Question

Q. As a landlord, is a gross lease or a net lease more favorable to you? Are there any factors to be considered in answering this question?

Answer 1

Gross Lease: Gross lease is an all-inclusive lease in which a tenant has to pay a single fixed amount and the landlord has to bear the cost of maintenance, insurance, taxes, utilities etc. It is a combo deal.

Net Lease: Net lease is a type of lease in which a tenant has to pay rent & all other expenses by herself differently to different stakeholders.

As a landlord, the net lease is definitely more favorable as the tenant has to pay the variable costs as per her usage. In the case of the gross lease, tenants may not have any motivation to keep the bills low.

The net lease also keeps the owner's share fixed & even an excessive use of power or utilities by the tenant will not affect his income.

Factors to be considered:

1. Is the tenant need excessive power & water? If yes, go for net lease. If he can be energy efficient, a gross lease can be considered.
2. Has the building or apartment installed with energy efficient equipment.? If yes, a gross lease can be favorable. As the additional costs will remain low.
3. The number of occupants: A single person would cause much lesser variable costs compared to a family.