Glossary
Lease Types
Modified Gross Lease
A hybrid lease structure between a full gross lease and a NNN lease, where specific operating expenses are negotiated between landlord and tenant. Some costs are included in base rent; others are billed separately as pass-throughs.
Firm impact
Modified gross leases require careful line-item matching because there is no standard form. Firms must map each expense category to either the included-in-rent bucket or the pass-through bucket before running any overcharge analysis.
How this gets abused
A modified gross lease stated that tenants pay 'operating expenses above base year.' The landlord treated this as a full NNN pass-through, including expenses the tenant's negotiators intended to be covered in base rent. The ambiguous language cost the tenant $85,000 over three years.
Practitioner note
In modified gross leases, document the specific expenses included in base rent versus passed through at lease execution. Ambiguity in modified gross leases consistently resolves in favor of the landlord unless challenged.
FAQ
Questions about modified gross lease
What is the difference between a modified gross lease and a NNN lease from an audit standpoint?
In a NNN lease, virtually all expenses pass through. In a modified gross lease, the pass-through scope is negotiated. Your firm must determine exactly which categories are in scope before running overcharge checks.
Can CAMAudit detect overcharges in modified gross leases?
Yes. The escalation baseline check and occupancy normalization check both apply to modified gross lease structures. CAMAudit checks that escalation calculations start from the correct baseline and that fixed costs have not been improperly grossed up.
You know the term. Now check the math.
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