Modified Gross
A lease structure between full-service gross and triple net, where base rent covers operating expenses up to a base year or stop and the tenant pays increases above it.
Also called: modified gross lease, industrial gross, base year lease
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.