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What is the difference between FSG, modified gross, and NNN rent?

FSG, modified gross, and NNN are shorthand for how rent and property expenses may be allocated between a landlord and tenant. The labels are useful starting points, but they are not substitutes for the lease. The lease language controls which expenses are included, which are charged separately, how a tenant's share is calculated, and how costs can change over time.

That is why two spaces advertised at the same rent can have different total occupancy costs.

Full-service-gross rent

In a full-service-gross, or FSG, lease, the quoted rent commonly includes a defined group of property operating expenses. Depending on the lease, the tenant may still pay certain items separately. The tenant may also be responsible for increases over a base year or expense stop.

Questions to ask include:

• Which operating expenses are included in the quoted rent?
• Are utilities, janitorial service, parking, or after-hours services included?
• Is there a base year or expense stop?
• How are later increases calculated and reconciled?
• Are any expenses excluded from the landlord's operating-cost calculation?

"Full service" should not be read as "every possible occupancy cost is included."

Modified-gross rent

A modified-gross lease divides property expenses according to the negotiated agreement. There is no single modified-gross formula that applies to every building.

One modified-gross quote might include utilities and janitorial service but charge parking separately. Another might place certain repairs or increases in operating expenses on the tenant. The useful question is not simply whether the lease is called modified gross. It is: what does this proposed lease assign to each party?

Triple-net rent

In a triple-net, or NNN, lease, the tenant commonly pays base rent plus its defined share of property taxes, insurance, and common-area or operating expenses. The additional expense amount is often estimated during the year and reconciled later against eligible actual costs under the lease.

Questions to ask include:

• What is the current estimate in addition to base rent?
• Which expenses are included in that estimate?
• How is the tenant's share determined?
• How and when is the annual reconciliation performed?
• Are management, capital, administrative, repair, or replacement costs included, excluded, capped, or amortized?
• Which costs does the tenant contract for directly?

The term "NNN" does not tell you the amount of those expenses or answer every allocation question.

A simple comparison

Assume two 2,000-square-foot spaces are quoted on a monthly per-square-foot basis:

This is not a conclusion that one structure is better. It shows why the rent label and base number are insufficient. Utilities, parking, improvements, scheduled increases, expense reconciliations, and other obligations could change the comparison materially.

A lease-quote checklist

Before comparing spaces, put each proposal on the same basis:

1. Confirm whether the quoted rate is monthly or annual.
2. Confirm whether it is applied to rentable or usable area.
3. List the costs included in base rent.
4. List estimated additional rent and separately paid services.
5. Identify the tenant's share and how it is calculated.
6. Review base year, expense stop, cap, exclusion, and gross-up provisions.
7. Add scheduled rent increases.
8. Add parking, utilities, janitorial, insurance, repairs, and other occupancy costs.
9. Identify one-time deposits, improvements, moving expenses, and delivery obligations.
10. Review the proposed lease with the appropriate legal, tax, and accounting advisers.

How MacVaugh can help

MacVaugh & Company helps businesses compare locations and occupancy economics and helps owners position and negotiate commercial lease opportunities. If you are comparing spaces, send us the addresses, proposals, and operating requirements. If you own the property, tell us about the space and your leasing objectives.