By: Lisa Brennan

When businesses enter into a commercial lease, the agreement that they sign is an important one that will follow the business for the next several years. In a previous blog post, we discussed the pros and cons of one of the most common leasing structures – the Triple Net Lease (NNN). Another option for tenants, however, is the Full-Service Gross (FSG) Lease. Below, we’ll explore some of the pros and cons of an FSG lease.

What Is a Full-Service Gross (FSG) Lease? In an FSG lease, tenants pay one all-inclusive rent payment to the landlord. This rent typically covers all operating expenses associated with the building, such as property taxes, insurance, maintenance and repairs, utilities, and janitorial services. Essentially, the landlord assumes responsibility for all these operating costs, and the tenant enjoys the convenience of paying a fixed monthly rate without worrying about fluctuating expenses. This is in contrast to a triple net (NNN) lease, where the tenant trades off a lower base rent for incurring the typical maintenance, taxes, and other operating costs themselves.

Pros of a Full-Service Gross Lease

1. Predictable Costs. One of the primary benefits of an FSG lease is the predictability it offers tenants. Since all operating expenses are bundled into a single rent payment, businesses can more easily forecast their expenses. This level of financial stability is particularly valuable for startups or small businesses that need to stick closely to their budgets.
2. Simplified Billing. In a full-service gross lease, tenants don’t have to deal with the administrative hassle of managing utility invoices, property taxes, and maintenance. The landlord handles these responsibilities, making the lease structure especially attractive to tenants looking to maximize simplicity.
3. Risk Protection from Cost Increases. If operating expenses for the building increase—due to rising utility costs, an unexpected maintenance issue, or higher property taxes, for example—the landlord absorbs these increases under most traditional FSG leases. For the tenant, this creates a buffer against unexpected cost spikes.
4. Maintenance and Building Upkeep Managed by the Landlord. In an FSG lease, the landlord is responsible for the upkeep of common areas, property maintenance, and any necessary repairs. Tenants don’t need to worry about unexpected repair bills or interruptions due to deferred maintenance. This can be particularly beneficial if the building is an older one or requires frequent maintenance.

Cons of a Full-Service Gross Lease

1. Potential for Higher Rent. Because landlords bundle all building-related costs into the rent, the monthly rent under an FSG lease is typically higher than other lease types (e.g., triple net leases). Landlords may also build in a buffer to protect themselves from future increases in operating expenses, which can lead to tenants ultimately paying more than necessary.
2. Lack of Control Over Operating Costs. While tenants enjoy the convenience of not dealing with operating expenses, they also lack control over how these expenses are managed. For example, if a landlord is not cost-conscious, tenants might be indirectly paying more than they would if obtaining services on their own.
3. Yearly Escalation Clauses. Although the base rent is often fixed, some FSG leases include escalation clauses that allow landlords to increase rent if operating expenses significantly rise. It’s essential for tenants to review these clauses carefully to avoid costly surprises down the line.
4. Limited Flexibility for Customization. Because the landlord maintains responsibility for the upkeep and maintenance of the building, tenants may face limitations in customizing their space. This lack of flexibility may not suit businesses that need a highly customized space to operate efficiently.

By understanding both the pros and cons of an FSG lease, you can make a more informed decision about whether this type of lease agreement aligns with your company’s goals and operational needs. Ultimately, the right lease structure will depend on your business’s priorities. Whether you value the convenience and cost certainty offered by an FSG lease, or prefer more control over the expenses tied to your space offered by a NNN lease —the attorneys at Way Law can help you determine what is right for your business!