What is Ground Lease Drafting?
A ground lease is a legal agreement between a tenant and landlord, usually a commercial landlord. It enables the landlord to lease the grounds for 50 to 99 years to tenants who will build on the property. The tenant can develop the property without having to buy it upfront. Then, after the lease ends, the property will go to the property owner.
Since these agreements can be complex and detailed, you should draft a ground lease with accuracy and precision in mind.
Read the rest of this article to explore what key terms must be included in a ground lease, how to draft it, and why you should consider hiring a qualified lawyer to assist you with the ground lease drafting process.
What Key Terms Should You Include in a Ground Lease?
A ground lease should have the following terms to establish the parties’ roles and rights.
- Parties. This defines the parties involved in the ground lease agreement.
- Term and renewal. The lease should state how long the agreement will last and if there are renewal options at the end of the term.
- Rent. The rent paid to the landlord must be clearly stated, as well as how it will increase over time.
- Uses. The tenant should be well informed of how they’re allowed to build on and use the land, and what activities are prohibited.
- Net lease provisions. This term refers to how a ground lease is usually triple net, meaning that the tenant is the party responsible for paying property taxes and maintenance.
- Reversion. This term refers to how the structures on the land will revert to the rightful landowner at the end of the lease. The lease must specify this to prevent disputes over ownership.
- Subletting. There must be certain rules included in the lease for how the tenant can rent out portions of the property to third parties, if this is allowed.
What are Tips for Drafting a Ground Lease?
If you need to write a ground lease, you should consider some additional information that must be included to provide clarity for parties and prevent misunderstandings.
Clarify if it’s Subordinated or Unsubordinated
Your lease might be subordinated or unsubordinated.
- In a subordinated lease, if the landlord defaults on their mortgage, the lease can end unless the lender continues to honor it.
- In an unsubordinated lease, the lease takes priority over the lender’s mortgage. So, if there’s foreclosure after default, the tenant maintains their lease rights.
Whichever one applies to your situation should be included in the ground lease terms to provide transparency.
Consider the Risks
Before drafting your ground lease, you will need to consider both parties’ risks and make provision for them. For example, landlord risks include losing a development opportunity if plans fail, while tenant risks include accepting significant debts to finance the project.
Provide Rental Payment Clarity
The lease must include information about the rental payments, including rent escalation. You might wish to increase the rent as the project goes through its development stage.
However you decide to handle rent should be something you and the other party agree on after negotiations, as it depends on your specific project.
Think about Insurance
Since a ground lease lasts for a long time, there are things to consider regarding the tenant’s insurance. While the tenant must insure the property improvements, there should be provisions in the lease for updated appraisals to adjust the insurance coverage when required.
Consider Development Approvals
The building project must be clearly defined in the ground lease to prevent issues or disputes. This can include drafting specific details about what can be built on the land, what timelines are required for the construction, and what happens if there are delays.
How Does a Lawyer Help with Ground Lease Drafting?
A lawyer can assist you with drafting a ground lease because they’ll identify hidden risks and protect your interests. Here are some things they can do to help you during the ground lease drafting process:
- Correctly structuring the deal. This involves ensuring that the lease reflects the commercial intent.
- Negotiating with the other party. A lawyer can negotiate the terms of the agreement with the other party on your behalf for favorable and clear terms.
- Specifying obligations. A lawyer will ensure that all duties are outlined properly to prevent disputes regarding taxes, insurance, and repairs.
- Considering your long-term risks. They’ll help you consider future disputes that might arise so that they can be resolved quickly and effectively. This includes writing a dispute-resolution method into the agreement.
- Complying with all regulatory and zoning rules. This will serve to keep the lease enforceable.
- Reviewing your ground lease. If you’ve already drafted your ground lease, a lawyer can help you by reviewing it closely so that it’s clear, reasonable, and in line with all required laws.
Where to Find a Lawyer for Ground Lease Drafting
If you need to hire a lawyer to draft a comprehensive ground lease, you don’t have to try to find one yourself. You can make use of an online legal platform that provides you with quick access to verified lawyers.
ContractsCounsel is one of the largest online legal marketplaces that gives you access to a network of vetted lawyers. Every lawyer on the platform has the credentials and experience to assist you with your legal requirements.
Requesting that a lawyer on the platform drafts your ground lease is easy. Here are the steps to follow online:
- Go to the ContractsCounsel marketplace.
- Post your project for free. Include a few details to help you find the most suitable lawyer, such as the type of ground lease or any concerns you have.
- Wait to receive project bids. Receive multiple bids from lawyers directly on the platform who have the experience to help you.
- Review the lawyers’ profiles. There’s extensive lawyer data on the platform you can review before choosing the appropriate lawyer, such as their location, client ratings for previous projects, expertise, and credentials.
- Connect with a lawyer you think is best suited to your requirements and hire them to draft your ground lease for a flat fee.
