Master Leases may be used for a variety of reasons, and most are legitimate. For instance, an owner may not want continue to operate a building day-to-day, but does not want to pay capital gains on a sale if they have a low basis. An option would be to lease the entire building to someone who is more willing to operate the building and take on the management. Presumably, the master lease rate will be lower than the market rent so the "operator" can make a profit and justify investment in upgrades and leasing costs for the building.
Capital gains would be paid by the Seller on the eventually sale of the property, but an MLO allows for the taxation to be deferred by controlling the date of sale.
Sometimes a master lease is used when there is a ground lease on the land. This would allow someone other than the fee owner to build a building and "sublease" it to a tenant. This structure is more frequently used for corporate clients who have good bankable credit but do not want to build, own or operate their own building.
A master lease is just another tool for managing control of real estate. Determine the motivation of the seller to ascertain whether a MLO is a good way to go. Finally, before you enter into a master lease, seek professional advice on how best to structure your deal.
Happy Investing!
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