A modified gross lease is a commercial lease in which the tenant pays a fixed base rent on a monthly or annual basis, but also agrees to pay a proportional amount of the operating expenses for the property, such as:
• taxes
• property insurance
• utilities
• maintenance and repairs (including structures such as the roof), systems (heating, ventilation, and air conditioning and electrical)
• common area maintenance (CAM) such as maintenance of the parking lot, landscaping, maintenance staff, security staff, and maintenance of elevators and escalators.
There are many variations of modified gross leases, with different expenses reimbursed by the tenant to the landlord, and different methods of calculating the tenant’s proportionate share of the expenses.
In Texas, a modified gross lease is a type of commercial lease agreement where the tenant pays a set base rent plus a share of some of the property's operating expenses. The specific expenses covered by the tenant can vary from lease to lease but typically include items such as property taxes, insurance, utilities, maintenance and repairs, and common area maintenance (CAM). The tenant's proportionate share of these expenses is usually determined based on the amount of space they occupy relative to the total property. The exact terms of a modified gross lease can differ significantly, so it is crucial for both landlords and tenants to carefully negotiate and review the lease agreement to understand their respective obligations. Texas law does not prescribe a specific format for modified gross leases, so the terms are largely dictated by the lease agreement itself. It is advisable for tenants to consult with an attorney to ensure that the lease terms are clear and to understand their financial responsibilities under the lease.
