OWNERSHIP LIMIT EXEMPTION AGREEMENT

     THIS OWNERSHIP LIMIT  EXEMPTION  AGREEMENT (the  "Agreement"),  dated as of
December 29, 1998, is entered into by and between Mission West Properties, Inc.,
a Maryland  corporation  (the "Company") and Dan McCarthy and Paul McCarthy (the
"McCarthys").

                                 R E C I T A L S

      A. Pursuant to Section  7.2.7 of the  Company's  Articles of Amendment and
Restatement (the  "Articles"),  a copy of which is attached to this Agreement as
Appendix  I, the board of  directors  of the  Company  is  authorized  to exempt
certain  persons from the  ownership  limitation  set forth in the Articles (the
"Ownership  Limitation"),  which  limits a person from owning,  beneficially  or
constructively,  more than nine  percent  (9%) in value of the  aggregate of the
outstanding  shares  of the  Company's  equity  securities,  including,  without
limitation,  common stock,  preferred stock and any other equity security of the
Company  convertible  into or  exchangeable  for common stock or preferred stock
(the "Capital Stock"), upon satisfaction of certain conditions.

      B. The McCarthys may be deemed to Beneficially Own or  Constructively  Own
(as those terms are defined in the Articles)  more than nine percent (9%) of the
Capital Stock of the Company.

      C. The board of  directors  of the  Company has  determined  to permit the
McCarthys to be Excepted  Holders (as that term is defined in the  Articles) and
therefore,  to be exempt from the  Ownership  Limitation,  and to  establish  an
Excepted  Holder  Limit  (as  that  term is  defined  in the  Articles)  for the
McCarthys.

                                A G R E E M E N T

      NOW, THEREFORE, in consideration of the premises and the mutual covenants,
conditions and promises hereinafter set forth, the parties agree as follows:

1.  REPRESENTATIONS  OF THE  MCCARTHYS.  Each  of the  McCarthys  represent  and
undertake as follows:

     1.1  BASIC  RESTRICTIONS.   He  and  they  will  not  Beneficially  Own  or
Constructively Own shares of Capital Stock:

           (a) in excess of the  Excepted  Holder  Limit set forth in  Section 2
hereof;  or(b) to the extent that such Beneficial or  Constructive  Ownership of
Capital  Stock  would  result in the Company  being  "closely  held"  within the
meaning of Section 856(h) of the Internal  Revenue Code of 1986, as amended (the
"Code")  (without  regard to whether the  ownership  interest is held during the
last half of a taxable year),  or otherwise  failing to qualify as a Real Estate
Investment  Trust  ("REIT") for a reason  related to his or their  Beneficial or
Constructive Ownership of Capital Stock.

     1.2 RESTRICTIONS RELATED TO TENANTS. They do not and will not own, actually
or  Constructively,  an  interest in a tenant of the Company (or a tenant of any
entity owned or  controlled by the Company) that would cause the Company to own,
actually or  Constructively,  more than 9.9%  interest  (as set forth in Section
856(d)(2)(B)  of the Code) in such tenant (for this purpose,  a tenant from whom
the Company,  or an entity owned or  controlled  by the Company,  derives and is
expected to continue to derive a sufficiently small amount of revenue such that,
in the opinion of the board of directors  of the Company,  rent from such tenant
would not adversely affect the Company's ability to qualify as a REIT, shall not
be treated as a tenant of the Company).

2. EXCEPTED HOLDER LIMIT. The aggregate Excepted Holder Limit for the McCarthys,
in combination with all persons who may be deemed to have Constructive Ownership
of their shares of Capital  Stock and all persons  whose shares of Capital Stock
may be deemed  Constructively  Owned by either Dan  McCarthy  or Paul  McCarthy,
shall be eighteen and one-half  percent  (18.50%),  such that the Capital  Stock
Constructively  Owned by both of them and all such  persons  at one time may not
exceed eighteen and one-half percent (18.50%).

3. RESULTS OF VIOLATIONS.  The McCarthys  hereby  acknowledge and agree that any
violation or attempted violation of the terms of this Agreement (or other action
which is contrary to the restrictions  contained in Sections 7.2.1 through 7.2.6
of the Articles) will result in such shares of Capital Stock being automatically
transferred to a trust in accordance  with Sections  7.2.1(b) and Section 7.3 of
the Articles.

4.    MISCELLANEOUS.

     4.1 NOTICES.  All  communications  under this agreement shall be in writing
and shall be deemed to have been duly given when (a) delivered by hand, (b) sent
by facsimile  transmission  (with  receipt  confirmed),  provided that a copy is
mailed by registered mail, return receipt requested, or (c) when received by the
addressee,  if sent by Express Mail,  Federal Express or other express  delivery
service  (receipt  requested),  in each case to the appropriate  addresses,  and
telecopier  numbers  set forth on the  signature  page  hereto (or to such other
addresses,  and fax numbers as a party may  designate  as to itself by notice to
the other parties).

     4.2 GOVERNING  LAW.  This  Agreement  and (unless  otherwise  provided) all
amendments  hereof and waivers and consents  hereunder  shall be governed by the
internal laws of the State of Maryland,  without regard to the conflicts of laws
principles thereof.

     4.3  CAPTIONS.  The captions or headings of the Sections of this  Agreement
are for  convenience  only,  and shall not  control  or affect  the  meaning  or
construction of any of the terms or provisions of this Agreement.  References in
this Agreement to Sections are references to Sections of this Agreement,  unless
expressly stated to the contrary.

     4.4 NO WAIVER.  The failure of a party to insist upon strict  adherence  to
any term of this  Agreement on any occasion  shall not be considered a waiver or
deprive that party of the right  thereafter  to insist upon strict  adherence to
that term or any other term of this Agreement. Any waiver must be in writing.

     4.5 SUCCESSORS AND ASSIGNS.  This Agreement may be assigned by the Company,
but may not be assigned by the McCarthys  without the prior  written  consent of
the Company. This Agreement shall bind, and to the extent assignable shall inure
to the benefit of, the parties  hereto and their  respective  heirs,  executors,
personal representatives, successors and permitted assigns.

     4.6  ENTIRE  AGREEMENT;  AMENDMENT.  This  Agreement  supersedes  all prior
agreements among the parties with respect to its subject matter, and is intended
(with the documents referred to herein) as a complete and exclusive statement of
the terms of the agreement  among the parties with respect thereto and cannot be
changed or terminated except by a written instrument executed by the Company and
the McCarthys.

     4.7 SEVERABILITY. If one or more provisions of this Master Agreement are
held to be unenforceable  under applicable law, such provision shall be excluded
from this  Master  Agreement  and the balance of the Master  Agreement  shall be
interpreted  as if such  provision  were so excluded and shall be enforceable in
accordance with its terms.

     4.8  COUNTERPARTS.  This  Agreement  may be  executed in  counterparts  and
delivered by  electronic  facsimile  transmission,  and each signed  counterpart
transmitted by electronic facsimile shall be considered an original,  but all of
which together shall constitute the same instrument.

IN WITNESS  WHEREOF,  the parties have  executed  this  Agreement as of the date
first above written.

MISSION WEST PROPERTIES, INC.,               PAUL MCCARTHY
a Maryland corporation
                                             /S/ PAUL MCCARTHY
 By:   /S/ CARL E. BERG                      ------------------
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      Carl E. Berg                           DAN MCCARTHY
      Chairman, Chief Executive               
      Officer and President                  /S/ DAN MCCARTHY
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