A modified gross lease is a variation of a gross lease in which, typically, a tenant only pays base rent during the first calendar year (even if it is only part of a calendar year) and in subsequent years also pays a percentage of increases in building property taxes, insurance, utilities, and other operating expenses. The first calendar year is considered the base year and any increase in taxes, insurance or operating expenses over the base year are allocated to tenants based on the percentage of space in the building or multi-building project that the tenant occupies. The tenant must then pay its percentage of allocated expenses in addition to base rent. Sometimes the increase is only billed annually, but usually the landlord charges a monthly amount estimated to cover the annual charges and after the end of the year reconciles the actual costs with the estimated amounts paid by the tenant. Office space leases are usually modified gross leases, commercial and retail leases are sometimes modified gross (but usually net) and residential leases are rarely modified gross (usually gross).
Aug 14, 2009