Modified Gross Lease Vs. Full Service Lease

There are many vital aspects to successfully navigating commercial real estate listings and finding the best fit for your investment strategies. Aside from price and cap rates, a key factor to consider is the type of lease that may already be in place on a property (which you’ll inherit as the new property owner). Lease types vary, and the unique details within each deal can also be very different from one property to another.

As we’re working to bring qualified buyers to the best listings for their portfolios, SIG advises investors on the existing lease terms that are in place (and come along with) the sale of a property, and we’re often asked, “What’s the difference between a gross lease and a modified gross lease? How are they different from a triple net deal?”

A side-by-side comparison of these different lease types can help you best understand them individually and learn how the terms vary across different lease types, so we’ve prepared comparisons of modified gross lease vs. full service lease vs. triple net lease to help you distinguish lease types and understand which fits your investment criteria best.

Full Service (or Gross) Lease

A full service, or gross, lease provides tenants with an all-inclusive deal that is covered by their monthly rent payments to the property owner. In a gross lease, the property owner is responsible for all the expenses associated to the property, including:

  • Property Taxes
  • Insurance
  • Maintenance and Repairs
  • Property Improvements

The purpose of a gross lease is to simplify tenant expenses by including everything in one agreed upon rent sum. However, this type of lease also gives the property owner the opportunity to cover some or all of the property expenses by building those costs into a monthly rent payment from their tenant. In instances where a property has multiple tenants, the costs will be divided amongst the various tenants, based on their usage of the space.

Triple Net (NNN) Lease

A triple net commercial lease, also known as an NNN lease, is an agreement between a property owner and a tenant where the tenant absorbs all the costs and expenses for the property, including:

  • Monthly Rental Fees for the Building or Space
  • Property Taxes
  • Insurance Premiums
  • All Maintenance, Upkeep, and Repairs

NNN leases are extremely advantageous for investors, who favor this type of commercial lease because it’s a low-touch, low-risk investment that provides solid, predictable returns via monthly rent payments. Triple net leases are typically used in single-tenant business locations such as restaurants, banks, dollar stores, medical clinics, etc.

Triple net real estate can also be very beneficial to tenants who want a dedicated location to grow and expand their business, without having to dabble in real estate or cover new construction costs to find a prime location. Instead, they build all the property expenses as business expenditures to build their business.

Modified Gross Lease

In a gross lease, the property owner pays all of the expenses associated to the building, in exchange for a monthly, all-inclusive rent sum. In a triple net lease, the tenant absorbs all of the operating expenses and property costs into their own business in addition to monthly rent payments.

A modified gross lease falls somewhere in between the terms of a gross lease and a triple net lease. In a modified gross lease, the tenant is responsible for some (but not all) of the operating expenses of the property but they still get to pay them as part of one monthly rent amount.

The terms of modified gross leases are unique to each particular deal, and can vary vastly in how costs and responsibilities are divided between the property owner and the tenant. For example, in a modified gross lease, a tenant may be responsible for all the upkeep and maintenance costs as well as certain portion of insurance premiums, while the property owner covers taxes and remaining insurance costs.  Modified gross leases are commonly in place on office buildings or other stand-alone buildings.

Sands Investment Group is a unique team of distinguished experts in the net lease space who fully understand even the most subtle distinctions between various types of commercial leases. Our client-focused approach, extensive connections, and marketing expertise are just a few of the reasons we’re the fastest growing net lease investment company in America, closing 1,700 transactions worth $4 Billion since 2010.

Get in touch with a net lease expert today by calling 844.4.SIG.NNN or sending us an email at info@SIGnnn.com.

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