About Modified Gross Commercial Real Estate Leases

Florida Modified Gross Commercial Leases

With a gross lease, the tenant pays a single agreed upon rent that covers all of the property’s expenses including taxes, insurance, maintenance, utilities and more.

In a net lease, the tenant pays for the property taxes, insurance, maintenance, or all three, along with their rent.
A modified gross lease allows for a compromise between the two, and there are many potential benefits for both parties to choose this type of agreement, making it popular in commercial real estate.

This type of lease is often negotiated or reviewed with the assistance of a South Florida real estate attorney, as many modified gross leases are highly detailed.

Modified Gross Leases are Often Preferred

Standard gross or full-service leases can be risky for the landlord if expenses start to rise over time while the rent stays the same.

Triple net leases are often burdensome for tenants who don’t want the added cost and paperwork liability when they are already paying their monthly rent and other business expenses.

Modified gross leases are often a viable and preferred option, as they allow both the landlord and tenant to take on the particular expenses that they would prefer to pay for.

Modified Leases Address the Uniqueness of Each Business

In commercial real estate, every business has its own unique liability, zoning requirements, maintenance needs, taxes, insurance costs, and other specifics that should be addressed in the lease.

Relying on a standardized net or gross lease is almost always a major mistake in commercial real estate. With the wide variety of different scenarios that can be encountered, there is almost a certainty that an oversight or mistake will be made.

How Modified Gross/Net Leases Are Used

As one example, a business may be looking for a new space for manufacturing purposes, but their process has certain hazard risks that previously were not present.

Insurance premiums will increase as a result, so the landlord will want a modified gross lease to account for potential rate increases.

Or changes in zoning could also result in higher property taxes for the landlord, and again they will want a modified lease to account for that.

In other situations, there may be multiple tenants in one building, each with their own proportional usage of utilities and maintenance costs.

Some tenants will use more utilities and require more maintenance than others, so it doesn’t make sense to change two tenants the same rent, even if their square footage is the same. A modified lease can be structured to take details like this into account and much more.

Every circumstance is different, and that’s why it’s critical to have an experienced real estate attorney in South Florida available for guidance.

Call Schecter Law today at (954) 779-7009 for any questions you may have about commercial real estate leases.

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