when modified gross leases are common
modified gross leases are common when multiple tenants occupy an office building in a building with a single meter where the monthly electric bill is 1 000 the cost would be split evenly between the tenants if there are 10 renters they each pay 100 or each may pay a proportional share of the electric bill based on the percentage of the building s total square footage that the tenant s unit occupies alternatively if each unit has its own meter each tenant pays the exact electrical expense it incurs whether 50 or 200 the landlord may generally pay other costs related to the building under a modified gross lease such as taxes and insurance pros and cons of modified gross leaseslike any other business transaction there are both pros and cons to modified gross leases for tenants and landlords since maintenance and other related costs are borne by the landlord the tenant stands to benefit the tenant has more control over budgeting for costs directly related to its business including rent business taxes salaries etc but if the landlord is lax in general maintenance this may be a problem for tenants especially those who rely on the appearance of their office or retail space to allure and retain clients by using a gross modified lease landlords can rest assured their property is maintained to the degree they see fit especially since some tenants may not be as reliable when it comes to doing repairs or improvements such as maintaining the exterior space one disadvantage though is undervaluing the operating costs so a landlord may be in trouble if the rent they charge is too little for a space that requires a lot of upkeep gross and net leasesunder a gross lease the owner landlord covers all the property s operating expenses including real estate taxes property insurance structural and exterior maintenance and repairs common area maintenance and repairs unit maintenance and repairs utilities and janitorial costs landlords who issue gross leases typically calculate a rental amount that covers the cost of rent and other expenses such as utilities and or maintenance the amount payable is normally issued as a flat fee which the tenant pays to the landlord each month for the exclusive use of the property this can be beneficial for a tenant because it allows them to budget properly especially when they have limited resources a net lease on the other hand is more common in single tenant buildings and passes the responsibility of property expenses through to the tenant net leases are generally used in conjunction with tenants like national restaurant chains many commercial real estate investors who purchase properties but don t want the aggravation that comes with ownership tend to use net leases because they pass on the costs associated with the building insurance maintenance property taxes to the tenant through a net lease most landlords will charge a lower amount of rent 