Updated: January 23, 2019
FSG rent… what on God’s green Earth does that mean?
When renting commercial real estate there are 3 types of leases, Full Service Gross (FSG), Triple Net (NNN) and Modified Gross (MG).
What does FSG stand for?
FSG stands for “Full Service Gross” rent. FSG rents are most typically found in leases with Office Space buildings where there are multiple Tenants and there is no way to separately meter the utility usage of their respective spaces. In this case, the Landlord pays all expenses including property taxes, insurance, common area maintenance, utility & janitorial costs and bakes these expenses into the Tenant’s monthly rent. This means that if the landlord quotes you an FSG monthly rent, the property taxes, insurance, common area maintenance, utility & janitorial costs are already included into the price, so typically you should not experience any additional rental charges.
FSG rent is the easiest form of a lease for a tenant since they are exposed to less maintenance, distractions and responsibilities. FSG leases are ideal for professional office tenants who want to stay away from the hassles of maintaining commercial real estate. Full Service Gross buildings also tend to have more services associated to them since the Landlord gets to pass the costs along by already baking them into the rent of Tenants. Typical services such as security, onsite maintenance and open areas are some of them.
Caveats of FSG leases
Keep in mind that most FSG leases tend to have a Base Year for Operating Expenses. The Base year is the year that the tenant takes possession of the space. From that point on, every year the Landlord compares their current expenses to a Tenants Base Year and if there is an increase, the Tenant is responsible for their proportional share of the increase. That means that you only pay the increase, not the entire expense. For a small tenant in a large high-rise this is not a big expense. For a large tenant they need to be careful not to be exposed to too much in expenses. You can always ask for a Landlord to cap the increase at say no more than 5% in any given year. But this has to be negotiated. This is where using a good commercial real estate agent to negotiate your lease comes in handy. There may be years where the costs go down however there is never a reimbursement of reduced expenses. The biggest exposure a Tenant has is when there are capital expenditures such as a remodeling of the building. Full Service Gross (FSG) buildings also tend to have operating hours associated with them and after say around 6pm or 7pm, the building shuts down including HVAC and Tenant has to pay hourly fees to operate the system. This can get costly for businesses who do after hours work.
How NNN Rent Differs from FSG
Most free standing retail or industrial buildings tend to be Triple Net (NNN) leases where the Tenant is responsible for all expenses related to the property. This is outside of structural costs including taxes, insurance, common area maintenance, utilities and janitorial services. In these NNN types of leases Tenants usually have to also take out maintenance contracts for the HVAC and roof to make sure nothing goes bad. If it does, depending on the lease, the Tenant may be responsible for repair or replacement costs. Commercial real estate property investors love these types of leases because it makes the Tenant responsible for the property costs — and since the Investor (Landlord) doesn’t have to do much work, they sit back, relax and collect rent.
How MG Rent Differs from FSG
Modified Gross (MG) leases give more flexibility to the Tenant. In MG leases the Tenant is only responsible for Utility expenses and/or Janitorial costs. These types of leases allow for a separate meter to be installed so the tenant gets a separate invoice from the utility company, and there are no additional expense pass throughs from the Landlord to the Tenant. Modified Gross leases are great for businesses that need to use utilities and HVAC services after regular business park hours, such as a health-club business. The Tenant is directly billed for their usage from the utility company.
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This article was written by top Digsy Expert, Sam Monempour.
January 17, 2017 at 6:56 pm
I like that you pointed out that FSG leases are ideal for professional office tenants who want to stay away from the hassles of maintaining the commercial real estate. I own a small business running out of my home, and I am thinking about leasing some office space or purchasing some. I can’t decide which would be better for my growing company. http://www.cjmlaw.com.au/services/commercial-leases/