Top FAQs: #1
1) What is “Additional Rent,” and how is it affected by the lease type?
Your rent is calculated from two subfigures: base rent and additional rent. Base rent is the rate of payment that allows the tenant to possess the subject premises. Any other charges beyond the base rent are known as additional rent. The amount of additional rent is heavily affected by the type of lease your landlord quotes. Depending on the lease, the additional charges can pile up on an unsuspecting tenant.
There are four essential lease types:
Full Service Gross (FSG): Operating expenses, property tax, and insurance are all
included in the base rent. The landlord provides utilities and janitorial services as part of operating expenses, however, if these services exceed a set amount, the landlord incurs a fee. This lease is typical for multi-tenant offices and is often quoted as simply a base rent.
Modified Gross/Industrial Gross (MG/IG): These leases operate like an FSG except it’s usually up to the tenant to contract utilities, janitorial, and sometimes even trash. The landlord is responsible for common areas and structural issues. The tenant may be obligated to take care of certain maintenance on the premises. If total building costs exceed a set amount, the tenant is charged a fee. Like FSG, this lease is often quoted as just a base rent.
Net (N): Similar to the MG/IG, net leases specify the additional fees as part of the base rent quote. If the quote states 30$ per square foot net electric, the tenant must also cover electricity costs.
Triple Net (NNN): This lease requires the tenant to pay a proportionate share of the three “nets”: operating expenses, taxes, and insurance. Additionally the tenant must contract utilities, janitorial, and trash services. If it’s an industrial lease, the tenant is fully responsible for maintenance (painting, structural repair, parking lots, etc). If it’s an office lease, the landlord will take care of the common areas and pass the fees onto the tenant’s proportional share. Like a single Net lease, a Triple Net quote will be base rent plus NNN fees.