What is the difference between a 'gross lease' and a 'net lease'?

The distinction between a gross lease and a net lease primarily revolves around how operating expenses are allocated between landlords and tenants. In a gross lease, the rental price includes all operating expenses, which means the tenant pays a single amount that encompasses rent as well as expenses like property taxes, insurance, and maintenance costs. This structure simplifies budgeting for tenants, as there are no surprise costs outside of the regular rent.

On the other hand, a net lease allows landlords to pass certain expenses onto the tenants, making the tenant responsible for additional costs, such as property taxes, insurance, and maintenance, beyond their base rent. Therefore, under a net lease, tenants can expect to pay more in total since they are covering these additional costs. This arrangement can potentially lower the base rent amount but results in higher out-of-pocket expenses for tenants.

Understanding this distinction helps clarify why the correct answer accurately characterizes the fundamental differences between these two lease types.