Chartered Financial Analyst Level 2

Explanation

In real estate leasing, there are different types of leases that determine how operating expenses are allocated between the landlord (owner) and tenant:

Gross Lease

• Operating expenses are paid by the owner/landlord
• The tenant pays a fixed rent amount that includes all operating expenses
• Common operating expenses covered by the owner include:
  • Property taxes
  • Insurance
  • Maintenance and repairs
  • Utilities (in some cases)
  • Common area maintenance

Net Lease

• Operating expenses are paid by the tenant
• Tenant pays base rent plus some or all operating expenses

Triple Net Lease (NNN)

• Tenant pays all operating expenses including taxes, insurance, and maintenance

Modified Gross Lease

• Operating expenses are shared between owner and tenant

Therefore, under a gross lease, the property's operating expenses are paid by the owner, making Option A the correct answer.