What is Modified Gross Lease?
A hybrid lease structure where tenants pay base rent including some operating expenses, while other categories are passed through separately.
Definition
A modified gross lease is a hybrid structure where tenants pay a base rent that includes some operating expenses, while other expense categories are passed through separately. The specific split varies by lease — for example, the landlord may cover insurance and taxes within the base rent while passing through utilities, janitorial, and CAM. Modified gross leases require careful tracking of which expenses fall on each side of the split, as miscategorization directly affects both landlord recovery and tenant billing accuracy. These leases are common in office and medical office properties where landlords want to offer competitive gross rents while maintaining pass-through rights on volatile expense categories.
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