord. This is the single largest dollar variable in any modern childcare lease — a 100-place metro centre on land valued at $4–6M can carry $40,000–$90,000 a year of land tax. We covered the state-law overrides in detail in our outgoings guide; for the purposes of structure choice, land tax is the variable that the institutional triple net market is most determined to push outward and the variable that operators most often discover too late.

Building insurance. Triple net: operator. Net: operator. Gross: landlord. Australian commercial insurance has hardened materially through 2024–2026; Insurance Council of Australia commentary across the cycle tracks sustained premium increases, and childcare buildings carry a surcharge over generic commercial because of the occupancy risk profile. A premium that was $9,000–$12,000 on a typical 80-place centre five years ago now runs $15,000–$28,000 in 2026 on the same building. In a triple net structure the operator carries the full effect of that hardening. In a gross structure the landlord carries it, but the landlord typically built two or three years of insurance escalation into the rent at the time of signing — meaning a gross-rent operator is paying for future insurance increases the operator may never see crystallise.

Operational repairs. Triple net: operator. Net: operator. Gross: landlord. Where most lease disputes start, and where the grey-zone items (12-year-old HVAC compressors, hot-water systems, repaving the car park) are litigated annually.

Structural and capital. Triple net: landlord — but with narrow exceptions. Net: landlord. Gross: landlord. The exceptions list in a triple net lease is the negotiation. A well-drafted triple net lease excludes structural concrete, roof replacement, façade renewal, replacement of major plant at end of useful life, and any capex undertaken at the landlord’s discretion to upgrade the asset. A badly drafted one tries to push them all to the operator and ends up unenforceable.

Common-area and management. Triple net: operator. Net: split. Gross: landlord. Significant in multi-tenant complexes, minor or zero in standalone purpose-built centres.

The point: a “triple net” lease in Australian childcare is not a single product. It is a specific combination of decisions on these six recoveries. The same combination of decisions on a different lease can be labelled “net” without any practical difference. The label is shorthand for a negotiation outcome that needs to be read clause-by-clause.

What it means for operators

For the operator, the structure determines two things: the predictability of occupancy cost over the lease term, and where the inflation risk sits.

Under a triple net lease, the headline rent looks lower and the rent reviews — fixed, CPI or market, as we walked through in our rent reviews guide — apply only to the base rent. But the operator carries the full effect of any increase in rates, water, insurance, council levies, fire-services charges, and (where the Retail Leases Act of the relevant state does not apply) land tax. Across our 2024–2026 advisory files, the gap between budgeted year-one outgoings and actual year-five outgoings on triple net childcare leases has consistently run $30,000–$70,000 a year — driven mainly by insurance hardening, land tax revaluation, and replacement of operational plant. An operator who modelled the lease at year-one cost has, by year five, the wrong margin.

Under a gross lease, the operator’s cost of occupancy is a single number, escalating only by the agreed review mechanism. The landlord carries all six recovery decisions. The trade-off is that the landlord prices that certainty into the headline rent — typically 8–15% above what a comparable net rent would be in the same building. The operator pays for predictability up-front and avoids carrying landlord-side variables that the operator cannot control.

For most modern operators of purpose-built centres, triple net is the dominant deal on offer because the landlord audience (REITs, syndicates, SMSFs) underwrites the asset on a net-yield basis and is not willing to carry the outgoings variables. The operator’s defence is not to refuse triple net — it is to negotiate the exclusions list, the outgoings cap, the disclosure obligations, and the annual reconciliation process. On a multi-year lease, those four protective mechanisms can be worth $200,000–$500,000 over the term.

What it means for landlords and investors

For the landlord, the structure determines two things: the cap rate the freehold trades on, and the operational burden of owning the asset.

Triple net structures attract the lowest cap rates in the childcare freehold market. The reason is straightforward: a triple net lease is the closest thing in commercial property to a coupon. The landlord receives a defined rent, escalating on a defined mechanism, with no exposure to property running costs and no operational burden. Institutional capital — REITs, super funds, infrastructure syndicates — underwrites childcare freeholds as a long-duration income proxy precisely because triple net structures remove operating variance.

Across Stonebridge Property Group’s 2025 Childcare Investment Review, metro freehold cap rates ranged 4.25–5.25%, with regional at 5.25–6.25% and 90–130 basis points of compression in 12 months. The tightest assets — sub-4.5% cap rate territory in metro — are almost without exception triple net or near-triple-net leases to strong covenants with 10+ years of WALE. Gross or net leases on identical buildings typically trade 50–100 basis points wider, because the buyer market is pricing the uncertainty of carrying landlord-side outgoings forward.

A $300,000-rent freehold at 4.65% trades around $6.45M. The same building with the same rent on a net (rather than triple net) lease, where the landlord carries $40,000–$60,000 of land tax and insurance, might trade at 5.20%. The price drops to $5.77M. That is a $680,000 spread on the same physical asset — and the only difference is which side of the table absorbs the outgoings risk.

For the landlord who actively manages property, a gross lease has a different appeal. The higher headline rent is visible, the relationship with the operator is simpler at reconciliation time, and the landlord retains control of insurance and structural decisions. Private investors who own one or two centres often prefer this. Institutional investors who own twenty or two hundred almost always prefer triple net.

For a side-by-side view of how landlord-side rental appraisals work in practice, see our rental appraisal guide and how the headline rent benchmarks against the fair-rent-per-place data.

Worked example — $250,000 base rent, three structures

Take a 65-place metro Sydney centre at $250,000 of base rent in year one. Same building, same operator, three different lease structures.

Gross lease. Headline rent is escalated. The landlord pays all property outgoings out of the rent. Operator’s total occupancy cost in year one is $250,000. Headline rent might be set at $285,000–$295,000 to allow the landlord to cover roughly $35,000–$45,000 of outgoings inside the rent. In year five, depending on the rent review mechanism, the operator’s occupancy cost might be $322,000.

Net lease. Headline rent is $250,000. Operator additionally pays rates and water (~$12,000), building insurance (~$18,000), and operational repairs (~$15,000). Landlord retains land tax (~$50,000) and structural capex. Operator’s total occupancy cost in year one is $295,000. In year five, with the rent escalator and rising outgoings, occupancy cost might be $355,000.

Triple net lease. Headline rent is $250,000. Operator pays everything in the net example plus land tax (~$50,000 in NSW, assuming the lease falls outside the Retail Leases Act). Operator’s total occupancy cost in year one is $345,000. In year five, with rent escalator and outgoings escalation, occupancy cost can reach $415,000.

Looked at from the landlord side, those three structures present three different cash-flow profiles. The gross lease produces $285,000 of revenue out of which the landlord pays $45,000 of costs — a net $240,000 a year, with the landlord absorbing all variance. The net lease produces $250,000 of revenue with the landlord paying $50,000 of land tax — a net $200,000. The triple net produces $250,000 with the landlord paying nothing — a net $250,000.

At a 4.65% cap rate, the triple net lease values the freehold at $5.38M. At a 5.10% cap rate, the net lease values the freehold at $3.92M. At a 4.80% cap rate, the gross lease values the freehold at $5.00M. Three structures, same building, three different valuations and three different operator P&Ls. The structure is not a footnote. It is the deal.

For the EBITDA and cap rate mechanics that sit underneath these numbers, our valuation pillar walks through the calculation in detail.

Four questions to choose the right structure

Whichever side of the table the reader sits, the same four questions decide which structure to negotiate toward.

One — who carries inflation risk? Insurance, rates, and land tax all escalate on cycles the operator does not control. A triple net pushes that risk to the operator. A gross retains it with the landlord. Whichever party has less control over those variables is the party who pays more for accepting them.

Two — what is the WALE? Long-WALE leases (10+ years) reward triple net structures because the operator’s predictability comes from rent reviews, not from outgoings caps. Short-WALE leases (3–5 years) favour gross or net because the operator carries fewer multi-year escalator surprises.

Three — which Act applies? Retail Leases Acts in NSW, VIC and QLD prohibit some outgoings recoveries (most importantly land tax) on leases that fall within the Act’s premises and use thresholds. A “triple net” lease inside the Act is materially less recoverable than a triple net lease outside it, regardless of what the document says. The threshold question — covered in detail in our outgoings guide — needs to be answered before the structure is chosen.

Four — who is the freehold buyer? If the freehold will be held by a private investor, the buyer pool is more flexible on structure. If the freehold is being prepared for institutional sale (REITs, super funds, syndicates), the buyer pool effectively requires triple net. A landlord planning to sell to a REIT in five years should not be signing a gross lease today.

Key Takeaway

Triple net versus gross is not a label argument. It is a six-decision negotiation about who carries land tax, insurance, repairs, structural capex, and the inflation risk on each. The same physical childcare centre can trade as three different businesses and three different freeholds depending on how those decisions resolve. Operators should stress-test the lease at year-five outgoings, not year-one. Landlords should match structure to exit strategy. Buyers and valuers should read the recovery list before they read the rent. The structure is the deal — the label is just shorthand.

Negotiating a new lease, renewing an existing one, or pricing a freehold for sale? Lease structure is one of the largest single levers on both operator margin and freehold value, and it is the area where most centres still leave money on the table. Talk to ChildcareLink for a confidential review, or try our childcare centre value estimator for a 60-second indicative read on what your centre is worth under its current lease. Visit childcarelink.com.au or contact our team directly.

Sources

• Stonebridge Property Group Childcare Investment Review 2025 — $205M / 27 transactions, metro freehold cap rates 4.25–5.25%, regional 5.25–6.25%, 90–130 bps yield compression
• Burgess Rawson / CBRE Childcare Insights FY24–25 — $241.6M FY24–25 transaction volume, institutional buyer behaviour on triple net structures
• Charter Hall Social Infrastructure REIT FY25 reporting — 11.9-year WALE, triple-net portfolio structure
• Arena REIT FY25 reporting — 18.5-year WALE, triple-net portfolio structure
• Insurance Council of Australia commentary 2024–2026 — commercial property insurance hardening and premium increases
• NSW Retail Leases Act 1994 — land-tax recovery prohibitions, outgoings disclosure obligations, threshold tests
• VIC Retail Leases Act 2003 — equivalent retail-leases regime
• QLD Retail Shop Leases Act 1994 — retail-leases regime
• IBISWorld Child Care Services in Australia 2025 — sector context, $24B market, ~15,000 CCS-approved services
• Reserve Bank of Australia Statement on Monetary Policy April 2026 — cash rate 4.10%
• ChildcareLink transaction and advisory experience, 2024–2026 — observed cap rate spread by lease structure, cash flow variance, operator and landlord-side reviews

Disclaimer: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. ChildcareLink recommends seeking independent professional advice tailored to your specific circumstances before making any business or investment decisions.