A full service lease is a type of commercial office lease in which the quoted rental rate includes all costs associated with renting the office space such as the taxes, building insurance, electric, maintenance, janitorial and other operating expenses.
The landlord (lessor) pays all the office building operating costs and bakes those into the rental rate, which depending on your market maybe quoted as a monthly (e.g. $2.91 sf/mo) or yearly (e.g. $35 sf/yr) rate.
Every market and landlord does their office building accounting differently. For example when searching for Austin office space for lease most leases are NNN leases. Because of that it’s important that you ask every landlord and not assume.
Most Full Service Leases Include a Base Year Clause
Now keep in mind most full service office leases also require tenants to pay for any increases in the building operating expenses that exceed the base year operating expense of the lease. A tenant’s base year is the actual operating expense portion of the quote rate that is established at the end of the 1st calendar year. For example say the full service lease rate is $35 sf. A portion of that $35 sf are the operating expenses………let’s say $10 sf. If the actual operating expenses are $10 sf at the end of the first year the base year would be $10 sf.
At the end of each following year the building owner will determine what the actual operating expenses are. If the operating expenses exceed the base year then the tenant will be billed any amount over that. For example if $10 sf is the base year and at the end of year two the actual operating expenses are $10.50 the landlord will bill the tenant an extra $0.50 sf.
What A Full Service Lease Does Not Include
- Sales Tax
- Tenant property and general liability insurance
It’s Important to Confirm What is Included in a Full Service Lease
When evaluating office spaces it’s important understand the different types of leases and ask landlords exactly what is and what is not included in the quoted rate. The reason is that the meaning of full service lease is different depending on the market you are in. Also, the definition of full service lease can be different based on the landlord or listing agent that you speak with.
It’s also important to find out what the actual operating expenses were for the last 2-3 years so you can budget for future increases.
If all of the talk about commercial lease types is confusing then you might want to consider hiring a local commercial real estate agent to assist you.