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Casualty and Condemnation Provisions: Balancing Conflicting Interests of Lenders, Borrowers, and Tenants

Using SNDAs to Address Lease Requirements, Special Issues With Ground Leases

Recording of a 90-minute premium CLE video webinar with Q&A

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Conducted on Tuesday, April 26, 2022

Recorded event now available

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This CLE course will examine casualty and condemnation provisions in real estate finance documents and how best to balance the interests of lenders, landlords, and tenants concerning disbursement of proceeds and the right or obligation to rebuild. The panel will discuss lease scenarios that can impact casualty and condemnation provisions and issues about the allocation of proceeds that can arise with ground leases.


Casualty and condemnation provisions in mortgage loan documents typically give the lender some degree of control over the proceeds and how to apply the proceeds toward repair or restoration of improvements. But such provisions require negotiation between the parties, and underlying leases or ground leases may contain conflicting rights to address in the loan documents or an accompanying SNDA.

Existing leases often require the landlord to rebuild the leased premises within a specific time frame or tenants are entitled to terminate. Anchor or big-box leases may even give the tenant control of the proceeds and the rebuilding process. Counsel will need to balance the borrower's desire to comply with existing leases against the lender's preference to protect its collateral.

Materiality is a primary concern. Documents may include a percentage threshold below which the lender will permit the borrower to control the proceeds, a second threshold where the lender holds the proceeds but agrees to make them available for a rebuild of the premises, and the third threshold above which the lender can accelerate the loan and apply the proceeds to pay down the loan. The appropriate limits may vary between portfolio and CMBS lenders.

Ground leases present the risk of lease termination and the loan wiped out in the event of condemnation and, in some instances, casualty. The ground lease may contain a formula for allocating proceeds with which the lender will need to abide.

Listen as our authoritative panel discusses the current thinking on casualty and condemnation provisions in commercial mortgages and how different lease and ground lease scenarios can impact these provisions.



  1. Casualty and condemnation generally
    1. Concerns of lender: protect the security, control proceeds, continued performance of a loan
    2. Concerns of the borrower: the ability to repair, rebuild improvements, keep tenants
  2. Materiality thresholds for making proceeds available, allowing/requiring a rebuild, accelerating the loan
  3. Treatment of casualty and condemnation in leases
    1. Borrower/landlord required to rebuild
    2. Tenant allowed to rebuild, given control over proceeds
    3. Other variations
  4. Addressing conflicting provisions in the SNDA
  5. Special issues with ground leases


The panel will review these and other essential questions:

  • When might the interests of the lender and borrower be aligned when there is casualty or condemnation?
  • What is the "market" for materiality thresholds, particularly the lender's ability to accelerate the loan?
  • How do leases typically approach rebuild obligations when there is a casualty, and how might that conflict with loan provisions?
  • How do ground leases address allocation of condemnation proceeds, and what should leasehold loan documents say in response?


Polevoy, Jason
Jason T. Polevoy

Patterson Belknap Webb & Tyler

Mr. Polevoy has extensive experience in all aspects of complex commercial real estate, including office and retail...  |  Read More

Zana, Lisa
Lisa M. Zana

Shipman & Goodwin

Ms. Zana’s commercial real estate clients are situated throughout the U.S. with a focus on New York’s...  |  Read More

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