noun · /ɡroʊs liːs/
Gross Lease
Also known as: Full Service Lease, Full Service Gross, FSG
Definition
A gross lease (also called a full service lease) is a commercial lease structure where the tenant pays a single, all-inclusive rent amount and the landlord covers operating expenses like property taxes, insurance, utilities, and maintenance. This simplifies budgeting for tenants but exposes landlords to expense fluctuations.
Key Concept
Tenant pays: Base rent only (one predictable payment)
Landlord pays: Taxes, insurance, utilities, CAM, repairs
Types of Gross Leases
Full Service Gross (FSG)
The most comprehensive gross lease. Landlord pays all operating expenses including janitorial services. Common in Class A office buildings.
Modified Gross (MG)
A hybrid structure where expenses are split between landlord and tenant. Many variations exist—always read the lease to understand who pays what.
Common MG structures:
- • Landlord pays base year expenses; tenant pays increases above base year
- • Landlord pays taxes and insurance; tenant pays utilities
- • Tenant pays electric directly; landlord pays everything else
Industrial Gross (IG)
Common in industrial/warehouse properties. Landlord pays structural maintenance, taxes, and insurance. Tenant usually pays their own utilities and interior upkeep.
Gross vs. Net Lease Comparison
| Expense | Gross | Modified Gross | NNN |
|---|---|---|---|
| Property Taxes | Landlord | Varies | Tenant |
| Insurance | Landlord | Varies | Tenant |
| CAM/Maintenance | Landlord | Varies | Tenant |
| Utilities | Landlord | Often Tenant | Tenant |
| Janitorial | Landlord (FSG) | Usually Tenant | Tenant |
Key insight: From an investor perspective, NNN leases provide more predictable NOI since expenses pass through to tenants. Gross leases have higher expense risk but often command higher per-SF rents.
Pros and Cons of Gross Leases
For Tenants
Pros
- Predictable monthly costs—easier budgeting
- Protected from expense increases during lease term
- Simpler lease administration
Cons
- Higher base rent than equivalent NNN lease
- Less control over service levels and vendors
- May pay for services you don't need or use
For Landlords
Pros
- Control over building operations and vendors
- Higher quoted rents look better in marketing
- Economies of scale on building-wide services
Cons
- Expense risk—costs may rise faster than rent bumps
- More administrative burden tracking expenses
- Lower NOI margin than NNN properties
Where Gross Leases Are Common
Class A Office
Full service gross is standard in premium office buildings
Medical Office
Often modified gross with tenant paying electric
Multifamily
Residential leases are effectively gross—one monthly rent
Co-Working
All-inclusive membership model is a gross structure
Smaller Buildings
Without sub-meters, gross is simpler to administer
Urban Markets
NYC, SF, and other dense markets favor gross leases
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