MG also known as “Modified Gross” lease rent is a rent type often used in commercial real estate transactions. Commercial Real Estate has all sorts of terms and acronyms for rent and industry terms. It is very important to familiarize yourself with these terms if you’re a prospective tenant, a property owner, or even a Commercial Real Estate Agent or Broker. One term or acronym that many people are not familiar with is MG.
How MG Differs from Other Rent Types
MG, in Commercial Real Estate terms, stands for “Modified Gross”. There are 3 common types of leases in industrial Commercial Real Estate leases:
- Gross lease – Most tenant friendly
- Modified Gross lease – Owner/Tenant friendly
- NNN lease – Most owner friendly
Very briefly, a Gross lease is a type of lease where the landlord pays all expenses associated with a property and the tenant just pays monthly rent. A NNN (or Triple Net) lease is a type of lease where the tenant pays for all the property expenses plus monthly rent. Conceptually, a Modified Gross lease is pretty simple to understand. It is a lease type between a Gross lease and a NNN lease. A MG lease is somewhere in the middle where tenants and landlords split cost evenly.
What MG Means
MG (Modified Gross) refers to a specific type of Lease where the tenant or lessee pays a defined base rental rate at the inception of the lease term but in subsequent years will pay a slightly different amount based on property taxes, common area fees (i.e. – maintenance work or exterior paint on a multi-tenant building), and other insurances. Owners/Landlords also pay for a portion of these fees, but the remaining portion is divided amongst multiple tenants (or a singular tenant if it is a Free-Standing building). This base rental rate will fluctuate because property taxes and other maintenance fees change over the course of a lease term.
If you are a prospective tenant, you will usually see the Modified Gross lease type represented within the Base Rental Rate. For example, Base Rental Rate = $0.65 MG. This number lets you know that the starting Base Rental Rate is $0.65 per square foot (psf) but this number will fluctuate in subsequent years.
Modified Gross leases are very common in Commercial Real Estate because they ensure that both the Tenant and the commercial property Owner/Landlord are paying for portions of the property. The Modified Gross lease is more popular with tenants because its flexibility translates into an easier agreement between tenant and landlord.
In our experience as a Commercial Real Estate experts, Modified Gross leases make a lot of sense because they seem to be the most fair form of rental agreement. Whether we are representing a property owner or a tenant, it is very easy to tell both sides why they should split the costs of the expenses evenly as opposed to one side paying for everything. Tenants often dislike NNN leases because they pay for everything even though they don’t own the property. Conversely, commercial real estate owners don’t always feel like they should pay all the maintenance and upkeep fees for a property they don’t occupy.
At the end of the day, a Modified Gross lease is a simple compromise where Landlords and Tenants share the cost of owning and renting a building.
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