Things to Watch Out For in Commercial Ground Leases
Potential Pitfalls for the Unwary
Since ground leasing is typically something the average landholder does only once in his life, he is at a disadvantage with respect to understanding business risks of ground leasing from the perspective of the ground lessor, in comparison to a sophisticated ground lease tenant with multiple ground lease experiences. Big box or other major franchise convenience food or retail business are typically experienced and sophisticated with respect to ground leasing. Often they will approach a negotiation based on their own self-generated form, which is well integrated with ground lessee and lender protections. Their ground leases generally contain certain commonly used features. Purchasers of property subject to existing ground leases, in particular convenience food or shopping center leases with national or regional franchise occupants, should expect that the ground lease probably contains these features and should review title carefully to determine if they exist.
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