Net Lease Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Net Lease, written in plain English, along with examples of how it is used.
What is Net Lease?
Rental agreement that makes the tenant responsible for a designated portion of the landlord’s operating costs. For instance real estate taxes or utilities. Refer to the definition for gross lease.
History and Meaning of Net Lease
A net lease is a rental agreement that makes the tenant responsible for a designated portion of the landlord’s operating costs, such as real estate taxes, insurance, utilities, and maintenance expenses. The term "net lease" means that the landlord is paid by the tenant the base rent plus the actual costs of property taxes, insurance, and maintenance. This arrangement is different from a gross lease where the landlord pays all operating costs.
The net lease concept dates back to the early 20th century when commercial real estate properties were starting to become popular. With the increasing popularity of commercial property leasing, landlords and tenants started to negotiate lease agreements that included the sharing of operating expenses, which led to the evolution of the net lease concept.
Examples of Net Lease
- A small business rents an office space under a net lease agreement which states that the tenant is responsible for paying monthly rent and a portion of property taxes, insurance, and maintenance costs.
- A large retail chain signs a net lease for a shopping mall location. The lease requires the tenant to pay base rent plus all expenses associated with the property, including taxes, utilities, insurance, and maintenance costs.
- A property owner leases out a warehouse space on a net lease basis where the tenant is responsible for paying a percentage of the property taxes and utilities.
Legal Terms Similar to Net Lease
- Gross Lease – a rental agreement where the landlord pays all operating expenses and the tenant pays only the base rent.
- Double Net Lease – a rental agreement where the tenant pays the base rent plus the property taxes and insurance costs.
- Triple Net Lease – a rental agreement where the tenant pays the base rent plus all operating expenses – real estate taxes, insurance, and maintenance costs.