What does FSG mean when it comes to real estate leases?
If you have been considering a commercial lease, you have likely run into a number of terms that you haven’t seen before. You might even struggle to make sense of all the jargon: Triple Net, CAM Cap, Cap Rate, etc.
The same too can be said for FSG or full service gross lease.
A full service gross lease or FSG is a lease where the landowner or building owner pays all costs associated with maintenance and upkeep and the tenant pays only for rent and utility costs. In this lease, there is a single amount paid by the tenant, this typically includes your base rent and includes the cost of your utilities like water, sewer, electricity, and or gas, property insurance, and any common area maintenance fees.
Costs associated with the facility’s operation could also be included in the FSG, things like trash removal, internet and phone service, security, etc. Some of these may be in the CAM fees portion of the lease, so do check the fine print. The bottom line is that on an FSG lease, the lessee and the lessor have an agreed-upon, simplified fee structure that gives both parties comfort in knowing that the monthly payment will cover both parties’ expenses.
Where do you see FSG leases used?
Most FSG leases are written up for office buildings or older retail or industrial spaces. These leases are common because the landowner recognizes that the costs to operate and maintain the facility can vary greatly by the type of business seeking to inhabit the space, and as a result, it would be easier to structure a lease that gives the lessor full control in the cost structure since they know what fees are truly associated with inhabiting the space.
Tenants may be unaware of the cost of building insurance, common area maintenance, and property taxes, so an FSG lease will factor these costs into a single payment, ensuring that the lessor isn’t responsible for determining all the ancillary costs of operation. This makes it easier for the landowner to lease their space, given they are using a flat fee structure, and for the leasee since they are given a singular cost to compute.
This can be a benefit to those businesses who are unsure of their total operational costs and want peace of mind in knowing that their landlord will cover all ancillary costs via the simple rent payment. For those businesses who have a firm idea of their operational costs, want more discretion in lease structure, or recognize they have unique needs that may not require the services woven into a singular payment, a full-service gross lease may not be their best bet and some negotiation may be in order.
Why are FSG leases used?
Full service gross leases are commonly used where there is a consistent demand for routine maintenance, high-level upkeep, and high amenity usage. In this lease structure, there are operational costs that each of the tenants are taking advantage of on a regular basis, and haranguing the tenants with countless individual invoices is avoided for the sake of a singular payment structure.
Additionally, landlords may recognize that if they are maintaining multiple structures and outsourcing the work to a custodial firm, spreading their costs among all of the tenants for all of the services provided can lower total upkeep costs, giving tenants high-quality service at a fraction of the unit cost.
FSG leases are also common because of their flexible nature. If a landlord maintains a space where a number of the businesses share the same sector, taxes, and utilities, then overall costs can be estimated with a high degree of certainty, and the single payment structure can be projected at the onset, allowing tenants a turnkey solution.
Why you should know the difference between Triple Net and FSG leases
Triple Net leases are the most common kind of commercial lease and pass most building expenses on to the lessee in addition to their base rent in the form of multiple invoices. Full service leases are leases that are single payment in structure and wrap up all costs into one payment, allowing the tenant to pay once and have their building insurance, maintenance fees, and taxes covered in the singular payment.
For your business, you need to determine what lease structure is in your best interest. If the idea of a singular, FSG payment, with all costs included in the fee, appeals to you, finding an office building with a full service lease structure is advised.
Yes, the rental rate for these structures is often higher than other properties on the market, but that is because it is full service. Understanding the fee structures and what is included is critical in determining where your business can thrive. If you’re unaware of fees in a triple net lease structure, you may think you’re getting a good deal only to find out that secondary building fees are much higher than originally expected.
So which lease is right for you? Talk to your trusted leasing professional, discuss the lease specifications you might need, and factor in the costs associated with these prospects. Whether the lease FSG, Triple Net, or some sort of hybrid, the leasing professionals at PMC will help you find the location you need.