Legal Definitions - top lease

A top lease is a new lease agreement that is negotiated and signed while an existing lease on the same property or rights is still in effect. The key characteristic of a top lease is that it does not become active immediately. Instead, its terms and conditions only take effect if and when the prior, existing lease expires naturally, is terminated early, or is otherwise no longer valid.

Essentially, a top lease secures future rights to a property or resource, ensuring that there is a seamless transition or a new agreement in place once the current arrangement concludes. This mechanism is often used to prevent a gap in occupancy or resource development, or to secure more favorable terms for the property owner.

• Example 1: Residential Property Rental

  Imagine a landlord owns an apartment building. One of their tenants has a lease that is set to expire in six months. To avoid a vacancy period, the landlord finds a new prospective tenant who is eager to move in. The landlord and the new tenant sign a top lease today, which specifies that the new tenant's lease term will begin the day after the current tenant's lease officially ends. This agreement ensures the landlord has a new tenant lined up without interfering with the existing tenant's rights, and the new tenant has secured their future housing.

• Example 2: Mineral Rights (Oil and Gas)

  A rancher owns land with potential oil and gas reserves. They previously granted a five-year exploration lease to "Company A," which is set to expire in one year. "Company B" approaches the rancher, offering a more lucrative deal for drilling rights. The rancher and Company B sign a top lease. This top lease states that Company B's rights to explore and extract minerals will only become active if Company A's current lease expires without being extended or if Company A surrenders its lease early. If Company A successfully drills and extends its lease, the top lease with Company B never takes effect.

• Example 3: Commercial Retail Space

  A shopping mall owner has a prime retail space currently occupied by a clothing boutique whose lease expires in 18 months. A popular new electronics store expresses interest in that specific location. To ensure continuous occupancy and secure a high-profile tenant, the mall owner negotiates and signs a top lease with the electronics store. This agreement stipulates that the electronics store's tenancy will commence immediately upon the expiration or early termination of the clothing boutique's current lease, guaranteeing the mall owner a new tenant for the space without any downtime.