IAAO Managers Practice Test 2025 – The Complete All-in-One Guide for Exam Success!

When examining the relationship between economic rent and contract rent from a tenant's perspective, the correct term for the situation where economic rent exceeds contract rent is specifically known as "leasehold income." This term reflects the tenant's benefit or profit in scenarios where the value of the property being leased (economic rent) is greater than what they are contractually obligated to pay (contract rent).

Leasehold income represents the economic advantage a tenant experiences because they are effectively paying less for the use of a property compared to its current market value. This situation can occur due to various factors such as long-term leases signed at lower rental rates, market fluctuations, or changes in demand in the property market over time. Essentially, leasehold income is an indication of the financial gain realized by the tenant during the lease period.

In contrast, capital gain pertains to the increase in value of an asset itself, market income generally relates to broader income scenarios involving real estate, and rental surplus might imply an overall surplus of rental income but isn’t the specific term used in the context of lease agreements. Hence, "leasehold income" captures the essence of the situation accurately for tenants.