What Is A Modified Gross Lease in Commercial Real Estate?
What is a Modified Gross Lease in Commercial Real Estate?
A modified gross lease is a hybrid type of lease agreement that combines elements of both gross leases and NNN leases. Under this structure, the landlord typically covers the base operating expenses, such as property taxes, insurance, and maintenance, while the tenant agrees to pay for specific additional costs, like utilities or janitorial services.
In other circumstances, the Landlord sets a base year for the additional rent and the tenant pays the increase in CAM (Common Area Maintenance) and Real Estate taxes from the base year to the new year. The responsibilities are negotiated upfront, providing both parties with clarity and flexibility.
Key Points of a Modified Gross Lease
- Shared Costs: The landlord and tenant split increase in operating expenses based on terms outlined in the lease.
- Predictable Base Rent: Tenants pay a fixed base rent, covering agreed-upon landlord expenses.
- Flexibility: This lease type is tailored to meet the unique needs of both the landlord and the tenant.
- Cost Stability: While tenants pay for certain extras, they avoid the unpredictability of entirely net leases.
- Customizable: Negotiations determine which costs are covered by whom.
Example of a Modified Gross Lease
Imagine a tenant leasing 2,000 square feet of office space in a 10,000-square-foot building. The landlord includes property taxes, insurance, and common area maintenance in the base rent of $25 per square foot. The Landlord sets a base year for CAM and real estate taxes and the tenant pays the increase from the base year to the new year.
This arrangement allows the landlord to maintain property standards while providing the tenant with manageable costs and autonomy over their specific usage.
A modified gross lease strikes a balance, offering both landlords and tenants a fair, transparent, and adaptable lease structure tailored to their respective needs. It’s an excellent choice for businesses seeking cost stability without the complexity of a fully net lease.
Sharon Bogetz is a residential and commercial real estate broker with Century 21 Universal since 2019.
Happy Thanksgiving!
As we celebrate this season of gratitude, I want to take a moment to thank you for trusting me as your real estate broker. It has been a privilege to assist you, and I am truly grateful for the opportunity to be part of your journey.
Wishing you and your family a joyful Thanksgiving filled with warmth, laughter, and wonderful memories. With heartfelt appreciation, Sharon Kantor Bogetz, Century 21 Universal
Good News For Chicago Buyers & Sellers
Last week in a 50-0 vote, Chicago’s City Council voted against Mayor Brandon Johnson’s proposal to increase property taxes. The proposed property tax hike was part of the mayor’s plan to address a $500 million budget gap for fiscal year 2025. It will still be a challenge for the Mayor to make up the shortfall Chicago is facing.
If you own property, you will be able to better manage your expenses. If you own residential or commercial property in Chicago, property taxes should not be a concern for your buyers. If you are buying property in Chicago, you should not expect a tax hike.
IF you are looking to buy or sell real estate in Chicago, call Sharon Kantor Bogetz at 847-370-9131. She currently has listed a residential condo for sale and a commercial property for rent in Chicago. She has been a realtor with Century 21 Universal since 2019.
What is a NNN Lease in Commercial Real Estate?
This is the second of a series of 3 blogs explaining the different types of commercial rent structures. A Triple Net Lease (NNN lease) is a common leasing structure in commercial real estate where the tenant assumes responsibility for the property’s operating expenses in addition to paying base rent. These operating expenses typically include property taxes, building/property insurance, and common area maintenance (CAM) costs which might include snow removal, security, water, garbage, parking lot maintenance, etc. NNN Leases are common in retail, office and industrial real estate, offering stability for landlords while tenants bear the risks and rewards of property-related expenses.
Key Features Of A NNN Lease:
- Base Rent: This is the fixed rental payment the tenant agrees to pay the landlord. It compensates the landlord for the use of the property and often depends on the location, size, and market demand.
- CAM Charges: Common Area Maintenance expenses cover the upkeep of shared spaces, such as landscaping, parking lots, hallways, or lobbies. This ensures the property remains functional and attractive. A tenant would pay their proportionate share of of the total CAM charges for the property. This may be a variable expense item.
- Pass-Through Costs: Property taxes and insurance are passed directly to the tenant. These costs can fluctuate annually, depending on tax assessments and insurance premiums. A tenant would pay their proportionate share of of the total CAM charges for the property. This may be a variable expense item.
- CAM and Pass-Through Costs may also be called Additional Rent in your lease agreement.
Example Of A NNN Lease:
Consider a retail strip center where a tenant leases a 2,000 sq. ft. space for $25 per square foot annually in base rent. In addition to the base rent ($50,000 annually), the tenant also pays their proportionate share of the property taxes, insurance, and CAM. If the total annual operating expenses for the center are $120,000 and the tenant occupies 10% of the center’s rentable area, their share of the pass-through costs would be $12,000. Thus, the tenant’s total annual cost in this NNN lease would be $62,000.
If you are looking for a commercial space, contact Sharon Bogetz at 847-370-9131. She’s been working with owners, investors, healthcare providers and commercial tenants since 2019.