Crucial Clauses of Ground Lease

An accomplished real estate investment professional, Dean Britton draws upon his experience in all aspects of related finance and underwriting to serve as managing principal and lead partner at Allegiance Investment Advisors (AIA). In this role, Dean Britton identifies and structures new ground lease opportunities. He has also pioneered structural characteristics that have become the industry norm in ground lease bifurcation.

Ground leasing enables tenants to develop commercial real estate properties on parcels of land they may otherwise be unable to afford if they were to acquire such land. In these contracts, lessors (landlords) allow tenants to use their lands for property development and commercial purposes in exchange for monthly rent payments. There are several key clauses in a ground lease contract, including lease terms, taxes and maintenance fees, sublet policy, improvements, and terms of termination.

Lease terms explain the major agreement between the two parties (lessor and lessee). These include how long the contract is expected to last, how much the monthly rent dues will be, and how payments will be made.

Tax obligations generally concern the lessee throughout the contract duration. Likewise is the cost incurred on property maintenance, utilities, and insurance. Lessors generally assume zero obligations throughout the duration of the contract. It is important to state these terms in the contract explicitly.

Sublet policies may vary from landlord to landlord. Some lessees allow tenants to lease parts of the land to third parties, while others proscribe this action. This clause needs to be explicitly stated in the contract.

The terms of termination are the proviso given by the lessor (landlord). Most landlords lease their land with the provision that the contract will expire if the tenant uses the land for illegal activities, defaults on rent, causes damage to the property, or violates other terms. These conditions should be stated in terms of termination.

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