In which type of leases are operating expenses allocated and billed to the tenant?

In a net lease, operating expenses are allocated to and billed directly to the tenant. This type of lease structure allows landlords to pass on many costs associated with property maintenance and operations to the tenants, including property taxes, insurance, maintenance, and utilities. This means that the rent charged to tenants is typically lower, but they bear the responsibility for these additional expenses, which can vary depending on the property.

In contrast, a gross lease typically includes all operating expenses in the rental fee, meaning the landlord absorbs those costs. A modified gross lease may have some shared expenses but still does not fully transfer all operating costs to the tenant. A percentage lease, often used in retail settings, bases rent partially on the tenant's sales and does not directly correlate with the payment of operating costs. This makes the net lease distinct in that it allows for the direct billing of such expenses to the tenant, creating a more predictable revenue stream for property owners while also making tenants accountable for the property's operational costs.