Hawaii Pre-Licensing National Practice Exam

If a lessee pays a fixed amount of rent plus all expenses, what type of lease is it known as?

1. Gross lease

2. Net lease

3. Percentage lease

4. Operating lease

The correct answer is: Net lease

A lease in which a lessee pays a fixed amount of rent plus all expenses is termed a net lease. In this structure, the lessee takes on additional financial responsibilities beyond just the base rent. This often includes costs like property taxes, insurance, and maintenance, which are typically borne by the landlord in a gross lease. The net lease arrangement allows landlords to have predictable cash flow while transferring the financial risk of property expenses to the lessee. The other types of leases differ in their terms. A gross lease involves the landlord covering all operating expenses while the tenant pays a single rental amount. A percentage lease ties the rent to the business's sales performance, allowing landlords to benefit from the lessee's success. Operating leases are generally shorter-term agreements that do not convey ownership of the asset, used more commonly for equipment rather than property rental. Thus, understanding the obligations of the lessee under a net lease clarifies why it fits the description provided.