Who pays for HVAC repairs in a modified gross lease?

It depends on the lease language, and this is one of the most common ambiguity disputes. Many modified gross leases assign routine HVAC maintenance to the tenant but capital HVAC replacements to the landlord. If your lease is silent or ambiguous, exterior HVAC units (rooftop units) are generally the landlord's responsibility as structural equipment, while interior air handlers may be tenant responsibility. Request a written determination from your landlord with the specific lease provision cited.

Can my landlord add a markup to utility bills in a modified gross lease?

No, unless your lease explicitly permits a markup. Request copies of the underlying utility provider bills for the billing periods in question. Calculate the per-unit rate being charged to you and compare it to the utility provider rate. Any markup above the actual utility cost is a recoverable overcharge. Negotiate a "no markup" clause in future leases and require landlord to provide utility invoices upon request.

What is an expense stop in a modified gross lease?

An expense stop sets a ceiling on the operating expenses the landlord will absorb. Once actual expenses exceed the stop amount (typically set at the base year actual), the tenant pays the overage. This functions like a base year mechanism in a full-service gross lease. Audit the base year expenses to ensure they reflect actual stabilized costs, an artificially low base year guarantees escalation charges every subsequent year.

Who pays for HVAC repairs in a modified gross lease?

It depends on the lease language, and this is one of the most common ambiguity disputes. Many modified gross leases assign routine HVAC maintenance to the tenant but capital HVAC replacements to the landlord. If your lease is silent or ambiguous, exterior HVAC units (rooftop units) are generally the landlord's responsibility as structural equipment, while interior air handlers may be tenant responsibility. Request a written determination from your landlord with the specific lease provision cited.

Can my landlord add a markup to utility bills in a modified gross lease?

No, unless your lease explicitly permits a markup. Request copies of the underlying utility provider bills for the billing periods in question. Calculate the per-unit rate being charged to you and compare it to the utility provider rate. Any markup above the actual utility cost is a recoverable overcharge. Negotiate a "no markup" clause in future leases and require landlord to provide utility invoices upon request.

What is an expense stop in a modified gross lease?

An expense stop sets a ceiling on the operating expenses the landlord will absorb. Once actual expenses exceed the stop amount (typically set at the base year actual), the tenant pays the overage. This functions like a base year mechanism in a full-service gross lease. Audit the base year expenses to ensure they reflect actual stabilized costs, an artificially low base year guarantees escalation charges every subsequent year.

Modified Gross Lease CAM Audit Guide

Tenants in Modified Gross Lease structures face specific overcharge risks tied to how expenses are allocated and billed. CamAudit runs 12 forensic detection rules on your reconciliation statement to identify every recoverable dollar.

Formal Definition

A hybrid lease structure negotiated between a pure gross lease and a triple net lease. The base rent covers some operating expenses (typically property taxes and building insurance) while the tenant is directly responsible for other costs (typically utilities and interior maintenance). The exact allocation of expenses is negotiated and varies significantly between leases.

Expense Pass-Throughs

Landlord typically covers: property taxes, building insurance, exterior maintenance, structural costs, and common area upkeep. Tenant typically covers: electricity, gas, water, HVAC maintenance, interior janitorial, and interior repairs. The split is entirely dictated by the lease, no universal standard applies.

CAM Calculation & Billing

No formal CAM pool or annual reconciliation in most modified gross leases. Utilities are submetered or billed directly to the tenant by the landlord at the utility provider rate. Interior maintenance is tenant-directed. Some modified gross leases include a base year expense stop that functions similarly to a full-service gross lease escalation.

Most Common Overcharge

Landlords gradually shift exterior maintenance obligations onto the tenant through ambiguous lease language, billing for items like exterior window cleaning, parking lot maintenance, or snow removal that should remain the landlord's responsibility. Utility markups, where the landlord charges above the utility provider rate, are also common.

Common Industries

→Mid-size office (2,000–20,000 SF)
→Medical and dental offices
→Salon and spa
→Service retail

Audit Focus

Map every billed expense to a specific lease provision allowing it. Challenge any exterior or structural charges appearing on tenant invoices. Audit utility rates against the underlying utility provider bills to detect markups. If there is an expense stop, verify it is calculated using the same methodology as the base year.

Red Flags to Watch

▶Exterior maintenance (snow removal, parking lot repair) appearing on tenant invoices
▶Utility bills at per-kWh or per-gallon rates above the utility provider rate
▶Landlord billing for structural repairs or exterior painting
▶Gradual creep of new line items not present in earlier lease years

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Related Resources

ResourcesCAM Audit by Tenant Type ToolsFree CAM Audit Tools GlossaryCAM Glossary ToolsPro-Rata Share Calculator

Frequently asked questions

This 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.