What Type of Commerical Lease Are They Asking?

There are a variety of lease types in Commercial Real Estate.  Having a basic understanding of the most commonly used lease types will help you make a better decision when looking for a space to rent.  For example, you are interested in comparing 3 commercial spaces and all identical sizes.  Space 1 is offering $2.35 (FSG) Full Service Gross per sq. ft.  Space 2 is offering $2.25 (MG) Modified Gross per sq. ft.  And Space 3 is offering $1.55 (NNN) Net Net Net per sq. ft.  From the surface the $1.55 NNN sure looks attractive, but beware, that’s not always the case.  Also, lease terms may have slightly different meanings depending on who you ask.

Full Service Gross (FSG): Monthly rent included utilities, janitorial services, taxes, insurance and common area maintenance. In simple terms, the rent includes everything except for you phone and internet.  Also, parking might have an additional cost depending on location. This type of lease is very typical for office buildings. The Landlord is however able to pass on your pro rata share of any annual increases in operating expenses for the following year.  Office buildings also have typical office hours of operation. This means that your Heating, Ventilation, and Air Conditioning (HVAC) will be limited to only those hours.  Most buildings charge for after hour usage should you request access to the HVAC during those times.

Gross Lease: Monthly rent includes maintenance, taxes and insurance. You are responsible for the cost of your own utilities, janitorial, phone and internet.  This is commonly used in multi-tenant commercial buildings.  This type of lease when referred to an Industrial building is sometimes known as an Industrial Gross lease.  If your work hours are early morning, late nights and weekends, this type of lease might be better for you.

Modified Gross Lease (MG): Monthly rent includes a separate charge (e.g. common area maintenance (CAM), janitorial, proportionate share of water) TBD by Landlord. This is typically a hybrid of a Gross Lease.  In this case, you would need to find out from the Ownership exactly what additionally you would be responsible for.  This type of lease is commonly used in multi-tenant commercial buildings. 

Triple Net Lease (NNN): In addition to monthly rent, the tenant is responsible for paying their estimated pro rata share of taxes, insurance, utilities, janitorial service and all common area maintenance.  Any expense to the property can be passed on to the Tenant. This is typically billed to the tenant on a monthly basis in addition to their monthly base rent.  At the end of the year, semi-yearly or quarterly year, if the actual total NNN’s are different, either the Landlord or Tenant will be responsible for the difference in credit or payment.  NNN charges on average can be as low as $.15 per sq. ft. to as large as $1.20 per sq. ft. or higher.  Now depending on the person you ask, the roof and structure of a building may or may not be the Tenants responsibility.  On a lease called an Absolute NNN Lease, the Tenant is responsible for Roof and Structure, however on a NN Lease the Tenant is not responsible.   The monthly base rent might be look appealing, however be careful and know what the NNN charges are so you can budget accordingly. This type of lease is typical on Retail Storefront, Shopping Centers, and Single Tenant Commercial Buildings and favors the Landlord.