Affiliate Broker Tennessee (TN PSI) National Practice Exam `

When negotiating the purchase of a property subject to a lease, what term is critical for the client to understand?

1. The property address

2. The lease duration

3. The number of tenants

4. The maintenance responsibilities

The correct answer is: The lease duration

Understanding the lease duration is critical for a client negotiating the purchase of a property subject to a lease because it directly impacts the buyer's plans for the property. The lease duration indicates the length of time that current tenants have the right to occupy the property under the existing lease terms. If the lease has a long remaining duration, the new owner may need to honor that agreement, limiting their ability to use or modify the property immediately. This can affect the buyer's investment strategy and cash flow expectations, as they may not be able to generate rental income or occupy the property themselves until the lease expires. Knowing how long the lease lasts allows the buyer to make informed decisions about their investment and to plan for the future use of the property. In contrast, while the property address is essential for identifying the property, and the number of tenants and maintenance responsibilities are relevant for understanding operational aspects, they do not hold the same level of impact on the immediate financial obligations and timeline as the lease duration does.