A master lease with option to purchase gives the operator a long-term lease (5 to 15 years) with a fixed-price option to acquire the property at defined dates. Operator funds operations and capex; seller retains title and the senior debt. Senior consent required for the underlying lease; option may have variable consideration mechanics.
Master lease + purchase-option mechanics and the financing implications
Mechanics: the seller / property owner signs a master lease (typically 5 to 15 years, triple-net or modified gross) to a tenant operator who funds operations, capex, and lease-up. The lease includes a purchase option exercisable at defined dates (often year 3, year 5, year 7) at a defined price (fixed dollar, formula tied to NOI, or formula tied to base rent). Title and senior debt remain with the seller until option exercise.
Use cases: distressed asset where the seller's lender won't permit transfer but will permit a long-term lease; sponsor wants control of the asset without acquisition financing yet; operator wants to lock in a future purchase price while building NOI under the master lease. Master leases with options are common in net-lease retail, hotel, and senior housing where operator quality drives value creation.
Senior lender consent: a long-term master lease materially changes the underlying senior's collateral profile (the senior is now lending against a leased property with a defined operator). Most modern CRE senior loan documents require senior consent for any long-term lease above a defined threshold (typically 5+ years or material economic terms). The option-to-purchase provision typically requires separate senior consent because it functionally pre-sells the property.
Option-exercise mechanics and financing: the option holder must finance the purchase at exercise. The operator typically lines up a takeout commitment 6 to 12 months before option exercise, bank perm, agency multifamily (for multifamily master leases), CMBS, or other senior. Option pricing must support a viable take-out at then-current market cap rates; otherwise the option is uneconomic to exercise.
Accounting and tax: per ASC 842, a long-term lease with a purchase option below market value at exercise may be classified as a finance lease (vs. operating lease) on the operator's balance sheet, which puts the asset and corresponding lease liability on the operator's books. Tax treatment of master-lease economics for both parties requires CPA review. Not legal or tax advice.
Sources
- Net Lease REIT Sector Data and Industry Reports · Nareit · 2026-Q1
- Semiannual Risk Perspective · Office of the Comptroller of the Currency · 2025-12
- Quarterly Banking Profile · Federal Deposit Insurance Corporation · 2026-Q1