A tenant paying base rent plus a share of taxes only holds a:
Correct Answer
B) Single net lease
Why this is correct: Lease types are defined by what operating expenses the tenant pays. In a single net (or net) lease, the tenant pays base rent plus property taxes. The original explanation correctly outlines the progression: single net adds taxes, double net adds taxes and insurance, triple net adds taxes, insurance, and maintenance. Why the other choices are wrong: A triple net lease requires the tenant to pay all three: taxes, insurance, and maintenance. A full service gross lease means the landlord pays all operating expenses. A percentage lease bases rent on the tenant's sales volume. Exam tip: Remember the sequence: N = Taxes, NN = Taxes + Insurance, NNN = Taxes + Insurance + Maintenance.
Why This Is the Correct Answer
Base rent plus a share of taxes and nothing more is the single net lease, the first step in the net lease progression. The single item shifted is the tax obligation. Recognizing the structure tells the appraiser to include insurance and maintenance as landlord expenses in the operating statement while excluding taxes to the extent the tenant pays them. It also positions the property's risk profile between a gross lease and a triple net.
Why the Other Options Are Wrong
Option A: Triple net lease
A triple net lease shifts three categories of expense, taxes, insurance, and maintenance, to the tenant, not one. Because triple net is by far the most talked-about structure, candidates reach for it whenever any expense passes through. The stem specifies taxes only, which is one step into the progression rather than three.
Option C: Full service gross lease
A full service gross lease leaves all operating expenses with the landlord, who recovers them through a single rent payment. That is the opposite of the arrangement described, where the tenant is paying something beyond base rent. Full service leases are common in multi-tenant office buildings, often with base year or expense stop provisions.
Option D: Percentage lease
A percentage lease ties rent partly to the tenant's gross sales above a breakpoint and is characteristic of retail. It describes how rent is calculated rather than which expenses the tenant bears, so it answers a different question. A lease can be both percentage and net, which is why the two classifications must be kept separate.
Count the Nets
One N is taxes. Two N is taxes plus insurance. Three N adds maintenance. Count the letters and you know how many expense categories left the landlord's column. Gross means none of them did.
How to use: Count the expense categories the stem shifts to the tenant, then match that count to the number of nets. Keep percentage lease out of the count, since it describes rent calculation rather than expense allocation.
Exam Tip
Terminology varies in the market, and leases labeled triple net sometimes leave roof and structure with the landlord. On the exam use the standard progression, but in practice read the actual lease.
Common Mistakes to Avoid
- -Assuming any expense pass-through means triple net
- -Building an operating statement without reading the actual lease
- -Applying a capitalization rate extracted from differently structured leases
Concept Deep Dive
Analysis
Commercial lease structures are classified by which operating expenses shift from landlord to tenant, and the net lease family builds up in a recognized sequence. In a single net lease the tenant pays base rent plus real estate taxes. A double net lease adds insurance, so the tenant covers taxes and insurance. A triple net lease adds maintenance, leaving the tenant responsible for taxes, insurance, and maintenance while the landlord's obligations shrink toward structure and roof, or in an absolute net lease toward nothing at all. At the other end of the spectrum, a full service gross lease has the landlord paying all operating expenses out of a single rent payment, with modified gross arrangements sitting in between, often with expense stops or base year provisions that pass through increases above a threshold. For the appraiser the structure determines what expenses belong in the operating statement, which is why the lease must be read rather than assumed, and it also affects risk, since a landlord under a gross lease bears expense inflation that a net-lease landlord does not.
Background Knowledge
You need the lease structure spectrum from full service gross through modified gross to single, double, triple, and absolute net, and which expenses shift at each step. You should also know expense stops and base year provisions, and understand that the lease structure determines which expenses appear in the operating statement used for the income approach.
Real-World Application
An appraiser valuing a single-tenant building confirms from the lease that the tenant reimburses real estate taxes only. She builds her operating statement with insurance, maintenance, reserves, and management as landlord expenses, excludes reimbursed taxes, and selects capitalization rate comparables with similar expense structures.
More Income Approach Questions
In a percentage lease, rent is commonly structured as:
In a DCF, what is the reversion?
Potential gross income differs from effective gross income in that PGI assumes:
The reversion in a discounted cash flow model represents:
Building A (new, credit tenant, 20-year lease) and Building B (older, month-to-month tenants) sell the same week. Their cap rates should differ how?
An overall rate extracted from a sale whose NOI excluded reserves, applied to a subject NOI that includes them, will:
Replacement reserves cover which kind of expenditure?
What is the primary distinction, for appraisal purposes, between 'vacancy loss' and 'collection loss'?
An appraiser is analyzing a mixed-use property with retail and office components. The retail segment has a potential gross income of $180,000 with a market vacancy of 8%. The office segment has a potential gross income of $120,000 with a market vacancy of 12%. What is the overall effective gross income for the property?
The mortgage constant represents:
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Previous Question
In a discounted cash flow analysis, an appraiser uses a yield rate of 10% to discount projected cash flows but applies a terminal capitalization rate of 8% to estimate the reversion. Which statement best explains why these two rates differ?
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A retail center's rent roll shows $340,000 potential, 8% vacancy and collection loss, and $12,500 in reimbursements. EGI is: