What is a Ground Lease Negotiation
A ground lease is a legal contract between a landlord and a tenant for the purpose of leasing the grounds so that a tenant can construct on the property without purchasing it. When the lease comes to an end, the property is assigned to the property owner.
Before signing a ground lease, you should consider if there’s anything in the agreement you’d like to negotiate for more favorable terms.
Here’s what to know about the most important terms to negotiate in a ground lease, things to consider, and how a qualified lawyer can assist you with a solid negotiation strategy to produce an effective outcome.
What are Key Terms to Negotiate in a Ground Lease?
Some of the most common terms to negotiate in a ground lease include the following:
- Uses. Check how the property can be used by the tenant. These should be aligned with the tenant’s requirements.
- Net lease provisions. Identify exactly what the tenant is responsible for paying, such as property taxes and maintenance.
- Subletting. The tenant might want to negotiate for subletting conditions.
- Rent and escalations. A common point of negotiation is base rent and how it will increase over time. You might want to negotiate for paced increases instead of sharp spikes.
- Improvement ownership. This states that the tenant legally owns structures on the land. Parties can negotiate various aspects of this, such as removing improvements or transferring structures to the landlord at the end of the lease.
What are Some Tips for Negotiating a Ground Lease?
When negotiating a ground lease, there are some things to consider so that you don’t miss anything important or sign the agreement only to regret it later.
Understand Your Goals
Before you negotiate terms with the other party, consider what you want to achieve by having the ground lease. For example, what plans do you have for the property and how long do you need it? You should also consider your financial goals, such as what you can afford.
Conduct Research
Understanding the market value and how much the land is worth is important to do prior to negotiations so that you have knowledge to strengthen your position during discussions. You should also find out if there are any restrictions that apply to the land and how you’d like to use it.
Consider the Landowner’s Perspective
It’s worth considering why the landlord or landowner is leasing the land instead of selling it and what their long-term goals for the land are, as this will help you to better understand where they’re coming from so you can settle on mutually favorable terms.
Negotiate Rental Payments
It’s common for rent to be negotiated between parties because how it’s structured will depend on the specific project. Consider if it’s in your best interests to increase rental amounts as the project moves through its development phases. This could involve lower rent during early development and increases once the project becomes operational.
Verify Improvement Ownership
You should have clarity about who owns the buildings and other improvements made during the lease term and what happens to them when the lease terminates. This can be negotiated to ensure that you protect your ownership.
Get a Legal Agreement Review
If you don’t understand every term in your ground lease, you can’t effectively negotiate the agreement. Hiring a lawyer to conduct a thorough contract review is worthwhile. On ContractsCounsel, one of the largest online legal marketplaces that gives you access to a curated network of vetted lawyers, you can hire a lawyer to review your ground lease before you negotiate it.
Here is how to hire a lawyer on ContractsCounsel:
- Go to the ContractsCounsel marketplace, where it’s free to post a project or request for a contract review.
- Select ‘One-time project’ and ‘Contract review.’
- Post your project. Include details of what you require so you match with the most suitable lawyers on the platform.
- Wait for bids. Lawyers on the platform will send you multiple bids to work on your project, so you don’t have to search for lawyers.
- Review the lawyer data. The platform provides extensive lawyer information, such as the lawyers’ location, expertise, years of experience, and client ratings for completed projects on the platform. This enables you to select a lawyer who meets your specific requirements.
- Hire a lawyer to work with. They’ll charge a flat fee for a review of your ground lease.
Do You Need a Lawyer to Negotiate a Ground Lease?
It’s advisable to hire a lawyer to negotiate a ground lease for you. They have the experience and skills to establish a workable lease that protects your interests. A lawyer will do the following to help you during negotiations:
- Review the ground lease for clarity and explain its legal and commercial implications.
- Negotiate lease term and renewal options.
- Check the rent structure, such as escalations and how they can be revised to protect your financial interests.
- Discuss development rights and obligations so that there’s clarity over what can be built and how it will be approved.
- Protect your ownership, such as by negotiating who owns the buildings and any improvements during and after the lease.
- Evaluate your project goals so that they can tailor their negotiation strategy to your specific requirements.
- Coordinate the ground lease with other project documents, such as construction contracts, so that there’s consistency. This will prevent disputes between parties.
Where to Find a Lawyer for a Ground Lease Negotiation
If you need to find an experienced lawyer who can help you negotiate your ground lease, you don’t have to call traditional law firms. Instead, you can make use of an online legal marketplace such as ContractsCounsel. You’ll connect with vetted, experienced lawyers who are ready to provide guidance and assist you with all aspects of the negotiation process.
