A ground lease allows a tenant to develop commercial property according to their needs. Typically, they run for terms of 50 to 99 years and provide that any capital improvements made belong to the landlord. William B. Brinckloe, Jr., of TransActionLaw, a Law Corporation in Irvine, assists California landowners and tenants in a wide range of issues related to land leases, including ground lease financing, pricing and redevelopment. Since 1990, I have represented parties in deals worth hundreds of millions of dollars.
A ground lease, also known as a land lease, specifies the terms and conditions for a tenant making capital improvements to the leased property. It specifies that the tenant will enjoy possession and use of any improvements they make during the leasing period and that at the conclusion of the lease, ownership of those improvements will belong to the landowner.
Ground leases are often used by restaurants, retailers and other businesses that find it more advantageous to rent rather than purchase land as they establish operations in desirable geographic markets. A land lease may provide access to desirable location that is not otherwise available. It also avoids expensive commercial real estate purchases, freeing up capital that can be more effectively deployed elsewhere and potentially leading to increased return on investment.
By their nature, ground leases are long-term agreements, and often involve millions of dollars over the course of the term. Even the smallest discrepancy or misunderstanding can result in a costly dispute. Careful drafting is required, with close attention paid to such fundamentals as:
It is critical that any business or landowner considering a ground lease consult with a South California commercial real estate attorney who is experienced with such arrangements and with the applicable state and local laws.
Businesses that enter ground leases usually finance the capital improvements they make, with the lender acquiring a security interest in the property. The ground lease may provide that the landowner’s interest in the property is subordinate to the lender’s interest, which gives the lender priority should the tenant default on the loan. Lenders prefer this arrangement, but it is also possible to secure financing based on an unsubordinated ground lease. Decisions on subordination depend on the circumstances and often require skillful negotiation. At TransActionLaw, I represent tenants or landlords in working out lease terms that are mutually beneficial and that allow efficient financing of planned improvements.
At TransActionLaw, a Law Corporation, William B. Brinckloe, Jr. helps California businesses, landowners and developers with ground lease negotiation and drafting and with financing issues. I also represent clients in commercial property sales and real estate development matters. To schedule an appointment to discuss your situation, call 949-668-1385 or contact me online to schedule a free consultation at my Irvine office