Encyclopedia
Modified gross lease
A lease where tenant and landlord split building costs in a way between net and gross.
For example: An office tenant pays some costs and the landlord the rest. (Illustration only, not a real deal.)
This is a general industry term with no single official definition. Your lease or contract wording controls.
Example only, not a real client. Say you lease a small office where the rent covers taxes and building insurance, but you pay your own utilities and suite cleaning. Knowing which costs are yours lets you budget clearly from the start.
What I’d tell a friend
With a modified gross lease, ask for a written list of what is included and what you pay separately.
Why it matters to you
Some costs are in the rent and some are extra, and the lease is the only place that says which. If it's vague, you can end up paying for something you thought was included, so ask for a clear list before you sign.
How to use it in your deal
Tenants should get a clear list of which costs are in the rent and which are extra, and ask how increases are measured. If there's a base year, check that it was a normal year: a base year with low occupancy or a tax appeal can make later increases look bigger. Landlords should define everything in writing so there's no argument at year end.
Buyers should note which costs the landlord carries, because rising costs come out of net operating income (NOI, the income left after running costs). Ask exactly which costs are included and which pass through, since the term means different things to different landlords. Get the base year or expense stop in writing, with the actual figures. Compare total occupancy cost against net leases for similar space. Ask for a one-page chart of taxes, insurance, utilities, janitorial and repairs marked tenant or landlord.
Mistakes I see
Assuming "gross" means everything is included. Not checking the base year. Forgetting utilities. Comparing it with net leases without adjusting.
In BC and Vancouver
There's no BC definition; the lease controls. The Commercial Tenancy Act sits in the background for remedies.
Official sources: Commercial Tenancy Act (BC Laws) · CanLII (court decisions)
What it means
A modified gross lease sits between a gross lease and a net lease. The rent covers some building costs, and the tenant pays others separately.
The split varies from lease to lease, so the label alone does not tell you much.
What to check
Read exactly which costs are included and whether increases above a base year are passed on to you. Ask for the past few years of building costs to see the trend.
Compare offers on total occupancy cost, not just the rent, so a gross-looking deal and a net deal can be lined up fairly.
Questions to ask before you sign
- Which costs are included in my rent?
- What's the base year and was it typical?
- How are increases calculated?
- What do I pay directly?
Keep reading
Related terms: Gross lease, Net lease, Base year
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General information for British Columbia only. It isn’t legal, tax, accounting or financial advice, laws and rates change, and reading it doesn’t make you my client. Any numbers or scenarios are hypothetical. Check the linked official source and talk to a lawyer, accountant or other qualified professional before you act or sign anything. See the terms and disclaimer.