A modified gross lease is a rental agreement where the tenant pays base rent at the lease’s inception, but in subsequent years, also pays a proportional share, or proportional share above a base amount, of the some or all of the property’s operating expenses.
As an example calculation, if a tenant pays $20/sf in base rent for the duration of its lease and property expenses are $10/sf in year 1 and $11/sf in year 2, then the tenant may pay $20/sf in year 1 and $21/sf in year 2 ($20/sf base rent plus the increase in expenses over the base year).
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