Florida Real Estate Broker ExaminationProperty Management and LeasingEasy
A property manager specializing in commercial properties is tasked with drafting a lease for a new office tenant. The tenant specifically requests a 'net lease.' What characteristic distinguishes a net lease from a gross lease?
- AThe tenant pays only property taxes, and the landlord covers all other expenses.
- BThe landlord pays a percentage of the tenant's gross sales as rent.
- CThe tenant pays a base rent plus a pro-rata share of the property's operating expenses.
- DThe tenant pays a fixed rent, and the landlord pays all operating expenses.
Show answer & explanationAnswer & explanation
Correct answer: C. The tenant pays a base rent plus a pro-rata share of the property's operating expenses.
In a net lease, the tenant pays a base rent plus a pro-rata share of specific operating expenses, such as property taxes, insurance, and/or common area maintenance (CAM). This contrasts with a gross lease where the landlord pays all operating expenses.
Why the other options are wrong
- A. This describes a 'single net' lease, which is a specific type of net lease, but not the general characteristic of 'a net lease.'
- B. This describes a percentage lease, typically used in retail.
- D. This describes a gross lease, not a net lease.
Net Lease
A lease agreement where the tenant pays a base rent plus some or all of the property's operating expenses (taxes, insurance, maintenance).
- Common in commercial real estate.
- Can be single net (taxes), double net (taxes + insurance), or triple net (taxes + insurance + CAM).
- Shifts some financial risk from landlord to tenant compared to a gross lease.
Memory trick: Gross is all-inclusive, Net adds expenses.