A modified gross lease, also sometimes referred to as the modified net lease, is a combination of the gross lease and the net lease. The operating expenses are both the landlord and tenant's responsibility. A modified gross lease falls in between the spectrum of a net lease (where the tenant is responsible for the operating expenses) and a gross lease (where the landlord is responsible for the operating expenses).

It is usually a negotiated lease between the landlord and the tenant to split the expenses. The tenant pays the base rent and expenses that are attributable to their space. The landlord still pays for the other operating expenses. For example, the tenant may agree to pay for utilities (like a metered electric bill) that can be directly attributed to the tenant’s property but the landlord may pay for real estate taxes and property insurance.

In a gross lease, the landlord pays the property taxes, insurance, and maintenance (CAM). The tenant only pays a flat fee as rent, the landlord is responsible for all costs related to property ownership. Although by definition gross leases have a flat rent, they may have escalating clauses to counter rising taxes, insurance premiums or maintenance costs (CAM). It is important to fully understand escalating clauses and how that may affect rent in the future.

The modified gross lease is a combination of the gross lease and the net lease, and is usually a negotiated lease between the landlord and the tenant to split the expenses. The tenant pays the base rent and expenses that are attributable to their space, while the landlord pays for the other operating expenses. This structure provides tenants with more freedom to make alterations and customize space without having to make the substantial capital investment of purchasing a property outright. Tenants may also be able to leverage the added financial responsibility to negotiate lower rents. The addition of property taxes to the borrower’s expenses may even lead to some tax benefits for the tenant. NNN leases also tend to come with protections against tax and insurance increases with the inclusion of caps placed on certain values.

The main disadvantage of a modified gross lease is that the tenant is responsible for a portion of the operating expenses. This can lead to higher monthly costs than those associated with a gross or net lease. Additionally, the tenant may be responsible for taxes, fines, and penalties associated with the property. The landlord may also be at risk of reduced long-term earnings due to earning caps in the lease agreement, and may still be responsible for the roof and structure of the property.

A modified gross lease is a combination of a gross lease and a net lease. The tenant pays the base rent and expenses that are attributable to their space, while the landlord pays for the other operating expenses. It is usually a negotiated lease between the landlord and the tenant to split the expenses. Common terms of a modified gross lease include the tenant paying for utilities (like a metered electric bill) that can be directly attributed to the tenant’s property, while the landlord pays for real estate taxes and property insurance.

It is important to fully understand escalating clauses and how that may affect rent in the future. Escalating clauses may be included in a modified gross lease to counter rising taxes, insurance premiums or maintenance costs (CAM).

A modified gross lease is a combination of a gross lease and a net lease. The operating expenses are both the landlord and tenant's responsibility, and it is usually a negotiated lease between the landlord and the tenant to split the expenses. The tenant pays the base rent and expenses that are attributable to their space, while the landlord pays for the other operating expenses.

A triple net lease stipulates that the tenant is responsible for paying for insurance, property tax and common area maintenance (CAM) expenses along with the rent. Triple net leases are not very common, and they are used by landlord’s looking to reduce their risk. They are usually used on high-grade commercial properties leased to a single client.

A modified gross lease is a combination of a gross lease and a net lease, while a triple net lease is a lease where the tenant is responsible for paying for insurance, property tax and common area maintenance (CAM) expenses along with the rent.

The tax implications of a modified gross lease depend on the specific terms of the lease. Generally, the tenant is responsible for paying taxes on the portion of the rent that is attributable to their space, while the landlord is responsible for paying taxes on the portion of the rent that is attributable to the operating expenses. The tenant may also be responsible for paying taxes on any reimbursements they receive from the landlord.

For more information, please see the following sources:

• The Balance: Modified Gross Lease Definition and Example
• The Balance: Tax Implications of Commercial Real Estate Leases