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

In a net lease, who is responsible for paying property expenses?

1. The landlord covers all expenses

2. The tenant pays base rent plus all associated expenses

3. The tenant shares expenses with the landlord

4. Property expenses are deducted from rental income

The correct answer is: The tenant pays base rent plus all associated expenses

In a net lease, the tenant is responsible for paying base rent as well as all associated property expenses that can include costs such as property taxes, insurance, and maintenance. This structure allows the landlord to receive a more predictable income stream, as the tenant takes on additional financial obligations related to the property's upkeep and operational expenses. Understanding this arrangement is crucial because it defines the economic responsibilities in the landlord-tenant relationship. Tenants in a net lease typically have greater control over the property’s operating expenses, as they are directly handling the costs that can fluctuate, unlike in a gross lease where the landlord assumes these expenses. This distinction is significant in commercial real estate, where profitability and operational control are key considerations for both parties. In contrast, the other options suggest arrangements where the landlord responsibilities or the handling of expenses differ from standard net lease practices. For instance, if the landlord were responsible for all expenses, it would not be a net lease but rather a gross lease. Sharing expenses may occur in certain lease types, but would not accurately reflect the net lease definition. Lastly, deducting property expenses from rental income does not align with tenant obligations in a net lease framework, as the tenant is directly responsible for those costs.