Master Lease w/Option Concerns

We are in the process of putting a massive turn-around 50 space park under contract and the owner is wanting us to enter into a master lease with purchase option. This project is probably one we are going to flip without ever owning because it is too far away for us to feel comfortable tackling a turn-around of that magnitude. In any event, I wanted to get some thoughts on a concern I have with this purchase structure just to protect the future buyer.

This park will likely take $150,000 of upfront capital to get turned around. My concern with the MLO is what are the buyer’s remedies if the seller breaks the lease after the park is turned around? What would that court battle look like? and, are there specific things we need in the agreement to protect the buyer? I need to be sold on this purchase structure a little before we move forward with these sellers.

CharlesD,

Before you put dollar number one into a Lease/Option, make sure your documents are sound.

The way to avoid the seller getting frisky is to RECORD the lease and the OPTION. Without that, your hard work and money will surely go down the drain.

Stipulate in the Option what the remedies are for the Optionee and the Optionor. You are the Optionee.
Therefore no court action is needed, the solution is in the public record.

If the seller won’t allow the documents to be recorded, move on. You are dealing with a snake.

Should you wish more info, please contact me.

Mike

This model works best, as you already have acknowledged, when you have little capital invested and the turn-around is more focused on collections, raising rents, cutting costs, etc. That being said, every deal is different, and you may be willing to take more risk if the deal is hotter. The risk is two-fold 1) if you find that you can’t turn around the park and therefore have wasted your capital improvements or 2) if the seller won’t sign the closing documents as promised, once you have turned it around. We have never had to litigate, but we have had to have threatening showdowns with sellers who suddenly change their mind on closing after they see the “after” product to their screwed up “before”. So one mandatory component is having an attorney write and review the Master Lease document so that, if you go to court, you will prevail.