What is a net lease?

A net lease is a type of commercial lease agreement where the tenant agrees to pay not only a base rent but also a portion of the property's operating expenses. This usually includes costs such as property taxes, insurance, and maintenance expenses. By including these additional costs, the landlord can keep base rent lower while ensuring that the tenant contributes to the overall expenses of maintaining the property.

The fundamental nature of a net lease distinguishes it from gross leases, where the landlord typically covers all operating expenses, and from leases where only fixed rent is paid by the tenant. In situations involving a net lease, the actual amount a tenant may pay can fluctuate based on the operating expenses that are incurred.

This understanding is vital in real estate as it impacts both the financial obligations of tenants and the investment strategies of landlords. Knowing the characteristics of net leases can help both parties effectively negotiate terms and understand their commitments under the lease agreement.