Does a modified gross lease have a base year?
Asked by: Mr. Michael Thiel | Last update: February 9, 2026Score: 4.8/5 (24 votes)
Yes, a modified gross lease typically uses a base year to define the starting point for operating expenses, with the tenant paying their share of increases above that base year amount in subsequent years, making it a hybrid of gross and net leases where some expenses are covered, but future cost increases are passed to the tenant. The base year (often the first year) establishes a benchmark for costs like property taxes, insurance, and common area maintenance (CAM), with tenants paying only for the excess over that baseline.
What is a modified gross lease with a base year?
A common modified gross lease structure is to have a base year for taxes, insurance, and common area maintenance, but have utilities and janitorial paid separately. We've seen almost every combination, so it's important to review the lease to be sure what is included.
What type of lease has a base year?
A Base Year is a clause found in many Full-Service and Gross Leases. It is not found in NNN leases.
How does modified gross lease work?
Modified gross leases are hybrid agreements that offer flexibility by having tenants pay a base rent plus a share of specific operating costs like utilities. This model often appeals to businesses that need a balance between cost predictability and expense control.
Is a base year lease a gross lease?
A gross lease rate consists of a base rent per square foot and additional operating expenses per square foot set during the base year. The base year is typically the year the lease is signed. As such, a gross lease rental rate is inclusive of rent and the first year's operating expenses.
Modified Gross Leases Explained
What are the disadvantages of modified gross lease?
Cons of this type of lease are:
- Its modifiability and complicated cost structure mean it should be negotiated by sophisticated parties.
- Additional Rent is variable in nature, which makes it harder for tenants to forecast expenses.
- If poorly negotiated, there is the potential for overcharging by the Lessor.
What is considered the base year?
In the calculation of an index the base year is the year with which the values from other years are compared. The index value of the base year is conventionally set to equal 100.
Who pays what in a modified gross lease?
A modified gross lease is a combination of a gross lease and a net lease. The tenant pays the base rent and expenses that are attributable to their space, while the landlord pays for the other operating expenses. It is usually a negotiated lease between the landlord and the tenant to split the expenses.
What is the difference between a full service lease and a modified gross lease?
For example, in a modified gross lease the renter may pay electricity costs, but the landlord is responsible for waste removal. A full-service lease is where a tenant pays a flat fee, and the landlord is responsible for paying all incidental costs out of that rent.
What is a modified lease?
A modified gross lease is a commercial real estate agreement where both landlord and tenant share property operating expenses. The tenant pays base rent plus specific operating costs, while the landlord covers remaining expenses.
What is the difference between NNN and modified gross lease?
Pass-through clauses are common in lease types like triple net (NNN), modified gross, and even percentage leases. For example, in a triple net lease, tenants typically cover all pass-through costs. In contrast, a modified gross lease might allocate only certain expenses to the tenant.
How do you choose a base year?
A base year is the first in a series of years in an economic or financial index, typically set to an arbitrary level of 100, used to measure business activity or growth, like comparing sales from one period to the next. The base year can be any year, but analysts usually choose recent years.
What is the 90% rule in leasing?
The 90% rule in leasing, primarily under U.S. GAAP, is an accounting guideline to classify a lease as a finance lease (like a purchase) versus an operating lease, stating that if the Net Present Value (NPV) of lease payments is 90% or more of the asset's Fair Market Value, it's treated as a finance lease, reflecting that the lessee essentially buys the asset over the lease term. It's one of several criteria, but it remains a commonly used benchmark for "substantially all" of the asset's value, even with newer standards.
What is a base year in a lease?
The “base year” is generally the first year of a commercial rental period that sets a precedent for how much tenants will pay for building expenses for each subsequent year.
What are the limitations of using a base year?
One major challenge in base year analysis is the issue of inflation. Inflation occurs when the prices of goods and services increase over time due to changes in the economy. This can make it difficult to compare prices from one year to the next, as the value of money may change significantly.
What does mg mean in lease?
Modified Gross (MG)
Modified gross leases are commonly used when neither party wants a triple net (TNN) lease but the tenant's use of the property will result in an above-average expense (i.e., an exceptionally high electricity bill).
What is a modified gross lease with base year?
This lease, often referred to as a modified gross lease or base year lease, requires tenants to pay a proportionate share of increases in real estate taxes and operating expenses above those incurred in a negotiated base year.
What is an example of a modified gross lease?
Modified Gross Lease Examples
Expense Stops: The landlord covers expenses up to a predetermined limit, known as the expense stop, after which the tenant is responsible for any additional costs. For instance, with an expense stop set at $1 per square foot (SF), the tenant pays any costs that go beyond this amount.
What are the four types of leases?
The four main types of commercial leases, differing by how operating costs are shared, are Gross Lease, Net Lease (Single, Double, Triple), Modified Gross Lease, and Percentage Lease, with the key distinction being who pays for property taxes, insurance, and maintenance (NNN) in addition to base rent.
What is the new law in Massachusetts for broker fees?
Beginning on August 1, 2025, a new law in Massachusetts prohibits property owners from requiring renters to pay broker's fees when they have not hired a broker themselves. Learn more about what this means for your housing search, and how to get help if you're asked to pay unfair fees.
What is a potential disadvantage for landlords in a modified gross lease with an expense stop?
What is a potential disadvantage for landlords in a modified gross lease with an expense stop? The landlord may have to cover a significant portion of the property's operating expenses up to the expense stop.
Do landlords want your gross or net income?
Calculate Net Income: While gross income is important, tenants' ability to pay rent depends on their net income after deductions. Deductions may include taxes, Social Security, health insurance, retirement contributions, and other applicable items. Make sure to calculate the net income accurately.
Who decides the base year?
New Base Year for GDP
The change in the base year captures the actual change in structures of the economy. The Ministry of Statistics and Programme Implementation (MOSPI) will decide on a new base year for the GDP series in a few months.
What is another name for the base year?
Reference year = The base year is used in calculating certain economic terms like gross domestic product or consumer price index. So for calculating all these we need a reference or a benchmark against which other years are compared. So base year is known as reference year.
Which year is taken as the base year?
(GDP), and Index of Industrial Production (IIP). While the revised base year for GDP and IIP is 2022-23, it is 2024 for CPI. The base year is periodically revised to accurately reflect the evolving dynamics of the Indian economy.