Your Actual Exposure: $255,000

A $5,500/mo lease types lease doesn't create $5,500/mo in liability. It creates $255,000 in total exposure across rent, personal guaranty, restoration, and every other clause your landlord drafted to protect themselves — not you.

Where $255,000 Comes From

Remaining Rent$165,000
Personal Guaranty$99,000
Restoration$20,000
CAM Charges$16,500
Early Termination$33,000
Legal Fees$12,000
Holdover$33,000
Total Exposure$255,000

What Most People Miss

The modified gross lease has no standard definition. In one lease, 'modified gross' means you pay utilities separately. In another, it means you pay utilities plus property tax increases above a base year. You must read exactly what 'modified' means in your specific lease.

Key Risks in This Scenario

  • Modified gross term is not standardized — every lease defines it differently
  • Expenses passed through under 'modified' provisions can vary enormously
  • Year-end reconciliation of passed-through expenses can create unexpected bills

How to Reduce Your Exposure

  • Get a written schedule of exactly which expenses are included in the base rent vs. passed through
  • Cap any year-over-year increase in passed-through expenses at 5%

Frequently Asked Questions

What is a modified gross lease?
A hybrid between gross and NNN. Some expenses are included in the base rent (like the landlord's insurance) while others are passed through to the tenant (like utilities or property tax increases). The specific split varies by lease.
How do modified gross leases compare to NNN?
Modified gross leases typically cost more than NNN in a stable expense environment but provide more cost predictability. In rising expense environments, NNN tenants pay more.
Can I negotiate a modified gross lease to add expense caps?
Yes. Negotiate caps on any expense that's passed through — typically 3-5% annual cap. Also negotiate a base year for property tax calculations so you only pay increases above the base year level.
What expenses are typically passed through in a modified gross lease?
Common pass-throughs: utilities, janitorial, property tax increases above base year, insurance increases above base year. Base rent covers: structural maintenance, landlord insurance, and base-level operating expenses.
Is a modified gross lease common in office buildings?
Very common for Class A and B office space. The 'modified' structure lets landlords present a competitive base rent while retaining the ability to pass through rising operating costs.