What is the difference between a gross lease and a net lease?

• A. Gross leases: landlord pays operating expenses; net leases: tenant pays some or all operating expenses
• B. Gross leases: tenant pays all operating expenses; net leases: landlord pays all
• C. Gross leases: no operating expenses; net leases: includes all expenses
• D. Gross leases: tenant pays nothing; net leases: tenant pays all expenses

Answer: (B)

The concept being tested is how operating expenses are allocated between landlord and tenant in different lease types. In a gross lease, the landlord covers most or all operating expenses (such as property taxes, insurance, maintenance), and the tenant’s rent is meant to be all-inclusive. In a net lease, the tenant takes on some or all of those operating costs in addition to the rent. There are variations—single net means the tenant pays taxes, double net adds insurance, and triple net adds maintenance and CAM charges—so the tenant’s responsibility increases from single to triple net.

So the best description is that gross leases have the landlord paying operating expenses, while net leases have the tenant paying some or all of those expenses. The idea that the tenant pays all operating expenses in a gross lease would be inaccurate, and statements like “no operating expenses in gross leases” or “the tenant pays nothing in gross leases” don’t reflect how these lease types are structured.