What is the difference between a modified gross lease and a gross lease?

In Selling Property - Asked by John R. - Dec 26, 2014
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CeCe S.
Owner/Investor
Rawsonville, MI

DEFINITION OF 'GROSS LEASE'
A type of commercial lease where the landlord pays for the building's property taxes, insurance and maintenance. A gross lease can be modified in a number of ways to best meet the needs of a particular building's tenants (for example, a gross lease may or may not require the tenant to pay utility bills).
So, a modified gross lease is a gross lease where the landlord has agreed to modify the commercial lease for the tenant.

Dec 26, 2014
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Matthew S.
Broker/Agent
New York, NY

A modified gross is usually a situation where the landlord asks the tenant to bear some of the building's expenses, there is more common in multi-tenant building, whereas single tenant buildings tend to be more of a NNN lease where the tenant pays all of the building expenses.
Examples of building charges I have seen landlord's place on the tenant are proportionate share of water/sprinkler charge, lobby attendant, elevator maintenance, trash, taxes or any other operating expense that the landlord wishes to shift to the tenant.
Another form of modified gross which is very common in NYC where I do business is where the tenant pays their proportionate share of the increase in expenses over base year. This is commonly applied to real estate taxes or fuel charges. Have also seen clauses for tenants being responsible for increases in insurance, hallway electric, porters wages, or general operating expenses. So what tenant is responsible for can vary greatly from state to state and building to building depending on local customs, how the landlords run their buildings and the deal the tenant is able to negotiate.

Dec 28, 2014
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Ron Miranda .
Broker/Agent
Houston, TX

Simply put- a Gross lease is where the amount of rent is the total amount you pay and not subject to escalations or adjustments at year end. ie- there are no true ups or reconciliations.
A modified gross- is a lease where there is some modification of the gross lease structure above. Typically, that would be that tenants share of expenses beyond a certain point (base year) would be additional rent.
The devil is in the details. Regardless of what it is called, the terms of the rent and operating expense liability are very thoroughly covered in most professionally written commercial leases. Read it or have your broker or atty read it.

Jan 5, 2015
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Francis L.
Broker/Agent
Santa Clarita, CA

In simple terms, a Gross Lease is an agreed upon price per square foot to lease a space. The only change to that price per square foot would be adjustments for increased rent as it is negotiated in the Lease Agreement. For example: $1.20 per square foot for year one (Months 1-12), $1.35 per square foot for year two (Months 13-24), $1.55 per square foot for year three (Months 25-36). A Modified Gross Lease is where ANYTHING can be negotiated between the Landlord and Tenant that would be the MODIFYING the Gross Lease. NEVER presume that all Modified Gross Leases are the same. Modifying anything is unique to each property and each transaction.

Feb 21, 2015
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