The Trend Towards Modified Gross Leases And Their Unpredictable Expense Structure

There are three main types of leases for commercial and industrial property: (1) gross lease; (2) modified gross lease; and (3) triple net lease. A gross lease is somewhat unusual in the commercial and industrial lease industry. However, in this post-covid world, when negotiating an extension of a lease or possible renewal, we are finding that many landlords with a gross lease are taking the opportunity to revisit business terms and modify the existing payment and expense structure.

There is a noticeable trend in altering a gross lease to a modified gross lease, and the reason for this trend is largely due to the landlord wanting to shift the exposure of the cost of repairs or replacements to the building or common area to the tenant. A gross lease has a structure that obligates the tenant to make one total (a "gross") payment of rent each month and the landlord takes the risk that they have calculated sufficient amounts in that "gross" rent to cover a sufficient