What is a modified Gross lease and a Full Service lease?

In Leasing Property - Asked by Linda R. - Aug 11, 2010
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Answer(s)

Adam M.
Broker/Agent
Milwaukee, WI

A modified gross lease can have many different meanings, but the full service gross is easier to quantify. The rate on a Full Service Gross (FSG) lease INCLUDES rent, taxes, cam, heat, water, electricity, and typically in-suite cleaning. There should not be a provision for increase in taxes, if FSG is truely FSG. You will still be required for your internet and telephone systems though.
Modified Gross (MG) is a mix of the above. Typically the rate includes Rent, taxes, Snow Plowing, grass cutting, and taxes. Usually you'll be responsible for utilities and increase in taxes.
Hope this helps!
-Adam
amatson@mlgcommercial.com

Aug 12, 2010
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Rob B.
Chandler, AZ

Linda....
A full-service Gross Lease is the most understandable of all leases. The landlord wraps all costs into one payment, usually with a cost-of-living clause for future increases. Tenants like this type of lease best, because it places 100% of the property operational cost on the Landlord's shoulders.
The best approach to a Modified Gross Lease is to start with a standard Gross Lease form and add the modifications by amendment to the lease. This shows the dividing line between what the Landlord is willing to agree to assume as risk and what the Tenant is expected to assume.
In the negotiations that follow the desired income from the lease compared to the risk of operational increases can be identified and the "arm wrestling" can begin.
The most common types of modified gross leases are when there is a modification for separate utilities and janitorial paid for by the tenant. From there forward all else is negotiable down to a bare bones Triple Net Lease.
((NNN Lease = Cost of Taxes (one net), cost of property insurance (two nets) and cost of common area maintenance (three nets))
I hope this helps.
Rob Baird, CA RE Lic. #544165 (One of the oldest, active licenses in CA)
951 515-5855

Aug 12, 2010
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Alex A. G.
Broker/Agent
Miami Beach, FL

You may also do a full service lease with passthroughs of the increases in real estate taxes and operating expenses over a base year (typically the year of the lease). That way your liability for expenses is always capped at your initial year levels.

Aug 16, 2010
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