Head Lease

Learn about head leases, a primary lease from which sub-leases can be generated. Understand its implications, examples, and frequently asked questions.
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What is a Head Lease?

A head lease is the main or initial lease agreement that is established between the property owner (lessor) and the first tenant (lessee). This primary lease sets the terms and conditions under which the property may be rented or occupied. From this head lease, sub-leases can be created, allowing portions of the property or the entire property to be leased to other sub-tenants.

Examples

  • Commercial Real Estate: If Corporation A leases an office building for 99 years (head lease) and then sub-leases individual floors to various small businesses for 5 years each, Corporation A holds the head lease, while the small businesses hold the sub-leases.

  • Residential Real Estate: Suppose Landlord X grants a 20-year lease to Tenant Y for a residential complex (head lease). Tenant Y then sub-leases different units within the complex to various residents on a year-to-year basis, thus holding the head lease and the residents holding sub-leases.

Frequently Asked Questions

Q1: What is the difference between a head lease and a sub-lease?

  • A: The head lease is the original lease agreement directly made with the property owner, whereas a sub-lease is a secondary leasing arrangement created under the terms of the original lease, allowing someone else to use part of or the entire property.

Q2: Who is responsible for the property in a head lease arrangement?

  • A: The primary tenant in a head lease arrangement is responsible for the obligations of the lease to the property owner, including rent and maintenance. The primary tenant then holds a separate agreement with sub-tenants through sub-lease agreements.

Q3: Can the terms of a sub-lease differ from the head lease?

  • A: While the sub-lease terms may differ, they cannot contravene the original terms and conditions of the head lease. The sub-lease must comply with any restrictions or obligations outlined in the head lease.

Q4: Does a head lease get affected if the property owner changes?

  • A: No, the head lease usually remains in effect under the same conditions even if the property owner changes. The new property owner assumes the same role as the lessor.

Q5: Can a sub-tenant further sub-lease the property?

  • A: This depends on the provisions of the head lease and the sub-lease agreement. If allowed, the sub-tenant can create another layer of sub-leasing.
  • Lease: A contractual arrangement where a lessor grants the lessee the right to use a property for a specified time in return for periodic payments.
  • Sub-Lease: A lease agreement in which the tenant leases the rented property to a third party, creating a secondary lease.
  • Lessor: The property owner who grants the lease to the tenant.
  • Lessee: The party who acquires the right to use the property under a lease agreement.

Online References

Suggested Books for Further Studies

  • “The Lease Manual” by Rodney S. Piper
  • “Commercial Leasing: A Practical Guide” by Mark A. Senn
  • “The Negotiated Lease: A Step-by-Step Guide to the Leasing Process” by Peter Morris

Accounting Basics: “Head Lease” Fundamentals Quiz

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