Master lease: Overview, definition, and example
What is a master lease?
A master lease is a contract between a property owner (lessor) and a tenant (lessee), in which the tenant leases a property or a group of properties, and the tenant is allowed to sublease the property or parts of it to other individuals or businesses. This type of lease agreement often applies to large commercial properties or multi-unit residential buildings, where the master tenant takes responsibility for managing the subleases, ensuring rent payments, and maintaining the property.
For example, a company might sign a master lease for a building, then sublease portions of the building to different businesses, while still being responsible for the overall lease terms with the landlord.
Why is a master lease important?
A master lease is important because it allows property owners to secure a long-term lease with a single tenant, while giving that tenant the flexibility to lease out portions of the property to other parties. For the tenant, a master lease can offer the opportunity to generate income by subleasing the property, often at a higher rent than they are paying the landlord.
For businesses, master leases can help manage large properties more effectively, and they provide the tenant with the ability to customize how the space is used and generate revenue from subtenants.
Understanding master lease through an example
Imagine a property owner with a large commercial building that includes office spaces, retail units, and storage areas. The property owner enters into a master lease with a business that manages commercial properties. The business then subleases individual office units to different companies. The business (master tenant) is responsible for the full rent to the property owner, but it collects rent from the subtenants, often at a higher rate. This arrangement allows the property owner to receive a steady stream of rental income while the business profits from the subleases.
In another example, a hotel operator might sign a master lease with the property owner, agreeing to run the hotel and sublease portions of the hotel to third-party businesses, such as restaurants or event planners, while maintaining overall responsibility for the hotel’s operations.
An example of a master lease clause
Here’s how a master lease clause might appear in a contract:
“The Tenant agrees to lease the Premises and shall have the right to sublease portions of the Premises to third parties, subject to the terms and conditions of this Master Lease Agreement. The Tenant remains fully responsible for the payment of rent and compliance with all lease terms, regardless of any subleases entered into.”
Conclusion
A master lease provides flexibility for both property owners and tenants by allowing the tenant to sublease part of the property while maintaining responsibility for the overall lease. It is a useful tool for managing larger properties and can create additional revenue opportunities for tenants. For property owners, a master lease can provide stable, long-term rental income, while offering tenants the chance to profit from subleasing portions of the property.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.