A modified gross lease sits between a gross lease and a triple net lease. The tenant pays base rent and some operating costs, either specific categories such as utilities and janitorial, or its share of costs above a base year or expense stop, while the landlord pays the rest. The exact split is negotiated and written into the lease.
Gross and net leases sit at opposite ends of a line: the landlord pays everything, or the tenant does. Most office leases sit in between, and modified gross is the name for that middle. General descriptions are at Wikipedia's gross lease entry and Cornell's lease overview; the specifics live in each lease.
Two ways to modify
By category. The lease names costs the tenant pays directly or through a pass-through, such as electricity to the premises, janitorial, or after-hours HVAC, and leaves the rest inside base rent.
By threshold. The lease sets a base year or an expense stop. The landlord pays operating costs up to that level; the tenant pays its pro rata share above it.
Many leases do both.
| Cost | Gross | Modified gross (typical) | Triple net |
|---|---|---|---|
| Property taxes | Landlord | Landlord, or increases above base year | Tenant share |
| Insurance | Landlord | Landlord, or increases above base year | Tenant share |
| Common area maintenance | Landlord | Landlord, or increases above base year | Tenant share |
| Premises utilities | Landlord | Tenant | Tenant |
| Janitorial | Landlord | Often tenant | Tenant |
What lease administration has to hold
The category list, the base year amount and its gross-up, the tenant's share and denominator, and any caps. A modified gross lease produces a smaller reconciliation than a triple net lease but still produces one, and the same errors apply: stale abstracts, wrong denominators, and increases billed against an unadjusted base year. The CAM reconciliation guide covers the mechanics.
Related terms
Frequently asked questions
What costs does a tenant usually pay in a modified gross lease?
Commonly its own utilities and janitorial for the premises, and its share of operating cost increases above a base year. Taxes, insurance, and common area costs stay with the landlord in many versions. The lease's list controls, and no two modified gross leases split costs the same way.
How does a modified gross lease differ from a gross lease with a base year?
The two overlap. A gross lease with a base year passes only increases above the base year to the tenant. A modified gross lease may do that and also carve out specific categories the tenant pays in full from day one. Modified gross is the broader label.
Is a modified gross lease common?
Yes, particularly in multi-tenant office buildings and in markets where tenants resist full NNN structures. It gives the landlord protection from cost increases while keeping the tenant's rent simpler than a full pass-through with annual reconciliation.