Modified Gross Lease

What it means

Modified gross leases are common in multi-tenant office and some retail. The tenant pays a base rent that covers building operating expenses up to a baseline year; any increases above that baseline are passed through.

Landlords like modified gross because it limits their exposure to expense inflation. Tenants like it because they have predictable base costs. The negotiation typically centers on what is excluded from pass-throughs — capital expenditures, lease-up costs, and structural items are commonly carved out.