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.
In a modified gross lease, the allocation of operating expenses is entirely a function of negotiation. Common structures include base rent plus electricity, or base rent plus real estate tax escalations. Because there is no standard form, modified gross leases require careful review of every expense allocation provision.
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.
In a modified gross lease, document the specific expenses included in base rent vs. passed through at lease execution. Ambiguity in modified gross leases consistently resolves in the landlord's favor.
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Find My OverchargesThis page provides general educational information. It is not legal advice and may not reflect the most current law in your state. Consult a licensed attorney for advice specific to your situation.
