Modified gross leases split operating expenses between tenant and landlord. Learn expense allocation, base year provisions, and red flags to watch.
A Modified Gross Lease is a hybrid structure where the tenant pays a single gross rent amount, but certain operating expenses are negotiated to be the tenant's direct responsibility. The specific split of expenses is defined in the lease and varies by deal. Modified gross leases are common in office, flex, and light industrial markets where neither party wants a pure gross or pure net arrangement.
Typical Industries
Typical Term Length
3–7 years
Pros
Cons
Pros
Cons
These are the highest-priority fields Lextract extracts from MG leases. Click any field to learn what it means and why it matters.
Lextract automatically detects these red flags in MG leases. Click any flag to learn the impact and what to do.
It depends on what was negotiated. Typically, tenants pay base rent plus their own utilities and janitorial costs. The landlord covers taxes, insurance, and structural maintenance. Operating expense increases above a base year amount are often passed through to the tenant proportionally. The specific allocation is defined in the lease and varies by deal.
For tenants who want maximum cost predictability, a full service gross (FSG) lease is simpler since the landlord absorbs all operating expenses. A modified gross lease gives the landlord some protection against expense increases while still shielding the tenant from major capital costs. Neither is inherently better - it depends on market conditions and the tenant's risk tolerance.
The base year establishes the baseline level of operating expenses included in the gross rent. In subsequent years, if operating expenses rise above the base year amount, the tenant pays their proportionate share of the increase. This protects the landlord from long-term expense growth while giving the tenant certainty in year one.
The five main types of commercial leases - NNN, gross, modified gross, percentage, and ground - have very different cost structures and risk profiles. Here's how each works.
NNN and gross leases shift expense risk differently. Learn how each structure affects your total occupancy cost and what to watch for in the abstract.
We ranked the best AI lease abstraction tools for 2026 by structured field coverage, confidence scoring, pricing model, export readiness, and actual CRE workflow fit.
Upload your Modified Gross Lease PDF and get 126 structured fields extracted with automatic red flag detection. Just $15 per lease.
Upload Your Lease