Modified Gross Lease, Explained
The middle-ground lease that splits operating costs between landlord and tenant.
What is a modified gross lease?
A modified gross lease is a commercial lease that falls between a full gross lease and a net lease. The tenant pays a base rent that includes some operating costs, while other costs — often utilities, janitorial, or increases above a base year — are paid separately by the tenant.
How the costs are split
There is no single formula; the split is whatever the parties negotiate. A common arrangement is that the landlord pays operating expenses in the first year (the "base year"), and the tenant pays its proportionate share of any increases after that. Utilities and interior janitorial for the tenant's own space are also frequently carved out to the tenant.
Why use a modified gross lease?
The modified gross structure is popular in multi-tenant office buildings because it gives the tenant more predictability than a pure net lease while still protecting the landlord from runaway increases in taxes, insurance, and common area maintenance. It is often the practical compromise when a tenant wants simplicity and a landlord wants inflation protection.
What to watch in the lease
The critical language is the definition of which expenses are "included," how the base year is set, and how increases are calculated and documented. Ambiguity here is one of the most common sources of landlord-tenant disputes, so the clause should be specific and auditable.
How Nochumson P.C. helps
Nochumson P.C. drafts and reviews commercial leases of every structure — gross, modified gross, and net — for Philadelphia-area landlords and business tenants. Contact us to make sure your lease says what you think it says.
Related articles:
- Gross Lease vs. Net Lease: What's the Difference?
- Triple Net (NNN) Lease: What Tenants & Landlords Should Know
- CAM Charges Explained (Common Area Maintenance)
- Commercial Lease Agreements: Key Terms to Negotiate
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