Full-Service Lease

A full-service lease — most common in office buildings — quotes one all-in rent that covers taxes, insurance, utilities, janitorial, and common-area maintenance for a defined base year, with no separate expense reimbursement from the tenant in that first year. An office tenant leasing 10,000 square feet at $32/sq ft full service pays $320,000 a year while the landlord’s operating costs that base year run $11/sq ft, or $110,000. Most full-service leases aren’t flat forever, though: if operating expenses in year three rise to $12.50/sq ft, the tenant typically owes its pro-rata share of the $1.50/sq ft increase above the base year — an “expense stop” or base-year escalation — on top of the flat rent.

The base-year mechanism is what determines whether a landlord’s NOI actually stays protected as costs rise, and it matters to a borrower refinancing an office asset more than the quoted full-service rent does. A lease with a stale base year set several years ago exposes the landlord to real cost inflation that erodes NOI every year expenses run ahead of that base, before escalations catch up — and lenders underwriting an office refinance will ask when base years were last reset and whether expense stops are actually being billed and collected, not just written into the lease. Brokers marketing in-place full-service rents don’t always flag an aging base year that’s quietly compressing the landlord’s margin.

Office lease structure is a large part of why a stated rent roll and an underwritten NOI can diverge, which is why property type and lease structure travel together with the leverage figures in a lender’s observed lending terms rather than standing alone.