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:
|Advantages for the lessor||The following are the benefits of a master lease agreement:
|Advantages for the lessee||The lessee can benefit from a master lease agreement in the following ways:
|Disadvantages for the lessor||A master lease agreement comes with the following risks:
|Disadvantages for the lessee||The lessee faces the following risks in a master lease agreement:
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
- 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.
The property should be described in full, including:
- 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.
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.
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.
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:
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