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A modified gross lease is a rental agreement where, in addition to their rent, tenants pay a share of other costs associated with the property.

The most common occasion for a modified gross lease is seen when multiple tenants occupy an office building. Say the building has 10 tenants and a single meter, and its monthly electric bill is $1,000. According to typical terms specified in a modified gross lease, each tenant would pay $100 to cover the bill.

In a modified gross lease, each tenant pays for expenses that are directly related to their unit. That can include utilities, janitorial costs, maintenance and more. The owner or landlord will pay the building’s additional operating expenses.

If certain tenants have larger units and use more electricity or other utilities, they may pay a larger share of the bill based on the percentage of the building’s square footage they occupy. If each unit has its own meters, each tenant pays the utility expenses they incur.

A modified gross lease falls somewhere between a gross lease and a net lease. In a gross lease, the owner or landlord pays all of the property’s operating expenses. A net lease requires the tenant to pay property expenses. Single-tenant buildings most commonly use net leases.

It’s important tenants read their rental agreements and understand the terms of their lease when they sign.

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