What is a modified gross lease in real estate?

What is a Modified Gross Lease?

A modified gross lease is a type of commercial lease agreement that falls between a gross lease (where the landlord pays all expenses) and a net lease (where the tenant covers most expenses). In a modified gross lease, the tenant and landlord split certain costs, typically with the tenant paying base rent plus some portion of operating expenses, such as property taxes, insurance, or common area maintenance (CAM).

Key Features of a Modified Gross Lease:

• The tenant pays base rent plus a portion of operating expenses.
• The landlord covers certain costs, often structural repairs or property insurance.
• Expense allocation can be negotiated between the parties.
• It offers more cost predictability than a net lease but less than a full-service lease.

Common Modifications:z

1. Tenant Pays Increases Over a Base Year – The landlord covers expenses up to a set baseline (often the first lease year), and the tenant pays any increases beyond that.
2. Shared Utility Costs – Tenants might split utilities or only pay for their own usage.
3. Common Area Maintenance (CAM) Fees – The tenant may contribute a portion of shared building expenses.

Benefits:

• More predictable costs compared to a net lease.
• More flexibility than a full-service gross lease.
• Shared responsibilities can make it fairer for both parties.

Common in Which Properties?

• Office buildings
• Industrial properties
• Retail spaces