You have no items in your shopping cart.
Search
Filters

Ground Lease Practice

Be ready to explain the intricacies of a ground lease to your client with the only California-specific book that has all the information you need.

Be ready to explain the intricacies of a ground lease to your client with the only California-specific book that has all the information you need.

  • Expert practical advice on reviewing, negotiating, and drafting commercial ground leases
  • Focus on development and single-user ground leases, with complete forms
  • Analysis of financing, tax, and default issues
  • Initial development, termination, and surrender issues analyzed
  • Discussion of issues arising from both landlord and tenant bankruptcies
  • Analysis of options to extend and purchase, and other preemptive rights
OnLAW RE94090

Web access for one user.

 

$ 380.00
Print RE33080

668 pages, looseleaf, updated 5/18

 

Availability of this item is delayed because of the COVID-19 crisis. We will ship orders as soon as possible after shelter-in-place restrictions are lifted. If you would like immediate online access, consider an OnLAW version.

$ 380.00
Add Forms CD to Print RE23086
$ 99.00

Be ready to explain the intricacies of a ground lease to your client with the only California-specific book that has all the information you need.

  • Expert practical advice on reviewing, negotiating, and drafting commercial ground leases
  • Focus on development and single-user ground leases, with complete forms
  • Analysis of financing, tax, and default issues
  • Initial development, termination, and surrender issues analyzed
  • Discussion of issues arising from both landlord and tenant bankruptcies
  • Analysis of options to extend and purchase, and other preemptive rights

1

Unique Characteristics of Ground Leases

Michael A. Dean

  • I. HOW TO USE THIS BOOK 1.1
  • II. DESCRIPTION OF GROUND LEASES
    • A. Distinction Between Ground Leases and Other Commercial Leases 1.2
      • 1. Development Ground Leases 1.3
      • 2. Freestanding, Single-User Ground Leases 1.4
    • B. Role of Attorneys
      • 1. Experience Needed 1.5
      • 2. Ethical Considerations 1.6
  • III. ADVANTAGES AND DISADVANTAGES TO LANDLORD
    • A. Basic Advantages to Landlord 1.7
    • B. Basic Disadvantages to Landlord 1.8
  • IV. ADVANTAGES AND DISADVANTAGES TO TENANT
    • A. Basic Advantages to Tenant 1.9
    • B. Basic Disadvantages to Tenant 1.10
  • V. SELECTED GROUND LEASE ISSUES
    • A. Financing Provisions 1.11
      • 1. Leasehold Financing 1.12
      • 2. Fee Subordination Financing 1.13
    • B. Length of Term; Options to Extend 1.14
    • C. Rent
      • 1. Periodic Adjustments to Rent 1.15
      • 2. Percentage Rent or Other Value Appreciation Rent 1.16
    • D. Assignment and Subletting
      • 1. Recognition of Subtenants 1.17
      • 2. Release of Liability on Assignment 1.18
  • VI. ROLE OF OTHERS IN GROUND LEASE TRANSACTIONS 1.19
    • A. Real Estate Brokers 1.20
    • B. Real Estate Appraisers 1.21
    • C. Lenders 1.22
    • D. Contractors; Architects; Land Use Planners 1.23
    • E. Other Experts and Specialists 1.24
  • VII. LETTER OF INTENT 1.25

2

Tax Considerations

Walter R. Turner

Timothy S. Williams

  • I. INTRODUCTION
    • A. Scope and Purpose 2.1
    • B. Importance of Tax Considerations 2.2
  • II. INCOME TAX CONSEQUENCES OF GROUND LEASES
    • A. Application of Federal and State Income Tax Law 2.3
    • B. General Income Tax Considerations 2.4
      • 1. Rent Payments
        • a. Landlord's Perspective 2.5
        • b. Tenant's Perspective 2.6
      • 2. Section 467 Rental Agreements
        • a. Basic Rules
          • (1) Application of Time Value of Money/Original Issue Discount Concepts 2.7
          • (2) Definition of "Section 467 Rental Agreement" 2.8
          • (3) Accrual Method 2.9
          • (4) Imputed Interest 2.10
          • (5) Rent Leveling 2.11
        • b. Safe Harbors 2.12
          • (1) Rent Adjustments 2.13
          • (2) Percentage Rent 2.14
      • 3. Security Deposits 2.15
      • 4. Transaction Costs
        • a. Landlord's Perspective 2.16
        • b. Tenant's Perspective 2.17
      • 5. Transfer of Interest in Ground Lease
        • a. Landlord's Perspective 2.18
        • b. Tenant's Perspective 2.19
      • 6. Exchange of Interest in Ground Lease
        • a. By Landlord 2.20
        • b. By Tenant 2.21
      • 7. Payments for Termination of Ground Lease
        • a. By Landlord 2.22
        • b. By Tenant 2.23
      • 8. Ground Lease Versus Sale/Financing Transaction 2.24
        • a. Analysis Under Financial Accounting Principles 2.25
        • b. IRS Guidelines 2.26
        • c. Case Law 2.27
        • d. Parties' Motivations 2.28
  • III. PROPERTY TAX CONSIDERATIONS
    • A. Ground Lease Transaction as Change in Ownership
      • 1. Creation of Ground Lease 2.29
      • 2. Transfer of Landlord's Interest During Lease Term 2.30
    • B. Transfer of Tenant's Interest During Lease Term
      • 1. Transfer of Entire Interest 2.31
      • 2. Transfer of Less Than Entire Interest 2.32
      • 3. Extension of Lease Term 2.33
      • 4. Expiration or Termination of Lease Term 2.34
      • 5. Change in Ownership of Land and Buildings 2.35
      • 6. Responsibility for Increased Property Tax Assessments 2.36
      • 7. Change in Ownership Reporting
        • a. Triggered by Change in Recorded Title 2.37
        • b. Triggered Change in Ownership of Legal Entity
          • (1) Transfer by Partnership, Corporation, or Limited Liability Company 2.37A
          • (2) Report to State Board of Equalization 2.37B
      • 8. Valuation of Property 2.38
      • 9. New Construction
        • a. Initial Development of Ground Leased Premises 2.39
        • b. Alterations During Ground Lease Term 2.40
      • 10. Sale-Leaseback Transactions 2.41
    • C. Taxable Possessory Interests
      • 1. Imposition of Property Tax on Possessory Interest 2.42
      • 2. Required Notification by Governmental Entity 2.43
      • 3. Valuation of Possessory Interests 2.44
      • 4. Effect of Use Restriction 2.45
      • 5. Decline in Value 2.46
      • 6. Anticipating Changes in Property Tax Laws 2.47
  • IV. TRANSFER TAXES
    • A. County Documentary Transfer Tax 2.48
    • B. City Transfer Taxes 2.49
    • C. Responsibility for Payment of Transfer Taxes 2.50
  • V. BUSINESS LICENSE TAXES 2.51

3

Parties, Interest, and Premises

Anthony A. Arostegui

  • I. PARTIES' GOALS
    • A. Importance of the Landlord-Tenant Relationship 3.1
    • B. Landlord's Goals
      • 1. Financial Return 3.2
      • 2. Shift Development Responsibility 3.3
      • 3. Retain Ownership Benefits 3.4
      • 4. Financially Sound Tenant 3.5
    • C. Tenant Goals
      • 1. Acquisition of Long-Term Interest in Property 3.6
      • 2. Development Rights 3.7
      • 3. Financeable Lease 3.8
      • 4. Income-Producing Property 3.9
      • 5. Tax Benefits 3.10
    • D. Balancing the Landlord's and Tenant's Goals 3.11
  • II. FACTORS AFFECTING STATUS OF PARTIES
    • A. Authority to Enter Lease 3.12
    • B. Evaluation of the Entities 3.13
    • C. Individual Parties 3.14
    • D. Appointment of Agent for Service of Process 3.15
    • E. Governmental Agencies
      • 1. Limitations on Term 3.16
      • 2. Contracting Party 3.17
      • 3. Additional Obligations and Restrictions 3.18
    • F. Foreign Entity Concerns
      • 1. Foreign Entities 3.19
      • 2. Form Provision: Tax Concerns 3.20
    • G. Guarantors 3.21
  • III. INTEREST CONVEYED AND RETAINED
    • A. Leasehold Estate 3.22
    • B. Reversionary Estate 3.23
    • C. Memorandum of Lease
      • 1. Importance of Recording 3.24
      • 2. What to Include 3.25
  • IV. PREMISES
    • A. Importance of Description 3.26
    • B. Parties' Duties and Obligations 3.27

4

Conditions to Effectiveness of Lease

Michael A. Dean

  • I. OVERVIEW
    • A. Importance of Identifying Conditions to Be Satisfied
      • 1. Tenant Concerns 4.1
      • 2. Landlord Concerns 4.2
    • B. Structure
      • 1. Pre-Term or Due Diligence Period 4.3
      • 2. Option to Enter Into Ground Lease 4.4
      • 3. Time to Satisfy Conditions 4.5
      • 4. Consideration
        • a. Requirement of Consideration 4.6
        • b. Form Provision: Introductory Paragraph to Conditions Provision Reciting Consideration 4.7
  • II. COMMON CONDITIONS
    • A. State of Title; Title Insurance 4.8
      • 1. State of Title
        • a. Types of State-of-Title Provisions 4.9
        • b. Form Provision: Procedure for Determining State of Title 4.10
      • 2. Title Insurance
        • a. Requirement of Title Insurance 4.11
        • b. Form Provision: Issuance of Title Insurance Policy 4.12
    • B. Financing
      • 1. Financing Commitment 4.13
      • 2. Form Provision: Financing Condition 4.14
    • C. Physical Inspections and Testing
      • 1. Environmental and Soils Testing 4.15
      • 2. Form Provision: Physical Inspection and Testing; Environmental Investigation 4.16
    • D. Survey
      • 1. Need for Survey 4.17
      • 2. Form Provision: Survey; Calculation of Acreage; Adjustment of Rent 4.18
    • E. Economic Feasibility
      • 1. Economic Feasibility Studies 4.19
      • 2. Form Provision: Economic Feasibility 4.20
    • F. Entitlements
      • 1. Land Use Approvals 4.21
      • 2. Form Provision: Land Use Approvals 4.22
    • G. Subdivision Map Act Compliance
      • 1. Subdivision Map Act Requirements 4.23
      • 2. Form Provision: Subdivision of Premises 4.24
    • H. Pre-Leasing Requirements
      • 1. Types of Pre-Leasing Requirements 4.25
      • 2. Form Provision: Pre-Leasing Condition 4.26
    • I. Construction Approvals and Permits 4.27
  • III. FAILURE TO SATISFY CONDITIONS
    • A. Tenant's Election on Failure to Satisfy Conditions 4.28
    • B. Form Provision: Failure to Satisfy Conditions 4.29
  • IV. ACCESS TO INFORMATION
    • A. Landlord's Information
      • 1. Landlord's Documents and Materials 4.30
      • 2. Form Provision: Inspection of Landlord's Documents and Materials 4.31
    • B. Tenant's Information
      • 1. Tenant's Documents and Materials 4.32
      • 2. Form Provision: Delivery of Tenant's Documents and Materials 4.33

5

Lease Term, Option to Extend, Termination, Surrender, and Holdover

Randal J. Lejuwaan

Kenneth J. Stipanov

Justin B. White

  • I. SCOPE OF CHAPTER 5.1
  • II. TERM
    • A. Pre-Term Considerations 5.2
    • B. Commencement Date and Related Dates
      • 1. Commencement of Term 5.3
        • a. Consideration 5.4
        • b. Rule Against Perpetuities 5.5
      • 2. Commencement of Rent 5.6
  • III. DURATION OF TERM
    • A. Distinctive Features of Long-Term Leases 5.7
      • 1. Economic Life of Improvements 5.8
      • 2. Finance Term for Improvements 5.9
    • B. Statutory Considerations and Limits
      • 1. Change in Ownership 5.10
      • 2. Statutory Term Limits 5.11
  • IV. OPTION TO EXTEND
    • A. Tenant's Right to Extend Term of Lease; Renewal Distinguished 5.12
    • B. Exercise of Option
      • 1. Method and Timing of Exercise 5.13
      • 2. Drafting and Negotiating the Exercise 5.14
    • C. Rent During Option Term
      • 1. Periodic Fixed Increases 5.15
      • 2. Fair Market Rent 5.16
        • a. Standards for Calculating Rent 5.17
        • b. Use of Appraisals 5.18
      • 3. Formulas 5.19
    • D. Form Provision: Option to Extend (Development Ground Lease) 5.20
  • V. TERMINATION
    • A. Expiration 5.21
    • B. Early Termination 5.22
  • VI. SURRENDER; HOLDOVER
    • A. Surrender
      • 1. Disposition of Improvements 5.23
      • 2. Parties' Perspectives
        • a. Form Provision: Landlord's Perspective 5.24
        • b. Tenant's Perspective 5.25
    • B. Holdover
      • 1. Holdover Rent 5.26
      • 2. Effect of Holding Over if No Provision in Lease 5.27

6

Option to Purchase and Other Preemptive Purchase Rights

Alan Wayte

  • I. OPTION TO PURCHASE 6.1
    • A. Ground Lease Options to Purchase 6.2
    • B. Options in Sale-Leasebacks 6.3
    • C. Common Triggers for Exercise of Options 6.4
    • D. Exercise of Option 6.5
    • E. Inclusion of Complete Terms of Purchase 6.6
    • F. Consideration 6.7
    • G. Form Provision: Determination of Purchase Price 6.8
      • 1. Determination of Fair Market Value 6.9
        • a. Use of Appraiser(s) to Determine Fair Market Value 6.10
        • b. Form Provision: Determination of Fair Market Value 6.11
        • c. Baseball Arbitration Method 6.12
        • d. Qualifications of Appraisers 6.13
        • e. Time Limits on Appraiser Selection Process 6.14
      • 2. Definition of Fair Market Value 6.15
        • a. Value at Current Use or at Highest and Best Use 6.16
        • b. Form Provision: Landlord's and Tenant's Wishes 6.17
    • H. Risk of Recharacterization of Sale-Leaseback 6.18
    • I. Recordation of Option Rights and Title Insurance 6.19
    • J. Form Provision: Tenant's Right to Rescind Exercise of Option 6.20
    • K. Form Provision: Exercise Dependent on Effectiveness of Lease and No Tenant Default 6.21
    • L. Assignability of Option 6.22
    • M. Form Provision: Effect of Option on Mortgagees 6.23
    • N. Effect of Rule Against Perpetuities 6.24
    • O. Effect of Landlord's Bankruptcy 6.25
  • II. RIGHTS OF FIRST REFUSAL AND OF FIRST OFFER
    • A. Right of First Refusal 6.26
      • 1. Terms of Right of First Refusal 6.27
      • 2. Landlord's Objections to Right of First Refusal 6.28
      • 3. Waiver of Tenant's Rights 6.29
    • B. Right of First Offer
      • 1. Terms of Right of First Offer 6.30
      • 2. Effect of Subsequent Modification of Offer 6.31
    • C. Exclusions From Operation of Rights of First Refusal or Rights of First Offers 6.32
  • III. INTERESTS OF LENDERS 6.33

7

Rent, Expense Allocations, Security Deposits, and Other Payments

Ira J. Waldman

Matthew P. Seeberger

  • I. INTRODUCTION
    • A. Competing Concerns of Landlord and Tenant 7.1
    • B. Development Ground Lease and Joint Venture Compared 7.2
    • C. Public Sector Landlord 7.3
    • D. Leasehold Financing 7.4
    • E. Elements of Ground Lease Rent Structure 7.5
  • II. PRE-TERM RENT 7.6
    • A. Time Period 7.7
    • B. Option Alternative 7.8
  • III. CONSTRUCTION PERIOD RENT
    • A. Establishing Construction Period Rent 7.9
    • B. Delays in Construction 7.10
    • C. Form: Force Majeure Delay 7.11
    • D. Form: Establishing Construction Period Rent 7.12
    • E. Multiphase Development Projects 7.13
  • IV. MINIMUM RENT 7.14
    • A. Factors in Establishing Minimum Rent
      • 1. Fair Market Rental Value 7.15
      • 2. Anticipated Percentage Rent 7.16
    • B. Commencement of Minimum Rent 7.17
    • C. Rent Credits 7.18
    • D. Minimum Rent Adjustments 7.19
      • 1. Fixed Minimum Rent Adjustments 7.20
      • 2. Inflation-Related Minimum Rent Adjustments 7.21
      • 3. Incremental Adjustments in Percentage Rent Leases 7.22
  • V. PERCENTAGE RENT
    • A. Description; Purpose 7.23
    • B. Freestanding Single-User Ground Lease 7.24
    • C. Development Ground Lease 7.25
    • D. Breakpoints
      • 1. Minimum Rent as Breakpoint 7.26
      • 2. Negotiated Breakpoint 7.27
      • 3. Other Methods for Determining Percentage Rent 7.28
    • E. Determination of Gross Revenues 7.29
      • 1. CAM Charges and Other Operating Expenses 7.30
      • 2. Form: Cash Basis Versus Accrual Basis 7.31
      • 3. Exclusions 7.32
    • F. Payment of Percentage Rent 7.33
    • G. Documentation and Audits 7.34
    • H. Form: Percentage Rent 7.35
  • VI. VALUE APPRECIATION RENT
    • A. Purpose 7.36
    • B. Political Issues in Public Land Development Ground Leases 7.37
    • C. Value Appreciation Rent Issues 7.38
      • 1. Timing
        • a. Sale or Refinance 7.39
        • b. Transfers of Ownership Interests in Tenant Entity 7.40
        • c. Exclusions 7.41
      • 2. Basis for Value Appreciation Rent
        • a. Net Sale Proceeds Formula 7.42
        • b. Net Profit Formula 7.43
        • c. Noncash Proceeds 7.44
        • d. Net Profit Formula Protections 7.45
        • e. Refinancing 7.46
        • f. Subordination of Value Appreciation Rent 7.47
        • g. Form: Value Appreciation Rent 7.48
  • VII. FAIR MARKET RENT ADJUSTMENTS 7.49
    • A. Structure of Fair Market Rental Value Provision 7.50
      • 1. Timing 7.51
      • 2. Defining Fair Market Rental Value 7.52
      • 3. Rent Floor 7.53
    • B. Issues in Fair Market Rental Value Determination 7.54
      • 1. Methodologies 7.55
      • 2. Difficulties in Adjusting Minimum and Percentage Rent 7.56
      • 3. Remaining Lease Term 7.57
    • C. Fair Market Rent Adjustment Dispute Resolution
      • 1. Appraisal Process 7.58
      • 2. Arbitration 7.59
  • VIII. SECURITY DEPOSITS
    • A. Necessity of Security Deposit
      • 1. Factors 7.60
      • 2. Tenant's Creditworthiness and Business Experience 7.61
      • 3. Extent of Landlord's Obligations
        • a. Development Ground Lease 7.62
        • b. Single-User Ground Lease for Franchised Restaurant 7.63
      • 4. Tenant Default 7.64
    • B. Amount 7.65
    • C. Letter of Credit as Alternative Security Arrangement 7.66
    • D. Bankruptcy 7.67
    • E. Return of Security Deposit 7.68
    • F. Form: Security Deposit 7.69
  • IX. FREESTANDING BUILDING PAD: COMMON AREA MAINTENANCE; EXPENSE ALLOCATIONS
    • A. Common Area Maintenance Costs 7.70
    • B. Other Expense Allocations
      • 1. Taxes 7.71
      • 2. Insurance 7.72
  • X. OTHER PAYMENTS
    • A. Utilities 7.73
    • B. Title Insurance 7.74
    • C. Landlord's Development Obligations; Extent of Tenant's Liability for Costs 7.75
    • D. Miscellaneous Charges 7.76

8

Use Clauses

Theani C. Louskos

  • I. PERMITTED USE CLAUSE 8.1
    • A. Development Ground Lease
      • 1. Tenant Issues 8.2
        • a. Subtenant Uses 8.3
        • b. Lender Requirements 8.4
      • 2. Landlord Issues
        • a. Impact on Rent 8.5
        • b. Impact of Use of Adjoining Property 8.6
        • c. Impact of Financing 8.7
    • B. Freestanding Single-User Ground Lease
      • 1. Landlord Issues
        • a. Tenant Mix 8.8
        • b. Rent 8.9
        • c. Trade Name Restriction 8.10
        • d. Operating Covenants 8.11
        • e. Radius and Exclusive Use Restriction 8.12
        • f. Undesirable Uses 8.13
      • 2. Tenant Issues
        • a. Right to Change Use or Close 8.14
        • b. Transfers and Assignments 8.15
  • II. RECIPROCAL EASEMENT AND ACCESS AGREEMENTS 8.16
  • III. CHANGE OF USE 8.17
    • A. Consent Rights and Conditions 8.18
    • B. Impact on Rent 8.19
    • C. Alter or Construct Improvements 8.20
    • D. Effect of Use Restriction on Landlord's Remedies 8.21

9

Hazardous Materials

Howard L. Pearlman

  • I. SPECTRUM OF ENVIRONMENTAL RISK
    • A. Overview 9.1
    • B. Effect of Risk on Environmental Provisions in Ground Lease 9.2
  • II. ENVIRONMENTAL LIABILITY OF PARTIES TO GROUND LEASES 9.3
    • A. Liability Under CERCLA 9.4
      • 1. Potentially Responsible Parties 9.5
      • 2. "Owner" Liability Under CERCLA
        • a. Landlord as "Owner" 9.6
        • b. Tenant as "Owner" 9.7
      • 3. Operator Liability Under CERCLA 9.8
    • B. Defenses to CERCLA Liability 9.9
      • 1. Innocent Landowner Defense 9.10
      • 2. Contiguous Property Owner Defense 9.11
      • 3. Bona Fide Prospective Purchaser Defense 9.12
    • C. Liability Protection Under the California "Brownfields" Statute 9.13
      • 1. Bona Fide Ground Tenant 9.14
      • 2. Applicable Immunities 9.15
  • III. ALLOCATION OF ENVIRONMENTAL RISK IN GROUND LEASE
    • A. Key Definitions 9.16
    • B. Disclosure of Known Contamination
      • 1. Duty to Disclose 9.17
      • 2. Form Provision: Definition of Contamination 9.18
      • 3. Disclosure in the Ground Lease
        • a. Form Provision: Exclusion of Known Contamination From Representations and Warranties 9.19
        • b. Form Provision: Tenant Acknowledgment and Landlord Disclaimer 9.20
    • C. Form Provision: Remediation of Known Contamination 9.21
    • D. Form Provision: Representations and Warranties 9.22
    • E. Form Provision: Use of Hazardous Materials During Lease Term 9.23
    • F. Form Provision: Indemnification 9.24

10

Initial Development of Improvements

Robert M. McCormick

  • I. LEASE PROVISIONS GOVERNING INITIAL DEVELOPMENT
    • A. Introduction 10.1
      • 1. Initial Development Scenarios 10.2
      • 2. Importance of Initial Development Provisions 10.3
      • 3. Issues Covered 10.4
    • B. Interaction With Other Lease Provisions 10.5
  • II. TENANT'S PERSPECTIVE: FLEXIBILITY 10.6
  • III. LANDLORD'S PERSPECTIVE: CERTAINTY 10.7
  • IV. ALLOCATION OF CONSTRUCTION RESPONSIBILITY 10.8
  • V. DUTY TO CONSTRUCT
    • A. No Duty to Construct Absent Lease Provisions 10.9
    • B. Mandatory Construction Provisions 10.10
    • C. Permissive Construction Provisions 10.11
    • D. Construction Prerequisites Outside Tenant's Control 10.12
  • VI. PRE-CONSTRUCTION RIGHTS AND OBLIGATIONS 10.13
  • VII. LANDLORD'S APPROVAL RIGHTS
    • A. Scope of Approval Rights 10.14
    • B. Approval of Plans
      • 1. Parties' Interests in Approval Rights
        • a. Landlord's Interest: Quality of Improvements 10.15
        • b. Tenant's Interest: Minimal Discretionary Approvals 10.16
        • c. Compromise Provisions 10.17
      • 2. Procedure for Approval 10.18
    • C. Other Approval Rights
      • 1. Approval of Design Consultants, Contractors, and Construction Contracts 10.19
      • 2. Approval of Tenant's Construction Financing 10.20
      • 3. Authority and Responsibility to Obtain Government Approvals 10.21
      • 4. Tenant's Right to Grant Easements 10.22
    • D. Standard for Approval
      • 1. Reasonableness Standard 10.23
      • 2. Other Methods to Moderate Landlord's Approval Rights 10.24
      • 3. Landlord's Disclaimer of Implied Warranty 10.25
    • E. Approval Problems 10.26
    • F. Dispute Resolution 10.27
  • VIII. PERFORMANCE OF CONSTRUCTION WORK
    • A. Commencement of Construction and Demolition 10.28
    • B. Early Entry 10.29
    • C. Standards of Construction 10.30
    • D. Compliance With Laws 10.31
    • E. Changes in Construction Plans 10.32
    • F. Insurance 10.33
    • G. Mechanics Liens and Notice of Nonresponsibility 10.34
    • H. Completion of Construction 10.35
      • 1. Consequences of Delay 10.36
      • 2. Security Arrangements 10.37
    • I. Ownership of Improvements 10.38

11

Ground Lease Financing, Subordination of Fee, and Encumbrance

Bruce W. Hyman

Amy E. Lehman

Stephen P. Lieske

Kenneth J. Stipanov

  • I. OVERVIEW OF THE FINANCING OF GROUND LEASES
    • A. Parties to the Ground Lease 11.1
    • B. Financing Aspects of Ground Leases 11.2
    • C. Financeability or Mortgageability
      • 1. Risk of Loss of Security 11.3
      • 2. Interests of Future Parties 11.4
      • 3. Mortgagee Protection Provisions 11.5
      • 4. Model Provisions 11.6
  • II. MORTGAGEE ISSUES
    • A. Term 11.7
      • 1. Minimum Term Requirements 11.8
      • 2. Regulatory Requirements 11.9
      • 3. Securitization 11.10
      • 4. Refinance Risk 11.11
      • 5. Options to Extend 11.12
        • a. Form: Exercise Before Loan Closing 11.13
        • b. Form: Right of Mortgagee to Exercise Option to Extend; Additional Time 11.14
    • B. Rent 11.15
      • 1. Leasehold Mortgagee's Assurances That Rent Is Paid 11.16
        • a. Direct Pay by Leasehold Mortgagee 11.17
        • b. Impounds and Reserves for Ground Rent 11.18
      • 2. Rent Escalation Provisions
        • a. General 11.19
        • b. Formula Increases 11.20
        • c. Appraisal Increases 11.21
        • d. Fixed Rent Increases; Other Increases in Tenant's Monetary Obligations 11.22
        • e. Subordination of Portion of Increased Rent 11.23
        • f. Use of Caps on Rent Increases 11.24
    • C. Encumbering the Leasehold Interest
      • 1. Form: Right to Encumber 11.25
      • 2. Form: Permitted Leasehold Mortgagees 11.26
      • 3. Governmental Agencies as Landlords 11.27
      • 4. Multiple Leasehold Mortgages 11.28
    • D. Assignment and Subletting 11.29
      • 1. Restrictions on Assignment 11.30
      • 2. Form: One-Time Right to Assign 11.31
      • 3. Right to Sublet 11.32
    • E. Use 11.33
    • F. Consent of Mortgagee Required to Amend or Terminate Ground Lease 11.34
    • G. Title and Title Insurance
      • 1. Importance of Legal Description 11.35
      • 2. Recordation of Lease/Memorandum of Lease 11.36
      • 3. Effect of Rights of First Refusal or Offer 11.37
      • 4. Leasehold Mortgagee Title Insurance
        • a. Obtaining Title Insurance 11.38
        • b. Scope of ALTA 13.1 Endorsement 11.39
    • H. Preservation of Lender's Security Following Tenant Default
      • 1. Mortgagee Right to Cure or Perform 11.40
      • 2. Loan Document Provisions 11.41
      • 3. Categorization of Defaults 11.42
        • a. Defaults Lender Cannot Cure
          • (1) Form: Definition of Noncurable Defaults 11.43
          • (2) Waiver 11.44
        • b. Form: Possession of Property to Effect Cure 11.45
      • 4. Notice to Leasehold Mortgagee of Tenant's Default
        • a. Form: Notice of Defaults 11.46
        • b. Form: Cure Rights Provision 11.47
        • c. Form: Other Notices to Leasehold Mortgagee 11.48
        • d. Form: Mortgagee Notice to Landlord 11.49
    • I. Bankruptcy
      • 1. Tenant Bankruptcy 11.50
      • 2. Landlord Bankruptcy 11.51
        • a. Form: Obligation of Tenant to Object 11.52
        • b. Precision Industries v Qualitech 11.53
      • 3. Form: New Lease on Termination 11.54
      • 4. Assignment of Lease as Alternative to New Lease 11.55
      • 5. Form: Memorandum of Lease 11.56
      • 6. Multiple Mortgagees 11.57
    • J. Casualty and Condemnation
      • 1. Competing Interests 11.58
      • 2. Casualty or Condemnation Should Not Terminate Ground Lease 11.59
    • K. Form: Mortgagee Liability Exculpation Provisions 11.60
    • L. Other Mortgagee Issues
      • 1. Form: Merger 11.61
      • 2. Form: Spreader Clauses 11.62
      • 3. Form: Amendments/Further Assurances 11.63
      • 4. Estoppel Certificates 11.64
  • III. FEE OWNER ISSUES
    • A. "Subordinating" the Fee
      • 1. Definition; When Fee Is Encumbered as Security for the Tenant's Loan 11.65
      • 2. Landlord Concerns
        • a. Risk to Landlord 11.66
        • b. No Undertaking of Loan Obligations 11.67
        • c. Notice and Cure Rights 11.68
      • 3. Form: Fee Owner as Surety/Guarantor for Tenant Loan Obligations 11.69
      • 4. Future Fee Mortgages 11.70
    • B. Fee Owner's Right to Otherwise Encumber the Fee
      • 1. Risks to Leasehold Mortgagee 11.71
      • 2. Form: Nondisturbance; Subordination of Fee Mortgage 11.72

12

Assignment and Subletting

Joan H. Story

  • I. OVERVIEW 12.1
    • A. Ground Lease and Space Lease Assignment and Subletting Distinguished 12.2
    • B. Assignment and Subletting Distinguished 12.3
  • II. PARTIES' GOALS
    • A. Landlord 12.4
    • B. Tenant 12.5
  • III. STATUTORY FRAMEWORK 12.6
  • IV. WHAT CONSTITUTES A TRANSFER 12.7
    • A. Partial and Indirect Transfers 12.8
    • B. Permitted Transfers 12.9
  • V. CONDITIONS TO LANDLORD'S CONSENT
    • A. Assignment 12.10
    • B. Subletting 12.11
  • VI. SUBORDINATION, NONDISTURBANCE, AND ATTORNMENT AGREEMENTS (SNDAs AND NDAs) 12.12
    • A. Parties' Concerns
      • 1. Subtenant and Leasehold Lender 12.13
      • 2. Landlord 12.14
      • 3. Tenant 12.15
    • B. Subtenant's Remedies for Landlord's Breach of Covenant 12.16
  • VII. RELEASE OF LIABILITY 12.17
  • VIII. LANDLORD'S REMEDIES 12.18

13

Maintenance, Repairs, and Alterations During Lease Term

Debra S. Summers

  • I. PARTIES' RIGHTS AND OBLIGATIONS 13.1
  • II. TENANT'S RIGHTS AND OBLIGATIONS
    • A. Factors in Determining Tenant's Rights and Obligations 13.2
    • B. Broad Obligations, Limited Flexibility 13.3
    • C. Limited Obligations, Broad Flexibility 13.4
    • D. Compliance With Legal Requirements 13.5
  • III. WAIVER OF LANDLORD'S OBLIGATIONS TO REPAIR OR MAINTAIN 13.6
  • IV. LANDLORD'S RIGHT TO ENTER AND CURE 13.7
  • V. ALTERATIONS TO EXISTING IMPROVEMENTS 13.8
    • A. Landlord's Interests 13.9
    • B. Tenant's Interests 13.10
    • C. Additional Considerations
      • 1. Lender Concerns 13.11
      • 2. Drafting Considerations 13.12
  • VI. SPECIAL CIRCUMSTANCES 13.13

14

Condemnation

John C. Murphy

Emily L. Madueno

  • I. IMPORTANCE OF CONDEMNATION PROVISIONS 14.1
  • II. ISSUES TO ADDRESS IN GROUND LEASES 14.2
    • A. Form Provision: Precondemnation Conveyance 14.3
    • B. Termination
      • 1. When Termination Occurs 14.4
      • 2. Sample Termination Provisions
        • a. Form Provision: Total Taking 14.5
        • b. Form Provision: Partial Taking 14.6
      • 3. Effective Date of Termination
        • a. When Termination Becomes Effective 14.7
        • b. Form Provision: Effective Date of Termination 14.8
      • 4. Rent Obligation
        • a. Termination's Impact on Rent 14.9
        • b. Form Provision: Rent Obligation 14.10
    • C. Temporary Taking
      • 1. Length of Taking 14.11
      • 2. Form Provision: Temporary Taking 14.12
    • D. Compensation
      • 1. Elements of Eminent Domain Award 14.13
      • 2. Variables That Affect Apportionment of Award 14.14
        • a. Default Rules; Bonus Value 14.15
        • b. Improvements, Fixtures, and Equipment 14.16
        • c. Options to Renew or Extend; Options to Purchase 14.17
      • 3. How the Award Is Apportioned 14.18
      • 4. Form Provision: Apportionment of Award 14.19
      • 5. Form Provision: Apportionment of Severance Damages 14.20
      • 6. Form Provision: Apportionment of Award for Business Goodwill 14.20A
      • 7. Form Provision: Subordination of Award to Lenders' Rights 14.21
    • E. Form Provision: Restrictions on Use of Award in Partial Condemnation 14.22

15

Damage, Destruction, Reconstruction, Insurance, and Indemnity

Paul Cliff

Yvette Green

  • I. SCOPE OF CHAPTER 15.1
  • II. DAMAGE, DESTRUCTION, AND RECONSTRUCTION
    • A. Casualty Event 15.2
      • 1. Applicable Statutory Law 15.3
      • 2. Landlord's Concerns 15.4
      • 3. Tenant's Concerns 15.5
    • B. Lease Language 15.6
    • C. Landlord's Concerns
      • 1. Economic Effects of Termination
        • a. Loss of Rental Income; Rental Insurance 15.7
        • b. Impact of Lease Termination 15.8
      • 2. Statutory Waiver 15.9
      • 3. Restoration of Leasehold Improvements 15.10
        • a. Development Ground Lease 15.11
        • b. Single-User Ground Lease 15.12
    • D. Tenant's Concerns
      • 1. Undesired Termination 15.13
      • 2. Restoration of Leasehold Improvements 15.14
    • E. Timing of Loss 15.15
      • 1. During Early Years of Term 15.16
      • 2. During Later Years of Term
        • a. Right to Terminate 15.17
        • b. Duty to Restore 15.18
  • III. ALLOCATION OF RISKS; INSURANCE 15.19
    • A. Landlord
      • 1. Liability Insurance 15.20
      • 2. Property Insurance 15.21
    • B. Tenant
      • 1. Liability Insurance 15.22
        • a. Excess Liability Insurance 15.23
        • b. Additional Insured Endorsement 15.24
        • c. Amount of Coverage 15.25
      • 2. Unusual Hazards 15.26
      • 3. Property Insurance 15.27
      • 4. Tenant's Insurance Is Primary 15.28
    • C. Builders' Risk Insurance for Construction Activities 15.29
    • D. Losses Not Covered 15.30
    • E. Insurer's Ability to Pay 15.31
    • F. Self-Insurance Programs 15.32
      • 1. Assessing the Self-Insurance Program 15.33
      • 2. Landlord's Requirements 15.34
  • IV. PAYMENT OF PROCEEDS OF PROPERTY INSURANCE 15.35
    • A. Depository 15.36
    • B. Trust 15.37
      • 1. Shortfall 15.38
      • 2. Prompt-Payment Statutes 15.39
    • C. Extent and Timing of Loss 15.40
  • V. FORM PROVISION: FAILURE TO MAINTAIN INSURANCE; PROOF OF COMPLIANCE 15.41
  • VI. LANDLORD'S NONLIABILITY 15.42
  • VII. INDEMNITY
    • A. Of Landlord 15.43
    • B. Of Tenant 15.44

16

Defaults and Remedies

Grant Puleo

  • I. IMPORTANCE AND PURPOSE OF DEFAULT AND REMEDIES PROVISIONS 16.1
  • II. DEFAULT
    • A. Negotiating Default and Remedies Provisions 16.2
    • B. Default
      • 1. Tenant's Default
        • a. Monetary Defaults 16.3
        • b. Nonmonetary Defaults 16.4
        • c. Insolvency and Bankruptcy 16.5
        • d. Default Under Leasehold Mortgage 16.6
      • 2. Landlord's Default 16.7
    • C. Notice and Right to Cure
      • 1. Contents of Default Notice 16.8
      • 2. Precondition to Landlord's Remedies 16.9
      • 3. Service of Notice 16.10
      • 4. Tenant's Right to Cure Defaults 16.11
      • 5. Lender's Right to Cure Defaults 16.12
      • 6. Rights of Subtenants; Nondisturbance 16.13
      • 7. Landlord's Right to Cure Tenant's Defaults 16.14
  • III. REMEDIES 16.15
    • A. Landlord's Remedies 16.16
      • 1. Termination 16.17
      • 2. Reentry Without Termination 16.18
      • 3. Measure of Damages and Mitigation
        • a. Measure of Damages 16.19
        • b. Mitigation 16.20
      • 4. Assignment of Subrents 16.21
    • B. Tenant's Remedies 16.22
  • IV. RELATED PROVISIONS
    • A. Unavoidable Default or Delay 16.23
    • B. Waiver; Voluntary Acts 16.24
    • C. Attorney Fees 16.25
    • D. Alternative Dispute Resolution
      • 1. Benefits of Alternative Dispute Resolution 16.26
      • 2. Form Provision: Sample Arbitration Clause 16.27

17

Bankruptcy Issues

Margaret M. Mann

Michael C. Cato

  • I. SCOPE OF CHAPTER 17.1
  • II. RAMIFICATIONS OF FILING BANKRUPTCY 17.2
    • A. Creation and Administration of Estate 17.3
    • B. Creation of Automatic Stay 17.4
    • C. Creation of Right to Assume or Reject Executory Contract 17.5
  • III. INTERESTS OF PARTIES TO GROUND LEASE
    • A. Tenant's Bankruptcy 17.6
    • B. Landlord's Bankruptcy 17.7
  • IV. OVERVIEW OF BANKRUPTCY CODE §365
    • A. Applicability of Statute 17.8
      • 1. Factors to Consider in Determining if Bona Fide Lease
        • a. State Law 17.9
        • b. Economic Substance 17.10
      • 2. Executory Contracts 17.11
      • 3. Inapplicable to Terminated Leases 17.12
    • B. Automatic Stay 17.13
    • C. Nullification of Ipso Facto Clauses 17.14
    • D. Standard and Procedures for Assumption or Rejection 17.15
  • V. TIME FRAME FOR ASSUMPTION AND REJECTION
    • A. Tenant as Debtor 17.16
    • B. Landlord as Debtor in Non-Chapter 7 Bankruptcies 17.17
  • VI. RIGHTS AND OBLIGATIONS PENDING ASSUMPTION OR REJECTION 17.18
    • A. Performance Before Assumption or Rejection Under 11 USC §365(d)(3) 17.19
    • B. Reduction or Elimination of Administrative Rent Period 17.20
  • VII. REJECTION
    • A. General Impact of Rejection
      • 1. Breach of Lease 17.21
      • 2. Lease Not Terminated 17.22
      • 3. Unaffected Rights 17.23
    • B. Specific Impacts on Parties
      • 1. Tenant as Debtor 17.24
      • 2. Landlord as Debtor 17.25
        • a. Tenant's Rights if Landlord Rejects Lease 17.26
        • b. Enforceability of Lease Provisions in Shopping Center Lease 17.27
        • c. Tenant's Right to Treat Lease as Terminated 17.28
      • 3. Third Party Interests in Estate 17.29
    • C. Priority Issues 17.30
    • D. Statutory Cap on Landlord's Damages 17.31
      • 1. Cap Applicable Only to Damages for Lease Termination 17.32
      • 2. Further Reduction for Security Deposits 17.33
      • 3. Cap Inapplicable to Claim for Administrative Expenses 17.34
    • E. Executory Contracts 17.35
  • VIII. ASSUMPTION
    • A. Ground Lease Must Be Assumed in Whole 17.36
    • B. Prerequisites to Assuming Lease in Default 17.37
      • 1. Ability to Cure 17.38
      • 2. Meaning of "Cure" 17.39
      • 3. "Incurable" Defaults
        • a. Statutory Language 17.40
        • b. Confusion Regarding Scope of Exclusion 17.41
      • 4. Adequate Assurance of Future Performance 17.42
    • C. Assignment
      • 1. Limitations on Lease Assignments 17.43
      • 2. Lease May Not Be Terminated or Modified 17.44
      • 3. Assignment Relieves Debtor of Post-Assignment Contractual Liability 17.45

About the Authors

ANTHONY A. AROSTEGUI, author of chap 3, is a shareholder with Trainor Fairbrook, Sacramento, and is head of the firm's real estate transaction department. Mr. Arostegui's practice is focused on complex real estate transactions involving the acquisition and divestment of real estate, commercial leasing, real estate lending, and loan workouts. His clientele includes private and publicly traded developers, land owners, real estate investors, asset management companies, lending institutions, and governmental entities. Mr. Arostegui has given numerous seminars and presentations to various real estate industry groups and has taught real estate law classes for the University of California Extension Program, CEB, California State Bar Real Property Section, University of the Pacific McGeorge School of Law, and other continuing educational organizations. He has also authored various real estate publications. He received his J.D. from the University of California, Davis, School of Law, in 1984 and his B.S. from the University of the Pacific in 1981.

MICHAEL C. CATO, coauthor of chap 17, is an associate in the Del Mar Heights office of Sheppard, Mullin, Richter & Hampton LLP. His practice focuses on commercial real estate transactions, including purchase and sales, financing, and leasing of industrial, office, and retail properties. Mr. Cato received his J.D. from Harvard Law School and his B.A. from Duke University.

PAUL CLIFF, coauthor of chap 15 is a member of Lobb, Cliff & Lester, Riverside, where he heads its Real Estate practice group. Mr. Cliff received his B.A. in 1986 from Claremont McKenna College and his J.D. in 1990 from the University of Southern California Gould School of Law. His practice is focused on commercial real estate transactions including acquisition, sales, leasing, finance, development, and construction. Mr. Cliff is an author of several articles concerning real property sales and leasing and finance transactions and is a regular guest lecturer at the University of Southern California Gould School of Law.

MICHAEL A. DEAN, author of chaps 1, 4, is a partner with the firm of Wendel, Rosen, Black & Dean LLP, Oakland, where he has practiced for over 40 years, specializing in commercial development, commercial leasing, finance, and purchase and sales. Mr. Dean has written numerous articles on real property issues for CEB, has acted as an update author for the first edition of Ground Lease Practice, and has authored several chapters in Office Leasing: Drafting and Negotiating the Lease (Cal CEB) and Retail Leasing: Drafting and Negotiating the Lease (Cal CEB). He is a frequent speaker for numerous organizations, including CEB, the International Council of Shopping Centers (ICSC), the National Retail Tenants Association, and the State Bar of California. He is a member of the American College of Real Estate Lawyers and of ICSC. Mr. Dean received his A.B. from San Jose State College and his J.D. from the University of California, Berkeley, School of Law.

YVETTE GREEN, coauthor of chap 15, is the Director of Property and Casualty Claims at the insurance brokerage firm of Barney & Barney, LLC in San Diego and focuses on client advocacy and coverage for policy holders. Ms. Green received her B.A. from the University of California, Irvine, and her J.D. from the University of San Francisco School of Law in 1997. Before joining Barney & Barney, Ms. Green specialized in complex insurance coverage litigation for policyholders and represented clients in diverse industries ranging from utilities and national long-term care to public agencies and manufacturers.

BRUCE W. HYMAN, coauthor of chap 11, is of counsel in the San Francisco office of Allen Matkins Leck Gamble Mallory & Natsis LLP. Mr. Hyman is nationally recognized for his substantial experience in real estate law, including real estate finance, sales and acquisition, environmental leasing, property management, and brokerage. He was an expert witness in the landmark case of Teachers Insurance & Annuity Association of New York v Butler in the U.S. District Court of the Southern District of New York. Mr. Hyman is a member of the American College of Mortgage Lawyers, the American College of Real Estate Lawyers, and the Taxation Sections of the American Bar Association, the National Association of Public Pension Lawyers, and is general counsel emeritus to the California Mortgage Bankers Association. Mr. Hyman received his B.S. from the University of California, Berkeley, in 1954, and his J.D. from the University of California, Berkeley, School of Law in 1957.

AMY E. LEHMAN, coauthor of chap 11, is senior counsel in the San Francisco office of Allen Matkins Leck Gamble Mallory & Natsis LLP, where she is a member of the firm's Real Estate Group. Ms. Lehman has significant experience in real estate finance matters, including structured finance, commercial lending transactions, and financial restructuring. She is a coauthor of When You Assume …: Practical Advice for Avoiding the Latter Portion of That Adage When Assuming a Securitized Loan, Real Est Fin J (Fall 2008). Ms. Lehman received her J.D. from the University of Michigan Law School and her B.A. from Pomona College.

RANDAL J. LEJUWAAN, coauthor of chap 5, is a partner in the San Diego office of Luce, Forward, Hamilton& Scripps LLP. Mr. Lejuwaan specializes in commercial real estate transactions, including the documentation and negotiation of acquisitions, leasing, development, and dispositions for all types of commercial property. He has extensive experience representing (1) office building and shopping center owners in lease negotiations, lease workout deals, and buying and selling office buildings and shopping centers, and (2) developers and owners acquiring land and selling finished product. He received his J.D. from the University of San Diego School of Law in 1999. He is a frequent speaker on real estate topics and served as the moderator for CEB's program on Negotiating Retail Leases in 2008.

STEPHEN P. LIESKE, coauthor of chap 11, is a partner in the San Francisco office of Allen Matkins Leck Gamble Mallory & Natsis LLP. Mr. Lieske's practice focuses on real estate finance and capital markets. With particular expertise and experience representing securitization and conduit lenders, Mr. Lieske also represents servicers and special servicers of securitized loans and has extensive experience in all facets of the servicing practice. He is a coauthor of When You Assume …: Practical Advice for Avoiding the Latter Portion of That Adage When Assuming a Securitized Loan, Real Est Fin J (Fall 2008); Tenancies-in-Common: An Old Dog Performing New Tricks, CMBS World (Spring 2004); and The Borrower's Guide to Doing Business With a Securitizing Lender, Real Est Rev (Spring 1999). Mr. Lieske received his J.D. from Rutgers School of Law and his B.S. from the University of Wisconsin.

THEANI C. LOUSKOS, author of chap 8, is a principal with the firm of Bartko, Zankel, Tarrant & Miller, San Francisco. Ms. Louskos received her J.D. from the University of California, Berkeley, School of Law in 1980. She specializes in commercial real estate transactions, including the purchase and sale, financing, and leasing of office and retail properties. Ms. Louskos has handled major real estate acquisitions and sales on behalf of developers and REITs. She is a frequent speaker on real estate topics and served as the moderator for CEB's program on purchase and sales agreements and has acted as an update author of California Real Property Sales Transactions (4th ed Cal CEB).

EMILY L. MADUENO, coauthor of chap 14, is an associate with Luce, Forward, Hamilton & Scripps, Orange County. Ms Madueno focuses her practice on eminent domain and inverse condemnation matters. She received her J.D. from Loyola Law School, Los Angeles, in 2007 and her B.A. from California State University, Northridge, in 2004.

MARGARET M. MANN, coauthor of chap 17, is a partner in the Finance and Bankruptcy Practice Group in Sheppard, Mullin, Richter & Hampton LLP, San Diego. Ms. Mann has significant experience in large, complex domestic and international insolvency proceedings on behalf of creditors, fiduciaries, borrowers, and other interested parties, with expertise in the capital markets and tax credit syndication industries. Ms. Mann is a Fellow of the American College of Bankruptcy. She has been interviewed regarding bankruptcy and financial matters by NBC, the San Diego Union, the San Diego Transcript, the California Daily Journal, and the Dow Jones Report. She authored a part of the California antideficiency legislation and has presented programs at the University of California, San Diego, and San Diego State University on financial matters. Ms. Mann earned her J.D. from the University of Southern California Gould School of Law and her B.A. from the University of Illinois.

ROBERT M. McCORMICK, author of chap 10, is a partner in the Real Estate Group at Downey Brand LLP, Sacramento. Mr. McCormick represents landlords and tenants in the negotiation and preparation of leases, subleases, and ground leases for office, industrial, and retail properties; buyers and sellers in the planning, negotiation, and drafting of documentation for the purchase and sale of real estate, including industrial park properties, shopping centers, office buildings, and agricultural properties; and lenders and borrowers in the negotiation and documentation of real estate secured financing transactions. He is a frequent contributor to the California Real Property Journal including preparing the journal's annual review of real property-related legislation. Mr. McCormick has also served as an update author for Office Leasing: Drafting and Negotiating the Lease (Cal CEB). He received his J.D. from the University of the Pacific, McGeorge School of Law, in 1996 and his B.A. from the University of California, Santa Cruz, in 1971.

JOHN C. MURPHY, coauthor of chap 14, is the Partner in Charge of Luce, Forward, Hamilton & Scripps, Orange County. He specializes in eminent domain, inverse condemnation, and other complex jury trials. He represents a wide variety of public agencies, corporations, and landowners. Mr. Murphy has been the subject of two Los Angeles Daily Journal profiles and has been featured on the cover of both Verdicts and Settlements and the Los Angeles Daily Journal. In 2006, Mr. Murphy was elected a Fellow of the American Bar Association. He has spoken repeatedly on trial tactics in eminent domain for the American Law Institute, American Bar Association, and at numerous International Right of Way seminars and programs. Mr. Murphy currently sits on the Dean's Council of the Chapman University Law School. He attended Brown University and the University of California, Riverside (B.A. in 1976) and received his J.D. from the University of Southern California Gould School of Law in 1980.

HOWARD L. PEARLMAN, author of chap 9, is a principal at Bartko, Zankel, Tarrant & Miller APC, San Francisco. Mr. Pearlman's practice focuses on real estate and environmental litigation and transactions. He has litigated, arbitrated, and mediated a wide range of disputes arising out of purchase and sale agreements and commercial leases as well as claims arising under federal and state environmental laws. He also routinely counsels clients on environmental aspects of real estate transactions. Mr. Pearlman is the author of chapter 6 in California Real Property Sales Transactions (4th ed Cal CEB). He received his J.D. from the University of California, Hastings College of the Law, and his B.A. from Reed College.

GRANT PULEO, author of chap 16, is a partner with Procopio, Cory, Hargreaves & Savitch LLP. Mr. Puleo's practice includes a wide variety of real estate, finance, and business transactions, including acquisitions, development, dispositions, specialized leasing, and financing of all product types. Previously a trial attorney, Mr. Puleo provides general litigation advice to clients and negotiates on behalf of both landowners and users to resolve real estate-related litigation, such as unlawful detainer, lis pendens, and condemnation. Mr. Puleo also provides his business clients with risk management and litigation avoidance counseling. He has lectured and written on various real estate and litigation topics including coauthoring, Landlord's Dilemma When Faced With a Defaulting Tenant: Negotiate or Litigate?, 29 CEB Real Prop L Rep 265 (May 2006). Mr. Puleo received his B.A. from San Diego State University in 1990 and his J.D. from the University of the Pacific, McGeorge School of Law, in 1995.

MATTHEW P. SEEBERGER, coauthor of chap 7, is a partner with Cox, Castle & Nicholson LLP, Los Angeles, and specializes in leasing, development, acquisition, and disposition of commercial real estate. He primarily represents private, public, and institutional developers and landowners regarding retail centers, and represents tenants with respect to various types of commercial properties. He is a coauthor of three chapters in Retail Leasing: Drafting and Negotiating the Lease (Cal CEB). He received his B.A. from Swarthmore College and his J.D. from Ohio State University.

KENNETH J. STIPANOV, a coauthor of chap 5, practices in the area of real property transactions, including sales, leasing, and financing industrial, commercial, retail, and raw land projects. He has represented a wide variety of clients, including closely held corporations, institutional investors, end-users, public companies, and family groups. He has been a panelist on a number of CEB programs, including real property purchase and sale agreements and real property financing strategies. He received his J.D. from the University of California, Los Angeles, School of Law in 1981. Mr. Stipanov is a past co-chair of the San Diego County Real Property Section and is a partner in the San Diego office of Luce, Forward, Hamilton & Scripps LLP.

JOAN H. STORY, author of chap 12, is a partner with Sheppard, Mullin, Richter & Hampton LLP, San Francisco. Ms. Story's practice emphasizes real estate investment, financing, and leasing transactions. Her experience encompasses land acquisition and development, construction, permanent and tax-exempt financings, joint venture and limited liability entity formation, acquisition and disposition of commercial properties, leasing and other portfolio management issues, as well as loan and partnership workouts. She has drafted and negotiated ground leases with both public and private lessors for such varied purposes as development of shopping center pads and other retail purposes, a cruise terminal/mixed-use project, airport and truck distribution facilities, and affordable housing. Ms. Story is a coauthor of chapter 16 in Office Leasing: Drafting and Negotiating the Lease (Cal CEB). She received her A.B. in 1965 from Occidental College; her M.A. in 1967 from the University of California, Los Angeles; and her J.D. in 1977 from the University of California, Davis, School of Law.

DEBRA S. SUMMERS, author of chap 13, is a partner with Wilson, Sonsini, Goodrich & Rosati, Palo Alto. Ms. Summers chairs the firm's real estate and environmental practice, and specializes in leasing, facility design, construction, financing and development, sale lease-backs, synthetic financings, and environmental compliance and violation resolution. She also has extensive experience in corporate financings, equipment leasing, leveraged buy-outs, and corporate mergers and acquisitions. Ms. Summers is a coauthor of chapter 40 in Office Leasing: Drafting and Negotiating the Lease (Cal CEB). She has served as an adjunct professor for the University of California at Berkeley's Environmental Certification Program and is a well-known speaker on real estate and environmental issues for many organizations including CEB (on commercial leasing and recent developments). Ms. Summers received her B.S. in 1974 from West Texas A&M University and her J.D. in 1980 from the University of San Francisco School of Law.

WALTER R. TURNER, coauthor of chap 2, is a partner in the taxation and business groups of Wendel, Rosen, Black & Dean LLP, Oakland. His practice emphasizes business, corporate, and real estate tax planning; mergers and acquisitions; and general business law. He is a former member of the Tax Law Advisory Commission of the California Board of Legal Specialization. He lectures frequently before trade and professional organizations. Mr. Turner received his LL.M. in taxation from New York University School of Law in 1978, his J.D. from Pepperdine University School of Law in 1977, and his B.A. from Southern Illinois University in 1973.

IRA J. WALDMAN, coauthor of chap 7, is a partner with Cox, Castle & Nicholson LLP, Los Angeles. He represents lenders and developers in all facets of real estate and commercial law, including finance, secured lender remedies, ownership entity formation, property disposition, acquisition and development, leasing activities, and workouts. Mr. Waldman received his B.A. from Bates College in 1973 and his J.D. from the University of Maine School of Law in 1976. He is a frequent lecturer and author on many topics concerning real estate secured lending and development, including CEB's Advanced Course of Study: Attorney Opinion Letters: Legal Opinions in Real Estate Transactions and ALI-ABA's Modern Real Estate Transactions course where he prepared Public/Private Development Partnerships—The Long-Term Ground Lease. Mr. Waldman is also an original and update coauthor of chapter 8 (on legal opinions) in California Real Estate Finance Practice: Strategies and Forms (Cal CEB) and authors numerous articles. He serves on the Board of Governors of the American College of Real Estate Lawyers and is currently the chair of the Public Policy Forum Working Group. He also serves on the Council of the American Bar Association Real Property, Trust and Estates Section and is its liaison to the ABA's Special Committee on Disaster Response and Preparedness.

ALAN WAYTE, author of chap 6, is currently Senior Counsel in the Los Angeles office of DLA Piper LLP where he specializes in all forms of real estate transactions. Mr. Wayte is a graduate of Stanford University and Stanford Law School. He has served as Chair of the Real Estate Section of the Los Angeles County Bar Association, Chair of the Real Property Section of the California State Bar, and President of the American College of Real Estate Lawyers. He has frequently lectured and written on real estate subjects for several organizations, including CEB and ALI-ABA. He is currently a member of the adjunct faculty at Southwestern University Law School where he teaches a course on real estate transactions.

JUSTIN B. WHITE, coauthor of chap 5, is real estate counsel at Biomed Realty Trust, Inc., a publicly traded REIT, specializing in real estate matters for the life science industry. Mr. White received his B.A. from Miami University, Ohio, and his J.D. from California Western School of Law. He is the former chairperson of the Real Property Section of the San Diego County Bar Association, a licensed real estate broker, and has served as a consultant editor for Retail Leasing: Drafting and Negotiating the Lease (Cal CEB).

TIMOTHY S. WILLIAMS, coauthor of chap 2, is a partner in the firm of Wendel, Rosen, Black & Dean LLP, Oakland. Mr. Williams represents clients in a variety of real estate transactions, including sales, leases, secured loans, exchanges, property tax matters, and construction industry contract matters. He has been a contributing author for several CEB publications on topics including secured financing, office leasing, and retail leasing. Mr. Williams received his J.D. from the University of California, Berkeley, School of Law in 1980 and his B.A. from Stanford University in 1977.

About the 2017 Update Authors

ANTHONY A. AROSTEGUI, update coauthor of chaps 3 and 15, is a partner with Downey Brand LLP, Sacramento; see biography in the About the Authors section of this book.

SYLVIA S. AROSTEGUI, update author of chap 13, is a partner with Stoel Rives LLP, Sacramento. Ms. Arostegui represents a variety of clients in all aspects of complex commercial real estate development and loan transactions. Ms. Arostegui's experience also encompasses representing landlords and tenants in all types of leasing, including ground leases, office leases, and retail leases. She received her J.D. from the Georgetown University Law Center and her B.S. from Georgetown University. Ms. Arostegui has served on CEB's real property practice group Advisory Committee and as Co-Chair of the Executive Committee of the Real Property Section of the State Bar.

ELIZABETH BERKE-DREYFUSS, update author of chap 17, is a partner with the law firm of Wendel, Rosen, Black& Dean LLP, Oakland. Ms. Berke-Dreyfuss specializes in insolvency and bankruptcy, including real estate—related cases, and is a frequent lecturer on bankruptcy and real estate issues. Ms. Berke-Dreyfuss received her J.D. from the University of San Francisco School of Law, her M.A. from Lone Mountain College (University of San Francisco), and her B.A. from Ohio State University.

KEVIN T. COLLINS, update author of chap 16, is a partner with LeClairRyan, Sacramento. Mr. Collins is an experienced trial lawyer who focuses on complex litigation. Mr. Collins has represented clients in class actions and multi-district litigation and practices in a wide variety of areas including real estate, products liability, construction, public law, eminent domain, receiverships, and antitrust litigation. Mr. Collins received his J.D. from University of the Pacific, McGeorge School of Law and his B.A. and teaching credential from the University of Redlands.

KATHERINE A. CONTRERAS, update coauthor of chap 14, is an associate at Nossaman LLP, Irvine. Ms. Contreras specializes in eminent domain, inverse condemnation, and other real property and valuation related matters. She received her J.D. from the University of California, Los Angeles, School of Law, and her B.A. from Connecticut College.

BRADFORD B. KUHN, update coauthor of chap 14, is a partner at Nossaman LLP, Irvine. Mr. Kuhn specializes in eminent domain, inverse condemnation, regulatory takings, and valuation matters. He received his J.D. from Chapman University School of Law and his B.S. from the University of Southern California.

RANDAL J. LEJUWAAN, update coauthor of chap 5, now practices law at McKenna Long & Aldridge LLP, San Diego; see biography in the About the Authors section of this book.

JAMES A. LONERGAN, update author for chap 8, is a partner with the law firm of Sheppard, Mullin, Richter & Hampton LLP, Los Angeles. Mr. Lonergan's practice focuses on real estate transactions, including leasing, purchase and sale, financing, and workouts involving office, retail, and industrial properties. He received his J.D. from the University of Southern California and his B.A. from the University of California, Irvine.

MICHAEL MANLEY, update coauthor of chap 6, is an associate attorney at The Opus Law Firm, Encinitas, handling corporate and real estate law with a focus on leasing, acquisitions, and the formation and operation of business entities. Mr. Manley received his B.A. from University of California, San Diego, and his J.D. from California Western School of Law.

ROBERT M. McCORMICK, update author of chap 10; see biography in the About the Authors section of this book.

HOWARD L. PEARLMAN, update author of chap 9, now in private practice at the Law Office of Howard Pearlman, Oakland; see biography in the About the Authors section of this book.

WESTON ROCKERS, update coauthor of chaps 3 and 15, is an associate with the law firm of Buchalter, Sacramento. Mr. Rockers' practice focuses on real estate transactions, including acquisition, disposition, leasing, and financing of commercial properties. He received his B.S. from University of Kansas and his J.D. and M.B.A. from Pepperdine University.

KENNETH J. STIPANOV, update author of chap 11, now practices law at Dentons in San Diego; see biography in the About the Authors section of this book.

JOAN H. STORY, update author of chap 12; see biography in the About the Authors section of this book.

IRA J. WALDMAN, update author of chap 7; see biography in the About the Authors section of this book.

JUSTIN B. WHITE, update coauthor of chap 6, is the managing attorney at The Opus Law Firm, Encinitas, handling commercial real estate and business law; see biography in the About the Authors section of this book

TIMOTHY S. WILLIAMS, update author of chap 2; see biography in the About the Authors section of this book.

Selected Developments

May 2020 Update

Case Developments

  • The discussion of the San Pedro Boat Works case in §9.7 has been updated regarding whether and under what circumstances a tenant may be liable as an owner for toxic contamination under CERCLA.

  • In a recent case on operator liability under CERCLA, Atlantic Richfield Co. v Central Valley Reg’l Water Quality Control Bd. (2019) 41 CA5th 91, 97, the court opined that “[i]f a parent corporation had its fingerprints all over the activities of a facility that resulted in the spewing of hazardous waste, it does not make sense to insulate it from liability because it eschewed the direction of any efforts the subsidiary might have made otherwise to dispose of hazardous waste.” The court also noted that the statutory term “leakage” bespeaks results that are not intended, in contrast with “disposal.” See §9.8.

  • In TDY Holdings, LLC v U.S. (9th Cir 2018) 885 F3d 1142, the Ninth Circuit ruled that the lower court’s allocation of 100 percent of CERCLA liability to a military contractor for contamination from war-effort production, and no liability to the government, was an abuse of discretion. See §9.9.

  • In Otay Land Co. v U.E. Limited, L.P. (2017) 15 CA5th 806, the court’s failure to consider a party’s responsibility for contributing to contamination as an equitable factor in its allocation of liability under HSAA was an abuse of discretion. See §9.9.

  • In Campbell v U.S. (2019) 932 F3d 1331, 1341 n6, the Supreme Court discussed the split among the circuit courts on the issue of whether a bankruptcy court has authority to extinguish successor liability claims pursuant to a 11 USC §363 sale. See §§3.8, 11.53, 17.7.

  • In PG&E Corp. v FERC (In re PG&E Corp.) (Bankr ND CA 2019) 603 BR 471, the court confirmed that, in evaluating a bankruptcy estate’s decision to reject a ground lease, the court presumes the estate “acted prudently, on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the bankruptcy estate.” See §17.15.

  • In Mission Prod. Holdings, Inc. v Tempnology, LLC (2019) 587 US ___, 139 S Ct 1652, the Supreme Court held that the rejection of a prepetition contract does not mean that the contract is unenforceable by a nondebtor party; instead, the rejection is treated as a breach under 11 USC §365(g) (which is treated as a breach would be treated under state law). See §§17.21–17.22.

  • In In re Puchi Props., Inc. (Bankr D AZ 2019) 601 BR 677, the bankruptcy court ruled that the confirmation of the plan did not validly assume the lease when the nondebtor party did not receive notice of the disclosure statement, plan, or hearing. See §17.36.

  • The discussion in §17.39 of the meaning of “cure” under the Bankruptcy Code has been updated to reflect the Ninth Circuit’s decision in Pacifica L 51 LLC v New Invs. Inc. (In re New Invs., Inc.) (9th Cir 2016) 840 F3d 1137, confirming that the holding of Great W. Bank & Trust v Entz-White Lumber & Supply, Inc. (In re Entz-White Lumber & Supply, Inc.) (9th Cir 1988) 850 F2d 1338, 1342 (that cure permits debtor to avoid all consequences of default, including default penalties such as higher interest), is no longer good law in light of the enactment of 11 USC §1123(d), which requires defaults be cured under a plan “in accordance with the underlying agreement and applicable nonbankruptcy law”—effectively overruling Entz-White and allowing for the imposition of default penalties. See §17.39.

Legislative Developments

  • Under the Tax Cuts and Jobs Act (Pub L 115–97, 131 Stat 2054), for taxable years 2018 through 2025, no miscellaneous itemized deduction shall be allowed for any taxable year beginning after December 31, 2017, and before January 1, 2026. 11 USC §67(g). See §2.4.

  • Revenue and Tax Code §71 was amended to prohibit new construction that is in progress from acquiring a new base year value until the date of completion of that construction. See §§2.39–2.40.

  • Labor Code §1720(a)(1) was amended to make the prevailing wage laws apply to work performed during the preconstruction and postconstruction phases of public projects. See §7.18.

  • The provisions regarding the 3­day notice in CCP §1161 have been amended to exclude Saturdays, Sundays, and court holidays when counting the days. See §16.3–16.4.

  • Beginning February 19, 2020, under the Small Business Reorganization Act of 2019 (SBRA), individual debtors may also qualify as a “small business debtor” with smaller or limited debts, subject to oversight by a court-appointed standing trustee, under Subchapter V of Chapter 11, 11 USC §§1181–1195. See §17.3.

GROUND LEASE PRACTICE

(2d Edition)

May 2017

TABLE OF CONTENTS

 

File Name

Book Section

Title

CH03

Chapter 3

Parties, Interest, and Premises

03-020

§3.20

Form Provision: Tax Concerns

CH04

Chapter 4

Conditions to Effectiveness of Lease

04-007

§4.7

Form Provision: Introductory Paragraph to Conditions Provision Reciting Consideration

04-010

§4.10

Form Provision: Procedure for Determining State of Title

04-012

§4.12

Form Provision: Issuance of Title Insurance Policy

04-014

§4.14

Form Provision: Financing Condition

04-016

§4.16

Form Provision: Physical Inspection and Testing; Environmental Investigation

04-018

§4.18

Form Provision: Survey; Calculation of Acreage; Adjustment of Rent

04-020

§4.20

Form Provision: Economic Feasibility

04-022

§4.22

Form Provision: Land Use Approvals

04-024

§4.24

Form Provision: Subdivision of Premises

04-026

§4.26

Form Provision: Pre-Leasing Condition

04-029

§4.29

Form Provision: Failure to Satisfy Conditions

04-031

§4.31

Form Provision: Inspection of Landlord’s Documents and Materials

04-033

§4.33

Form Provision: Delivery of Tenant’s Documents and Materials

CH05

Chapter 5

Lease Term, Option to Extend, Termination, Surrender, and Holdover

05-020

§5.20

Form Provision: Option to Extend (Development Ground Lease)

05-024

§5.24

Form Provision: Landlord’s Perspective

CH06

Chapter 6

Option to Purchase and Other Preemptive Purchase Rights

06-008

§6.8

Form Provision: Determination of Purchase Price

06-011

§6.11

Form Provision: Determination of Fair Market Value

06-017

§6.17

Form Provision: Landlord’s and Tenant’s Wishes

06-020

§6.20

Form Provision: Tenant’s Right to Rescind Exercise of
Option

06-021

§6.21

Form Provision: Exercise Dependent on Effectiveness of Lease and No Tenant Default

06-023

§6.23

Form Provision: Effect of Option on Mortgagees

CH07

Chapter 7

Rent, Expense Allocations, Security Deposits, and
Other Payments

07-011

§7.11

Force Majeure Delay

07-012

§7.12

Establishing Construction Period Rent

07-031

§7.31

Cash Basis Versus Accrual Basis

07-035

§7.35

Percentage Rent

07-048

§7.48

Value Appreciation Rent

07-069

§7.69

Security Deposit

CH09

Chapter 9

Hazardous Materials

09-018

§9.18

Form Provision: Definition of Contamination

09-019

§9.19

Form Provision: Exclusion of Known Contamination From Representations and Warranties

09-020

§9.20

Form Provision: Tenant Acknowledgment and Landlord Disclaimer

09-021

§9.21

Form Provision: Remediation of Known Contamination

09-022

§9.22

Form Provision: Representations and Warranties

09-023

§9.23

Form Provision: Use of Hazardous Materials During Lease Term

09-024

§9.24

Form Provision: Indemnification

CH11

Chapter 11

Ground Lease Financing, Subordination of Fee, and Encumbrance

11-013

§11.13

Exercise Before Loan Closing

11-014

§11.14

Right of Mortgagee to Exercise Option to Extend; Additional Time

11-025

§11.25

Right to Encumber

11-026

§11.26

Permitted Leasehold Mortgagees

11-031

§11.31

One-Time Right to Assign

11-043

§11.43

Definition of Noncurable Defaults

11-045

§11.45

Possession of Property to Effect Cure

11-046

§11.46

Notice of Defaults

11-047

§11.47

Cure Rights Provision

11-048

§11.48

Other Notices to Leasehold Mortgagee

11-049

§11.49

Mortgagee Notice to Landlord

11-052

§11.52

Obligation of Tenant to Object

11-054

§11.54

New Lease on Termination

11-056

§11.56

Memorandum of Lease

11-060

§11.60

Mortgagee Liability Exculpation Provisions

11-062

§11.62

Spreader Clauses

11-063

§11.63

Amendments/Further Assurances

11-069

§11.69

Fee Owner as Surety/Guarantor for Tenant Loan
Obligations

11-072

§11.72

Nondisturbance; Subordination of Fee Mortgage

CH14

Chapter 14

Condemnation

14-003

§14.3

Form Provision: Precondemnation Conveyance

14-005

§14.5

Form Provision: Total Taking

14-006

§14.6

Form Provision: Partial Taking

14-008

§14.8

Form Provision: Effective Date of Termination

14-010

§14.10

Form Provision: Rent Obligation

14-012

§14.12

Form Provision: Temporary Taking

14-019

§14.19

Form Provision: Apportionment of Award

14-020

§14.20

Form Provision: Apportionment of Severance Damages

14-020A

§14.20A

Form Provision: Apportionment of Award for Business Goodwill

14-021

§14.21

Form Provision: Subordination of Award to Lenders’ Rights

14-022

§14.22

Form Provision: Restrictions on Use of Award in Partial Condemnation

CH15

Chapter 15

Damage, Destruction, Reconstruction, Insurance, and Indemnity

15-041

§15.41

Form Provision: Failure to Maintain Insurance; Proof of Compliance

CH16

Chapter 16

Defaults and Remedies

16-027

§16.27

Form Provision: Sample Arbitration Clause

APP

Appendixes

Appendixes

APP-A

APP-A

Development Ground Lease (Retail Center)

APP-B

APP-B

Single-User Ground Lease (Retail Use)

 

OnLAW System Requirements:
Desktop: Windows XP, 7 or 8, Mac OS 10.8
Mobile: iOS6, iOS7, Android 4.2
Firefox, Chrome, IE and Safari browsers

Note: OnLAW may work with some devices running older versions of these Operating Systems or Windows RT; however, functionality is not guaranteed.

Please see FAQs for more details.
Products specifications
PRODUCT GROUP Publication
PRACTICE AREA Real Property
Products specifications
PRODUCT GROUP Publication
PRACTICE AREA Real Property