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A sandwich lease is a lease arrangement in which the lessee of a property becomes a lessor by turning around and renting the property to another tenant. There are a number of different settings in which such a lease arrangement might be used. Not all property owners will allow a sandwich lease and those who do may only do so with restrictions.
In a basic sandwich lease, someone leases a property from the landlord, and then sublets the property to someone else. The new tenant pays a slightly higher fee which allows the original lessee to pay the rent to the landlord and to pocket the difference, making a small profit. The original lessee acts as a landlord to the new lessee, although he or she is not the owner.
This leasing arrangement can also be combined with a lease with option to buy. In this situation, a lessee sets up an option arrangement with a lessor. Then, the lessee creates a sandwich lease with another person who also has an option to buy, at a slightly higher price. At any time, the original lessee can exercise the option to buy, if desired. The new lessee can also exercise his or her option, which will trigger the original lessee to exercise the first option so that he or she can sell the house to the new lessee.
For landlords, one advantage of allowing a sandwich lease is that if a tenant needs to leave or decides to relocate, that tenant can find a replacement tenant to fill out the lease. This reduces the amount of work the landlord will need to do. However, the flip side is that the landlord may not have control over new tenants, and a lessee could set up a sandwich lease with someone who damages the property or fails to pay rent, forcing the original lessee into default and requiring the landlord to intervene.
Tenants may find a sandwich lease beneficial for some situations. If someone thinks that this is an option which he or she might like to have available, it is a good idea to discuss this with the landlord when determining the terms of the lease at the start. The option for a sandwich lease can be structured into the lease agreement so that it will be available if needed or wanted. Tenants who are already leasing who think that they would like to sublet with a sandwich lease can check the terms of the lease and discuss the situation with the landlord.