Free practice questions · Course 4
Commercial Lease Structures Practice Questions
Gross, net, and percentage leases — understanding terms, rent escalations, and renewal options. Below are 5 free sample questions from our 30-question Commercial Lease Structures bank. Each comes with the correct answer and a full explanation.
Question 1 of 5
A tenant's lease specifies that taxes are pass-through but is silent about how 'taxes' are defined. The municipality reassesses the property and substantially increases the tax bill. The landlord seeks to pass through the entire increase. What is a typical tenant defense?
- AThe tenant can refuse all tax pass-through entirely
- BThe tenant may argue, depending on lease drafting, that increases attributable to landlord-driven improvements (e.g., a major addition unrelated to tenant) should be excluded, and may invoke ambiguity rules
- CThe tenant has no defense and must pay the entire increase
- DThe tenant can transfer the obligation to the next-door tenant
Why B is correct
Sophisticated leases address: definition of taxes (excluding capital taxes, income taxes, penalties for landlord delays), methodology for proration where the building has multiple tenants, exclusion of assessment increases due to landlord-only improvements, and audit rights. Where leases are ambiguous, courts may apply contra proferentem against the drafting landlord.
Question 2 of 5
Yusuf Adekunle wants to assign his commercial lease to a new tenant. The lease states consent 'shall not be unreasonably withheld' by the landlord. Which of the following would generally constitute reasonable grounds for the landlord to refuse consent?
- AThe proposed assignee operates a competing business to another tenant in a small mall
- BThe landlord wants to renegotiate higher rent with a new tenant
- CThe proposed assignee is a different ethnicity than the current tenant
- DThe proposed assignee plans to use the space for the same permitted use
Why A is correct
Reasonable grounds for refusing consent typically include: financial unsuitability of assignee, intended change of use that breaches lease, conflict with tenant mix or exclusivity covenants, and reputation concerns. Unreasonable grounds include extracting higher rent, discrimination, or arbitrary refusal.
Question 3 of 5
In a triple net (NNN) lease, which costs are typically the tenant's responsibility?
- AOnly the base rent and utilities
- BBase rent plus property taxes only
- CBase rent plus property taxes and insurance only
- DBase rent plus property taxes, insurance, and maintenance/CAM
Why D is correct
The 'three nets' in NNN refer to property taxes, insurance, and maintenance/CAM. NNN leases are common in retail and freestanding commercial properties because they shift operating cost risk to the tenant, providing landlords with predictable net income.
Question 4 of 5
Which lease structure is most typical for a freestanding pharmacy occupying its own building under a long-term tenancy?
- AGross lease
- BModified gross lease
- CSingle net (N) lease
- DTriple net (NNN) lease
Why D is correct
Triple net leases dominate freestanding retail (pharmacies, fast-food, banks) because the tenant is the sole occupant and effectively controls building operations. The landlord receives stable net income, while the tenant manages operating expenses directly.
Question 5 of 5
Devraj Aulakh's commercial lease contains a CPI rent escalation clause with annual adjustments. If base rent is $50,000 and the CPI increases by 3.2% in the adjustment year, what is the new base rent?
- A$50,032
- B$51,600
- C$53,200
- D$56,400
Why B is correct
CPI escalation: New rent = Old rent x (1 + CPI%). $50,000 x (1 + 0.032) = $50,000 x 1.032 = $51,600. CPI clauses tie rent to inflation, protecting landlords against erosion of real income while ensuring tenants face market-aligned increases rather than fixed steps.
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