Ground Leasing Law and Practice
Ground leases and ground lease mortgages are important tools in real estate development. Nevertheless, a leasehold mortgage is a strange document because the landowner isn’t the borrower and doesn’t execute the mortgage. The lender can’t get the land in case of a mortgage default, but it can get the leasehold estate and become the tenant. To be effective, a ground lease must protect the interests of the land owner, the developer/lessee, the lender(s), and potential subtenants, each of whom will demand specialized protections. Consequently, however valuable a ground lease may be, negotiating one is not easy. The course will cover such topics as setting the term of the lease so that it’s long enough to attract lender interest, rent clauses that won’t discourage lenders, assignment and subletting clauses that permit a real estate developer to profit from his or her project, alterations clauses and nondisturbance agreements to comfort subtenants, and default clauses that protect the interests of lenders and subtenants. Also on the agenda are such topics as distinguishing types of ground leases from each other, structuring the ground lease for a real estate developer’s needs, ground lease benefits for landowners, and reconciling potentially conflicting interests of subtenants and mortgage lenders. The course will be graded on a combination of class participation, drafting exercises, and a final examination.
Prerequisite: Real Estate Transactions and Finance