Modified Gross

A modified gross lease sits between a full-service gross lease and a triple net one. Base rent covers operating expenses up to a reference level — a base year or an expense stop — and the tenant pays its share of increases above that.

What makes it “modified”

The modification is which costs the tenant picks up and from what point. Common variations:

• Tenant pays increases over a base year on all operating expenses
• Tenant pays increases only on controllable expenses, with taxes and insurance staying with the landlord
• Tenant pays its own in-suite utilities and janitorial directly, with everything else bundled
• Landlord covers structural and capital items regardless

Because “modified gross” describes a range rather than a specific structure, the term tells you almost nothing on its own. The lease’s recovery clause is what matters.

Why it persists

Modified gross is popular because it splits risk in a way both parties find tolerable. The landlord is protected against inflation in operating costs. The tenant gets a predictable base and only pays for increases, which are usually modest year to year.

It is also easier to market. A single quoted rate that covers most costs is simpler for a tenant to evaluate than a base rate plus an estimate that will be reconciled later.

Modeling it

From a software perspective, modified gross is not a different product from NNN — it is the same recovery machinery with a base-year or expense-stop deduction applied. A firm running both structures needs one system that models the recovery terms per lease rather than assuming a portfolio-wide convention.

That is why recovery terms belong on the lease rather than being configured at the property level.