California Real Estate Practice Exam

A net lease may be said to have which of the following characteristics?

1. It does not benefit the lessor

2. It is a percentage of the profits

3. It produces a net income for the lessor

4. The lessor pays for all variable expenses

The correct answer is: It does not benefit the lessor

A net lease is characterized primarily by its financial arrangement where the lessee, or tenant, assumes responsibility for certain expenses associated with the property, in addition to their base rent. In this structure, the tenant often pays property taxes, insurance, and maintenance costs, which can contribute to the lessor (landlord) receiving a more predictable and streamlined income, thus producing a net income for the lessor. Choosing an answer that suggests a net lease does not benefit the lessor overlooks the essential purpose of this leasing type, which is to provide the lessor with a more advantageous financial outcome by passing on some costs to the lessee. Hence, a net lease is designed to be beneficial to the lessor rather than otherwise. The correct characteristic of a net lease is that it produces a net income for the lessor, as the structure allows the landlord to receive rent with fewer associated costs, ultimately leading to a higher net return from the property.