What is a Full Service Gross (FSG) Lease?
A Full Service Gross (FSG) lease is a rental agreement where the landlord is responsible for paying all property operating expenses. These expenses typically include maintenance, cleaning, utilities, insurance, and ad valorem taxes. An FSG lease offers tenants predictability in their rental costs, as they do not have to worry about fluctuating operating expenses.
How Does an FSG Lease Work?
In an FSG lease, tenants make a single, all-inclusive payment to the landlord. This payment covers both the base rent and the operating expenses. The landlord takes care of any cost variations or increases in operating expenses, providing peace of mind for the tenant.
Example of an FSG Lease
Consider a commercial building where the typical rent on an FSG lease is $24 per square foot (psf) per year. If this were a triple-net lease (NNN), where tenants pay the operating expenses, the rent could be only $18 psf per year. This is because, in an NNN lease, a tenant is responsible for costs related to maintenance, taxes, and insurance, which otherwise would be managed by the landlord under an FSG lease.
Benefits of Full Service Gross Lease
- Predictable Costs: Tenants pay a fixed amount, making budgeting easier for businesses.
- Convenience: Landlords handle all property-related expenses, freeing tenants from dealing with these responsibilities.
- Simplified Billing: A single payment covers all costs, including rent and expenses.
Differences Between FSG, Gross Lease, and Net Lease
While an FSG lease and a gross lease are quite similar—both include the landlord handling operating expenses—net leases shift varying degrees of cost responsibility to the tenant.
- Gross Lease: Landlord pays for most property expenses except for certain usages (e.g., utilities may be excluded).
- Net Lease: There are three types (single-net, double-net, and triple-net), wherein the tenant bears different levels of operating costs (e.g., taxes, insurance, maintenance, and sometimes, utilities).
FAQs on Full Service Gross (FSG) Lease
Q: What expenses are covered by an FSG lease? A: An FSG lease covers all operating expenses like maintenance, cleaning, utilities, insurance, and property taxes.
Q: Why would a business choose an FSG lease over a net lease? A: Businesses might prefer an FSG lease for its predictability in expenses, convenience, and ease of budgeting since all costs are lumped into a single payment.
Q: Can operating expenses vary greatly year by year? A: Yes, they can. However, the landlord absorbs these variations in a Full Service Gross lease.
Q: Is the rent higher for an FSG lease compared to a net lease? A: Generally, yes. Despite the perceived higher rent, tenants avoid variable operational costs, making FSG leases cost-effective in certain situations.
Q: What’s the difference between a gross lease and an FSG lease? A: While very similar, an FSG lease is more comprehensive, with the landlord covering virtually all material operating expenses without exclusions.
Related Terms: Gross Lease, Net Lease, Triple-Net Lease, Operating Expenses.
