Understanding the Types of Commercial Real Estate Leases

There are several different types of commercial property leases. The type of rate you are quoted will have a major impact on what you actually pay. It is important to fully understand what each one means. Here is a brief summary of some of the most common lease types:

Full Service Gross (FSG) or "Gross": A Full Service Gross lease is designed to be all-inclusive. The rate generally includes all property taxes, building insurance, building maintenance, and janitorial services. As the tenant, you will only be responsible for paying your personal expenses, such as internet & phone services. FSG lease types are common in multi tenant office buildings.  

Modified Gross (MG): A Modified Gross lease is nearly all inclusive—the tenant is responsible for paying for their usage of utilities. Typically, the space that is leased is metered separately, and the utilities (gas & electric) are billed directly to the tenant.

Triple Net Lease (NNN): A Triple Net lease is where the tenant pays, in addition to the base rental figure, all expenses associated with the operation of the unit or building, including building real estate taxes, insurance, maintenance, utilities, etc.  This is common in freestanding retail or industrial buildings, when the user occupies the entire premises.   

To calculate base monthly rent, take the yearly per SF rate (R), multiply by the size of the space (SF), and then divide by 12 months.  

(R x SF) / 12

*The base rental rate is the rate before any expenses incurred, such as those in a MG or NNN lease.