A modified gross commercial lease is a form used for renting buildings, offices, retail outlets, rooms, and other properties exclusively to business tenants. It serves as a compromise to Triple Net and Gross leases, splitting up the additional expenses of a rental property between the landlord and tenant. The exact breakdown of who pays what is determined by the written agreement, which can vary significantly depending on the type of property, what it’s being used for, and the preferences of the parties.
When to Use
Modified gross leases are often used for leasing commercial properties that host several different tenants. This includes office buildings, shopping malls, retail outlets, and so on. The lease type is popular for these properties because it allows tenants to pay for building repairs, taxes, insurance, and/or other costs in proportion to the actual square footage they’re leasing. The most common setup with the lease is the tenant paying for their portion of utilities and other variable costs, with maintenance and repairs, taxes, and insurance being handled by the landlord.
- Highly customizable – Unlike gross and triple net, the modified gross lease can include any of the “nets,” allowing it be used for a wide range of situations.
- Promotes negotiation – Both parties can settle which expenses they want to handle themselves. If the tenant wants to handle a specific utility (because they know they won’t use much of it), they can request that they be responsible for it. The landlord can then use that as a negotiating chip, asking for a longer lease term, higher rent, and so on.