Which lease type is typically more favorable to the landlord due to variable costs?

The net lease is typically more favorable to the landlord because it allows for the passing of variable costs associated with property ownership to the tenant. In a net lease structure, tenants are responsible for additional expenses beyond just the base rent, often including property taxes, insurance, and maintenance costs. This means that the landlord can maintain a more predictable income stream, as these costs are less likely to impact their financial performance directly. This arrangement shifts some financial responsibilities onto the tenant, making it easier for landlords to budget and manage their properties without unexpected expenses.

While gross leases offer more stability for tenants by including all costs in a fixed rent payment, they can make it riskier for landlords if property expenses unexpectedly rise. In contrast, types like absolute net leases place even more costs onto the tenant, such as replacing the roof or structural repairs, but with a standard net lease, the landlord still retains some responsibility for serious maintenance issues. This strategic allocation of costs makes the net lease an appealing choice for landlords seeking to optimize their investment returns while mitigating risk.