What Is a Master Lease?

Mary McMahon

The term “master lease” is used to refer to two different kinds of lease contracts where a lessee has the use of an asset for a set period of time as long as she conforms to the conditions set out in the agreement. The first sense refers to equipment leasing, where it is possible to extend the lease if the lessee wants to continue using the assets without having to renegotiate the contract. In real estate, a master lease is a controlling lease that grants the lessee the right to sublease the property to other parties. This is normally not allowed under the terms of a lease.

Master leases allow flexibility to the tenant, while still allowing the owner to control how the property is used.
Master leases allow flexibility to the tenant, while still allowing the owner to control how the property is used.

Master leases provide flexibility for the lessee, with terms that still allow the owner to control how and where the asset is used. This type of lease agreement may not always be available. When it is, it is important to go over the terms with care. Both parties should understand their rights and responsibilities and make any requests for changes up front at the time of the agreement, rather than attempting to renegotiate after the contract is signed. It is particularly important to pay attention to the time frame.

With equipment leases, lessees may find a master lease convenient. If a company leases machines for a year under such a lease and decides it wants to keep using them, it can simply apply to extend the terms. It does not need to originate a new lease with new terms. This can save time, and will allow the lessee to lock in favorable terms. Likewise, it may be possible to add equipment under the master lease. For instance, a company might need more vehicles in its fleet, but it would want to keep the lease terms the same, and can do so under a master lease.

Lessees involved in real estate transactions may find this type of lease useful for their needs. They can sublease the property to a range of tenants and divide it up to suit their needs. The terms of the subleases cannot exceed the master lease, but beyond that, the lessee has a wide degree of latitude. This can allow a single party to lease a large building and then offer space to tenants. The owner doesn't have to deal with each tenant and gets the same income every month, while the holder of the master lease deals with the administrative paperwork and can profit from the fees paid on the subleases.

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