In a net-net lease, which costs is the tenant typically responsible for?

• A. Base rent only
• B. Utilities only
• C. Taxes and insurance only
• D. Operating costs, taxes, and insurance

Answer: (D)

In a net-net lease, the tenant takes on most ongoing occupancy costs beyond just paying rent. The tenant is expected to cover operating costs (everything needed to run and maintain the property, including common area maintenance, utilities for those areas, janitorial, landscaping, management fees, etc.), as well as property taxes and building insurance. The landlord collects base rent but is shielded from these operating expenses, so the rent is considered net to the landlord once those costs are covered. That’s why the correct option includes operating costs, taxes, and insurance. The other options miss one or more of these expense areas—base rent only would be a gross lease, utilities only omits taxes and insurance, and taxes and insurance only describes a more limited form of cost shifting.