A Master Lease Agreement To Help Maximize Your Commercial Property’s Potential

A master lease agreement is an excellent way to make sure your commercial property is delivering as much rental income as possible while allowing a lessee to take equitable ownership of it.

We know that creating any kind of legal document is daunting, but we are here to help. DoNotPay is your go-to resource to learn how to write a contract and get customizable contract templates. Read more to get all the info you need on a master lease agreement.

What Is a Master Lease Agreement?

A master lease agreement is similar to a standard lease agreement in that it provides for a lessee to lease commercial or residential property from the landlord for a fixed period.

The difference a master lease agreement offers is that the lessee receives permission to sublet the property to other tenants. The lessee becomes the de facto—or equitable—owner of the property.

As an additional possibility, the property owner can include the option for the master lessee to purchase the property over time. There are several advantages and disadvantages to this route for both lessor and lessee, as follows:

Type	Explanation
Advantages for the lessor	The following are the benefits of a master lease agreement: The property can be filled with paying tenants rather than having areas remaining empty Master tenants do not need to occupy the whole property, so the pool of potential tenants is larger The master tenant can take over the responsibility for the day-to-day running and maintenance of the property
Advantages for the lessee	The lessee can benefit from a master lease agreement in the following ways: The lessee can purchase commercial property without a down payment or mortgage The lessee can make a profit from the sublets and run the property more efficiently Renovations to the property carried out by the lessee can increase its value and offer an opportunity for profitable resale after the lease term is concluded and the property is theirs
Disadvantages for the lessor	A master lease agreement comes with the following risks: The owner loses control of the use to which the property is put, and the lessee becomes the equitable owner The master tenant could be negligent in collecting rent from subtenants The master tenant may not control the upkeep of the property as well as the owner would, causing possible expense at a later date
Disadvantages for the lessee	The lessee faces the following risks in a master lease agreement: The property may require extensive renovation or remodeling to make it attractive to sublessees If the lessee misses a payment, they could lose the property and any money they have already paid The lessee, as the equitable owner, becomes responsible for property tax, rates, and maintenance costs

If you are the owner of commercial or residential property and are considering bringing in a master lessee, you need a comprehensive master lease agreement to avoid any problems.

What Are the Types of Master Lease Agreement?

There are two types of a master lease agreement, as follows:

Performance master lease
Fixed master lease

Performance Master Lease

Under this type of master lease agreement, the lessee agrees to pay a set percentage of the profits generated through the subleases after they have been received.

Fixed Master Lease

This type of master lease requires the master lessee to pay an agreed percentage of the profits whether or not sublessees are in place.

What Should a Master Lease Agreement Include?

A master lease agreement needs to minimize risk for you as the property owner while maintaining the property’s attractiveness for potential master tenants.

This is what you should include in a master lease agreement:

Details of the contracting parties
Property description
Master lease term
Expenses and income for the master lessee
Acceptable use terms
Capital investment stipulations
Maintenance
Option to buy
Default procedure
Governing law

Details of the Contracting Parties

The master lease agreement must contain the full names, addresses, and contact details of the lessor and the lessee.

Property Description

The property should be described in full, including:

Location
Size of the building(s)
Plot size
Number of subunits or subdivisions
Property registration number
Fair market value
Property tax assessed value

Master Lease Term

The lessor and the lessee should agree on the length of the lease.

Expenses and Income for the Master Lessee

The agreement should set out the ongoing expenses associated with the property and the typical rental income it can be expected to generate.

Acceptable Use Terms

The lessor can stipulate certain prohibited uses, and state, county, or municipal law may also determine activities that are banned in the property.

Capital Investment Stipulations

The lessor and the lessee can agree on any capital projects (such as extensions or internal redistribution of space) that should be carried out. The lessor may also want to set limits on what the lessee is allowed to do to the property during the lease term.

Maintenance

The agreement should contain all the routine maintenance tasks that the lessor would normally carry out.

Option To Buy

If the lessor and the lessee have agreed to transfer legal ownership of the property to the lessee at the end of the lease term, they should agree on any balloon payments required to finalize the purchase. The balloon payment will generally make up the difference between the sum of the lease payments and the fair market value of the property before any improvements by the lessee.

Default Procedure

The agreement needs to clarify what should happen if the lessee defaults on any payments. In most cases, there should be a provision for some leeway and dialogue between the lessor and the lessee.

Governing Law

The law governing the agreement should be clearly stated. In most cases, the law of the state in which the property is located will apply.

How Can DoNotPay Help Me With a Master Lease Agreement?

DoNotPay is your partner for creating customized legal documents. You can write your own master lease agreement using the comprehensive guidelines above, but remember that it has to be signed by both parties and notarized before it becomes legally binding.

If you are looking for other customized documents, DoNotPay can help. We have a range of contract templates and legal documents that cover many areas.

You can in a few easy steps, as follows:

Go to DoNotPay in your browser and
Search for the document that you need
Fill in the details you want included
Wait while we generate your document

What Other Documents Can DoNotPay Offer?

Our range of available legal documents is expanding rapidly, and here is a selection of what we can offer:

Property	Business	Personal
Real estate purchase agreement Lease agreement Estoppel certificate Quitclaim deed Intent to purchase real estate	Non-disclosure agreement Non-compete agreement Independent contractor agreement Bill of sale Operating agreement General business contract	Prenuptial agreement Custody agreement General affidavit Promissory note

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