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 the Triple Net and Gross lease, splitting up the costs of a rental property between the landlord and tenant. The exact breakdown of who pays what is determined by the agreement, which can vary significantly from one to the next.
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 leases, the modified gross 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 argue to 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.