A master lease (or head lease) is a contract under which a single tenant leases a whole property or building from its owner for an extended term and gains the right to sublet the individual units to end occupants. The master tenant typically pays the owner a fixed rent and profits from the spread between that rent and the revenue generated by re-renting, often as short-term or mid-term rentals. This structure is central to rental arbitrage, where operators build short-term rental businesses on properties they do not own. Master leases usually grant broad rights to sublease and furnish the space, and they may include provisions such as guaranteed rent to the owner. They differ from a standard management agreement because the master tenant assumes the lease obligations and market risk rather than simply operating on the owner's behalf.
Why this matters for property managers
Controlling and re-renting a property without owning it lets an operator scale a portfolio with far less capital than buying, capturing the spread between rent paid and income earned. That leverage cuts both ways: the fixed rent is owed every month whether or not the units are booked, so a soft season or a demand shock lands entirely on the operator. Success depends on disciplined underwriting and enough occupancy to clear the lease before any profit begins.
Frequently Asked Questions
How is a master lease different from a management agreement?
Do I need the owner's permission to run short-term rentals under a master lease?
What happens if my rental income doesn't cover the master rent?
Are master leases legal everywhere?
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