In a net lease, which party bears the operating risk?

In a net lease, the tenant is responsible for not only the rent payments but also for some or all of the operating expenses associated with the property. This agreement transfers the operating risk from the landlord to the tenant, meaning that any fluctuations in costs for maintenance, utilities, property taxes, and insurance are now the tenant's responsibility.

This setup allows landlords to have a more predictable income stream, as they are not liable for the operational costs that can vary significantly. For tenants, while this arrangement might initially appear as an added burden, it often results in lower base rent since the tenant is agreeing to take on these additional expenses. Understanding this division of responsibilities is crucial for both parties when entering a lease agreement, as it influences their respective financial obligations and risks.