The Modified Gross Lease — Everything Is Negotiable, Literally

Between gross (landlord pays everything) and triple net (tenant pays everything) sits the modified gross lease — a label meaning only “we negotiated a split.” No two are identical, which is the entire point and the entire hazard.

The common architectures

Base-year deals (office’s favorite): landlord covers expenses at their first-year level; tenant pays increases above that baseline thereafter — making the base year’s expense reality, and any manipulation of it, a real negotiation item. Expense stops: same idea as a fixed dollar figure per square foot. Category splits: tenant takes utilities and janitorial; landlord keeps taxes, insurance, and structure — or any other carve-up two lawyers survived. Industrial “modified gross” often means tenant-everything-but-roof, drifting toward NN territory.

Comparing quotes across structures

The only honest method: convert everything to all-in occupancy cost. A $28 modified gross quote with a $9 base year and a $24 NNN quote with $10 of pass-throughs aren’t $4 apart — run both through the NNN lease calculator at realistic expense levels and compare totals. Landlord-side, the same conversion prices your retained exposure: whatever expenses you kept are your inflation risk, growing quietly between base years.

Why net lease investors mostly pass

Modified gross buildings demand expense management, reconciliation accounting, and base-year vigilance — the operational load single-tenant NNN buyers specifically paid to avoid. MG has its place (multi-tenant office and flex, tenant-relationship flexibility); passive income isn’t it. When an “NNN” listing’s fine print reveals base-year mechanics, reprice it as the different product it is.