What is a modified gross lease in real estate?
What is a Modified Gross Lease?
A modified gross lease in real estate is a type of rental agreement commonly used in commercial leasing. Under this arrangement, the tenant and landlord share some of the expenses related to the property. This lease structure is a middle ground between a gross lease and a net lease.
- Gross Lease: In a gross lease, the landlord pays all or most of the property expenses, which may include utilities, property taxes, insurance, and maintenance. The tenant pays a fixed rent amount that generally covers these costs.
- Net Lease: In a net lease, the tenant is responsible for a portion or all of the property expenses in addition to the rent. This can include taxes, insurance, and maintenance costs.
- Modified Gross Lease: In a modified gross lease, the landlord and tenant negotiate which expenses each party will cover. The tenant typically pays the base rent plus a portion of the property's operating expenses, such as utilities and janitorial services. However, the landlord may continue to pay for structural repairs, property taxes, or insurance. The specific terms vary from lease to lease.
The advantage of a modified gross lease for tenants is that it provides more predictability in expenses than a net lease, but more flexibility and potentially lower costs than a gross lease. For landlords, it offers a way to share some of the operating costs while still ensuring a steady income from rent.