Phill Tomlinson

Commercial Properties, Inc. - Sales and Leasing

Phill Tomlinson

Scottsdale, AZ

(480)330-8897 

Send a Message
17801Member Profile Views
0Recommendations
15Blog Comments
0Answers
LoopNet Member Since 2010

What is a Full Service Lease in Commercial Real Estate?

 
What is a Full Service Lease in Commercial Real Estate? As a commercial real estate broker with Commercial Properties, Inc., we get many prospective tenants asking this question.
 

What is a Full Service Lease in Commercial Real Estate?

Whether you’re looking for office, retail, or industrial space for a startup business or to expand your existing business, it’s important to understand the costs associated with commercial real estate before you sign on the dotted line. When it comes to cost, your commercial real estate agent can tell you the average lease costs in the area you’re looking at and explain "What is a Full Service Lease in Commercial Real Estate?" Certain high-traffic or otherwise more desirable areas will cost more than less desirable areas. In addition to asking what the cost is per square foot, it’s important to find out what is included in the total price. Are there any common area maintenance (CAM) costs, such as for maintaining courtyards, entryways, and the like? Within the space itself, does the cost include just the basic “shell” (white walls and concrete floors) or more? Are you responsible for property taxes, property insurance, utilities, or trash collection?
 
Costs associated with most commercial real estate leases can be broken into three areas:
  • Base Rent
  • Nets (NNN)
  • Electric and Janitorial

How these costs are charged to the tenant can be also be broken into three catagories:

- Triple Net Lease, referred to as “NNN” (in a triple net lease), represents the three major “net” costs: property taxes, property insurance and common area maintenance (CAM).

- Modified Gross Lease, referred to as "MG" is where all (or part) of the above nets are included as part of the base rent.

- Full Service Lease, referred to as "FS" is where the base rent, the nets, electrical and janitorial are included in one price per square foot lease rate. 

Here are more details of the Three Main Lease Types:
 
Triple net lease: A triple net lease requires a tenant to pay a low lease rate while also paying other costs associated with operating and maintaining the space. In fact, with a triple net lease, the landlord will also pass on utility costs that are not separately metered, as well as all costs related to common area maintenance (CAM). These so-called CAM charges include all expenses involved in maintaining common areas such as water/sewer, trash, restrooms, landscaping, parking lots, fire sprinklers, the roof or anything that all tenants share.
 
Modified Gross/ Modified Full Service Lease: Unlike a triple net lease, this agreement includes one, two or all three of the Nets as part of the base rent. It’s important not to assume what’s included and to ask your commercial broker what part of the nets have been included or modified. Typically a modified gross lease will include all the nets in the base rent but not electric or janitorial.
 
Full Service Lease: This agreement is where the base rent covers all costs of taxes, insurance, maintenance along with the utilities and janitorial. The tenant pays a pre-determined lease rate each month and there are no pass-through expenses for operating expenses. A pure full service lease is the best of all worlds for a tenant, particularly for a medical office tenant. The tenant only has to write one check per month, and the amount only goes up incrementally over time with the normal progression of rent.
 
Monthly rent typically rises about 2 to 3% per year (although that’s negotiable). The tenant doesn’t have to worry about getting hit later for extra costs such as utilities, and the landlord handles all of the maintenance so the tenant can focus on growing their business.
  
 
Benefits of a Full Service Lease
 
The nice thing about a full service lease is in the event the costs for the insurance, taxes, or CAM charges were to go up, this expense would not affect your locked in lease rate. Likewise, the downside of a full service lease is that if expenses go down, those savings are passed on to the owner. Also, because electric and janitorial are included in the full service lease, you do not have to worry about managing these costs.
 
 
 
Contact Phill Tomlinson regarding "What is a Full Service Lease in Commercial Real Estate?",the current market, your property or any questions you may have about commercial real estate. To see Phill Tomlinson's commercial real estate listings, visit his Loopnet profile page at  www.commercialrealestateaz.com.
 
 

        Phill Tomlinson, Associate Broker

Commercial Broker, Sales and Leasing in Arizona

Landlord Representation in Arizona

Commercial Properties, Inc.

7025 N. Scottsdale Road, Suite 220

Scottsdale, AZ 85253

Direct: 480-522-2800

Cell: 480-330-8897

Fax: 480-348-1601

ptomlinson@cpiaz.com

Sales and Leasing Commercial Broker

See other Commercial Listings on my Loopnet page at:

www.CommercialRealEstateAZ.com

          Commercial Real Estate Arizona LinkedIn Icon      Commercial Real Estate Arizona Facebook Icon      Commercial Real Estate Arizona Twitter Icon      Phill Tomlinson Commercial Real Estate - Blog      Phill Tomlinson Commercial Real Estate - YouTube      Phill Tomlinson Commercial Real Estate - Flickr     

 

Search Commercial Properties Here

 

The information contained herein has been obtained from various sources.  We have no reason to doubt its accuracy; however, J & J Commercial Properties, Inc. has not verified such information and makes no guarantee, warranty or representation about such information.  The prospective buyer or lessee should independently verify all dimensions, specifications, floor plans, and all information prior to the lease or purchase of the property.  All offerings are subject to prior sale, lease, or withdrawal from the market without prior notice. 

Posted by Phill Tomlinson on Aug 18, 2011 - Comment  •  Like
15 Comments
binta johnson - Hello dear How are you doing today, i hope every things is ok with you as its my pleasure to contact you afte r viewing your profile in this site http://www.loopnet.com which really interest in me having communication with you,if you will have the desire with me so that we can get to know each other better and see what will happen in future. i will be very happy if you can write me through my email for easiest communication and to know all about each other ok, here is my email. i will be waiting to hear from you, your new friend binta. (Id) bintajohnson123@yahoo.co.uk
Posted Oct 14, 2011
ZOY SARPOOLAKI - Thank you for the article. We own a commercial office building in south Florida, and for the past 40 yrs we have used the full service lease approach. I find it very helpful in keeping all the tenants close to the same rental rates and increases, and it stops tenants from price shopping. CAM is built in as a percentage of the square footage being leased and all the tenants feel they have to negotiate is the annual rate increases.
Posted Sep 4, 2011
karen johnson - Thanks for the explanations...when is it best to buy the property ?
Posted Sep 1, 2011
John Brassner - Nice succinct summary. And most importantly as you mentioned (and in the replies too) never assume what the definition of a modified gross is. Or, any lease for that matter. What matters is what you negotiate and gets put into writing.
Posted Sep 1, 2011
Gerald Chuman - Good summary. As an appraiser, this type of discussion is very beneficial, particularly to the less experienced professionals.
Posted Sep 1, 2011
Phill Tomlinson - Thank you all for your kind words and comments on my blog - the goal is help bring clarity. There's alot of information and it's not always clear to our clients. Thanks again... Phill Tomlinson - Commercial Properties, Inc.
Posted Sep 1, 2011
John Kavazanjian - Phil, Nice Article! It provides a good overview.
Posted Sep 1, 2011
John Kavazanjian - Phil, Nice article! It provides a good overview. John Kavazanjian
Posted Sep 1, 2011
Marcy Reid - Good summary on a broad-scale basis, thanks. Bradford I am glad to hear that you don't see many full service leases for commercial real estate office properties. I represent three business parks in the south west corridor of Pittsburgh, Pennsylvania and, in the last twelve years, have worked successfully with modified gross lease agreements. Also, I have found our tenants to be very receptive to contracting their own janitiorial as each company's "needs" are different and it gives them more control over expenses. Of course there are guidelines as to the condition of premises upon vacating space which protects the Landlord.
Posted Sep 1, 2011
John T. Cognetti, SIOR, CCIM - Great summary. As noted various markets define the terms differently so exact costs to landlord and tenant need to be clearly stated in the LOI and lease document. The third "net" could also mean all building repairs, replacements and maintenance issues such as structural, plumbing, electrical, exterior parking lot paving, etc. including replacement of HVAC units. So remember these terms are not universally defined.
Posted Sep 1, 2011
Doug McCall - Thanks for explanations!
Posted Sep 1, 2011
Amy Westheimer - Great article! The only drawback with a full service lease is that if expenses rise (due to inflation, or for other reasons beyond the landlords control) and the Landlord can not pass those on to the tenant, the property maintenance may suffer. The landlord may not have enough money to keep the lot free of snow and the lawn mowed and watered. There is always a way to make a deal where, at the end of the day, everyone gets what they need to run their business well and be happy.
Posted Sep 1, 2011
Louis Maalouf - While the above noted terms might mean something to some realtors, landlords and tenants in some markets, they are not legal definitions or standard in all markets, and therefore landlord versus tenant responsibility for each of the cost elements must be clearly described in each agreement. Louis Maalouf Real Estate Broker Toronto, Canada Louis@igeneral.com
Posted Sep 1, 2011
Phill Tomlinson - Thanks Bradford for commenting!
Posted Aug 25, 2011
Bradford L. Kitchen, SIOR - Good summary of the different types of leases. Full service leases are the best for tenants and gross leases with dollar stops are the best for landlords because a gross lease with a dollar stop enables the landlord to pass on expense increases, but the landlord benefits from expense reductions. Most leases that we do for commercial real estate office properties are Net or Gross leases and not many full service leases.
Posted Aug 25, 2011

Comment
©2014 LoopNet, Inc. LoopNet does not guarantee the accuracy of the above content. Full Disclaimer.
Powered By LoopNet Commercial and Investment Properties