Master Lease
A master lease is an arrangement where a DST leases its entire property to a master tenant, who operates it and pays rent used to fund investor distributions.
Definition
A master lease is a structure used in some DSTs to satisfy the strict IRS rules that limit a trust's operational activity. Because a DST generally cannot actively manage property or renegotiate leases after the offering closes (the seven deadly sins), the trust leases the entire property to a master tenant, often an affiliate of the sponsor, who handles day-to-day operations and subleasing.
The master tenant pays rent to the DST, which funds investor distributions, and keeps any operational upside or shoulders shortfalls. This lets the DST hold property that needs active management, like an apartment community, while preserving its passive, 1031-eligible status.
Master leases can be structured with a fixed base rent plus variable bonus rent tied to performance. Investors should understand that in a master-lease DST, distributions depend on the master tenant's ability to pay, a layer worth examining in the offering documents.
Key points
- DST leases its whole property to a master tenant
- Lets a DST hold actively managed property while staying passive
- Master tenant operates the property and pays rent to the trust
- Rent funds investor distributions, often with a variable component
Related terms
Jerry Baker founded Baker 1031 Investments to help exchange investors move from active property ownership into passive, institutional-quality real estate through DST, 721 exchange, mineral royalty, and Opportunity Zone strategies. He holds the FINRA Series 22 and Series 63 registrations and the Securities Industry Essentials (SIE) qualification. Read full bio →
Reviewed by the Aurora Securities, Inc. compliance team — Aurora Securities, Inc., member FINRA/SIPC. Last reviewed July 2026. Securities are offered through Aurora Securities, Inc.; Baker 1031 Investments, LLC is independent of Aurora Securities, Inc.
This glossary entry is educational and is not investment, tax, or legal advice, or an offer to sell or a solicitation to buy any security. Definitions are general and may not reflect your specific circumstances — consult your own CPA and attorney. Past performance does not guarantee future results.