Types of Leases

There are a few types of leases that come up on your exam. Let's take a look.

1. Gross lease

A gross lease is a rental agreement for the use of the property where the tenant pays a fixed amount that does not change as a result of changes in the various expenses of the property. The landlord pays for these expenses, such as all repairs, taxes, and operating
expenses incurred through ownership. It is the opposite of a net lease in which these costs are incurred by the lessee.

2. Net lease

A net lease is where the responsibility to pay taxes, insurance, and maintenance are incurred by lessee in addition to the monthly lease payment. This is often referred to as a triple net lease.

3. Lease option

A lease option is a rental agreement indicating a tenant’s option to purchase a property during the term or at the end of the lease. The owner of the property would be the optionor, and the tenant would be the optionee.

Consideration is given to the optionor in order to secure the option for the optionee. The consideration can be monthly payments consisting not only of rent, but an overage, or it can be money up front that can be applied towards a down payment on an already established amount.

If the optionee exercises the option, the title would revert back to the time the contract began, not when the option was exercised.

4. Percentage lease

A percentage lease is a rental that is based on a percentage of the monthly or annual gross sales made on the premises. Percentage leases are common with large retail stores, especially in shopping centers. An underlying concept of the percentage lease is that both the landlord and the tenant should share in the locational advantages of the leased premises. There are many types of percentage leases: the straight percentage of gross income, without minimum (uncommon); the fixed minimum rent plus a percentage of the gross; the fixed minimum rent against a percentage of the gross, whichever is greater; and the fixed minimum rent plus a percentage of the gross, with a ceiling to the percentage rental (among others).