Types of Leases & What They Mean: FS, IG, MG and NNN

Types of Leases & What They Mean: FS, IG, MG and NNN

There are two main types of leases that you will encounter while looking for commercial real estate, Full Service (FS) and Triple Net (NNN).  There are then two other less used type of leases which are IG (Industrial Gross) and Modified Gross (MG).  Let’s start with the two main ones:

Full Service (FS):

This can also be called a gross lease but most likely referred to as Full Service.  This type of lease is most standard on office properties where the building has multiple tenants conducting traditional 8-5 type of work.  The building is setup with a single meter and the temperature and hours of operations (HVAC and building access) is controlled by the landlord.   In this situation the building will quote rental rates in full service, which includes all expenses normally associated with ownership, such as utilities, repairs, insurance, taxes and janitorial.

On most all FS leases, you will have a “Base Year” which means whatever the building operating expenses are the first year of your lease will become your basis for expenses.  Anytime expenses increase in following years above your base year amount, you will be obligated to pay your pro rata share based on your square footage.   Example:  You sign a FS lease in 2014 and that year the buildings operating expenses are $10.00 per SF (square foot).  If in 2015 the operating expenses increase to $10.22 per SF, you would be obligated to pay both your full service lease rate and the $.22 increase above your base year.  If your rate was $20.00 per SF, you would end up paying $20.22 per SF.

Triple Net (NNN):

Triple Net leases are most associated with single story buildings that are used for industrial or retail type uses.   We are seeing more and more office type of buildings quoting NNN now as well.   The reason for quoting NNN is mostly due to each suite having their own independent meter and each tenant’s hours and utility consumption ranging dramatically within the same complex.   You might have one user who uses a space as storage and the next user using it as a marijuana grow location which consumes massive amounts of energy.   This type of lease has the tenant paying their own share of all expenses that are associated with ownership and occupancy.   The quoting rate only includes the base rent and expenses are not included.   These expenses normally include utilities, taxes, insurance, CAM (common area maintenance) and telco/internet.   Total NNN charges can range anywhere from $2-3 dollars per square foot for warehouse space up to $12.00 per for higher end office space.

Other types of leases are Modificed Gross and Industrial Gross:

Modified Gross (MG) and Industrial Gross (IG):

MD gross leases are any arrangement whereby the tenant pays one or more of the expenses covered by the Landlord in a Full Service lease, but not all of the expenses as in a Triple Net lease.  Modified Gross leases cover a range of lease types and terminologies used in various markets around Colorado.  Some of the more common are Industrial Gross, Singe Net and double Net.  The definition of these bases vary from market to market and building to building on the expenses they include or exclude.