Master Lease vs. Sublease: Types of Lease Agreement and Their Differences
Published on July 4, 2023
Wondering what the reoccurring terminologies like “master lease” and “sublease” mean? And how are they different? This article is another pleasure for us to explore with you a few more real estate terminologies which are commonly encountered in leasing discussions and hold importance for both landlords and tenants. Let’s take a closer look at what master lease and sublease mean and how they differ from each other.
Master Lease: Property Leasing through the Property Owner (Master Lessor)
A master lease refers to a contractual agreement between a property owner (named as the master lessor), and a tenant (named as the master lessee). In this arrangement, the master lessee gains exclusive rights to lease the property from the owner. In Bali, the master lessee is able to occupy the space during the agreed period of lease, either as their personal residence or acting as a landlord by subleasing or subletting the property to other tenants.
Sublease: Property Subleasing through the Master Lessee
A sublease, on the other hand, is a lease agreement that occurs between the master lessee (named as the sublessor) and a third party tenant (named as the sublessee). In this arrangement, the master lessee rents out a portion or the entirety of the property to another tenant while still being bound by the terms and conditions of the original master lease with the property owner (named as the master lessor).
The sublessee, in essence, becomes the tenant of the master lessee and is subject to the terms and obligations outlined in the sublease agreement. While the master lessee remains responsible in fulfilling their obligations to the property owner, the sublessee usually does not have direct communication or a contractual relationship with the property owner. Instead, the sublessee pays rent to the master lessee, who then pays rent to the property owner.
Both master leases and subleases provide flexibility and opportunities for real estate investors and entrepreneurs to generate income and optimize the use of their properties. With a master lease, tenants can act as landlords by subleasing the property to subtenants. This concept is not only applied for property units, but also adaptive for a single empty land plot. Getting familiar and truly understanding these terminologies will help both landlords and tenants to navigate the intricacies of land and property transactions to eventually create well-informed decisions in their real estate endeavors.
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