Article Overview

Real estate investors seeking long-term income rely on leases to earn rent from tenants. Consequently, the contents of a lease directly impact the strength and size of rental cash flows. This is true for the modified gross lease, the focus of this article.

A poorly written or inappropriate lease can cost a property investor a significant amount of revenue. That’s why it’s important to understand the different types of leases and the problems they address.

In this article, we cover:

  • What is a Modified Gross Lease?
  • Modified Gross Leases vs Triple Net Leases
  • Pros and Cons for Landlords
  • Pros and Cons for Tenants
  • Helpful Examples
  • Commercial Lease Calculator
  • Frequently Asked Questions

A graphic of a triple net lease calculator for how to calculate the lease type modified gross lease

What is a Modified Gross Lease (MGL)?

An MGL is a lease in which the tenant pays rent plus some of the unit’s expenses. It is a compromise between two opposite types of leases:

Gross Lease

In this type of lease, the landlord pays all property expenses. Unsurprisingly, gross leases specify higher rents because the rent payments must cover the expenses the landlord pays. In commercial real estate, gross leases usually appear in apartment buildings and multi-family properties.

Apply For Financing


Modified Gross Lease vs NNN (Triple-Net Lease)

For an NNN-lease, tenants pay for their share of property taxes, insurance and common area maintenance (CAM). Naturally, this type of lease charges less rent than does a gross lease.

An MGL combines aspects of a gross lease and net lease. Like a gross lease, the tenant pays a monthly rent to the landlord and receives some free services. However, it resembles a net lease in that the tenant must pay for some expenses. The landlord picks up the costs that tenants don’t pay.

In other words, both landlord and tenant must bear some property-related expenses. For example, in a modified gross lease, tenants might cover common area maintenance (CAM) while the landlord handles insurance and property taxes.

Commercial Leases – What is a Modified Gross Lease?

Pros and Cons of Modified Gross Leases

A modified gross lease offers pros and cons to both landlords and tenants.

Pros to the Landlord

Landlords might favor a modified gross lease in order to retain some control over the property. For instance, landlords might pay CAM costs because they want to maintain common areas in a specific way.

By paying for the CAM charges, landlords can ensure that they can control the work performance. If they left the CAM to tenants, landlords would have to worry whether the tenants did the job properly.

Cons to the Landlord

Properties might suffer if landlords underestimate the costs they cover in a modified gross lease. For example, imagine a shopping mall in which a shortsighted landlord underestimates the cost of the CAM charges. Over time, the miserly landlord lets the common areas deteriorate.

This causes existing tenants to not renew their leases and drives away new tenants. The vacancy rate soars, leading to net operating losses and possible bankruptcy. In this case, the landlord should employ a triple-net lease and let the tenants maintain the common areas.

Pros to the Tenant

Tenants might find a modified gross lease attractive because the landlord must cover some building expenses. For instance, landlords that pay for CAM stay involved in their properties. Tenants might have no interest in CAM as long as it is satisfactory.

On the other hand, tenants can control some costs and thereby save money. For example, tenants who pay for their own utility usage can economize through conservation and efficiency.

Cons to the Tenant

Tenants could suffer if a landlord does a poor job. For example, recall the case where a shopping mall landlord is responsible for CAM and shortchanges the work. The mall’s common areas begin to look scruffy, embarrassing tenants and discouraging customers. This can cause tenants to lose business and force them to undertake an expensive relocation.

Modified Gross Lease Examples

In this example, suppose the landlord owns a 90-unit office building where all tenants sign a modified gross lease. The lease specifies that each tenant must pay its own electrical bills. Two scenarios can unfold:

Metered Offices

In this scenario, each separate unit has its own electric meter. The most efficient units pay only about $300 a month for electricity. However wasteful offices of the same size spend in excess of $1,200 a month.

The landlord is indifferent to these facts because the electric utility separately bills each tenant for its electricity use. As word spreads of the tremendous range in electrical costs, the inefficient units take steps to reduce costs. In this way, the modified gross lease results in a societal benefit by encouraging conservation.

Gross Lease vs. Modified Gross Lease

Unmetered Offices

In this case, the building has only a master meter. The landlord is reluctant to absorb the expense of installing individual submeters for all units. Instead, the landlord adopts a RUBS (Ratio Utility Billing System) to allocate the property’s electricity charges to tenants.

The building has three size units: 2,000, 3,000 and 6,000 square feet. There are 30 units of each size. The landlord allocates electrical charges based on square feet.

Now, suppose the building’s current monthly electricity bill is $66,000. The landlord works out the following RUBS. There are 30 times (2,000 + 3,000 + 6,000), or 330,000 square feet of office space. This month’s RUBS chargeback per square foot is $0.20.

This works out to charges of $400, $600 and $1,200 for the small, medium and large offices, respectively. The landlord bills each office accordingly, as per the terms of the modified gross lease.

In this case, offices have less incentive to individually decrease their electricity use. Any efficiencies by one office lowers the bills of all offices rather than just its own. Societal benefits are less likely unless all the tenants band together in a common conservation drive.

Commercial Lease Calculator

A commercial lease calculator with advanced mode allows tenants to compute base rent and operational expenses. Base rent is simply area x rate. Operational expenses depend on the lease terms. This is useful for a modified gross lease, since only certain expenses belong to tenants.

Commercial Lease Calculator

Frequently Asked Questions: Modified Gross Lease

What are the different types of leases?

The three different types of leases are gross lease, modified gross lease and net lease.  In a gross lease, the landlord pays all expenses for the property.  In a modified gross lease, both landlord and tenant pay some expenses.  In a net lease, tenants pay specified expenses.

What’s the difference between triple net and modified gross leases?

In a triple-net lease (aka NNN lease), tenants pay their own property taxes, insurance and common area maintenance costs.  In a modified gross lease, the landlord pays some of these costs.  In addition, other costs might go to the landlord or tenant depending on the specifics of the lease.

Are modified gross leases a good idea?

Generally, modified gross leases are a good idea.  They can give landlords control over certain responsibilities, such as the CAM charges, while letting tenants pay for costs they can control.  When the landlord and tenants are conscientious, both sides can benefit from a modified gross lease. 

What does the landlord pay in a modified gross lease?

The terms of a modified gross lease specify what costs the landlord pays.  For example, the landlord might pay for common area maintenance and property taxes, but not insurance.  Each modified gross lease is unique, so each one will set out the landlord’s responsibilities for expense payments.

Related Articles


Eric D.
Pleasure to work with and extremely knowledgeable

Ronny was a pleasure to work with and is extremely knowledgeable. His hard work was never ending until the job was done. They handled a complex lease and guided us through entire process, including the paperwork. Not to mention a below market lease rate and more than all the features we needed in a site. We later used Assets America for a unique equipment financing deal where once again Ronny and team exceeded our expectations and our timeline. Thank you to Assets America for your highly professional service!

exp MFGroup
Great experience with Assets America

Great experience with Assets America. Fast turn around. Had a lender in place in 30 minutes looking to do the deal. Totally amazing. Highly recommend them to anyone looking for financing. Ronny is fantastic. Give them a call if the deal makes sense they can get it funded. Referring all our clients.

William P.
Assets America guided us every step of the way

Assets America guided us every step of the way in finding and leasing our large industrial building with attached offices. They handled all of the complex lease negotiations and contractual paperwork. Ultimately, we received exactly the space we needed along with a lower than market per square foot pricing, lease length and end of term options we requested. In addition to the real estate lease, Assets America utilized their decades-long financial expertise to negotiate fantastic rates and terms on our large and very unique multimillion dollar equipment purchase/lease. We were thankful for how promptly and consistently they kept us informed and up to date on each step of our journey. They were always available to answer each and every one of our questions. Overall, they provided my team with a fantastic and highly professional service!

Bob B.
The company is very capable, I would recommend Assets America

Assets America was responsible for arranging financing for two of my multi million dollar commercial projects. At the time of financing, it was extremely difficult to obtain bank financing for commercial real estate. Not only was Assets America successful, they were able to obtain an interest rate lower than going rates. The company is very capable, I would recommend Assets America to any company requiring commercial financing.

Ricardo L.
Assets America was incredibly helpful and professional

Assets America was incredibly helpful and professional in assisting us in purchasing our property. It was great to have such knowledgeable and super-experienced, licensed pros in our corner, pros upon which we could fully rely. They helped and successfully guided us to beat out 9 other competing offers! They were excellent at communicating with us at all times and they were extremely responsive. Having them on our team meant that we could always receive truthful, timely and accurate answers to our questions. We would most definitely utilize their services again and again for all of our real estate needs.

Assets America is a great company to work with

Assets America is a great company to work with. No hassles. Recommend them to everyone. Professional, fast response time and definitely gets the job done.

DAC Team
Great experience

Ronny at Assets America has been invaluable to us and definitely is tops in his field. Great experience. Would refer them to all our business associates.

MF Group
We were very pleased with Assets America’s expertise

We were very pleased with Assets America’s expertise and prompt response to our inquiry. They were very straight forward with us and helped a great deal. We referred them to all our business associates.

Manny C.
Worked with this company for decades

I’ve worked with this company for decades. They are reputable, knowledgeable, and ethical with proven results. I highly recommend them to anyone needing commercial financing.

David B.
Top-notch professional

Ronny was incredibly adept and responsive – top-notch professional who arranged impressive term sheets.

Monte M.
Assets America helped us survive a very difficult time

Assets America helped us survive a very difficult time and we most definitely give them 5 stars!

Brent G.
Gave me direction to go

Ronny was very friendly and though we were unable to make something happen at the moment he gave me some direction to go.

Allan E.
Highly recommend them for any type of commercial financing

My business partner and I were looking to purchase a retail shopping center in southern California.  We sought out the services of Ronny, CFO of Assets America.  Ronny found us several commercial properties which met our desired needs.  We chose the property we liked best, and Ronny went to work. He negotiated very aggressively on our behalf. We came to terms with the Seller, entered into a purchase agreement and opened escrow.  Additionally, we needed 80 percent financing on our multimillion-dollar purchase.  Assets America also handled the commercial loan for us.  They were our One-Stop-Shop. They obtained fantastic, low, fixed rate insurance money for us.  So, Assets America handled both the sale and the loan for us and successfully closed our escrow within the time frame stated in the purchase agreement.  Ronny did and performed exactly as he said he would. Ronny and his company are true professionals.  In this day and age, it’s especially rare and wonderful to work with a person who actually does what he says he will do.  We recommend them to anyone needing any type of commercial real estate transaction and we further highly recommend them for any type of commercial financing.  They were diligent and forthright on both accounts and brought our deal to a successful closing.