Certified Residential Appraiser Practice Exam

What type of lease involves sharing expenses between the tenant and landlord?

1. Gross Lease

2. Modified Gross Lease

3. Single Net Lease

4. Percentage Lease

The correct answer is: Modified Gross Lease

A Modified Gross Lease is a type of lease where both the tenant and landlord share the expenses associated with the property. In this arrangement, the tenant typically pays a base rent along with a portion of some or all of the operating expenses, such as maintenance, property taxes, and insurance. This type of lease strikes a balance between a gross lease, where the landlord assumes all expenses, and a net lease, where the tenant is responsible for all operating costs. This arrangement is beneficial for both parties: the landlord can ensure that some expenses are covered by the tenant, while the tenant enjoys a more predictable expense structure. In contrast, a Gross Lease puts all operating costs on the landlord, and a Single Net Lease generally places some expenses solely on the tenant. A Percentage Lease is commonly used in retail settings, where rent is based on a percentage of sales, without the shared expense structure typical of a Modified Gross Lease.