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Understanding Lease Rates

navpoint  /   April 12, 2012

There are three main types of lease rates:  Triple Net (NNN), Modified Gross (MG), and Full Service Gross (FSG).  Some landlords might offer their space differently, but the majority follow the three main types listed above.  The type used will also vary depending on the type of property one is interested in.  This can be confusing and overwhelming when one is trying to find space to lease.  My goal is to break it down so that it is a bit easier to understand.

 

Most retail, flex or industrial buildings and a few office buildings use the NNN lease rate.  This means that in addition to your quoted lease rate you also pay utilities, janitorial service, taxes, insurance and common area maintenance expenses.  At the beginning of the year the landlord will give you an estimated number for the taxes, insurance, and common area maintenance (snow removal, parking lot lights, etc).  These three expenses will be paid monthly based on the estimated number.   The utilities and janitorial services are set-up by the tenant individually as needed.  Sometimes you will find a property that includes water or some other utility in the NNN expenses.  This means that the property is not separately metered and therefore allocated through the NNN expenses.  This can be a good thing if you are a tenant the uses a larger amount of that particular service or it can also be a bad thing – it all depends on what type of tenant you are and the other tenants in the property.

 

A Full Service Gross (FSG) lease type is mainly used for office buildings.  This means that in the quoted lease rate, all utilities, janitorial services, taxes, insurance, and common area maintenance are INCLUDED.  A “base year for operating expenses



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