What is the difference between a net lease and a gross lease?

What is the difference between a net lease and a gross lease?

• A. Net lease: tenant pays all operating expenses; gross lease: landlord pays all.
• B. Gross lease: landlord pays most expenses; net lease: tenant pays some or all of the operating expenses.
• C. Net lease and gross lease are identical.
• D. Gross lease: tenant bears maintenance; net lease: landlord bears maintenance.

Answer: (B)

Who pays operating expenses in a lease is the key difference. In a gross lease, the landlord pays most or all of the ongoing operating costs—property taxes, insurance, maintenance, and utilities—with the tenant covering only the base rent. In a net lease, the tenant takes on some or all of those operating expenses in addition to base rent, so the rent quote isn’t all-inclusive. This shifts cost risk from landlord to tenant, and there are variations (single-net, double-net, triple-net) that spell out exactly which expenses the tenant covers. The other options either misstate who pays the costs in each lease type or imply the leases are the same.

Who pays operating expenses in a lease is the key difference. In a gross lease, the landlord pays most or all of the ongoing operating costs—property taxes, insurance, maintenance, and utilities—with the tenant covering only the base rent. In a net lease, the tenant takes on some or all of those operating expenses in addition to base rent, so the rent quote isn’t all-inclusive. This shifts cost risk from landlord to tenant, and there are variations (single-net, double-net, triple-net) that spell out exactly which expenses the tenant covers. The other options either misstate who pays the costs in each lease type or imply the leases are the same.