PSI Virginia Real Estate Practice Exam

What is a characteristic of a Modified Gross Lease?

1. The tenant pays no expenses

2. The landlord pays all expenses

3. The landlord and tenant share expenses

4. The property has no expenses incurred

The correct answer is: The landlord and tenant share expenses

A Modified Gross Lease is characterized by the sharing of expenses between the landlord and the tenant. In this leasing arrangement, the base rent typically covers a portion of the building's operating expenses, while additional expenses such as utilities, maintenance, and property taxes may be split or allocated in some manner. This structure allows for a balance between the costs incurred by both parties. In a Modified Gross Lease, tenants are not completely free from expenses as they would be in a scenario where the tenant pays no expenses, nor is it the case that the landlord covers all expenses unconditionally. Additionally, the notion that the property incurs no expenses at all is incorrect, as all rental properties have certain operational costs that must be managed. The essence of a Modified Gross Lease lies in the collaborative approach to managing these expenses.