REA Leasing & Property Operations 1 — Questions and Answers
Question 1: What is the key difference between a 'gross lease' and a 'net lease'?
- In a gross lease, the landlord pays operating expenses; in a net lease, the tenant pays some or all operating expenses (Correct answer)
- A gross lease covers the entire building while a net lease covers only a single tenant's space
- Net leases are used only for industrial properties while gross leases apply to office buildings
- A gross lease includes utilities while a net lease excludes parking from the rent structure
Correct answer: In a gross lease, the landlord pays operating expenses; in a net lease, the tenant pays some or all operating expenses
Under a gross lease the landlord bears operating expenses included in the base rent, while net leases pass through some or all expenses to tenants.
Question 2: What is a 'tenant improvement allowance' (TI allowance) and who typically funds it?
- A landlord-funded contribution toward the cost of building out a tenant's space to their specifications (Correct answer)
- An annual credit given to tenants for routine maintenance and minor repairs
- A rent abatement period during which tenants do not pay rent while building out their space
- A government subsidy available to small business tenants in enterprise zones
Correct answer: A landlord-funded contribution toward the cost of building out a tenant's space to their specifications
A TI allowance is a landlord-funded contribution per square foot that covers the cost of constructing or renovating space to meet a tenant's operational needs.
Question 3: What does 'free rent' represent in a commercial lease negotiation?
- A rent abatement period during which the tenant occupies the space without paying base rent (Correct answer)
- A discount on monthly rent in exchange for the tenant prepaying several months of rent
- The period between lease signing and tenant occupancy before rent obligations commence
- A permanently reduced rent rate offered to anchor tenants to attract them to a development
Correct answer: A rent abatement period during which the tenant occupies the space without paying base rent
Free rent is a landlord concession granting the tenant a period of occupancy without base rent, effectively reducing the tenant's effective rent over the lease term.
Question 4: What is a 'CAM reconciliation' in commercial property management?
- The annual process of comparing actual common area maintenance costs to tenant estimates and adjusting billings (Correct answer)
- A comparison of a property's operating expenses to market comparable properties
- The process of reconciling the property's financial statements with the general ledger
- An audit of tenant sales figures to verify percentage rent payments
Correct answer: The annual process of comparing actual common area maintenance costs to tenant estimates and adjusting billings
CAM reconciliation compares actual operating expenses to the estimated amounts billed to tenants throughout the year, resulting in a true-up payment or credit.
Question 5: What is an 'anchor tenant' and why is it important to a retail property?
- A large, high-traffic tenant that draws customers to a retail center, benefiting smaller co-tenants (Correct answer)
- The tenant with the longest remaining lease term in a commercial property
- A tenant that occupies the building's ground-floor retail space in a mixed-use development
- The first tenant to sign a lease in a newly developed property
Correct answer: A large, high-traffic tenant that draws customers to a retail center, benefiting smaller co-tenants
Anchor tenants (grocery stores, department stores, big-box retailers) generate customer traffic that drives sales for smaller inline tenants, making the center more viable.
Question 6: In commercial leasing, what is a 'lease abstract'?
- A summary of the key business and legal terms of a lease agreement prepared for quick reference (Correct answer)
- A legal document that terminates a lease agreement before its natural expiration
- A register of all outstanding leases for a property used in financial reporting
- A formal offer to lease space sent by a prospective tenant to a landlord
Correct answer: A summary of the key business and legal terms of a lease agreement prepared for quick reference
A lease abstract condenses the critical terms — rent, term, options, expenses, and clauses — into a standardized summary for use by asset managers and analysts.
REA Leasing & Property Operations 1
What is the key difference between a 'gross lease' and a 'net lease'?