Gross Lease Vs. Modified Gross Lease
2 min read
A thorough understanding of a commercial lease agreement is the critical differentiator between a successful and unsuccessful tenancy. With that being said, there are several types of commercial lease agreements, making it difficult to determine which is the best fit for you or your client.
The most common, gross leases and modified gross leases, may seem similar at first glance; however, they each come with benefits and drawbacks. We’re breaking them down below.
Gross Lease
A gross lease considers the base rent per square foot and additional operating expenses per square foot per base year. The base year is often the year the lease has been signed, which makes the gross lease rate inclusive of rent and the first year in the lease’s operating expenses. When considering a gross lease, it is essential to have a firm date when the base year starts to determine when increases or costs are due. The formula below can be used to calculate gross leases:
Gross Rent PSF = Net Rent PSF + Insurance + Common Area Maintenance + Real Estate Taxes
The main benefit of entering a gross lease is that you will clearly understand when rent will be due per month, which can help you avoid fluctuation in payments.
Modified Gross Lease
A modified gross lease is often less standard than a gross lease, as it is typically unique to the landlord and the building and combines elements of a gross lease and net lease agreement. It is common for only some operating expenses to be included in the base rental rate and base year expenses, while some may be on a pro-rata share that is reconciled annually.
Being well-versed in the various types of commercial lease agreements and the critical negotiables of your contract will give you the upper hand, helping you protect your client and your business.
Reference
Gross leases vs net leases vs modified gross leases: What's the difference? Allegro. (n.d.). Retrieved October 25, 2022, from https://allegrorealty.com/articles/what-is-the-difference-between-gross-net-and-modified-gross-leases
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