A master lease is a lease in which one tenant, the master tenant, leases an entire property and then operates it and subleases space to the occupants. In a Delaware Statutory Trust (DST), the trust often leases its property to a master tenant, frequently an affiliate of the sponsor, because the trustee’s own powers to manage the property and sign new leases are limited under IRS rules.
Key Points
- How rent flows: Occupants pay rent to the master tenant, which pays rent to the DST under the master lease; the DST then makes distributions to its investors.
- Why it is used: The structure places day-to-day leasing decisions with the master tenant while the DST remains a passive owner, consistent with Revenue Ruling 2004-86.
- Where terms appear: The master lease terms, the master tenant’s financial strength and its relationship to the sponsor are described in each offering’s documents.
To learn more, see how SREI Group approaches DST investments.
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