For the sake of this article, we’ll be speaking about the differences between Full Service Gross (FSG) and Triple Net (NNN). Simply put, with an FSG lease, the landlord assumes the risk that property taxes, utilities (including Internet/Phone), property casualty insurance, property maintenance, landscaping, snow removal, and other expenses will increase and thus includes these expenses in the monthly base rent.  One advantage of an FSG gross is that the responsibility of all the operational expenses rests on the landlord’s shoulders and all you need to worry about is paying the monthly rent.  Additionally with an FSG lease the landlord is casting a vote of confidence that they can run the property better, more efficiently, and for less money than some disinterested third party manager can, and thus is willing to accept the risks inherent in the non fixed property costs.  Typically in an FSG lease you will see owner/operator property managers or smaller property managers that are easier to approach and work with on a daily basis.

Conversely, with a NNN lease, the tenant assumes those risks. The tenant must also contract separately for utilities, janitorial, and trash service.  With a NNN office lease, the landlord will typically maintain all common areas and pass these costs on to the tenant in accordance with Tenant’s proportionate share.  In this case the landlord doesn’t have nearly as much, if any, incentive to keep costs down since the costs are passed through to the tenant per the lease agreement.  These agreements can be VERY risky for the tenant who doesn’t have a well versed attorney or broker advising them or who isn’t extremely experienced when analysing NNN lease terms.  When advertised, a NNN lease usually appears to be a cheaper monthly expense – but don’t be fooled!

If you’re scouring the Internet and comparing different rental make sure you look at what the landlord is quoting – a NNN or FSG?  If quoting an NNN, be sure to inquire about ALL expenses you will be assuming.  Advertising NNN rates can be enticing to prospective tenants but that number will most likely look less attractive as you start piling on monthly expenses.  For example, how much is your monthly electric bill?, water bill?, sewer?, what common area costs are there historically on the property?  What common elements such as walls, HVAC, plumbing, heating or air conditiong units is the landlord expecting you to maintain or repair?  Many tenants have found themselves on the hook for thousands or even tens of thousand of dollars when what appears to be a ‘cheap’ NNN lease term is enforced by a savvy landlord.  However, even with a NNN and all the expenses are included, it still may be a better option than a FSG lease.

Which one is easier, cheaper overall, and makes more sense for your business?  That is up for you, the prospective tenant, to decide and plan.