Master Lease and Sublease
- A Master Lease and Sublease are used together for “asset protection.”
- May be used for “Short-Term” rental property or “Regular” rental property.
- Avoids a common “DIY asset protection” BLUNDER.*
- Faster, easier, LESS EXPENSIVE, and BETTER than transferring title to an LLC.
Many landlords (and many lawyers) believe that ownership of a rental property should be transferred to an LLC (or some other business entity) for “asset protection.” Even when properly done (which is harder than you may think), the LLC owns the rental property and, therefore, the equity in the rental property is not protected.
If, however, you use a Master Lease from the owner to an LLC owned or controlled by the rental property owner, which then sublets the rental property to the tenant, then the equity in the rental property is not at risk because it is not owned by the LLC. Faster, easier, and better, right?
To do this, you will need: (1) a business entity, (2) a Master Lease from you (the owner of the rental property) to your business entity, and (3) a Sublease from your business entity to your tenant. This can be done in a week for $1,495, whereas deeding the rental property to a business entity (after getting lender approval and buying a title insurance endorsement) will take several weeks, cost much more AND the equity in the rental property remains at risk.
This is “high level” asset protection. Because you will lease the property to your new LLC, the LLC will not own the rental property and, therefore, the rental property is not an asset of the LLC. If the LLC is sued and a judgment entered against the LLC, collection of the judgment is limited to the assets of the LLC. In addition, because you are not selling (or deeding) the rental property to your LLC, you will not need written approval from lienholders/lenders for the rental property and/or a separate title insurance endorsement from your title insurance company. The money you save by doing a Master Lease and Sublease, instead of a sale/transfer of the rental property, will more than offset the expense of a Master Lease and Sublease.
Both the Master Lease and Sublease will be drafted specifically for you (the owner of the rental property) and the rental property. I only need to draft the Master Lease and Sublease one time. Thereafter, you may use the sublease for subsequent tenants. My fee for drafting the foregoing documents is $1,495. If you do not have an LLC or corporation, I can form an LLC for you in a few days for an additional fee of $500.
Call me today to get started: 1-602-255-0101
Send me an e-mail with your phone number and the best time to contact you and I will call you to schedule an appointment:
* DIY Asset Protection BLUNDER. Many landlords attempt “Do It Yourself (DIY) Asset Protection” by “transferring” title of their rental property by signing a quit claim deed from themself, as the owner, to an LLC that the owner owns or controls. That transaction (as just described) violates the “Arizona Fraudulent Transfer Act” (Arizona Revised Statutes, Sections 44-1001 thru 44-1010); in addition to violating the law, it fails to protect your assets. Someone (e.g., a tenant) who sues the LLC/landlord can easily have that fraudulent transfer set aside, which then exposes all of the owner’s privately held assets. That is not merely bad, it is catastrophic. And the bad news may continue because signing a quit claim deed (or any other deed) is a “transfer,” which means the lender that made the loan for the rental property may call the loan immediately due and payable, unless the lender approved (in writing) the transfer BEFORE the transfer was made. Also, a “transfer” terminates the title insurance issued to the owner/landlord when the rental property was purchased, unless the owner buys an “endorsement.” There may also be tax consequences as a result of the “transfer.” Rather than accomplishing “DIY asset protection,” this is DIY self-destruction.