A lease requires the tenant to pay base rent plus property taxes only, with the landlord paying insurance and maintenance. How is this lease best described?
Correct Answer
B) Single-net.
A lease under which the tenant pays base rent plus property taxes, while the landlord retains insurance and maintenance, is commonly called single-net. Labels vary; actual lease terms govern cost allocation. Percentage rent is a separate sales-based feature.
Why This Is the Correct Answer
Option B is correct because the tenant pays base rent plus property taxes while the landlord pays insurance and maintenance, which is the single-net allocation. Lease labels vary in practice, so the actual allocation of costs governs.
Why the Other Options Are Wrong
Option A: Triple-net, including all three costs.
Option A, triple-net including all three costs, would require the tenant to pay taxes, insurance and maintenance. This tenant pays only taxes, so the lease is not triple-net.
Option C: Full-service gross with no additional tax obligation.
Option C, full-service gross with no additional tax obligation, would mean the tenant pays no property taxes beyond base rent. This tenant does pay property taxes, so the lease is not full-service gross.
Option D: Percentage rent, since the tenant pays taxes.
Option D calls it percentage rent because the tenant pays taxes. Percentage rent is rent based on the tenant's sales, which has nothing to do with paying property taxes.
Count the nets
Each net is one cost shifted to the tenant: one net is taxes, three nets is taxes, insurance and maintenance.
How to use: Use this when a question describes who pays which costs and asks you to name the lease.
Exam Tip
Match the label to the actual cost allocation: count which of taxes, insurance and maintenance the tenant pays.
Common Mistakes to Avoid
- -Labeling any lease with a tenant tax payment as triple-net
- -Confusing percentage rent with expense pass-throughs
- -Relying on the lease label instead of the actual cost allocation
Concept Deep Dive
Analysis
This question tests net lease terminology. A tenant who pays base rent plus property taxes only, with the landlord paying insurance and maintenance, has what is commonly called a single-net lease. The tenant's terms match that label.
Background Knowledge
Net leases shift some or all property expenses, such as taxes, insurance and maintenance, to the tenant. Responsibility for expenses depends on the specific lease terms, and labels like single-net or triple-net can be used differently in different markets.
Real-World Application
Reviewing a retail lease, an appraiser finds the tenant reimburses property taxes while the landlord pays insurance and maintenance. The appraiser deducts insurance and maintenance as landlord expenses when estimating NOI.
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A client is under contract to buy a triplex for $480,000. The appraiser's stabilized NOI is $36,000, and sales of similar triplexes indicate an overall rate of 7.5%. The client then learns that the owner must begin paying for trash collection at $200 per month, and rents will not change. The client's planned loan carries annual debt service of $24,000. At what overall rate would the revised NOI support the contract price?
Next Question
An appraiser is reconstructing the owner's statement for a 12-unit apartment building with identical units. Market rent is $1,200 per month, and 11 units are leased to tenants at that rent with no vacancy. The twelfth unit is occupied rent-free by a resident manager as part of the manager's pay, along with a cash wage of $600 per month, an arrangement typical of competing buildings. The statement shows rent collected of $158,400, operating expenses of $60,000 that include the cash wage, and mortgage payments of $48,000, with no entry for the manager's unit. What potential gross income and operating expenses should the reconstructed statement show?