Modified Gross Lease

A modified gross lease sits between a full gross lease and an NNN lease. The tenant pays base rent plus an agreed subset of operating costs — often utilities and in-suite janitorial — while the landlord retains responsibility for property taxes, building insurance, and structural maintenance. The exact split is negotiable and varies widely, which is precisely why the term causes confusion: two ‘modified gross’ leases can allocate costs very differently. Many modified gross leases use a base year, under which the landlord covers operating expenses up to the first year’s level and the tenant pays its share of increases above that. For healthcare tenants, the appeal is more predictable cost than pure NNN, without the higher base rent of a full gross lease. The key is to pin down, in writing, exactly which expenses fall on each side and whether a base-year or expense-stop mechanism applies — ambiguity here is where disputes begin.

Modified gross leases vary enormously in how costs are split, so the label alone tells you little. Confirming exactly which expenses you carry, and whether a base year applies, is what determines your true occupancy cost.

A therapy practice signs a modified gross lease at $30/sq ft where the landlord covers taxes, insurance, and CAM up to a base year, and the tenant pays utilities plus its share of any operating-expense increases above that base — a middle path between gross and NNN.