Master Lease Agreement

Why consider a MLA with Tangodoe Investment Properties

Master Lease Agreements work well for all types of commercial real estate and multi family properties.

There are sellers of properties that for one reason or another can’t find the right buyers or at the right price. MLA gives the seller the ability to relax while letting someone manage it, without any need to manage it at all.  Most MLA come with an option to purchase at a set price today, for an agreed upon date in the future. This allows the buyer to perform all of the work needed, at their cost, to improve the property in order to maximize the rents for each tenant. Instead of the seller getting 25 checks a month, paying for taxes, insurance, repairs, etc. The seller now gets 1 check with no other responsibilities whatsoever.
There are a variety of reasons that a MLA might be of benefit for both parties. Take for example an underperforming property with high visibility, with excellent geographic and demographics. The property performs well, but could benefit from additional services, landscaping, signage, etc. Most of the buildings we purchase or lease with the option to purchase need better visibility, better signage, and a more modern look and feel for the tenants. By giving each tenant a better pathway to succeed, is crucial to a relationship between Landlord and Tenant.
100% of all our properties are ones we feel need a “Better Identity”. If a tenant requires better signage in order to direct traffic to them, it benefits them, which in turn benefits us. If the directory of tenants and their location on the property isn’t clear, we fix that so traffic flows better and the tenant and their clients are happy.
By removing the sellers financial responsibilities in managing and operating a property, and with a Master Lease Agreement in place, both parties can win and achieve their goals.
A Master Lease Agreement provides any income producing property, ie:, (rental home, commercial property, office buildings, warehouses, industrial properties, marinas, and resorts.) an opportunity to get out from under the day to day duties of managing their properties.

Master Lease Agreement for Commercial Real Estate

  • Works with all sorts of Real Estate, ie: rental homes, multi-family, commercial, industrial, resorts, RV Parks, etc. If it’s a managed income-producing property, the MLA will work.
  • One of the most famous Master Lease Agreements is the “Empire State Building” which is still rumored to be managed under an MLA. The terms are unknown, however For example, Someone offered $2 million a year for a 114 year MLA. Payments today could still be only $2 million a year but now the income is at $6 million or a $4 million dollar profit per year. There are no rules or templates that cover all areas of your negotiated terms and conditions.  The best part of an MLA is that it requires a desire by both parties to improve upon the income that the property has, and or the look and feel. Making sure that both parties are represented by an attorney familiar with the process is important.
  • We have negotiated mostly all owner contracts since the ’90s and have done so with little to no money down, on one condition. “Please respect our relationship, the history of the building, and our past 50-60 years of ownership”. To this day, Tangodoe prides itself on having a 100% success rate. Adding to that, one of our most iconic buildings in Issaquah is the IOOF building.  The offer and terms were negotiated in the owner’s home office where it became obvious we enjoyed each other’s company. The MLA was discussed, but in the end, we agreed to terms of almost no down payment.  Small monthly payments and a lunch each month we exchanged stories and he was paid. After almost 25 years, we are still friends. (I’ll never fly with him in his BI-Plane again!)

Here’s How It Works

The lessee (buyer in most cases) agrees to take over the operations of the property and both party’s agree to an amount of deposit money to put down (or in most instances, no payment) on the property, in exchange for all the rights and privileges of owning and operating the property. We will also pay the owner the agreed upon monthly rent for the life of the lease—after which arrangements are commonly made to buy the property. The lessee can improve the property to secure more rent or divide the space into multiple rentable units. The property’s operation is completely the lessee’s responsibility.

The lessee is also held liable for the property taxes, utility bills, insurance and maintenance expenses. But this means they’re entitled to the property’s income revenue, tax benefits and increase in value. The catch? The legal title doesn’t change hands. Instead, the lessee holds equitable title for the duration of the lease or until they exercise any option to buy.

What’s the Difference Between Equitable Title and Legal Title?

In real estate law, equitable title refers to an individual’s right to enjoy the financial benefits while leasing the property. However, equitable title is not “true” ownership and the lessee is not entitled to many of the owner’s legal property rights unless there is a written option to purchase clause included. If the Lessee (buyer) exercises the option to purchase the property at an agreed upon price today.  The title then reverts from Equitable to Legal tile holder.

Legal title refers to the actual ownership of the property. The legal title includes all the property rights, such as easement, development, possession and other rights.

The difference between equitable title and legal title is more complex than this brief explanation. Do your research and discuss this with a reputable real estate attorney.

Why Consider a Master Lease Agreement?

The lessee is entitled to any of the property’s revenue (after their monthly rent), any future equity, tax benefits and the day-to-day management. As the net operating income (NOI) increases, so too does the lessee’s revenue. In addition, if an option to buy has been included in the agreement, at the time of sale, any increased property value becomes the lessees.

But master lease agreements don’t only benefit the lessee. The owner receives steady rent income with no effort, as the property’s maintenance responsibilities rest on the lessee. Master lease agreements may be a good option for property owners who are no longer motivated to invest in a given property, but don’t want to, or can’t, sell it. They allow the owner to continue receiving some revenue on the property without any financial or managerial involvement.

The Master Lease Agreement also benefits building/property owners who might not have any idea of what to do with any capital gains the sale might trigger. The Master Lease Agreement gives the owners time to find another 1031 exchange property, or time to work out a family trust where any of the proceeds from the agreed upon sale date to the lessee/buyer might save the taxes, like a REIT mutual fund, or Delaware fund. Thus definitely required thought and an attorney.