Ground Leases: Key Negotiated Provisions, Financing Issues, Monetary vs. Non-Monetary Breaches, Additional Rents and the Valuation of Improvements

Description

Ground Landlords and Tenants typically negotiate several key provisions: the rights and responsibilities of the parties, due diligence, assignment rights, the use provision, the rent structure, events that can lead to additional tenant payments, condemnation and insurance issues.

Of significant importance are the provisions related to financing: the Ground Tenant needs to make sure that nothing in the lease prevents or limits its ability to arrange for financing, particularly construction financing. The Ground Landlord is concerned about its rights to take back the property or be made whole in the event of the tenant default under the lease or the leasehold mortgage. The Lender must be certain that its interest in the property and its investment is protected.

Monetary and non-monetary defaults of a ground lease can create unique challenges depending on the defaulting party, potentially leaving the property unproductive for years, while litigation progresses. The parties can ameliorate some of these concerns by negotiating certain protections for themselves in the lease.

Finally, considering the long term aspect of a ground lease and the significant investment into the building placed upon the land, practitioners must understand how to structure the rent and address the potential for capital events, as well as the valuation of the improvements.

Listen as our expert panel discusses these best practices to negotiating ground leases and how to manage the most common issues for all stakeholders when considering a ground lease.