Lease

A lease is the agreement under which an owner lets a tenant occupy space for a stated period, in return for rent. It fixes the top line of NOI. It also decides which operating expenses the landlord carries and which pass through to the tenant.

Most home and apartment leases last twelve months, and the owner keeps paying the taxes, insurance and repairs. Commercial leases often run five to ten years and can be gross, modified gross or net, depending on which costs the tenant reimburses. The same building can produce very different NOI under different lease types.

When buying, read the leases rather than a summary. Rent concessions, free months, below-market renewal options and tenant-paid utilities all change NOI. A rent roll that shows $4,000 a month means little if the lease grants the tenant two free months a year.