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

What type of lease requires the tenant to pay both fixed and variable operating expenses?

1. Net Lease

2. Graduated Lease

3. Fixed Lease

4. Index Lease

The correct answer is: Net Lease

A net lease is a rental agreement where the tenant is responsible not only for the base rent but also for the additional expenses associated with the property, which typically include property taxes, insurance, and maintenance costs. This arrangement allows landlords to pass some of their operating expenses onto the tenant, thereby reducing their own financial burden. In a net lease, the tenant's obligations usually increase the total cost of occupancy, as they must account for these variable operating expenses in addition to their fixed rent payments. This structure is commonly used in commercial real estate, where landlords seek to ensure that their properties remain financially viable while providing tenants with the flexibility to manage the associated costs. The other types of leases mentioned have different arrangements or purposes. A graduated lease involves predetermined increases in rent over time, a fixed lease is purely based on a set rental rate without variable expenses, and an index lease ties rental payments to an economic index, which may not directly involve operating expenses in the same way a net lease does. Understanding the distinctions among these lease types can help clarify the financial responsibilities of both tenants and landlords in real estate transactions.