Modified Gross Lease is a type of a rental arrangement between a commercial property tenant and landlord. Modified Gross Leases are also referred to as “MG Leases“.
The types of properties where you typically find Modified Gross Lease rent structures are, office space, warehouse space, retail space and some live/work facilities. The most common property type to have Modified Gross leases are industrial & warehouse properties.
In modified gross leases, a landlord will quote a rent to the tenant that not only includes the base rent, but also includes your proportionate share of other expenses associated with the property. These expenses are things like property taxes, insurance, maintenance and utilities.
Frequently landlords will quote tenants with only a base rent, which is frustrating to tenants because they are shocked to only later find out that in addition to base rent, they have to pay other expenses associated with the property, and electricity, telephone, and Internet. That’s why it’s important for tenants to know all of the costs they are responsible for when renting a space from a landlord. Those additional expenses can lead to spending hundreds to thousands of dollars more to occupy a space.
Below is a screenshot of what you’ll usually how you see Modified Gross lease rents quoted
Rental Rate $2,109 / mo tells you that you will be paying a total of $2,109 a month in base rent for the space.
Service Type tells you that the rent is Modified Gross.
This means that the $2,109 a month includes some of the costs associated for the property, but not all of them. To compare, a Gross Lease Rate usually includes all expenses associated with the property like base rent, property insurance, maintenance and utilities. That means you don’t have to pay for anything else associated with the property. Now, Modified Gross means that the base rent you are being quoted includes “some” of the costs associated with the property, but not all of them.
That’s why it is extremely important to ask a landlord or their leasing agent this question:
“In addition to the Modified Gross rent you are quoting me, what other expenses associated with the property am I going to be responsible for?”
Make sure to get the dollar amount you will be responsible for so there are no unexpected surprises.
There are also some frequently asked questions about Modified Gross Leases like:
Is a Modified Gross Lease Bad?
In an ideal world, any tenant would like complete transparency and know exactly how much they will be paying for space including all associated expenses. So, they’re not bad, they’re just frustrating because when you’re searching for space, you don’t know exactly what you will be paying for and not be paying for.
Are Modified Gross Better Than NNN Leases?
They can be. With NNN leases you just get quoted a base rent. You then have to ask what your proportionate share of property taxes, insurance, maintenance and utilities will be. Also, if the building sells and the property taxes increase, you are immediately going to have to pay those higher property taxes — unless you’ve negotiated a cap on the property taxes on your lease.
Are Modified Gross Better Than Gross Leases?
Nope. Gross leases offer more transparency. You know exactly how much you will be paying all-in.
Are Full Service Gross Leases Better than Modified Gross Leases?
In short, Full Service not only includes the base rent, property taxes, insurance, maintenance and utilities for the property. They also include other utilities like electricity to inside your space, water, gas, etc. This means that you know exactly what you’re paying for.