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A credit tenant lease is a method of financing real estate. A "credit tenant lease" is a lease from a landlord to a tenant that carries sufficient guarantees that lenders will perceive the rent cash flows from the lease are as reliable as a corporate bond. This typically requires that the tenant have exceptionally good credit , often that the property is essential to the tenant , and contractual obligations that ensure that these rents will be among the tenant's highest obligations. Usually, the lease is structured as a triple net lease, in which a tenant is responsible for insurance, property taxes, and most or all repair and maintenance costs.
When a landlord borrows money to finance the property, the lender needs adequate collateral in order to lend to the landlord who wants to buy the property. If the landlord has a committed lessee who has an outstanding record of timely payment, then the lender is willing to accept the tenant's commitment to pay the lease payments to the landlord to pass through the landlord as collateral for payment to the lender. In other words, if the lease payments from tenant to landlord have the credit rating of a bond, the landlord will accept that synthetic bond due to the landlord as collateral for a loan to the landlord. In credit tenant financing, typically the load from the lender to the landlord is structured as nonrecourse debt.
Credit tenant leases may be created either in sale/leaseback transactions, or new purchase transactions.
Credit tenant lease loans are typically coterminous as the lease itself. Occasionally, credit tenant leases are arranged as double net leases, which can increase cash on cash returns for a landlord, but will increase their overall risk, especially as a property grows older.