A concurrent lease is a lease granted on property that already has a sitting tenant, giving the new lessee an immediate legal interest that runs alongside the existing tenancy. The owner carves out a middle position in the ownership hierarchy and transfers it, for a set term, to a third party. That third party becomes the sitting tenant’s landlord for the duration, collecting the rent and enforcing the lease, while the original owner keeps the underlying title. The structure appears most often in commercial real estate investment, where it lets a buyer acquire an income stream from an occupied property without displacing anyone.
How the Three-Tier Structure Works
Property lawyers call this a “lease of the reversion.” Every landlord holds a reversionary interest, meaning the right to reclaim full possession once the tenant’s term ends. In a concurrent lease, the owner grants that reversionary interest to a new party for a defined period. The result is a three-tier structure: the head landlord sits at the top, the concurrent lessee occupies the middle, and the original tenant remains on the ground floor.
Because the concurrent lease takes effect immediately, the new lessee steps into the landlord’s shoes right away. Rent that previously flowed to the property owner now flows to the concurrent lessee. The head landlord, in turn, typically receives a negotiated payment from the concurrent lessee under the terms of their agreement. The income-producing interest is sliced off the ownership and handed to someone else for a set number of years, while the owner keeps the underlying title.
If the sitting tenant’s lease expires before the concurrent lease does, the concurrent lessee gains the right to take physical possession of the property for whatever time remains on the concurrent term. That possibility is one reason investment firms find the arrangement attractive. If the tenant leaves early, the concurrent lessee can re-let the space, potentially at a higher rent.
Concurrent Lease vs. Reversionary Lease
The two sound alike but create very different timing. A reversionary lease is a future-dated agreement that only kicks in after the current tenant’s term ends. The grantee has no rights until that date arrives. A concurrent lease, by contrast, is live from the moment it is executed. The concurrent lessee has enforceable rights against the sitting tenant immediately, including the right to collect rent.
The financial consequence is direct. A reversionary lease produces no income during the waiting period, and the grantee bears the risk that the sitting tenant might negotiate an extension or holdover. A concurrent lease closes that gap. The new lessee begins earning rental income on day one, which is why buyers who want a predictable cash flow tied to an existing occupancy prefer the concurrent structure.
Rights and Duties of the Concurrent Lessee
Once the concurrent lease is granted, the new lessee stands in privity of estate with the sitting tenant. That legal relationship lets the concurrent lessee enforce every covenant in the original lease. Rent collection is only the start. The concurrent lessee can also hold the tenant to repair obligations, use restrictions, and other terms the tenant agreed to with the original landlord. If the tenant breaches, the concurrent lessee has standing to pursue the same remedies the head landlord would have had, including eviction proceedings or a damages claim.
The duties run both ways. The concurrent lessee inherits the landlord’s obligations to the tenant. If the original lease requires the landlord to maintain structural elements or provide certain services, the concurrent lessee picks up those duties. Meanwhile, the concurrent lessee owes its own set of obligations upward to the head landlord, defined in the concurrent lease agreement itself. These commonly include a fixed periodic payment, responsibility for property taxes, and sometimes insurance requirements. Failing to meet those obligations can give the head landlord grounds to terminate the concurrent lease and reclaim direct management of the property.
How the Sitting Tenant Is Affected
From the tenant’s side, the most visible change is where the rent check goes. Once the tenant receives formal written notice identifying the new concurrent lessee and providing payment instructions, rent must be redirected to the new party. Until that notice arrives, the tenant is protected by paying the original landlord in good faith, a principle rooted in common law and codified in most jurisdictions’ landlord-tenant statutes.
Beyond the change in payee, the tenant’s rights stay the same. The terms of the original lease remain binding, and the concurrent lessee cannot unilaterally raise the rent, shorten the lease, or impose new conditions. The right to quiet enjoyment transfers with the landlord’s role. If the concurrent lessee oversteps, the tenant can seek a court order enforcing the original lease terms. The tenant should notice no operational difference. The concurrent lease is a transaction between the owner and the investor; the tenant is a beneficiary of the existing contract, not a party to the new one.
Creating a Valid Concurrent Lease
Because a concurrent lease transfers a legal interest in real property, it must satisfy the Statute of Frauds, the longstanding requirement in every U.S. state that transfers of interests in land be in writing. In practice this means executing the concurrent lease as a formal deed or written instrument signed by the head landlord, with the key terms clearly spelled out. Most states also require that any lease running longer than one year be in writing to be enforceable, so even short concurrent leases should be documented.
Several elements belong in the document:
- A legal description of the property, using the standard parcel identifier or metes-and-bounds description rather than just a street address.
- An express statement of concurrency, naming the sitting tenant and the expiration date of the original lease. Without this, a court might read the document as a reversionary lease or an outright assignment.
- The term and payment structure: start date, end date, and periodic payment owed by the concurrent lessee to the head landlord.
- Allocation of obligations for property taxes, insurance, maintenance, and any legal costs tied to tenant disputes.
Both parties should verify the sitting tenant’s lease terms before signing. If the existing lease has unusual provisions, such as a right of first refusal on any transfer of the landlord’s interest, those provisions could block or complicate the concurrent lease. Recording the deed in the county land records is not always required, but doing so provides constructive notice to future buyers and lenders that the concurrent interest exists.
Tax Treatment
The cost of acquiring a concurrent lease is a capital expenditure for federal tax purposes. You cannot deduct the purchase price in the year you pay it. Instead, you amortize the cost over the remaining term of the lease. Under federal tax law, the amortization period must include any renewal options unless at least 75 percent of the acquisition cost is attributable to the portion of the term remaining on the date you acquired the lease.1Office of the Law Revision Counsel. 26 USC 178 – Amortization of Cost of Acquiring a Lease
In practice: say you pay $120,000 for a concurrent lease with six years left on the sitting tenant’s term and no renewal options. You would deduct $20,000 per year over those six years. If the lease includes renewal options and less than 75 percent of your cost relates to the remaining original term, those option periods get added to your amortization schedule, stretching the annual deduction thinner. The annual amortization deduction is reported on Form 4562.
Rental income the concurrent lessee collects from the sitting tenant is taxable as ordinary income, reported on Schedule E like any other rental income. The periodic payments the concurrent lessee makes to the head landlord are generally deductible as a business expense, which offsets that income. The net effect is tax on the spread between what the tenant pays you and what you owe the head landlord, further reduced by the amortization deduction.
Mortgage and Due-on-Sale Risks
If the property has a mortgage, granting a concurrent lease can trigger the loan’s due-on-sale clause. That clause, standard in nearly every residential mortgage, lets the lender demand immediate repayment of the full loan balance whenever the borrower transfers all or part of the property or an interest in it without the lender’s consent. A concurrent lease transfers a possessory interest, which falls squarely within the clause’s scope.
Federal law provides a narrow safe harbor. Under the Garn-St. Germain Act, a lender cannot enforce a due-on-sale clause when the borrower grants a leasehold interest of three years or less that does not contain an option to purchase. This protection applies only to residential property with fewer than five dwelling units.2Office of the Law Revision Counsel. 12 US Code 1701j-3 – Preemption of Due-on-Sale Prohibitions
If the concurrent lease runs longer than three years or includes a purchase option, the safe harbor disappears. The lender can accelerate the loan and force the borrower to pay it off or face foreclosure. For commercial properties the Garn-St. Germain exemption does not apply at all, so any concurrent lease on a commercial mortgage requires the lender’s written consent. The implementing regulation makes this framework explicit, specifying that a lease of more than three years or any lease with an option to purchase will allow the lender to exercise the due-on-sale clause.3GovInfo. 12 CFR 591.5 – Limitation on Exercise of Due-on-Sale Clauses
This is the risk that catches people off guard. A head landlord who grants a concurrent lease without checking the mortgage documents could find the entire loan called due. Before signing anything, the head landlord should review the mortgage, consult the lender, and obtain written consent if needed.
Protecting the Lease If the Owner Later Defaults
Even if the lender consents to the concurrent lease, the lessee faces a separate risk. What happens if the head landlord defaults on the mortgage later? If the mortgage predates the concurrent lease, which it usually does, the lender’s lien has priority. In a foreclosure, the new owner can either honor the concurrent lease or terminate it and require the concurrent lessee to vacate.
The standard tool for managing this risk is a subordination, non-disturbance, and attornment agreement, commonly called an SNDA. This is a three-way agreement among the concurrent lessee, the head landlord, and the lender. The lessee agrees to subordinate the lease to the mortgage lien. In exchange, the lender agrees not to disturb the lessee’s occupancy rights if it forecloses. And the lessee agrees to recognize the foreclosing lender, or whoever buys the property at auction, as the new landlord.
SNDAs are not automatic. The concurrent lessee needs to negotiate one before or at the time the concurrent lease is granted. Lenders are more willing to sign SNDAs for large, creditworthy tenants or high-value lease interests than for small ones. Recording the SNDA in the public land records gives the concurrent lessee an additional layer of protection by putting future buyers on notice. Without an SNDA, the concurrent lessee is taking a calculated gamble that the head landlord will stay current on the mortgage for the entire lease term.
How a Concurrent Lease Ends
When the concurrent lease expires by its own terms, the management role snaps back to the head landlord. The tenant, assuming the original tenancy is still running, begins paying rent to the owner again, and the owner resumes direct enforcement of the lease covenants. The concurrent lessee’s interest simply dissolves. No transfer deed is needed because the interest expires automatically at the end of its stated term.
Early termination is messier. If the concurrent lessee breaches the agreement with the head landlord, say by failing to make the required payments, the head landlord can terminate the concurrent lease and step back into the landlord role. The sitting tenant’s position does not change in either scenario. The tenant’s lease survives regardless of what happens between the head landlord and the concurrent lessee, because the tenant’s rights derive from the original lease and not from the concurrent one. The tenant just needs to know where to send the rent, and another formal notice handles that transition.
If the sitting tenant’s lease expires first, the concurrent lessee gains physical possession for whatever remains on the concurrent lease term. At that point the concurrent lessee can occupy the property, re-let it to a new tenant, or leave it vacant, whatever the concurrent lease agreement permits. Once the concurrent lease itself finally expires, full possession reverts to the head landlord.