A Quick Guide on Full-Service Gross Lease and Its Advantages

November 12, 2022
Alok Suman
Lease Management

A full-service gross lease is common in all commercial real estate businesses. 

Also referred to as an FSG lease, it is the go-to form of lease for every real estate owner because of the freedom it offers to the owners.

So, what exactly is a full-service gross lease? Learn more about it and its advantages in this quick read. 

What is a Full-Service Gross Lease?

A full-service gross lease (FSG) is an agreement where the property owner is responsible for maintenance, renovations, and other service charges of the property. The tenant only has to pay the base rent for the property, and the owner handles the rest. 

A full-service gross lease also necessitates the tenant paying rent every month and the owner using the rent to handle the maintenance expenses. 

This is one of the many types of lease agreements. The major advantage of an FSG lease is the clauses that come with it. Owners can use it to adjust the rents per the market inflation, and maintenance can be done as per the owner's desire. 

Terms in a Full-Service Gross Lease 

Lessor 

The lessor is the owner of the property that is being leased. It can be an individual or a business. 

Lessee

The lessee is the person renting the property over a specified period on a rent basis. 

Term sheet

A term sheet is a document that outlines the terms and conditions of the lease agreement. The lessee can get to know the lease agreement's base rent, conditions, and clauses. 

Term

The term is the time between the start and end dates of the lease. It will also specify whether it's a monthly rent or a term basis that continues until either party quits the lease. 

Base rent 

It is the rent a lessee pays to the lessor every month until the end of the lease. The base rent will not have additional expenses; it only focuses on the property's rent. 

Common area costs 

Common area maintenance or charges (CAM) is an incidental fee typically included in leasing agreements. 

They relate to the expense of maintaining a property's common facilities shared by tenants and include costs such as taxes, cleaning services, renovations, etc.

Security deposit 

The FSG lease also has an upfront payment strategy like any other agreement. This is collected to avoid losses when the tenant misses the monthly rent; the deposit is usually returned to the tenant once the lease ends. 

Rules of engagement 

These are the simple rules set by the owner which has to be adhered to by the tenant. No smoking and after-hour disturbances are some examples of rules. Breaching these rules might lead to contract termination. 

Clauses 

An FSG lease will have multiple clauses involved in it. The rent escalation clause and contingency clause are common in an FSG lease. 

Advantages of a Full-Service Gross Lease 

A full-service gross lease typically has monthly rent payments; this is suitable for both the tenant and the owner. 

 Tenant

  • The FSG lease is straightforward. The tenant has only to pay the monthly rent and no additional expenses.
  • No operating or maintenance costs are involved, as the owner will take care of that. 
  • As there is a fixed rent payment system, it makes it easier for the tenant to plan monthly expenses. 
  • The rent includes taxes and insurance, which can greatly relieve the tenants. 

Owner 

  • Owners can collect the rent from the tenant and pay for maintenance expenses.
  • The FSG lease allows owners to fix the rent at their leisure, with no compliance guidelines to follow. 
  • Owners can increase the rent anytime, citing inflations and other factors. 
  • It'll be easier for the owners to track the rent, making accounting easy.
  • The owner can make renovations and maintenance as per his wishes. 

Disadvantages of a Full-Service Gross Lease

An FSG can sometimes be cumbersome for the tenant and the owner for the following reasons:  

Tenant 

  • The rent is totally at the discretion of the owner. They can cite inflations and increase the rent at any time. 
  • Owners have the key to maintenance and renovations; tenants cannot make property changes for convenience.  
  • Stricter rules of engagement. 

Owner

  • FSG leases have fixed costs; this makes it harder for owners to collect additional rent from tenants even if operational costs are high. 
  • The owner might pay penalties in case of any disturbances or other damages. 
  • The tenant will have complete control over the operating costs or CAM costs, making it harder for the owner to compensate. 

Final Thoughts 

A full-service gross lease is one of the common types of lease agreements worldwide. It is a term where the tenant only has to pay the base rent, and the owners will cover the operating and maintenance costs. 

This type of lease can be incremental to both the lessee and the lessor; they can sometimes be cumbersome. 

The major advantage is that tenants need not worry about the operating costs, and owners can increase rent anytime, citing inflations. 

If you're a business that owns multiple properties and has leased them to various tenants, then you need lease management software. 

Tracking the rents, compliance guidelines, manual payment renewals, and creating invoices can be hard if you do it manually. The chance of errors would be high. 

Lease management software like LeasO will be able to handle all your lease expenses effectively and help you focus on your business more. 

So, automate your lease management process and save your time and energy. 

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