Which lease type typically passes most operating expenses to the tenant?

Which lease type typically passes most operating expenses to the tenant?

• A. Gross lease
• B. Net lease
• C. Modified gross lease
• D. Ground lease

Answer: (B)

The main idea is who bears the ongoing operating costs of the property. In a net lease, the tenant assumes responsibility for most operating expenses in addition to the base rent. The common form, a triple net lease, has the tenant paying taxes, insurance, and maintenance (CAM) for the property. Because these costs are passed through to the tenant, the tenant ends up covering the majority of operating expenses, not the landlord. In contrast, a gross lease has the landlord paying these expenses and charging only one rent amount, a modified gross lease splits costs between landlord and tenant, and a ground lease centers on the land with building-related costs handled differently, not typically shifting most operating expenses in the standard way. Therefore, the lease type that typically passes the most operating expenses to the tenant is the net lease.

The main idea is who bears the ongoing operating costs of the property. In a net lease, the tenant assumes responsibility for most operating expenses in addition to the base rent. The common form, a triple net lease, has the tenant paying taxes, insurance, and maintenance (CAM) for the property. Because these costs are passed through to the tenant, the tenant ends up covering the majority of operating expenses, not the landlord.

In contrast, a gross lease has the landlord paying these expenses and charging only one rent amount, a modified gross lease splits costs between landlord and tenant, and a ground lease centers on the land with building-related costs handled differently, not typically shifting most operating expenses in the standard way. Therefore, the lease type that typically passes the most operating expenses to the tenant is the net lease.