Texas Real Estate Brokerage Sales Apprentice Education (SAE) Practice Exam

In a net lease, what types of expenses does the tenant typically cover?

1. Only fixed expenses

2. All variable expenses only

3. Both fixed and variable operating expenses

4. Tax-related expenses only

The correct answer is: Both fixed and variable operating expenses

In a net lease, the tenant typically covers both fixed and variable operating expenses associated with the property. This includes costs such as property taxes, insurance premiums, and maintenance expenses, which are essential for the upkeep and operation of the property. The essence of a net lease arrangement is that it shifts many of the financial responsibilities from the landlord to the tenant. By covering both types of expenses, the tenant directly influences the overall cost structure of occupying the property, leading to a more involved relationship with its maintenance and operation. This aligns with the purpose of a net lease, which often reflects a lower base rent but increases the tenant's financial obligations related to property ownership and maintenance. Such arrangements are common in commercial real estate, as they provide landlords with a more predictable income stream while transferring certain risks to tenants.