Development Ground Leases: Due Diligence, Key Contractual Terms, Financing Considerations, Default Issues

This CLE webinar will examine development ground leases and the risks and benefits for property owners, investors/developers/ground tenants (developers), subtenants, and lenders. The panel will discuss key terms and conditions to be negotiated for each party, lease structures, financing considerations, and default and termination issues.

Development ground leases are long-term leases (usually ranging from 35-99 years), where the owner transfers all the benefits and burdens of ownership to a developer in exchange for rent payments based on the fair market value of the property. The developer, in turn, typically builds on the property and then leases the improvements to third parties (subtenants) or sells the improvements and assigns its interest in the lease to third parties. There are certain risks and benefits for all parties to the transaction throughout the term of the lease.

For example, while the owner enjoys the financial benefits from leasing the property without the costs and risks of property management, they give up all control and, unless otherwise negotiated, potential profits derived from building and operating the new improvements on the property for the term of the lease. Other risks include the developer partially building on the property and then backing out, leaving the owner with a partial building that generates no income and that may incur exorbitant costs to complete and stabilize. 

The developer, on the other hand, may benefit by having the opportunity to finance the use of the property through lease payments as opposed to paying to acquire the property in fee, and also enjoy the profits derived from future building operations. However, the developer takes on the risk of finding tenants and incurs the ongoing costs that go along with property management. 

Counsel should understand how to best protect their clients—whether representing the owner, developer, subtenant, or lender—by carefully negotiating key provisions including the parties' rights and responsibilities, due diligence, subordination, assignment rights, use provisions, rent structure, leasehold mortgagee protections, and termination and default, among others. 

Listen as our expert panel provides a comprehensive overview of development ground leases and offers best practices for guiding clients through these complex transactions, including structuring, drafting, and enforcement.