What does it mean for a lease to be net?

A net lease refers to an arrangement in which the tenant is responsible for some, typically variable, expenses associated with the property, in addition to the base rent. This model can include costs such as property taxes, insurance, and maintenance, which are generally considered part of the operating expenses of the property. In a net lease situation, the landlord often covers the more fixed costs, while the tenant manages or contributes to the variable costs, thus providing a more balanced distribution of financial responsibility.

This structure is beneficial for landlords as it can result in a more predictable income stream and reduced administrative burden since many expenses are directly managed by the tenant. Tenants, on the other hand, may find net leases appealing as they often come with lower base rents compared to gross leases, where landlords cover all expenses. Understanding the specifics of net leases is critical for both property management professionals and tenants to properly negotiate and manage their lease agreements.