What is a Modified Gross Lease in Commercial Real Estate?
The 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.