California Real Estate Practice Exam

When all expenses, including taxes and insurance, are paid by the lessee along with a new amount of "rent" as agreed upon to the landlord, this is referred to as a:

1. Gross lease

2. Net lease

3. Percentage lease

4. Sandwich lease

The correct answer is: Gross lease

The correct answer is the net lease. In a net lease arrangement, the lessee is responsible for not only paying the base rent to the landlord but also covering additional expenses associated with the property. These expenses typically include property taxes, insurance, and maintenance costs. The key characteristic of a net lease is that it shifts these financial responsibilities onto the tenant, allowing the landlord to receive a more predictable income stream without the burden of property-related expenses. In contrast, a gross lease would require the landlord to cover all operating expenses, with the tenant providing only a single rent payment. Therefore, in a gross lease, all costs are included in the rent, which differs significantly from the net lease structure. A percentage lease involves rent that is based on a percentage of the tenant's sales revenue, typically seen in retail scenarios, while a sandwich lease refers to a subleasing arrangement where the middle party leases the property and then leases it to another tenant. Each of these lease types possesses distinct characteristics, reinforcing why a net lease is the accurate choice for the scenario described.