Hunt Corp has the a great description of what net/gross/FSG really means. From Hunt Corp's blog:
"These are all terms that are used to describe the manner in which services and expenses are paid in a landlord-tenant relationship. While the terms are used freely in commercial real estate transactions, there are actually no agreed-upon exact definitions of each. You should be concerned with the total cost of occupancy, so it is crucial to sort out what services are included in the rent, and incorporating the cost of those that are not."
Net Lease- There are multiple types of net leases, but most common are Triple Net leases (NNN). This means that the tenant is responsible for all operating expenses associated with their pro rata share of the building including maintenance costs, taxes, insurance and other expenses.
Gross Lease- On the other end of the spectrum is the gross lease. The Landlord is responsible for all operating expenses associated with the building including maintenance costs, taxes, insurance and other expenses. Tenant will only pay their base rent. About the only time I see gross leases is when the tenant is state/federal government.
Full Service Gross Lease- Typically the tenant pays their pro rata share of operating expenses over a 'base year stop.' For example, if operating expenses are $100,000 the first year of the tenant's lease, this is their base year stop amount. The following year expenses are now $103,000. The tenant would pay their pro rata share of $3,000 (The amount of operating expenses over their base year stop).
Modified Gross Lease- A modified gross lease is similar to a full service gross lease, except that some of the base services are not included by the landlord. The most common types of modified gross leases exclude janitorial or electrical, the tenant being billed directly for those services. It's common with medical or data space.
Pro Rata- Proportional. The pro rata amount is found by taking the tenant's square footage divided by the total rentable square footage. If a tenant has 50,000 SF and the RSF is 125,000, their pro rata share is 40%.
REALTECH has a more thorough analysis of reimbursement methods if desired.
Before tenants can reimburse expenses, there need to be operating expenses in argus. That's what we'll work on next.
