A gross lease differs from a net lease in that under a gross lease:
Correct Answer
C) The landlord pays the operating expenses from the rent
Why this is correct: The core concept is lease structure. In a gross lease, the landlord receives a fixed rent and is responsible for paying the property's operating expenses (like taxes, insurance, and maintenance) out of that rent. This is why gross rents appear higher than net rents for comparable space; they embed the expense payments. Why the other choices are wrong: "Rent varies with the tenant's gross sales volume" describes a percentage lease, not the defining feature of a gross lease. "The tenant pays all taxes, insurance and maintenance" defines a net lease, which is the opposite of a gross lease. "The lease term is always shorter than five years" is incorrect; the lease term length is not a defining characteristic of a gross lease. Exam tip: Remember 'gross' means the landlord gets the gross amount and pays expenses; 'net' means the tenant pays expenses, netting the landlord a lower base rent.
Why This Is the Correct Answer
Why this is correct: The core concept is lease structure. In a gross lease, the landlord receives a fixed rent and is responsible for paying the property's operating expenses (like taxes, insurance, and maintenance) out of that rent. This is why gross rents appear higher than net rents for comparable space; they embed the expense payments. Why the other choices are wrong: "Rent varies with the tenant's gross sales volume" describes a percentage lease, not the defining feature of a gross lease. "The tenant pays all taxes, insurance and maintenance" defines a net lease, which is the opposite of a gross lease. "The lease term is always shorter than five years" is incorrect; the lease term length is not a defining characteristic of a gross lease. Exam tip: Remember 'gross' means the landlord gets the gross amount and pays expenses; 'net' means the tenant pays expenses, netting the landlord a lower base rent.
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An appraiser calculates a gross income multiplier (GIM) of 8.2 for a small retail strip center based on its $1.2 million sale price and $146,341 gross potential income. She then estimates the subject’s net operating income as $98,500 after applying a 32% operating expense ratio. Using the same GIM, what overall capitalization rate is implicitly embedded in this approach?