What is a master equipment lease agreement?

Many equipment lease transactions use a master lease to cover terms and conditions of all of the individual lease transactions to be entered into between the parties.  A master lease agreement (MLA) is a framework lease agreement that allows the lessee to add lease assets of a specified type under the same basic terms and conditions up to a specified total amount, without having to renegotiate the contract, in accordance with the specified purpose and restrictions.

A master lease functions much like a line of credit in that it allows parties who regularly engage in lease transactions that involve the same type of asset to avoid renegotiating each individual lease and its respective terms and conditions.  Additional assets can be added on an as-needed basis with the original lease contract terms and conditions applying to all subsequent schedules.

A master lease agreement is comprised of two parts:

1. A central document that sets forth the general terms and conditions applicable to the transactions and the line of credit; and
2. Schedules and supplements that set forth the equipment description, payments, payment dates, the lease term and other deal-specific provisions.

The parties to master lease agreements enter into a separate lease schedule that incorporates the terms and conditions of the MLA and documents the individual transaction between those parties.   MLAs typically provide that each lease schedule constitutes a separate lease transaction with respect to the lease equipment described in that schedule and that it is distinct from other lease schedules executed pursuant to the MLA.

In lease transactions involving multiple funding sources, the parties may use master lease agreements with each funding evidenced by a separate stand-alone lease schedule.  The separation of each funding transaction by means of its own lease schedule often insulates the transaction from issues that relate to another lease schedule.  However, MLAs commonly also provide that, if default occurs under any lease schedule, the lessee will be in default under all the other lease schedules (cross-default).