Glossary / Lease terms and deal stages
Also known as: MG lease, modified gross
A modified gross lease is a middle ground between gross and net leases. The tenant pays a rent that covers some operating expenses, and pays some costs or its share of expense increases separately. The exact split varies from lease to lease.
The SIOR lease glossary defines a modified gross lease as one "in which a tenant pays a fixed sum for rent from which landlord pays all operating expenses for the first or lease year (or dollar stop), and thereafter tenant pays all increases in operating expenses." Wikipedia describes it as a structure where tenants typically contribute their proportional share of operating costs rather than the landlord absorbing everything.
Because there is no single standard, the lease itself defines which expenses are included in rent and which are billed. Increases are often handled with a Base year or Expense stop.
Your commission is usually tied to rent, so what is included in the modified gross rent matters. If more expenses are folded in, the quoted rent is higher; if more are billed separately, the Base rent is lower. Whether separately billed expenses count toward your commission depends on your commission agreement.
For comparison, a Grubb & Ellis commission agreement excluded increases in operating expenses over the base year from its commission calculation, while a CBRE agreement with the State of Michigan calculated the fee on total rent over the term. The same modified gross deal can produce different fees under those two approaches.
When you compare a modified gross proposal with a net or full service proposal for the same tenant, convert each one to the rent figure your agreement uses, so you can see which deal actually pays you more and by how much.
On a modified gross deal, list which costs are in rent and which are billed separately, then apply your agreement's rent definition.
