What's the difference between gross, modified gross, and net commercial leases?
The short answer
In a gross lease, the tenant pays a single rent figure and the landlord covers operating costs — taxes, insurance, and maintenance — out of that rent. In a net lease (typically NNN), those costs pass through to the tenant on top of base rent. A modified gross lease sits in between: some costs are bundled into rent, others pass through, and the split varies by lease. 'Modified gross' is widely described as the most variable of the three structures because every modified gross lease defines its own split differently. The label tells you the general model; the lease's definitions tell you what you actually pay. Scan your lease to see which costs are bundled and which pass through before you sign.
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What each structure usually means
A gross lease is the simplest model from the tenant's perspective: one rent number covers the space, and the landlord handles property taxes, building insurance, and maintenance from that amount. Gross leases are common in smaller office and retail properties. The landlord prices in the expected operating costs, so the tenant trades predictability for a higher headline rent. A net lease (usually NNN) separates those costs: base rent is typically lower, and taxes, insurance, and CAM are billed as pass-throughs. The tenant bears the variability in those costs year to year.
A modified gross lease blends the two. A commonly seen variant passes electric and gas through to the tenant but bundles taxes, insurance, and maintenance into rent. Another common variant includes base-year operating costs in rent and passes only increases above that base year through to the tenant. Because 'modified gross' describes a category rather than a fixed structure, two leases with that label can have very different cost allocations.
Why people worry
First-time commercial tenants commonly report confusion between the structures, particularly around modified gross leases where the label implies a middle ground but the actual split is not self-evident. A modified gross lease that passes through electricity, HVAC maintenance, and above-base-year tax increases can end up costing nearly as much as a NNN lease — the terms, not the label, determine the real cost.
What to look for in your lease
- An explicit list of which costs are included in the rent and which are billed separately.
- Whether any passthroughs are subject to a cap or base-year limit.
- For modified gross leases: whether 'base year' expenses are defined and how increases above that base are calculated.
- Utility obligations — electricity and HVAC are often the variable that distinguishes modified gross structures.
- Whether the structure matches what you were quoted and discussed during negotiation.
Questions to ask before signing
- Ask the landlord to provide an itemized list of every cost the tenant is responsible for beyond the base rent figure.
- Ask the other party to clarify what 'modified gross' means specifically in this lease and which costs pass through.
- Confirm the estimated total monthly cost inclusive of all passthroughs before signing.
- Consider having the lease reviewed to verify that the cost structure matches what was represented.
Why scan instead of guess
The general rule tells you the baseline. Your lease tells you what you’re actually being asked to sign — and the wording is what binds. Dang reads the document and flags the clauses worth reviewing, in plain English.
The deterministic engine scores and decides what’s risky. The AI only enriches the plain-English wording — AI extracts, code decides, never the other way around.
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Common questions
Is a gross lease always better for a tenant than a NNN lease?
Not necessarily — a gross lease bundles operating costs into a typically higher base rent, while a NNN lease separates them at a lower base. Which is better depends on the market, the building's operating cost profile, and whether the gross rent is competitively priced. A detailed comparison of all-in costs for both structures is generally more useful than comparing labels.
What does 'base year' mean in a modified gross lease?
A base year is the starting year whose operating costs are embedded in the rent. In subsequent years, only cost increases above the base year level pass through to the tenant. This structure limits the tenant's passthrough exposure in early years but can result in growing passthroughs as the lease matures.
No account required · File deleted after analysis · Not legal advice. Dang reports contract findings in plain English — general information, not legal advice about your situation. For consequential decisions, consult a licensed attorney in your state.