When it comes to engaging a landlord to lease a commercial property, it is important to understand the different service types that are in the marketplace. Lease services can often range from full service gross to triple net. Today, we will focus on modified gross leases and how they can benefit both tenants and landlords alike.
A modified gross lease has additional expenses already included in the lease rate. These expenses include such things as real estate taxes, common area maintenance, and property insurance/miscellaneous expenses. In the event of an increase in property taxes, for example, the tenant is only responsible for any increase over the base year. For example, if property taxes are $10,000 for the base year but increase to $11,000 for the next year, tenants are only responsible for the additional $1,000. This can either be paid as a one time expense or amortized over the course of the year. This same method can be equally applied to the common area maintenance or miscellaneous other expenses.
This instrument is beneficial for both parties. Landlords have the assurance that they will be compensated in the event of any year over year change, which greatly reduces their total overall risk. Tenants are also protected because they pay for actual expenses, rather than estimated expenses.
Modified gross leases have become increasingly popular in recent years. With so much uncertainty in the marketplace, this instrument helps control both landlord and tenant risk.
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