1. real estate

GROUND LEASES IN REAL ESTATE
First Run Broadcast: January 28, 2015
1:00 p.m. E.T./12:00 p.m. C.T./11:00 a.m. M.T./10:00 a.m. P.T. (60 minutes)
Ground leases are sophisticated contracts combining the elements of a buy/sell agreement, a
conventional commercial lease, and a financing. A landowner enters a long-term lease with a
developer who constructs a building or other improvements on the land. The developer
generally finances the building, occupying it or leasing it out to other tenants, paying the
landowner rent on the underlying ground over a long period of time. There are many benefits of
ground leases for the landowner and the tenant. But they are very complex agreements involving
sophisticated economic calculations and require special drafting. This program will provide you
with a practical guide to understanding how ground leases work, and negotiating and drafting the
underlying document.
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Most important provisions of ground leases
Understanding the underlying economics of ground leases
Methodologies for rent resets to reflect risk and value over time
Mortgagee leasehold protections
Restrictions on the use of premises and improvements over time
Special condemnation considerations
Speaker:
Joshua Stein is a partner in the New York City office of Joshua Stein, PLLC, where he has wide
has wide experience in commercial real estate transactions, defaulted loans, and other real estate
disputes. He is a Fellow of the American College of Real Estate Lawyers, a member of the
Anglo-American Real Property Institute, and formerly served as chair of the Commercial
Leasing Committee of the New York State Bar Association’s Real Property Section. He is the
author of five books, including “A Practical Guide to Real Estate Practice” (ALI-CLE 2001).
Mr. Stein earned his undergraduate degree from the University of California at Berkeley and his
J.D. from Columbia University Law School.
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Ground Leases in Real Estate Transactions
Teleseminar
January 28, 2015
1:00PM – 2:00PM
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Seminar Title:
Ground Leases in Real Estate Transactions
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The Most Important Issue in Every Ground Lease
Joshua Stein1
WHENEVER a property owner and a developer negotiate a long-term ground lease of a
development site, one issue overwhelms almost all others: how should ground rent adjust over
time to protect the property owner, as lessor, from inflation? And, as a related concern, how can
the lessor participate in future increases in value of this particular site, which may or may not
correlate with inflation? At the same time, how can the developer assure that its leasehold
position will also maintain its value and not become overwhelmed by rent payments that no
longer make any business sense?
TYPICAL APPROACH • Lessors and lessees typically resolve these concerns by
saying that every two or three decades, they will reappraise the development site that the lessor
originally delivered to the transaction. After that reappraisal, the ground rent will, at least in my
own experience, adjust to equal six or seven percent of the then-current fair market value of the
site, whatever someone would pay to purchase the development site. Until that happens, rent
may go up a bit every year or few years2 -- or not, especially in older ground leases. And, in most
cases, the rent never drops.
The reference to six or seven percent in rent adjustment formulas seems to have remained
remarkably stable over a very long time, including in the last few years of very low interest rates.
1
Joshua Stein practices commercial real estate law in New York City. For more on the
author, visit www.joshuastein.com. The author appreciates helpful comments received from
Stevens A. Carey of Pircher, Nichols & Meeks, Los Angeles; Alfredo R. Lagamon, Jr., of Ernst
& Young LLP, New York; Donald H. Oppenheim of Berkeley, California; Robert M. Safron of
Patterson Belknap Webb & Tyler LLP, New York; and Lawrence Uchill of Uchill Law, PLLC,
Newton, Massachusetts. Blame only the author for any errors. An earlier version of this article
appeared in the January 2013 issue of The Practical Real Estate Lawyer. Shorter versions
appeared in the [New York] Commercial Observer, June 2012 supplement on mortgage
financing, at page 16, and in the December 2012 issue of the American College of Real Estate
Lawyers Newsletter. Readers are encouraged to comment on and respond to this article by
sending email to [email protected]. Copyright (c) 2013 Joshua Stein. All rights reserved.
2
These annual increases are typically small, but they add up over time. They sometimes
take the form of a CPI increase, annually or every few years, subject to a low cap. That cap may
apply to either: (a) each increase or (b) a series of increases since a start date, cumulatively over
an extended time. The measurement of that cap can create room for misunderstandings. Which
party will benefit more from which type of cap will not always be obvious.
1
Although ground leases often use the “typical” approach just described, prospective
ground lessees sometimes worry that if a future ground rent adjustment occurs in a low interest
rate period, such as today, this “typical” approach may overcompensate the lessor. The ground
lessee would need to pay “too much” ground rent. This would diminish or even destroy the value
of the leasehold estate once the adjustment occurs.
LENDER’S CONCERNS • Leasehold lenders, even more conservative than developers
and investors, will likewise fear that an uncontrollable and massive increase in ground rent at
some far-off future date will diminish or destroy the security for their loans. Even if developer
lessees may sometimes behave like “cowboys” and take risks, lenders usually do not have the
same mindset. And lenders always must remember that the obligation to pay ground rent is
always structurally senior to any leasehold lender’s collateral.3
In response to these concerns, a lender or prospective lessee will sometimes suggest a
“cap” on ground rent adjustments like the adjustments described in this article. A lessor will,
however, typically regard any such proposal as a non-starter, because it by definition undercuts
the protection that the lessor wanted to achieve through the future ground rent adjustments.
The “typical” approach to ground rent adjustments, application of a fixed percentage to
future land values, will create problems for the lessee and its lender (and wonderful results for
the lessor) if, at the moment of the rent reset, valuations in the larger real estate market use
capitalization rates significantly below six percent. At those times, real estate values will reflect a
capitalization of future income at, say, four percent, but the ground lease will require payment of
ground rent at, say, six percent of that capitalized amount, perhaps putting the lessee in an
untenable position and undercutting or destroying the value of the lender’s collateral.
LINKAGE TO INTEREST RATES? • Some ground leases seek to mitigate these risks
by replacing a fixed adjustment percentage with a percentage tied to interest rates at the time of
the rent reset. For example, the parties might choose a long-term rate, such as 20-year Treasury
securities, or (less likely) they might use a shorter-term rate, such as the prime rate. In either
case, they might look at the average level of that rate over some period, and would also add a
spread to the rate.
Although some commentators have described a trend toward such a formula, I have seen
no such trend. That, as well as many other comments in this article about “typical” practice,
could simply reflect the particular universe of ground lease transactions that I have personally
seen in recent years. It could also reflect a view in the marketplace that over the long term —
multiple business cycles — six percent or seven percent has worked reasonably well and seems
reasonably likely to work well over the next long term.
3
This assumes, of course, that the lessor does not agree to join in the leasehold mortgage,
sometimes referred to colloquially and incorrectly (and, in the eyes of some courts, almost
humorously) as “subordinating the fee.” In today’s market, that assumption is almost always
correct. This article treats it as always correct.
2
Of course, if a “typical” rent reset occurs in a real estate depression — or at a time when,
for whatever reason, valuations use very high capitalization rates — the lessee may get lucky.
A ground lease could also conceivably, though not in the real world, refer to some
objective third-party index for long-term capitalization rates for real estate investments at the
time of the rent reset. And, very occasionally, the revaluation might direct the appraisers to
determine the new rent based generally on market conditions for newly negotiated ground leases
at the time of the rent reset. In other words, the rent would adjust to equal “fair market rental
value” at the time of adjustment, without using any formula to derive the rent adjustment from
anything else. The drafters of the ground lease must still define with absolute certainty exactly
what is having its “fair market rental value” measured, and any assumptions the appraisers
should take into account.
VALUATION ON A RANGE OF DATES • Ground lease negotiators may sometimes
suggest that instead of valuing the site on a specific date, the valuation should look to a range of
dates, using the average value over, say, a three-year or five-year period whose midpoint is the
intended rent reset date. That approach may have some logic to it.
For example, suppose a rent reset used a single fixed valuation date of October 1, 2008,
two weeks after the Lehman Brothers bankruptcy filing. Given the state of the financial world on
that date, the lessor would probably feel victimized by a very low valuation. And, going forward,
that particular lessor might thereafter favor using an average of the values on multiple dates over
multiple years. This wouldn’t need to require a complete reappraisal on each of those dates, but
perhaps only a “full” appraisal on the midpoint date with adjusted appraisals on the other dates
taking into account only certain elements of the appraisal analysis, such as then-current
capitalization rates and vacancy rates in the market.
Lessors and lessees generally prefer, however, to avoid the time, expense, and issues of
dealing with several appraisal dates instead of just one. They tend to feel that way even though
an average of multiple appraisals might remove some of the arbitrariness of the calculation. The
use of a single bright-line date introduces a greater element of luck for both parties, but they both
seem willing to live with that.
The need to periodically revalue the site for ground rent adjustment purposes invites
litigation or arbitration, because lessor and lessee will for obvious reasons have dramatically
different views of the value of the land, or what the appraisers should appraise and how,
particularly as markets and other circumstances change. The exact words of the ground lease
become crucially important: what exactly is it that the appraisers must appraise?
One common disagreement relates to whether the appraisers should appraise raw land, or
should include improvements — either whatever improvements existed on the site when the
parties signed their lease or whatever improvements exist at the time of the revaluation, or no
improvements. In general, the appraiser should try to replicate whatever existed when the parties
signed the lease — usually, vacant land. And the lease should say that.
GROUND LEASES OF MORE THAN JUST GROUND • If improvements existed at
lease inception, and the lessor initially demised those improvements to the lessee along with the
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underlying “ground,” the market would often still regard the transaction as a “ground lease,”
even though it covers existing improvements and not just “ground.” That would depend largely
on whether the lessee’s rights and obligations looked more like ownership (an investment
transaction and typically regarded as a “ground lease”) or mere rights of occupancy not readily
salable or financeable in the market (a “space lease”).4
When a ground lease also covers improvements that existed at the time of lease inception,
the rent reset should usually consider only the improvements as they existed at that time, if at all.
In contrast, the rent reset clause might require the appraisers to take into account any upgrading
or expansion that the lessee accomplished. This would, in effect, require the lessee to pay,
through adjusted rent, for value that the lessee and not the lessor created or provided. That is not
“fair,” as it would effectively force the lessee to pay twice for whatever (re)development the
lessee accomplished — once when doing the work, a second time by paying adjusted rent based
on the completed work. The lease language should resolve that question, one way or the other,
and not leave it to courts, appraisers, or arbitrators.
FUTURE CHANGES IN THE SITE • Any ground lease negotiator will also need to
think about possible future disconnects between the development potential of hypothetical raw
land and the actual physical development that exists on the site at the time of any rent reset.
For example, changes in zoning or other laws could change the value of hypothetical raw
land. For purposes of the ground lease, though, the parties need to think about one minor detail:
if the transaction played out as the parties anticipated, then at the time of the rent reset the lessee
has already built improvements on the land that will very likely not be obsolete — ready for
demolition. If zoning at the time of the rent reset would allow much more development than the
building in place, that does not help the lessee very much. If the lessee must pay rent for
development potential that, as a practical matter, the lessee cannot use, the lessee’s leasehold
may become uneconomic. Conversely, if zoning law has reduced the permitted development on
the site, but the lessee’s improvements are now “overbuilt” and a “legal nonconforming use,” the
lessor would argue that the revaluation process should ignore the downzoning.
Along similar lines, should newly discovered environmental issues affect the land value?
The answer depends in part on who “owns” unexpected environmental conditions taking into
account the terms of the ground lease. And what if some government decides to issue a landmark
designation for the existing improvements?
Lessors and lessees can also fight over whether any appraisal of the land (or of whatever)
should “consider the terms of the lease.” The inquiry seems circular, as the value of the lessor’s
land — if considered subject to the lease — will depend in large part on the amount of the
ground rent, so it seems dangerous to consider the ground rent in measuring the value of the land
4
Can a ground lease demise part of a building? Must a ground lease demise at least some
“ground” as part of the transaction? In characterizing a transaction as a ground lease, the author
would look to the character of the leasehold estate created – the terms of the ground lease –
rather than place great emphasis on whether the lease demises any “ground.” Others, including
perhaps Black’s Law Dictionary, disagree.
4
for purposes of determining the ground rent. One can resolve the circularity by deciding that the
parties really meant something else. Specifically, they probably meant that any valuation should
take into account any lease terms that limit permitted uses or, perhaps, that limit other rights of
the lessee.
For example, land will have a higher value if it can be used for “any permitted use.” If,
on the other hand, the lease says the lessee can use the site only to construct a “car wash with
ancillary coffee shop,” regardless of what the law might allow, then that limited range of uses —
if applied to the land value as part of the appraisal process — will drive down the value of the
land. That is probably what a lease means when it requires the appraisers to “consider the terms
of the lease.” And it makes sense because if the lease only allows the lessee to construct a car
wash with an ancillary shoe repair shop, the lessee should not pay rent for the right to build a 50story office building, even if zoning law might allow it.
The idea of “considering the terms of the lease” could also mean something more. It
could also mean the appraisers should consider anything else in the lease, except ground rent,
that increases or decreases the value of the lessor’s position. For example, if the lease gives the
lessee a below-market purchase option, this will tend to decrease the value of the lessor’s
position. And what if the lease requires the lessor to provide to the lessee some nonstandard but
expensive service? Is that a term of the lease that the appraisers should consider in valuing the
lessor’s fee estate? Again, these are interesting questions. Litigators and courts can have a lot of
fun resolving them. But the words of the lease should leave no uncertainty.
If the lease has only a decade or two remaining in its term, then an appraisal “subject to
the lease” should perhaps consider the fact that, as an economic matter, the lessee doesn’t have
enough “useful life” left to justify a major construction or redevelopment project. Should the
appraisers consider that fact as a negative in measuring the value of the land “subject to the
lease”?
Differences of opinion on these and similar issues translate directly to dollars, lots of
them, over a very extended time. Any careful lease drafter should prevent the issue by not saying
the appraisers should “consider the terms of the lease.” Instead, the appraisal clause in the lease
should state exactly what circumstances the appraiser should consider, and what assumptions the
appraiser should make. If the appraiser should consider the narrow scope of uses permitted under
the lease, that’s what the appraisal clause should say. If the appraiser should disregard the terms
of the lease entirely, that’s what the appraisal clause should say.
Anyone writing a land value rent reset clause in a lease should consider asking appraisers
whether they can understand and apply the language as written. After all, one hopes that
appraisers rather than lawyers or courts will be the parties charged with interpreting and applying
the words in the lease.
Even if the lease handles the panoply of appraisal issues correctly, the “standard formula”
described above — six or seven percent of land value — will never precisely correlate with what
the adjusted rent “should be” under some “fair” view of the world. It’s a crapshoot. But lessors
and lessees often still take their chances, recognizing that either party may face surprises, but
5
also that “this is the way everyone does it,” and that lenders have underwritten and financed
similar leaseholds for decades.
IS THERE A BETTER WAY? • Lessors and lessees do sometimes try to find a “better
way” to handle ground rent adjustments. They often start by suggesting that the ground rent
should, at least in part, reflect the lessee’s revenues. The lessor could receive some percentage of
“gross revenues,” perhaps after modest deductions.
It sounds reasonable. But what if the lessee does not try very hard to rent the space? Or
occupies the space itself to conduct business? Or subleases the space to a chain store at belowmarket rents while simultaneously entering into an above-market lease with the same lessee in
another state? Or generally does a lousy job with subleasing? Or does not invest the capital
necessary to achieve the highest rents? And what should the lease allow the lessee to deduct, e.g.,
leasing costs or capital expenditures necessary to attract space lessees? What if the lessee
borrowed money to improve the property? Should the lessee have the right to deduct debt
service? And how can the lessor know the lessee is not lying or artificially reducing its revenues?
Before long, the exercise reinvents the Internal Revenue Code.
If a lessor and a lessee do decide to go down that road, then they (particularly the lessor)
should take a few measures to prevent disputes. Keep it dumb and simple, without a lot of fine
lines, exclusions, and characterizations — each providing fertile ground for misunderstandings,
mischaracterizations, strategizing, gaming the system, and disputes. Try to give the lessor a low
percentage of a broadly defined variable without too many deductions. Gross revenue with no
deductions has a lot of appeal to it. Paint with a broad brush. Think about all possible
circumstances that might occur and how they might play out given the lease language and
definitions. Finally, ask an appraiser and a lender how they would interpret, and react to,
whatever brilliant contingent rent clause the parties think makes sense.
Any contingent rent formula in a ground lease might also award the lessor a small
percentage of capital transactions — lease assignments, refinancings, or other transactions
tantamount to either. Here too the principles and issues above will arise. And, again, any
uncertainty about line drawing or inclusions or exclusions will breed disputes.
For example, does a “refinancing” include the case where the lessee holds its leasehold
free and clear, and places an entirely new mortgage on the leasehold? Can it be a “re”-financing
if no financing existed before the transaction closed? Should the lessee’s first construction loan
be “exempt” from any payment to the lessor? First permanent loan? If multiple sales of the
leasehold occur, should the lessor participate only in the “profit” since the last sale? What about
multiple refinancings over time? If the lessor participates only in the “new loan proceeds,” what
if some of those loan proceeds arose only as a result of amortization of the previous loan?
SMALL PERCENTAGES – NOT SO SMALL • Setting aside the many opportunities
for dispute inherent in any contingent rent, even a very low percentage of the lessee’s “gross”
can place a very significant burden on the lessee, and give the lessor a correspondingly
significant stream of contingent rent. For example, suppose the lessee agrees to pay the lessor
three percent of gross revenue. That sounds like a really small percentage. But assume the
lessee’s operating expenses, real estate taxes, and insurance consume 50 percent of gross
6
revenue. Assume ground rent consumes another 10 percent and debt service another 20 percent.
These numbers come out of a hat, but a reasonably realistic hat.
After those deductions, the lessee really gets to “keep” only 20 percent of the gross
revenue. The lessor’s three percent share of that gross revenue represents almost one-sixth of the
lessee’s bottom line. And it’s entirely possible that a lessee might operate at a loss even though
gross revenue seems substantial. In any of these cases, the need to pay a really small percentage
of gross revenue to the lessor turns out to loom rather large. Assuming the lessee will consider
the concept at all, one might expect the lessee to respond in part by trying to credit one ground
stream against another ground rent stream — similar to the operation of a natural breakpoint with
percentage rent in a retail lease — but that discussion lies outside this article. And similar
considerations arise if the lessor will receive a percentage of refinancings, lease assignment
proceeds, or other capital transactions. These issues are limited only by the creativity and
brilliance of careful lease negotiators.
As a variation, the parties might measure the lessor’s participation in the lessee’s
operating revenue based not upon the lessee’s actual earnings, with all the headaches that entails,
but instead based on how much the lessee reasonably “should have earned” based on market
conditions at the time of determination.
If the project is supposed to consist of a first-class up-to-date office building, for
example, the contingent rent determination could assume the lessee achieves the same occupancy
rate and rental levels as other comparable buildings in the market, and expense levels consistent
with similar buildings, in each case regardless of the lessee’s actual financial performance. The
lessee would then pay contingent rent based on these benchmark numbers.
Although this idea may sound practical or at least creative, the parties still need to
consider possible future changes in circumstances, starting with a possible change of use of the
building. And the lessee will worry that circumstances peculiar to this property will prevent the
lessee from achieving the results the lessee “should” achieve.
As yet another variation, the developer might agree to give the lessor a small “carried
interest” in the lessee entity. This will, however, raise its own host of issues, some of them
echoing other issues raised earlier in this article. Many of the “carried interest” issues will arise
from the fact that the developer will probably invest substantial additional capital to generate the
anticipated value and return from the project. Others will arise from concern by the lessor that
the developer could somehow redirect or dilute project income in a way that makes the carried
interest worthless. Those two groups of issues only scratch the surface of what a carried interest
might entail. Anyone negotiating a carried interest should at least consider a checklist of the
issues that can arise in any joint venture, because some (a minority) of those issues will also arise
in negotiating a carried interest.5
5
For an overview of issues that arise in negotiating a joint venture, see Joshua Stein,
Agenda for a Joint Venture Agreement, The Practical Lawyer, April 2010, at 36
(www.pdf2go.org/165.html).
7
If the parties do not want to agree to any form of contingent ground rent, how else can
they protect the lessor from inflation and equitably compensate the lessor, while protecting the
lessee from destruction of its leasehold through an unaffordable rent increase?
OTHER INDEXES • One might tie periodic major rent adjustments to an index. For
example, rent might rise with the consumer price index. People in real estate, in particular
lenders, usually think the CPI goes up faster than real estate values and rents, hence may propose
a cap on the adjustments.6 But if the parties “cap” any periodic rent adjustment, then the lessor
will not achieve its goal of protecting itself from inflation.
Perhaps the parties can find an index better than CPI, such as Class A office rents,
average daily rate for hotel rooms in a certain market stratum, real estate tax assessments, or
retail rents, always for some defined local geographical area. People in the real estate business
may have varying degrees of confidence in any possible index, and would need to choose
accordingly. Future changes in the chosen index would drive changes in the ground rent,
regardless of what this particular lessee does or earns in the space. Such an index could make
sense, especially if it matched likely uses of the site. A combination of multiple indexes might
also work. Such a combination might end up looking not too different from the suggestion above
to measure contingent rent based on a marketplace benchmark of what the lessee “should have
earned.”
Ground leases once required lessees to pay rent equal to the dollar equivalent of a certain
amount of gold. The federal government outlawed such clauses in the 1930s as part of President
Roosevelt’s plan to save the economy. Gold clauses became legal again in 1973. They certainly
would have protected lessors from inflation in the recent past. In the last few decades, gold
clauses would have produced dramatic rent increases given the ever-increasing dollar value of
gold, i.e., the plummeting value of the dollar as against gold.
Lessees would, however, fear a disconnect between the price of gold and the “right” rent,
in dollars, for this particular site over time. During the last few decades, any such fear would
have been entirely justified. And, looking forward, a lessor may feel gold has run its course or
may somehow during the ground lease term cease to function as a reliable repository of value. A
lessor may also worry that a gold clause may not accurately reflect the future value of this
particular site — which a particular lessor may care more about than the general value of the
dollar.
6
Historically, over any extended period the CPI has actually risen only 2% to 3% a year,
despite perceptions of wild inflation over many years. There were certainly some periods of very
high inflation, but over extended periods the CPI has not grown all that much. It has certainly
not been “out of control” over the long term. Commercial real estate values considered as a
whole over the entire United States have trailed inflation, except in Manhattan, where they have
barely matched inflation. These statements are all wild overgeneralizations – and they should not
be relied upon in any way or even taken very seriously – but they do summarize the author’s
nonauthoritative but also nontrivial research in the area.
8
RECALIBRATION OF RELATIVE VALUES • As another approach, the parties
could try to devise a rent adjustment structure that seeks to assure that, over time, lessor and
lessee will each maintain a position whose value always equals about the same percentage of the
value of the project as a whole. In other words, whatever rent reset formula the ground lease
used, it would contemplate a valuation of both the lessor’s and the lessee’s position, taking into
account the adjustment. Then the ground lease would also add a requirement — and potentially a
further rent adjustment to assure — that at the end of the day each party would maintain the same
percentage of the value of the project as a whole.
For example, if the initial ground rent were calibrated to give the lessor a position worth
34 percent of the project as a whole, before considering any debt service or ground rent, then any
future ground rent would need to be calibrated to give the lessor a position worth 34 percent of
the project as a whole, before considering any debt service or ground rent, taking into account
market conditions at the time of the rent reset. This approach would still require appraisals and
the headaches and uncertainties they create. It would, however, at least address each party’s fear
that, over time, the rent adjustment would shift too much value into the other party’s pockets.
Although this approach has a theoretical appeal to it, it is very much not market standard.
And it becomes complicated as soon as one thinks about additional capital investment the lessee
will make in the project, to upgrade it and increase its value, or even just to keep it functional
and rentable on attractive terms. How does one slice up any increases in value of the project as a
whole that result from the lessee’s investment and brilliant development, leasing, and
management strategies? Those issues seem particularly troublesome where the lease demises a
vacant site, and perhaps less difficult to handle in an existing building. But they may not be all
that different from issues that arise whenever a ground lease requires appraisal of anything other
than the actual building (and underlying land) on the site at the moment of appraisal.
One would also need to adjust for the fact that the lessee’s leasehold estate is “supposed
to” decline in value over time, because of the ever-shortening duration of the remaining lease
term. That adjustment could take various forms, each raising its own issues, but all beyond the
scope of this article, and most requiring substantial consumption of aspirin.
Instead of looking at relative shares of value, the parties might look at their relative
shares of overall property income. For example, the lease might start out by providing for a fixed
rental stream with fixed bumps. But it could also say that if the lessor’s share of overall gross
revenue (or net operating income before ground rent) ever drops below a certain percentage, then
the lessor can require an increase in ground rent to bring the lessor’s share back to a certain level.
This is not too different from the percentage rent discussed earlier. It is also a variation on the
concept of “debt service coverage ratio” from real estate financing, except that one would look
instead at the “ground rent coverage ratio” and keep it within a certain band.
Conversely, if as a result of those increases in ground rent the lessor’s share ever rose
beyond a certain percentage, then ground rent would drop, but never below the fixed rent
schedule. Arrangements like these would give the lessor a form of participation in future upside
without potentially making the leasehold estate uneconomic. But, like so many other alternatives
discussed in this article, these arrangements raise tremendous definitional issues and hence
possible disputes. They also invite the lessee to game the system in any number of ways.
9
RENT ADJUSTMENT TIMING • Anyone who negotiates future contingent rent
adjustments in a ground lease also should consider how the timing of those rent adjustments
interacts with the timing of a tenant’s renewal options. In a tenant’s perfect world, each rent
adjustment period would correspond to an option term. The tenant would know the adjusted rent
before the tenant needed to exercise a renewal option. As an equivalent alternative, the tenant
could withdraw the exercise of an option if the tenant didn’t like the rent as ultimately
determined.
Either of those approaches, though perhaps “typical,” converts each option into a oneway negotiation in which the rent can only go down from whatever number the rent
determination process determined. Of course, that is about equivalent to the tenant’s right to
walk away from the lease at any time. Because of that “walk-away” right, any tenant always has
the ability to try to negotiate the rent downwards at any time in exchange for not walking away
from the lease. An ability to not exercise – or withdraw the exercise of – a renewal option creates
much the same leverage.
The dynamic changes, of course, if the tenant has significant credit or a creditworthy
guarantor, or if credit enhancement measures, such as a security deposit or a letter of credit, back
the tenant’s obligations. In those cases, the tenant can’t so easily threaten to walk away from the
lease.7 In those cases, the tenant truly realizes a benefit by knowing the rent determination before
the tenant must exercise its renewal option.
A more balanced approach might require the tenant to exercise each option before
knowing the outcome of the rent determination process – and with no right to withdraw the
exercise of the option, only the right to walk away from the lease. That approach would
disconnect the renewal options from the rent determination or renegotiation process, putting the
parties in the same position – and giving each the same leverage -- as if the rent adjustment
occurred part of the way through the lease term, rather than as part of the renewal process.
Except perhaps for “tradition,” it seems unnecessary and perhaps even inappropriate to
tie the timing of rent adjustments to the timing of renewal options.
7
In a typical ground lease, the creditworthy tenant’s “walk-away exposure” may not be all
that substantial. Most leases, including ground leases, allow a landlord only two major forms of
recovery upon a tenant default. First, the landlord can sue for the rent every month. Second, the
landlord can sue the tenant for the excess, if any, of the fair market rental value over the reserved
rental for the remaining lease term, discounted to present value. In a typical ground lease, almost
by definition, no such excess exists: the lease has value to the tenant precisely because the
ground rent is below fair market value rather than above fair market value. That fact precludes
the landlord from suing for a large and attention-getting lump-sum award if the creditworthy
tenant decides to walk away. To recover, the landlord must leave the lease in place and keep
suing the tenant every month for unpaid rent. That may not have great appeal to a landlord. The
comments in this footnote may imply that landlords and their counsel should think more about
the measure of damages if a creditworthy tenant does decide to walk away from a ground lease.
Of course, the landlord may happily recover possession of a completed building and call it a day.
10
REAL ESTATE DERIVATIVES? • Ground lessors and lessees might eventually hedge
some risks of real estate inflation and ground rent adjustments through insurance or real estate
futures markets — the same way farmers hedge commodity prices. But commercial real estate is
not as fungible as pork bellies and corn. And, after some false starts with real estate derivatives
during the boom that ended in 2008, it may be safe to assume that brilliant new derivative
products are not at the top of anyone’s list. Great financial minds may bridge part of that gap
such as by “insuring” against inflation through puts and calls involving long-term TIPS bonds.
But that too has its costs and risks.
Lease negotiators typically worry that creative structures like those proposed in this
article will not work right because of some problem or gap that no one notices until the litigation
or arbitration begins. It is a reasonable form of free-floating anxiety when trying to create
something “new and different” that will work correctly for 99 years.
My own many recent experiences as an expert witness suggest that the commercial real
estate industry and the lawyers who serve that industry categorically overestimate their smartness
and ability to “get everything right” in the context of ever-more-complex deal structures and
terms. 8 The more complex and creative the various gradations and nuances become, the more
likely the parties will get them wrong and they will produce surprises when applied in the real
world. The incredibly complex language and multi-page sentences that are so common in today’s
real estate documents often manage to cover every eventuality except the one eventuality that
ends up actually occurring. And, whenever writers of legal documents try to use words to define
some future hypothetical that is intended to replicate a set of present known conditions – which
is pretty much what one does in a land valuation rent reset -- the fallibility of lawyers becomes
particularly apparent.
Legitimate fear of complexity, legitimate fear of change, and the constant need to satisfy
future lenders will often drive ground lease negotiators back to the traditional rent adjustment
formula described in the first part of this article.
4841-8192-8209, v. 15
8
For more on this topic, see Joshua Stein, It’s Complicated, But is it Right?, The Mortgage
Observer, February 2013, at 12. These expert witness assignments generally involve very
complex and highly nuanced documents for very large transactions. Although ground leases
often appear in the line-up, it also includes joint venture agreements; development agreements;
intercreditor agreements; and loan documents, particularly nonrecourse clauses and carveouts.
With the help of great minds, these documents cover every possible eventuality perfectly except,
it seems, the one eventuality that actually occurs; hence, the litigation.
11
MODEL GROUND LEASE (COMPLETE)1
This model ground lease consolidates many of the model ground lease components that
appeared in Joshua Stein’s 2005 book on ground leases. The result: a single self-contained
document that covers all the usual ground lease issues in a reasonable way. This model is
friendly to the tenant by giving the tenant ample flexibility. This model is friendly to the landlord
by giving the landlord a reliable stream of cash flow and (only) the controls the landlord
reasonably needs, with little ability to “hold up” the tenant later. A few other comments:
1

Adjustments for Use. Like any other model document, this one will require substantial
adjustment to reflect the terms of any particular transaction. Also, there is much more to
any ground lease transaction than finding a form of ground lease and plugging in some
deal terms.

Leasehold Mortgagee Protections. This model generally uses Joshua Stein’s “medium”
leasehold mortgagee protections, except that the provisions on subleases, casualty,
condemnation, and a few other issues (and some definitions) come from the “maximum”
leasehold mortgagee protections.

State-Specific Provisions. The last few pages include New York state-specific provisions,
drawn from the STATE-SPECIFIC ISSUES article in Joshua Stein’s “encyclopedia of
ground leases.”

Consistency and Variation. One can “mix and match” in this way because all the model
provisions use the same defined terms, but one must still confirm that everything hangs
together in a consistent way, a process that the author has attempted to perform for this
model ground lease. In doing so, the author has slightly edited this ground lease so its
language varies a bit from the author’s sample language. For example, when an issue was
covered in slightly different ways, this model may include a combination of both.

Other Issues. Anyone using this model ground lease should consider the wide range of
issues covered in Joshua Stein’s book on ground leases, starting of course with the long
and tedious list of caveats and warnings in the “CAVEATS, DISCLAIMERS, AND
CONSENTS” article within the encyclopedia of ground leases.
Copyright (c) 2013 Joshua Stein, www.joshuastein.com. All rights reserved. Permission is granted only to
adapt and use for transactions, provided that the user forwards to the author any comments or improvements.

Decision Points and Issues. A few footnotes identify particular “decision points” within
this document, but every paragraph of this document may raise issues or require
decisions. Other footnotes highlight common problems or discuss how negotiations often
turn out. The user should delete all footnotes in this document after thinking about the
points they make.

Helaina. The author gratefully acknowledges the assistance of Helaina Stein in checking
for the consistent use of defined terms in this Lease.
LEASE
BETWEEN
__________, as Landlord
AND
__________, as Tenant
FOR PREMISES LOCATED AT:
__________________________________________
__________________________________________
__________________________________________
TABLE OF CONTENTS
Page
1.
Definitions............................................................................................................................1
2.
Term...................................................................................................................................27
2.1
2.2
2.3
3.
Rent ....................................................................................................................................28
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
4.
Permitted Use.........................................................................................................31
Exclusive Control...................................................................................................31
Management Fees ..................................................................................................31
Compliance ........................................................................................................................32
6.1
6.2
7.
Landlord’s Net Return ...........................................................................................30
Real Estate Taxes...................................................................................................30
Assessments in Installments ..................................................................................30
BID Decisions........................................................................................................30
Direct Payment by Landlord..................................................................................31
Utilities...................................................................................................................31
Use .....................................................................................................................................31
5.1
5.2
5.3
6.
Fixed Rent..............................................................................................................28
Renewal Term........................................................................................................28
Determination of Land Value ................................................................................28
Payment; Proration; Etc. ........................................................................................29
Additional Rent......................................................................................................29
No Allocation to FF&E..........................................................................................29
No Offsets ..............................................................................................................29
Government Restriction on Rent ...........................................................................29
Additional Payments by Tenant; Real Estate Taxes ..........................................................30
4.1
4.2
4.3
4.4
4.5
4.6
5.
Initial Term ............................................................................................................27
Renewal Option(s) .................................................................................................27
Conditions to Exercise ...........................................................................................28
Generally................................................................................................................32
Copies of Notices...................................................................................................32
Maintenance and Construction ..........................................................................................32
7.1
Obligation to Maintain...........................................................................................32
i
7.2
7.3
7.4
7.5
7.6
8.
Development and Major Construction...............................................................................33
8.1
8.2
8.3
8.4
8.5
8.6
8.7
8.8
8.9
8.10
9.
Delivery and Use of Security.................................................................................39
Letter of Credit.......................................................................................................39
Release of Security ................................................................................................40
Interest on Security ................................................................................................40
Assignment by Landlord........................................................................................40
No Assignment by Tenant .....................................................................................41
Prohibited Liens .................................................................................................................41
11.1
11.2
12.
Acquisition.............................................................................................................37
Negotiations ...........................................................................................................37
Payment..................................................................................................................38
Rent Adjustment ....................................................................................................39
Utilization ..............................................................................................................39
Additional Agreements ..........................................................................................39
Security ..............................................................................................................................39
10.1
10.2
10.3
10.4
10.5
10.6
11.
Initial Development ...............................................................................................33
Major Construction ................................................................................................34
Plans and Specifications ........................................................................................34
Prosecution and Completion ..................................................................................34
License of Construction Documents......................................................................34
Major Subcontracts ................................................................................................34
Insurance During Major Construction ...................................................................35
Conditional Assignment of Financing Commitment .............................................36
Certain Deliveries ..................................................................................................36
Abandonment.........................................................................................................36
Transferred Development Rights .......................................................................................37
9.1
9.2
9.3
9.4
9.5
9.6
10.
Construction...........................................................................................................32
Plans and Specifications ........................................................................................32
Excavations ............................................................................................................33
Applications and Approvals...................................................................................33
Landlord Nonopposition ........................................................................................33
Tenant’s Covenant .................................................................................................41
Protection of Landlord ...........................................................................................41
Hazardous Substances........................................................................................................41
12.1
12.2
Restrictions ............................................................................................................41
Compliance; Clean-Up...........................................................................................42
ii
13.
Indemnification; Liability of Landlord ..............................................................................42
13.1
13.2
13.3
14.
Right of Contest .................................................................................................................43
14.1
14.2
14.3
14.4
15.
Tenant to Insure .....................................................................................................45
Nature of Insurance Program .................................................................................45
Policy Requirements and Endorsements................................................................45
Deliveries to Landlord ...........................................................................................46
Tenant’s Inability to Obtain Insurance ..................................................................46
Waiver of Certain Claims ......................................................................................46
No Representation..................................................................................................47
Losses and Loss Proceeds..................................................................................................47
16.1
16.2
16.3
16.4
16.5
16.6
16.7
16.8
16.9
17.
Tenant’s Right; Contest Conditions.......................................................................43
Landlord Obligations and Protections ...................................................................44
Miscellaneous ........................................................................................................45
Contest Security.....................................................................................................45
Insurance ............................................................................................................................45
15.1
15.2
15.3
15.4
15.5
15.6
15.7
16.
Obligations.............................................................................................................42
Liability of Landlord..............................................................................................42
Indemnification Procedures ...................................................................................43
Prompt Notice ........................................................................................................47
Casualty..................................................................................................................47
Substantial Condemnation .....................................................................................47
Insubstantial Condemnation...................................................................................48
Near End of Term ..................................................................................................48
Temporary Condemnation .....................................................................................49
Use of Loss Proceeds .............................................................................................49
Payments for Fee Estate.........................................................................................50
Continuation of Lease ............................................................................................50
Representations and Warranties.........................................................................................50
17.1
17.2
17.3
17.4
17.5
17.6
17.7
17.8
Due Authorization and Execution..........................................................................50
No Litigation..........................................................................................................50
No Pending Condemnation ....................................................................................51
Equipment Liens ....................................................................................................51
FIRPTA..................................................................................................................51
No Pending Construction or Liens.........................................................................51
No Other Tenants...................................................................................................51
Ownership of Equity Interests in Landlord............................................................51
iii
18.
Landlord’s Transfers..........................................................................................................51
18.1
18.2
18.3
18.4
18.5
Landlord’s Right to Convey...................................................................................51
Release of Landlord ...............................................................................................52
Zoning Lots............................................................................................................52
Tenant’s Right of First Refusal..............................................................................52
Equity Interests ......................................................................................................53
19.
Fee Mortgages....................................................................................................................54
20.
Tenant’s Transfers .............................................................................................................54
20.1
20.2
20.3
21.
Subleases............................................................................................................................55
21.1
21.2
21.3
21.4
22.
Tenant’s Right........................................................................................................55
Assignment of Subrents .........................................................................................55
Required Provisions ...............................................................................................56
Conditions to Effectiveness of Certain Transactions.............................................56
Nondisturbance of Subtenants ...........................................................................................56
22.1
22.2
22.3
22.4
23.
Tenant’s Absolute Right ........................................................................................54
Initial Development ...............................................................................................54
Substitution of Guarantor.......................................................................................55
SNDA-Eligible Subleases......................................................................................56
Sublease Negotiations............................................................................................57
Amendments to SNDA-Eligible Subleases ...........................................................57
Collection of Subrent .............................................................................................57
Leasehold Mortgages .........................................................................................................57
23.1
23.2
23.3
23.4
23.5
23.6
23.7
23.8
23.9
23.10
23.11
Lease Impairments .................................................................................................58
Notices ...................................................................................................................58
Opportunity to Cure ...............................................................................................58
Cure Rights Implementation ..................................................................................58
New Lease..............................................................................................................58
New Lease Implementation ...................................................................................59
Tenant’s Leasehold Rights.....................................................................................59
Certain Proceedings ...............................................................................................59
No Personal Liability .............................................................................................59
Multiple Leasehold Mortgagees ............................................................................59
Miscellaneous ........................................................................................................60
iv
24.
Equipment Liens ................................................................................................................60
24.1
24.2
25.
Quiet Enjoyment; Title to Certain Premises; Certain Agreements ....................................60
25.1
25.2
25.3
26.
Tenant’s Rights ......................................................................................................60
Required Provisions for Equipment Liens.............................................................60
Quiet Enjoyment ....................................................................................................60
Access and Inspection............................................................................................60
Title ........................................................................................................................61
Events of Default; Remedies .............................................................................................61
26.1
26.2
26.3
26.4
26.5
26.6
26.7
26.8
26.9
26.10
Definition of “Event of Default.”...........................................................................61
Remedies................................................................................................................62
Proceeds of Reletting .............................................................................................64
Exculpation; Landlord’s Sole and Exclusive Remedy...........................................64
Tenant’s Late Payments; Late Charges..................................................................64
Landlord’s Right to Cure .......................................................................................65
Holding Over .........................................................................................................65
Waivers ..................................................................................................................65
Accord and Satisfaction; Partial Payments ............................................................65
Miscellaneous ........................................................................................................65
27.
End of Term .......................................................................................................................66
28.
Notices ...............................................................................................................................67
29.
No Broker...........................................................................................................................68
30.
Nonrecourse .......................................................................................................................68
31.
Additional Deliveries; Third Parties ..................................................................................68
31.1
31.2
31.3
31.4
31.5
32.
Estoppel Certificates ..............................................................................................68
Further Assurances.................................................................................................68
Memorandum of Lease ..........................................................................................69
Modification...........................................................................................................69
Successors and Assigns..........................................................................................69
Miscellaneous ....................................................................................................................69
32.1
32.2
32.3
Confidentiality .......................................................................................................69
Costs and Expenses; Legal Costs...........................................................................69
No Consequential Damages ...................................................................................70
v
32.4
32.5
32.6
32.7
32.8
32.9
33.
Interpretation, Execution, and Application of Lease .........................................................70
33.1
33.2
33.3
33.4
33.5
33.6
33.7
33.8
34.
No Merger..............................................................................................................70
No Waiver by Silence ............................................................................................70
Performance Under Protest ....................................................................................70
Survival ..................................................................................................................70
Unavoidable Delay.................................................................................................70
Vault Space ............................................................................................................70
Captions .................................................................................................................70
Counterparts...........................................................................................................70
Delivery of Drafts ..................................................................................................71
Entire Agreement ...................................................................................................71
Governing Law ......................................................................................................71
Partial Invalidity.....................................................................................................71
Principles of Interpretation ....................................................................................71
Reasonableness ......................................................................................................71
State-Specific Provisions ...................................................................................................71
34.1
34.2
34.3
34.4
34.5
34.6
34.7
34.8
34.9
34.10
34.11
34.12
Delivery of Premises..............................................................................................71
Casualty..................................................................................................................72
Window Cleaning ..................................................................................................72
Statutory Right of Redemption ..............................................................................72
Security ..................................................................................................................72
Zoning Lot Waiver.................................................................................................72
Yellowstone Actions..............................................................................................72
Consumer Contract Statutes...................................................................................73
Waiver of Stay .......................................................................................................73
No Implied Consent to Remaining in Possession ..................................................73
Sidewalk Repairs ...................................................................................................73
Conveyance of Fee Estate......................................................................................73
vi
LEASE
This LEASE (the “Lease”) is entered into as of ________ (the “Commencement Date”),
between __________, a ___________ (“Landlord”), and __________, a __________ (“Tenant”),
based on these facts:
A.
Premises. At the Commencement Date, [the parties believe that2] Landlord owns
this real property (collectively, the “Premises”): (a) the land described in Exhibit __, consisting
of approximately _____ acres of land (the “Land”); (b) all buildings, structures, and other
improvements and appurtenances located on the Land or otherwise described in this Lease as
part of the Premises (the “Improvements”); (c) all right, title, and interest of Landlord, if any, in
and to the land lying in the bed of any street or highway in front of or adjoining the Land to the
center line of that street or highway; (d) the appurtenances and all the estate and rights of
Landlord in and to the Land; (e) any strips or gores adjoining the Land; and (f) all Building
Equipment and FF&E attached or appurtenant to any of the foregoing.
B.
Leasing. Landlord desires to lease the Premises to Tenant, and Tenant desires to
lease the Premises from Landlord.
C.
Rights and Obligations. The parties desire to enter into this Lease to define their
rights and obligations to each other regarding the Premises.
D.
Guaranty. On or about the Commencement Date, ____________________, a
__________ (the “Guarantor,” as more fully defined below) is executing and delivering to
Landlord a “Guaranty” (the “Guaranty”) of some obligations of Tenant, including some Tenant
obligations upon an Event of Default and Lease termination.
NOW, THEREFORE, for good and valuable consideration, Landlord leases and
demises the Premises to Tenant, and Tenant takes and hires the Premises from Landlord, subject
only to Permitted Exceptions, for the Term, upon the terms and conditions of this Lease.
1.
DEFINITIONS.
These definitions apply in this Lease. An index of all defined terms follows the signature
page. This Lease may use capitalized terms before defining them.
“Acceptable Replacement Guarantor” means any Person (or group of up to ___ Persons
collectively) that has a net worth equal to at least ___ times the then-current annual Fixed Rent3
(as evidenced by financial statements delivered to Landlord in compliance with ________) and
(each of which) is: (a) not entitled to diplomatic or other immunity; (b) subject to service of
2
3
Why should Landlord say Landlord owns anything? Isn’t that a question of title insurance?
Consider adding other financial tests, such as liquidity. The financial standards will very much represent a
business issue. Also consider adding future financial covenants for any Guarantor – initial or replacement. That will
raise the question of what happens if Guarantor falls short of the covenants because of future financial problems.
Landlord’s first response, of course is, that Tenant would then need to find a new Guarantor. That may not be
practical. Consider providing for changes in the Lease terms or structure, such as a lockbox, added restrictions on
Construction, a security deposit, or other measures.
process within the United States; and (c) either a natural person or a Person with substantial
business activities of a continuing nature not primarily involving investment in real property.4
“Additional Rent” means all sums that this Lease requires Tenant to pay Landlord or a
third party, whether or not expressly called Additional Rent, except Fixed Rent.
“Affiliate” of any specified Person means any other Person Controlling, Controlled by, or
under common Control with that specified Person. “Affiliated” shall have a corresponding
meaning.
“Application” means any agreement, application, certificate, document, or submission (or
its amendment): (a) necessary or appropriate for any Construction this Lease allows, including an
application for a building permit, certificate of occupancy, utility service or hookup, easement,
covenant, condition, restriction, subdivision plat, or other instrument that Tenant from time to
time reasonably requests for that Construction; (b) to allow Tenant to obtain any abatement,
deferral, exemption, subsidy, or other benefit otherwise available for Real Estate Taxes; (c) if
and to the extent (if any) this Lease permits, to allow Tenant to change the use or zoning of the
Premises; (d) to enable Tenant from time to time to seek any Approval or to use and operate the
Premises as this Lease allows; or (e) otherwise reasonably necessary and appropriate to permit
Tenant to realize the benefits of the Premises under this Lease.
“Appraiser” means an MAI appraiser, with an office in the County and at least 10 years
of experience in appraising commercial real estate, associated with or employed by any one of
these or its successor: (a) _________; (b) ________; (c) _______; or (d) another regional or
national real estate company of comparable standing.
“Approvals” means any and all licenses, permits (including building, demolition,
alteration, use, and special permits), approvals, consents, certificates (including certificate(s) of
occupancy), rulings, variances, authorizations, or amendments to any of the foregoing necessary
or appropriate under any Law to commence, perform, or complete any Construction, or regarding
the maintenance, occupancy, operation, rezoning (to the extent this Lease allows), or use of the
Premises.
“Arbitration” means a proceeding under the ________ Rules of the American Arbitration
Association, as Modified from time to time. For any Arbitration, however, these Rules shall be
deemed Modified as follows: _________ _________.5
“Architect’s Certificate” means a certificate of Tenant’s Architect, certifying to Landlord
for any Major Construction:
Consent to License. Tenant’s Architect consents to Tenant’s granting Landlord a
license to use the Plans and Specifications as this Lease allows;
4
Landlord would prefer a simple right to approve a replacement Guarantor. Such a right could interfere with
any Transfer, as Landlord can usually find a way to disapprove any proposed replacement Guarantor.
5
If the parties a great deal about exactly which rules will apply, they may want to “freeze” those rules and
attach a copy as an exhibit.
2
Costs. Estimated cost of Tenant’s Major Construction and any related demolition;
Development Criteria. Tenant’s Major Construction, if completed substantially in
accordance with the Plans and Specifications, will comply with the Development
Criteria; and
Size. Estimated net rentable area and cubic volume of the Development as it will
exist after Tenant’s Major Construction.
“Bankruptcy Law” means Title 11, United States Code, and any other or successor state
or federal statute on assignment for the benefit of creditors, appointment of a receiver (excluding
a receiver appointed at the request of a Leasehold Mortgagee) or trustee, bankruptcy,
composition, insolvency, moratorium, reorganization, or similar matters.
“Bankruptcy Proceeding” means any proceeding, whether voluntary or involuntary,
under any Bankruptcy Law.
“Bankruptcy Sale” means a sale of any property, or any interest in any property, under 11
U.S.C. § 363 or otherwise in any bankruptcy, insolvency, or similar proceeding affecting the
owner of that property.
“Bankruptcy Termination Option” means Tenant’s right to treat this Lease as terminated
under 11 U.S.C. § 365(h)(1)(A)(i) or any comparable provision of law.
“BID” means any business improvement district or similar district or program, proposed
or actual, that includes, may include, or affects any Premises.
“Broker” means ____________________________.
“Builder” means one or more licensed construction company(ies) not an Affiliate of any
Principal. Notwithstanding the foregoing, Builder may be ________________________, an
Affiliate of one or more Principal(s). Any dispute about a proposed Builder shall be resolved by
Arbitration.
“Building” means all improvements located or to be located on the Premises from time to
time.
“Building Equipment” means all fixtures incorporated in the Premises owned by
Landlord or Tenant and used, useful, or necessary to operate the Building as such (including
boilers; compactors; compressors; conduits; ducts; elevators; engines; equipment; escalators;
fittings; heating, ventilating and air conditioning systems; machinery; and pipes) as opposed to
operating any business in the Building.
“Business Day” means any weekday on which State-chartered banks are open to conduct
regular banking business with bank personnel.
3
“Casualty” means any damage or destruction of any kind or nature, ordinary or
extraordinary, foreseen or unforeseen, affecting any or all Improvements, whether or not insured
or insurable.
“Casualty Termination” means a termination of this Lease because of a Substantial
Casualty, when and as this Lease expressly allows such a termination. Tenant’s election of a
Casualty Termination shall not be effective without Leasehold Mortgagee’s Consent.
“Completion Guaranty” means the Limited Guaranty to the extent it relates to Initial
Development and to Construction Substitute Performance.
“Condemnation” means: (a) any temporary or permanent taking of (or of the right to use
or occupy) any Premises by condemnation, eminent domain, or any similar proceeding; or (b)
any action by any Government not resulting in an actual transfer of an interest in (or of the right
to use or occupy) any Premises but creating a right to compensation, such as a change in grade of
any street upon which the Premises abut.
“Condemnation Award” means any award(s) paid or payable (whether or not in a
separate award) to either party or its Mortgagee after the Commencement Date because of or as
compensation for any Condemnation, including: (1) any award made for any improvements that
are the subject of the Condemnation; (2) the full amount paid or payable by the condemning
authority for the estate that is the subject of the Condemnation, as determined in Condemnation;
(3) any interest on such award; and (4) any other sums payable on account of such
Condemnation, including for any prepayment premium under any Mortgage.
“Condemnation Effective Date” means, for any Condemnation, the first date when the
condemning authority has acquired title to or possession of any Premises subject to the
Condemnation.
“Construction” means any alteration, construction, demolition, development, expansion,
reconstruction, redevelopment, repair, Restoration, or other work affecting any Improvements,
including new construction. Construction consists of Minor Construction and Major
Construction.
“Construction Commencement Conditions” means these conditions for any Major
Construction:
Approvals. Tenant shall have given Landlord copies of Approvals as Law requires
sufficient for Tenant to start excavation and demolition;
Assignment of Construction Documents. Subject in each case to the rights of
Leasehold Mortgagees, Tenant shall have assigned the Construction Documents and the
Plans and Specifications (and Builder shall have assigned the Major Subcontracts) to
Landlord, which assignment shall also include the benefit of all payments made on
account of the Construction Documents, including payments made before the date of
such assignment and, if requested by the contractor thereunder, an assumption by the
assignee of such contract of all obligations accruing thereunder from and after the date
that Landlord exercises its rights under such assignment;
4
Character of Major Construction. Such Major Construction, when completed,
shall be of such a character as not to reduce the value or utility of the Premises below its
value immediately before such Major Construction;
Completion Deposit. Tenant (or, at Landlord’s option, Guarantors) shall have
furnished to Landlord a deposit to assure completion of such Major Construction and
Guarantors’ performance of Guarantors’ obligations under its guaranty (a “Completion
Deposit”), consisting of cash or a letter of credit, satisfactory to Landlord, subject to
progress reductions, provided that the remaining Completion Deposit shall, in Landlord’s
reasonable determination, always equal at least the sum of (a) 110% of the remaining cost
to complete; plus (b) projected Fixed Rent, insurance premiums, and Real Estate Taxes
through the date 90 days after substantial completion (except to the extent that Tenant
demonstrates to Landlord’s reasonable satisfaction that the Premises will be able to fund
such payments after taking into account all other expenditures during such period);
Construction Documents. Tenant shall have entered into and given Landlord
copies of the Construction Documents;
Demolition. To the extent that any Major Construction contemplates demolition
of the Development, such Major Construction shall also include (re)construction of the
Development in a manner that satisfies the Development Criteria;
Financing. Tenant shall have delivered to Landlord a copy of a fully executed
loan commitment agreement [describe or edit as applicable], and in the case of Initial
Development, Tenant shall have closed (or shall simultaneously close) Tenant’s
Construction Loan [and the first advance under such Construction Loan];
Funds. Except in the case of any Lower-Risk Restoration, Tenant shall have given
Landlord evidence reasonably satisfactory to Landlord of the commitment of funds to pay
at least __% of the cost of the Major Construction as set forth in the Architect’s
Certificate, which funds may be in the form of equity and/or debt financing or any
combination thereof;
Guaranty. Except in the case of a Lower-Risk Restoration, Tenant shall have
given Landlord a guaranty, executed by all Guarantors, in substantially the form of the
Completion Guaranty, covering such Major Construction, and terminating on its
Construction Completion Date;
Insurance. Tenant shall have delivered to Landlord such insurance, and evidence
of that insurance, as this Lease requires for such Major Construction;
Lender’s Approval of Plans and Specifications. Tenant shall have given Landlord
evidence that Senior Leasehold Mortgagee, to the extent it requires, has approved the
Plans and Specifications;
Performance by Tenant’s Architect and Builder. Tenant shall have furnished to
Landlord agreements (subject to the rights of Leasehold Mortgagees) from Tenant’s
Architect and from Builder to continue to perform for Landlord all obligations of
5
Tenant’s Architect or Builder, as applicable, under its contract with Tenant if this Lease
terminates or Landlord re-enters the Premises after an Event of Default (and expiration of
Leasehold Mortgagee’s Cure Rights and rights to obtain a New Lease), provided
Tenant’s Architect, or Builder, is paid for its services under that contract;
Plans and Specifications; Architect’s Certificate. Tenant’s Architect shall have
prepared the Plans and Specifications and given them to Landlord with an Architect’s
Certificate; and
Surety Bond. At Landlord’s request, Tenant shall give Landlord a Surety Bond,
and Landlord shall pay toward its cost the lesser of (a) ___% of such cost, and (b)
$______ times the CPI Adjustment Factor.6
“Construction Commencement Date” means the date on which, for any Major
Construction, Tenant has: (a) satisfied the Construction Commencement Conditions; and
(b) started demolition of any existing improvements or excavation work.
“Construction Completion Date” for any Major Construction means the date when
Tenant has given Landlord:
Architect’s Certificate. A certificate from Tenant’s Architect certifying that (a)
such Major Construction (except tenant improvements and Punchlist Work) has been
substantially completed substantially in accordance with the Plans and Specifications and
Development Criteria; and (b) Tenant has obtained all Approvals necessary for “a,”
copies of which are attached to the certificate;
Certificates of Occupancy. A copy of the temporary certificate of occupancy for
such Major Construction (except tenant improvements), to the extent Law requires; and
Survey. A survey of the Land showing the Major Construction as built, certified to
Landlord by a licensed surveyor.
“Construction Documents” means these documents for Major Construction, as Tenant
shall modify them from time to time but not in violation of this Lease:
Architectural Contract. A contract, in assignable form, between Tenant and
Tenant’s Architect, relating to Tenant’s Architect’s preparation of the Plans and
Specifications in accordance with the Development Criteria;
Construction Contract. Contract(s), in assignable form, between Builder and
Tenant, providing for Builder’s performance of the Major Construction;
Major Subcontracts. To the extent entered into, the Major Subcontracts; and
6
Add any other conditions, such as pre-leasing, other approvals, completion of related transactions, letters of
credit, etc.
6
Other Contracts and Permits. All other agreements and Approvals in place as of
the Construction Commencement Date to which Tenant or anyone claiming through
Tenant is a party.
“Construction Loan” means construction loan(s) from Leasehold Mortgagee(s) in an
aggregate amount that, with any equity investment to be provided by Tenant, Affiliates of
Tenant, or a third party, equals at least ___% of the estimated cost set forth in the Construction
Documents and the Architect’s Certificate for any Development upon disbursement of the equity
investment and financing within a reasonable time after funding of the Construction Loan.
“Construction Substitute Performance” means Tenant’s performance of only these
actions: (a) demolish all improvements on the Premises to grade; (b) remove all debris resulting
from “a”; (c) return the Land to Landlord as vacant and compacted land free of improvements,
free of significant excavations, and reasonably level; (d) pay all costs of “a” through “c”; (e) pay,
discharge, or bond all mechanics’ liens and other claims arising from “a” through “c”; (f)
terminate and surrender to Landlord (with Leasehold Mortgagee’s Consent) this Lease and all
rights under this Lease; (g) pay Landlord the sum of $_______, as agreed consideration to
terminate this Lease and compensate Landlord for the time, effort, lost opportunities, and
potential loss resulting from having entered into this Lease with Tenant; and (h) pay all Fixed
Rent arising under this Lease until Tenant has performed all of “a” through “g.”7
“Control” means the possession, directly or indirectly, of either: (a) at least [51%] direct
or indirect ownership of the Equity Interests of a Person; or (b) the power to direct or cause the
direction of the management and policies of such Person, whether by ownership of Equity
Interests, by contract, or otherwise.
“County” means the county where the Premises are located.
“CPI” means the United States Department of Labor, Bureau of Labor Statistics
“Consumer Price Index” for Urban Wage Earners and Clerical Workers (CPI-W) published for
New York - Northern New Jersey - Long Island, NY-NJ-CT-PA, with a base of 1982-1984 =
100. If the CPI ceases to be published, with no successor index, then the parties shall reasonably
agree upon a reasonable substitute index. The CPI for any date means the CPI last published
before the calendar month that includes such date.
“CPI Adjustment Factor” means, as of any date, the greater of (a) 1.00 or (b) the CPI for
such date divided by the CPI for the Commencement Date.
“Default” means Tenant’s uncured default or breach under this Lease. A Default may
consist of a Monetary Default or a Nonmonetary Default.
“Default Interest” means interest at an annual rate equal to the lesser of: (a) the Prime
Rate plus _____ percent per annum; or (b) the Usury Limit.
7
This definition will require fine-tuning, or even deletion, depending on context. It is unusual but
reasonable.
7
“Default Notice” means Landlord’s notice of a Default, describing the Default in
reasonable detail.
“Depository” means an Institutional Lender designated by a Leasehold Mortgagee (or, if
no Leasehold Mortgage exists, then by Tenant). A Leasehold Mortgagee [that is an Institutional
Lender] may designate itself or its agent or servicer as Depository.
“Development” means Tenant’s performance of any Construction on the Land.
“Development Criteria” means these criteria and requirements for the Development after
the Construction Completion Date. Any dispute about compliance with these criteria shall be
resolved by Arbitration. The Development shall:
Floor to Ceiling Height. Provide a minimum floor to ceiling height of at least ___
feet (_____ feet for the ground floor) for all floor area within the development.8
Independent Structure on the Land. Constitute a completely self-sufficient and
independent structure erected wholly within the boundary lines of the Land (except (a) de
minimis encroachments, so long as Landlord could obtain a fee policy of title insurance
that affirmatively insures against the removal of such encroachments; and (b)
encroachments of removable signage on the Premises over the property line) in
compliance with Law and not tying in or connecting to any other real property or other
improvements.
Quality. Conform to a standard of quality (including Structure, Building
Equipment, FF&E, finishes, materials, circulation, fenestration, and all other substantial
characteristics) that, considered in the aggregate, equals or exceeds the standard of
quality of _________________________,9 as such standard exists on the
Commencement Date. (After a change of use in compliance with this Lease, however: (a)
the standard of quality of the Development shall equal or exceed the average standard of
quality of buildings constructed (or “gut-rehabilitated”) for comparable use(s) during the
preceding ten years within a ___ mile radius of the Development; and (b) the Structure,
Building Equipment, FF&E, finishes, materials, circulation, and other substantial
characteristics of the Development shall be generally suitable for operation of the use(s)
then permitted by Law.)
Size. Contain at least [the maximum number of square feet permitted to be erected
on the Land utilizing ___% of the maximum floor area allowed under Existing Zoning]
(or, upon Restoration, [__%] of such lower floor area as the then-existing zoning
resolution allows at time of Restoration), including any Transferred Development Rights,
as measured before taking into account any variances or special permits.
8
This may sound like an odd requirement but it is one of the few characteristics of a structure that is almost
impossible to change later.
9
Specify comparable buildings, ideally recent projects completed by Tenant and its Affiliates.
8
Use. Be a fireproof building designed to be used in substantially its entirety for
[____________, ___________, or ___________] [any use permitted by Law] and
mechanical and other ancillary space incidental thereto.
“Development Rights” means any rights or benefits transferred to or from the Land
through a Development Rights Transfer.
“Development Rights Transfer” means any so-called “zoning lot merger” or any other
agreement or instrument that combines the Land with any other real property for purposes of any
Law on bulk, development rights, use, zoning, or any similar matter, or by which any
development rights (or so-called “floor area ratio,” “FAR,” or rights to construct “zoning floor
area”) under any such Law are transferred to or from any other real property.
“Dispute Resolution Proceeding” means any legal or other dispute resolution or valuation
proceeding or procedure of any kind relating to this Lease or the Premises, including any: (a)
litigation (including trial and appellate litigation and hearings at all levels); (b) action by
Landlord to enforce any rights and remedies under, or to terminate, this Lease; (c) proceeding to
determine Rent or any component of Rent or to recover, determine, or apply any Loss Proceeds;
or (d) appraisal, arbitration, or mediation process or proceeding, whether or not identified as
adversarial.
“Environmental Law” means any Law about these at, in, under, above, or upon the
Premises: (a) air, environmental, ground water, or soil conditions; or (b) clean-up, control,
disposal, generation, storage, release, transportation, or use of, or liability or standards of
conduct concerning, Hazardous Substances.
“Equipment Lien” means any security interest, financing lease, personal property lien,
conditional sales agreement, chattel mortgage, security agreement, title retention arrangement or
any similar arrangement (including any related financing statement) for Tenant’s acquisition or
leasing of any Financed FF&E used in the Premises that is leased, purchased under conditional
sale or installment sale arrangements, encumbered by a security interest, or used under a license,
provided that each Equipment Lien encumbers or otherwise relates only to the Financed FF&E
for which such secured party provides bona fide purchase-money financing or a bona fide
equipment lease, after the Commencement Date. A Leasehold Mortgage is not an Equipment
Lien.
“Equity Interest” means all or any part of any direct or indirect equity or ownership
interest(s) (whether stock, partnership interest, beneficial interest in a trust, membership interest,
or other interest of an ownership or equity nature) in any entity at any tier of ownership that
directly or indirectly owns or holds any ownership or equity interest in a Person.
“Estoppel Certificate” means a statement, addressed to Tenant or as Tenant directs, in
substantially the form of Exhibit __, and containing other assurances as Tenant reasonably
requests.
“Existing Zoning” means the terms of the [New York City Zoning Resolution] as they
apply to the Premises on the Commencement Date, including all reasonably applicable as-ofright floor area bonuses. Exhibit __ sets forth relevant extracts, or a summary thereof, from the
9
Existing Zoning. If Landlord pays or reimburses Tenant for Transferred Development Rights
when and as this Lease provides, then from and after such payment or reimbursement the
Existing Zoning shall be deemed to include such Transferred Development Rights. The Existing
Zoning shall not otherwise include any Development Rights Tenant acquires from other property
owners.
“Expiration Date” means the date when this Lease terminates or expires in accordance
with its terms, whether on the Scheduled Expiration Date, by Landlord’s exercise of remedies for
an Event of Default, or otherwise.
“Fee Debt Service” means all payments required from time to time under any Fee
Mortgage, including principal, interest, late charges, costs of collection, reimbursement of
protective advances, and any other sums any Fee Mortgage secures.
“Fee Estate” means Landlord’s fee estate in the Premises, including Landlord’s
reversionary interest in the Premises after the Expiration Date.
“Fee Mortgage” means any Mortgage: (a) that encumbers all or part of the Fee Estate; (b)
that complies with this Lease; (c) a copy of which (recorded or unrecorded) is promptly after
execution delivered to Tenant and all Leasehold Mortgagee(s) with a certification by Fee
Mortgagee that the copy is accurate and stating Fee Mortgagee’s name and Notice address; and
(e) that is held by a Fee Mortgagee that is [an Institutional Lender,] subject to the jurisdiction of
the courts of the State and not immune from suit.
“Fee Mortgagee” means any Mortgagee holding a Fee Mortgage. Any participant or
unrecorded assignee holding any direct or indirect interest in a Fee Mortgage shall not be
deemed a Fee Mortgagee or affect Tenant in any way.
“FF&E” means all movable furniture, furnishings, equipment, and personal property of
Tenant or anyone claiming through Tenant (excluding Building Equipment) that may be
removed without material damage to the Premises and without adversely affecting: (a) the
structural integrity of the Premises; (b) any electrical, plumbing, mechanical, or other system in
the Premises; (c) the present or future operation of any such system; or (d) the present or future
provision of any utility service to the Premises. FF&E includes items such as factory equipment,
furniture, movable equipment, telephone, telecommunications and facsimile transmission
equipment, point of sale equipment, televisions, radios, network racks, and computer systems
and peripherals.
“Financed FF&E” means any FF&E subject to an Equipment Lien in favor of a lessor or
lender that: (a) is not an Affiliate of Tenant, and (b) actually provides bona fide financing or a
bona fide equipment lease after the Commencement Date for Tenant’s acquisition or use of such
FF&E.
“Foreclosure Event” means any: (a) foreclosure sale (or trustee’s sale, assignment in lieu
of foreclosure, Bankruptcy Sale, or similar transfer) affecting the Leasehold Estate; or (b)
Leasehold Mortgagee’s exercise of any other right or remedy under a Leasehold Mortgage (or
applicable law) that divests Tenant of its Leasehold Estate.
10
“Government” means each and every governmental agency, authority, bureau,
department, quasi-governmental body, or other entity or instrumentality having or claiming
jurisdiction over the Premises (or any activity this Lease allows), including the United States
federal government, the State and County governments and their subdivisions and municipalities,
and all other applicable governmental agencies, authorities, and subdivisions thereof.
“Government” shall also include any planning commission, board of standards and appeals,
department of buildings, landmarks preservation commission, city council, zoning board of
appeals, or planning board or commission having or claiming jurisdiction over the Premises or
any activities on or at the Premises.10
“Guarantors” means either:
Specified Individuals. All of these individuals: ____________; or
Replacements. Person(s) who, when they become Guarantors, constitute
Acceptable Replacement Guarantor(s).
“Hazardous Substances” includes flammable substances, explosives, radioactive
materials, asbestos, asbestos-containing materials, polychlorinated biphenyls, chemicals known
to cause cancer or reproductive toxicity, pollutants, contaminants, hazardous wastes, medical
wastes, toxic substances or related materials, explosives, petroleum and petroleum products, and
any “hazardous” or “toxic” material, substance or waste that is defined by those or similar terms
or is regulated as such under any Law, including any material, substance or waste that is: (i)
defined as a “hazardous substance” under Section 311 of the Water Pollution Control Act (33
U.S.C. § 1317), as amended; (ii) defined as a “hazardous waste” under Section 1004 of The
Resource Conservation and Recovery Act of 1976, 42 U.S.C. § 6901, et seq., as amended; (iii)
defined as a “hazardous substance” or “hazardous waste” under Section 101 of The
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended
by the Superfund Reauthorization Act of 1986, 42 U.S.C. § 9601 et seq. or any so-called
“superfund” or “superlien” law, including the judicial interpretations thereof; (iv) defined as a
“pollutant” or “contaminant” under 42 U.S.C.A. § 9601(33); (v) defined as “hazardous waste”
under 40 C.F.R. Part 260; (vi) defined as a “hazardous chemical” under 29 C.F.R. Part 1910; or
(vii) subject to any other Law regulating, relating to or imposing obligations, liability or
standards of conduct concerning protection of human health, plant life, animal life, natural
resources, property or the enjoyment of life or property free from the presence in the
environment of any solid, liquid, gas, odor or any form of energy from whatever source.
“Hazardous Substances Discharge” means any deposit, discharge, generation, release, or
spill of Hazardous Substances that occurs or occurred at, on, under, or from the Premises, or into
the Land (from adjacent or nearby land, with or without fault by Landlord or Tenant), or that
arises at any time from the use, occupancy, or operation of the Premises or any activities
conducted therein or any adjacent or nearby real property, or resulting from seepage, leakage, or
other transmission of Hazardous Substances from other real property to the Land, whether or not
10
One often sees lists of specific governmental authorities, as if they have some independent status and are
not just ordinary units of Government. The latter lists seem unnecessary but drafters seem to like them.
11
caused by a party to this Lease and whether occurring before, on, or after the Commencement
Date.11
“Immaterial Loss” means a Casualty or Condemnation that ____________.
“Indemnify” means, where this Lease states that any Indemnitor shall “Indemnify” any
Indemnitee from, against, or for a particular matter (the “Indemnified Risk”), that the Indemnitor
shall indemnify the Indemnitee and defend and hold the Indemnitee harmless from and against
any and all claims, costs, damages, detriment, expense, judgments, liability, loss, penalties, and
other injury (including Legal Costs, interest and penalties) that the Indemnitee suffers or incurs:
(a) from, as a result of, or on account of the Indemnified Risk; or (b) in enforcing the
Indemnitor’s indemnity. Indemnitor’s counsel shall be subject to Indemnitee’s approval, not to
be unreasonably withheld. Any counsel requires by Indemnitor’s insurance carrier shall be
automatically deemed satisfactory. Notwithstanding anything in this paragraph, no Indemnitor
shall have any responsibility for consequential, indirect, punitive, special, or speculative
damages.
“Indemnitee” means any party entitled to be Indemnified under this Lease and its agents,
directors, employees, Equity Interest holders, mortgagees, and officers.
“Indemnitor” means a party that agrees to Indemnify any other Person.
“Initial Development” means Tenant’s first Major Construction undertaken under this
Lease, consisting of construction of ___________________ but excluding tenant improvements.
Initial Development includes all Construction that this Lease requires Tenant to complete as a
condition to the Construction Completion Date for the Initial Development. The Initial
Development shall include construction of core and shell, performance of all exterior work,
installation of sprinkler loops (except branches for commercial space), installation of finished
floors, installation of finished ceilings with ductwork (except that Tenant may postpone
installation of finished ceilings or other interior finishing work to a later date if any initial
commercial retail Subtenant shall expressly request any such space without finished ceilings or
other interior finishing work, but if any such Subtenant surrenders any such space, Tenant shall
remain obligated to install finished ceilings in such space promptly following any such
surrender), installation of perimeter dry walls (exclusive of demising walls with respect to
commercial space), stubbing of utilities to the Development, performance of all interior work
[and for residential units only, installation of air conditioning units, dishwashers, and other
appliances customarily installed in residential units in buildings of the same standard of quality
as the Premises or necessary to obtain a certificate of occupancy]; provided, however, that, for
commercial space, Tenant may have any such interior work performed and completed by a
Subtenant, if such Subtenant actually performs such work within a reasonable period. Tenant
11
Tenant will often insist that Landlord retain all risks on Hazardous Substances Discharges that occurred
before the Commencement Date. Aside from the issues of proof this raises, it leaves Landlord with risks that it
might have eliminated or mitigated with an outright sale of the Premises and that are, arguably, inconsistent with a
fully “net” Lease under which Tenant bears all risks of ownership. This negotiation will often become one of the
most difficult issues in negotiating a ground lease. It should be resolved in the term sheet stage. Environmental
insurance will sometimes make sense, but: (a) it usually costs more than the parties are willing to pay; and (b) the
underwriting process may be painful for Landlord.
12
need not complete such interior work [(other than interior work on residential units)] by the
Construction Completion Date, but if a Subtenant fails to perform or complete any such interior
work, then Tenant shall remain obligated to do so within a reasonable period after such failure.
“Initial Development Commencement Deadline” means the date __________ after the
Commencement Date, extended as follows. In the event of Unavoidable Delay(s), the Initial
Development Commencement Deadline shall be extended by the number of days by which such
Unavoidable Delay(s) delayed commencement of Initial Development[, not to exceed
___________ for a single occurrence of Unavoidable Delay and ___________ in aggregate].
“Initial Development Completion Deadline” means the date ___________ after the
Construction Commencement Date for Initial Development, extended as follows, which
extensions shall be cumulative and independent but shall never in aggregate allow a total
extension beyond ___________:
Unavoidable Delay. In the event of Unavoidable Delay(s), the Initial
Development Completion Deadline shall be extended for such Unavoidable Delay(s), not
to exceed _________ in aggregate.
As of Right. Either Tenant or any one Leasehold Mortgagee, but not both, may on
only one occasion extend the Initial Development Completion Deadline by a single
extension of _________ additional months, by giving Notice to Landlord, at any time
before the Initial Development Completion Deadline. To be effective, such Notice must
be accompanied by $_________, which Landlord shall hold as additional Security but
shall release on the Construction Completion Date for the Initial Development provided
no Default then exists.
Leasehold Mortgagee. Only Senior Leasehold Mortgagee may obtain a further
extension of the Initial Development Completion Deadline for a period of _________, by
giving Landlord Notice that Senior Leasehold Mortgagee agrees to cause the
Construction Completion Date to occur on or before the Initial Development Completion
Deadline, as extended. A Leasehold Mortgagee’s rights under this paragraph shall
survive any Foreclosure Event and shall not limit the rights of Tenant, a New Tenant, a
Post-Foreclosure Tenant, and/or a Leasehold Mortgagee to obtain any other extension of
the Initial Development Completion Deadline under this definition of Initial
Development Completion Deadline.
“Institutional Lender” means: (1) a bank (state, federal or foreign), trust company (in its
individual or trust capacity), insurance company, credit union, savings bank (state or federal),
pension, welfare or retirement fund or system, real estate investment trust (or an umbrella
partnership or other entity of which a real estate investment trust is the majority owner), federal
or state agency regularly making or guaranteeing mortgage loans, investment bank, subsidiary of
a Fortune 500 company (such as AT&T Capital Corporation or General Electric Capital
Corporation), real estate mortgage investment conduit, or securitization trust; (2) any issuer of
collateralized mortgage obligations or any similar investment entity (provided that either (a) at
least certain interests in such issuer or other entity are publicly traded or (b) such entity was or is
sponsored by an entity that otherwise constitutes an Institutional Lender or has a trustee that is,
13
or is an Affiliate of, any entity that otherwise constitutes an Institutional Lender), or any Person
acting for the benefit of or on behalf of such an issuer; (3) any Person actively engaged in
commercial real estate financing and having total assets (on the date when its Leasehold
Mortgage is executed and delivered, or on the date of such Leasehold Mortgagee’s acquisition of
its Leasehold Mortgage by assignment, but excluding the value of any Leasehold Mortgage
encumbering this Lease) of at least $__,000,000; (4) any Person that is a wholly owned
subsidiary of or is a combination of any one or more of the foregoing Persons; or (5) any of the
foregoing when acting as trustee, agent, or administrative agent for other lender(s) or investor(s),
whether or not such other lender(s) or investor(s) are themselves Institutional Lenders. The fact
that a particular Person (or any Affiliate of such Person) is a partner, member, or other investor
of the then Tenant shall not preclude such Person from being an Institutional Lender and a
Leasehold Mortgagee but only if: (x) that entity has, in fact, made or acquired a bona fide loan to
Tenant secured by a Leasehold Mortgage or is a Mezzanine Lender; (y) that entity otherwise
qualifies as an Institutional Lender and a Leasehold Mortgagee (as applicable); and (z) at the
time that entity becomes a Leasehold Mortgagee, no Event of Default exists under this Lease,
unless simultaneously cured.12
“Insubstantial Condemnation” means any Condemnation except a Substantial
Condemnation, a Temporary Condemnation, or an Immaterial Loss.
“Land Value” means, as of the Commencement Date, $______________. Thereafter,
effective on each Revaluation Date, the “Land Value” shall be adjusted to mean [the greater of
(a) the Land Value as in effect before such Revaluation Date; and (b)]13 the fair market value of
the Land effective as of the Revaluation Date. The fair market value of the Land means the
amount that a willing buyer would pay a willing seller for the Land, neither being under a
particular compulsion to buy or to sell, each fully aware of all applicable facts about the Land,
and assuming a reasonable marketing period, considered as if the Land were vacant and clear of
any structures or excavations, and free and clear of all leases (including this Lease), taking into
account then-current general economic conditions; costs of construction; recent sales of nearby
comparable parcels; the real estate marketplace; and all other conditions as in effect on the
Revaluation Date that may reasonably be considered in determining the fair market value of the
Land. Land Value shall otherwise be determined in accordance with prevailing standards of
appraisal practice at the time of determination. [Notwithstanding the foregoing, the
determination of the fair market value of the Land shall not take into account any changes in
zoning or building Law that may occur after the Commencement Date, so that as to any matter
governed by zoning or building Laws (including permitted uses, bulk, setbacks, sky exposure,
yards, and all other matters governed by such Laws), the zoning as of the Commencement Date
shall be deemed to continue to apply at each Revaluation Date, regardless of the actual terms of
such zoning or building Laws (whether more or less favorable to development) at such
Revaluation Date, except to the extent that on or before such Revaluation Date both: (a) any such
terms have been modified in a manner that would increase the development potential of the
12
Tenants sometimes ask for this sentence, but Landlords often object, arguing that no matter how complex
and constraining its conditions are, it still gives Tenant a second bite at the apple.
13
The bracketed language appears quite frequently, but causes Tenants great concern. It is often one of the
most hotly negotiated business issues in the Lease. Tenants typically conclude, however, that they can live with it
because the likelihood is almost zero that this language will ever actually cost Tenant any money.
14
Premises; and (b) Tenant has actually constructed Improvements, or modified the use of existing
Improvements, in a manner that realizes the increased development potential resulting from such
change (as opposed to construction of Improvements or modification of use of existing
Improvements permitted under zoning and building Laws in effect on the Commencement
Date).]14 [For purposes of determining the fair market value of the Land on each Revaluation
Date, the Land shall be deemed to include all Development Rights that benefit the Land, except
to the extent Tenant paid for them.]
“Landlord” initially means the Landlord named in the opening paragraph of this Lease.
After every Transfer of the Fee Estate, “Landlord” means only the owner(s) of the Fee Estate at
the time in question. If a former Landlord no longer has any interest in the Fee Estate or a
Transfer of the Fee Estate occurs (in all cases in compliance with this Lease, including
requirements on any Trust Funds), the Transferor (including a Fee Mortgagee, or anyone acting
for a Fee Mortgagee, that has acquired and then disposed of the Fee Estate) shall be and hereby
is entirely freed and relieved of all obligations of Landlord under this Lease accruing from and
after the date of Transfer. It shall be deemed and construed without further agreement between
the parties or their successors in interest or between the parties and the Person who acquires or
owns the Premises, including the Transferee (including a Fee Mortgagee taking title to the Fee
Estate or a Person taking title to the Fee Estate from a Fee Mortgagee) on any such Transfer, that
such Person has assumed and agreed to carry out any and all agreements, covenants, and
obligations of Landlord under this Lease accruing from and after the date of such Transfer,
subject to the limitations of liability in this Lease.
“Landlord’s TDR Investment” means, if Landlord (or Tenant at Landlord’s expense),
acquires any Transferred Development Rights in accordance with this Lease, Landlord’s actual
cost of such Transferred Development Rights (including Legal Costs, transfer taxes, title
premiums, and other reasonable and necessary transaction costs paid to unrelated third parties,
but not brokerage commissions), whether paid by Landlord or financed through Fee Mortgages
or otherwise. Landlord shall have no right or obligation to pay any brokerage commissions for
Transferred Development Rights.
“Laws” means all laws, ordinances, requirements, orders, proclamations, directives, rules,
and regulations of any Government affecting the Premises, this Lease, or any Construction in any
way, including any use, maintenance, taxation, operation, or occupancy of, or environmental
conditions affecting, the Premises, or relating to any Real Estate Taxes, or otherwise relating to
this Lease or any party’s rights and remedies under this Lease, or any Transfer of any of the
foregoing, whether in force at the Commencement Date or passed, enacted, or imposed at some
later time, subject in all cases, however, to any exemption, waiver, or variance that applies.
“Lease Impairment” means Tenant’s: (a) canceling, modifying, restating, surrendering, or
terminating this Lease, including upon Loss; (b) consenting, or failing to object, to a Bankruptcy
Sale of any Premises in a Bankruptcy Proceeding affecting Landlord; (c) determining that a Loss
14
The bracketed language represents another negotiation between Landlord and Tenant, in this case regarding
allocation of the risk that at the time of revaluation, the development potential of the Land has increased, but Tenant
has not yet been able to take advantage of the increase. If this Lease requires Tenant to pay for that unused
development potential—a windfall to Landlord—the Lease may become uneconomic.
15
has occurred that would or could cause this Lease to terminate; (d) exercising any Bankruptcy
Termination Option; (e) subordinating this Lease or the Leasehold Estate to any other estate or
interest in the Premises; or (f) waiving any Lease term(s).
“Lease Termination Notice” means a notice stating this Lease has terminated, and
describing in reasonable detail any uncured Defaults.
“Lease Year” means: (a) the period from the Commencement Date through the day
before the first anniversary of the Commencement Date; and (b) every subsequent period from
an anniversary of the Commencement Date through the day before the next anniversary of the
Commencement Date.15
“Leasehold Estate” means Tenant’s leasehold estate, and Tenant’s rights, privileges, and
Preemptive Rights, under this Lease, upon and subject to all the terms of this Lease, and any
direct or indirect interest in that leasehold estate.
“Leasehold Mortgage” means any recorded16 mortgage, deed of trust, collateral
assignment, or other lien (as Modified from time to time) encumbering this Lease, the Leasehold
Estate, and Tenant’s Preemptive Rights. A Leasehold Mortgage attaches only to the Leasehold
Estate, not to the Fee Estate.
“Leasehold Mortgagee” means a holder of a Leasehold Mortgage, provided: (a) it is not a
Tenant Affiliate; and (b) Landlord has received notice of its name and address and a copy of its
Leasehold Mortgage.17 Upon an assignment of a Leasehold Mortgage, the assignee shall
constitute a “Leasehold Mortgagee” only when it has complied with the previous sentence.
“Leasehold Mortgagee’s Consent” for any matter that expressly refers to “Leasehold
Mortgagee’s Consent” means Leasehold Mortgagee’s prior (or, at Leasehold Mortgagee’s
option, simultaneous or subsequent) written consent to such matter. If this Lease requires
Leasehold Mortgagee’s Consent for a particular matter, then Leasehold Mortgagee may withhold
consent for any reason or no reason (i.e., in its sole, absolute, and unreviewable discretion)
except where this Lease or the Leasehold Mortgage (or any loan document the Leasehold
Mortgage secures) expressly states otherwise. When no Leasehold Mortgagee exists, references
to Leasehold Mortgagee’s Consent shall be disregarded. Nothing in this definition requires
15
As an alternative, “Lease Year” could mean: (a) the twelve calendar months starting on the first day of the
first full calendar month after the Commencement Date; and (b) every subsequent period of twelve calendar months
during the Term. One would need to deal with the “stub period” at the beginning. In the author’s experience, the
parties would prefer to measure time periods and count months and years from the actual Commencement Date as
opposed to having all periods start on the first of the month, even though the latter seems neater.
16
Recognition of unrecorded mortgages creates uncertainty if Landlord ever wants to convey the Fee Estate.
Absent recordation, how will the purchaser of the Fee Estate ever know with certainty which Leasehold Mortgagees
are entitled to protections under the Lease? Similar concerns arise with the existence of SNDA’s with Subtenants.
17
The “Leasehold Mortgage” would often not include the promissory note, the loan agreement, or anything
else worth reading about the Loan. Landlord may also want to receive: “copies of all documents evidencing,
securing, or relating to the Loan, including all Loan Documents (or the equivalent) as defined in the recorded
security instrument.”
16
Landlord to obtain (or to confirm that Tenant obtained) any consent from any Leasehold
Mortgagee except where this Lease expressly requires “Leasehold Mortgagee’s Consent.”
“Leasehold Mortgagee’s Cure” means, subject to and in accordance with this Lease, any
Leasehold Mortgagee’s: (a) actions taken to cure a Default, whether or not successful, or (b) cure
of such Default.
“Leasehold Mortgagee’s Cure Rights” means all rights of Leasehold Mortgagee(s) under
this Lease to effectuate any Leasehold Mortgagee’s Cure.
“Legal Costs” of any Person means all reasonable costs and expenses such Person incurs
in any legal proceeding (or other matter for which such Person is entitled to be reimbursed for its
Legal Costs), including reasonable attorneys’ fees, court costs, and expenses, and in or as a result
of any Bankruptcy Proceeding.
“Liability Insurance” means general comprehensive public liability insurance against
claims for personal injury, death, or property damage occurring upon, in, or about the Premises
or adjoining streets and passageways, providing coverage for a combined single limit of $___
million for any one occurrence. [Landlord may increase such limit up to once every three years,
upon at least 180 days’ Notice to Tenant, provided that any increased limit: (a) does not exceed
the limit initially set forth times the CPI Adjustment Factor, rounded to the nearer multiple of
$1,000,000; and (b) generally conforms to the limits customarily required by prudent landlords
or Institutional Lenders for similar properties in the County.]
“Limited Guaranty” means a Limited Guaranty of Performance and Payment, executed
by all Guarantors, in substantially the form of Exhibit __.
“Loss” means any Casualty or Condemnation.
“Loss Proceeds” means Condemnation Award(s) or Property Insurance Proceeds.
“Lower-Risk Restoration” means any Restoration after an Immaterial Loss or that meets
these conditions: (a) Restoration Funds equal or exceed the reasonably estimated cost of
Restoration; (b) Tenant has agreed that Tenant shall not, in such Restoration, change the use of
any material portion of the Development; and (c) such Restoration complies with the
Development Criteria and contemplates Restoration generally comparable (in size, structure,
configuration, use, and quality) to the Development as it existed before the Loss, to the extent
Law permits.
“Major Construction” means the Initial Development or any other Construction
(including any coordinated series of related projects) whose estimated cost exceeds $________
times the CPI Adjustment Factor.
“Major Construction Period” means any period from any Construction Commencement
Date for any Major Construction through the Construction Completion Date for such Major
Construction.
17
“Major Subcontracts” means these subcontracts entered into, or to be entered into, by
Builder for any Major Construction: concrete, masonry, carpentry/drywall, plumbing, electrical,
and heating/ventilation/air-conditioning, as such contracts may from time to time be modified,
amended, waived, cancelled, terminated, substituted, or replaced in good faith. The Major
Subcontracts shall contain language substantially to the effect of the sample language set forth in
Exhibit __ on assignment of the Major Subcontracts to Landlord.
“Market Value” of the Fee Estate or the Leasehold Estate means, as of any date of
determination, the present fair market value of such estate (including the fair market value of the
rights of the holder of such estate in and to any improvements) as of such date, considered: (a) as
if no Loss had occurred; (b) without adjusting for any expectation of any Loss; (c) assuming
continuation of this Lease, and therefore disregarding any termination of this Lease; (d) taking
into account the benefits and burdens of this Lease, the remaining Term, all Permitted
Exceptions, and all other matters affecting such estate and its valuation; and (e) discounting to
present value all the obligations and benefits associated with such estate (including, in the case of
the Fee Estate, the Rent and Landlord’s reversion). The Market Value shall be determined as if
the Term: (1) were to continue until the Scheduled Expiration Date and (2) included,
prospectively, all Renewal Terms except any Renewal Term for which Leasehold Mortgagee or
(with Leasehold Mortgagee’s Consent) Tenant Notifies Landlord that Tenant would not have
exercised the Renewal Option in due course. Market Value shall be determined independently of,
and without regard to, any valuation established in a Condemnation, unless Tenant Notifies
Landlord otherwise, with Leasehold Mortgagee’s Consent. To the extent that Tenant has violated
this Lease and such violation has diminished the value of the Fee Estate, Landlord may require
that such diminution in value be disregarded in determining the Market Value of the Fee Estate.
In that case, such Market Value shall be determined as if Tenant had complied with all
applicable obligations under this Lease.
“Memorandum of Lease” means a memorandum of this Lease, in recordable form, setting
forth these provisions of this Lease: (a) all information any Law requires; (b) restrictions on
Transfers, zoning lot mergers, and Fee Mortgages; (c) provisions required to be (or deemed)
contained in Subleases, Fee Mortgages, and Leasehold Mortgages; (d) Landlord’s
nonresponsibility for costs of improvement; (e) Tenant’s ROFR; (f) covenants regarding real
property other than the Premises; (g) any grant of a power of attorney; and (h) such other
provisions, except the amount or means of determining Rent, as either party reasonably desires.
“Mezzanine Lender” means a lender or preferred equity investor that provides bona fide
financing or a bona fide preferred equity investment to Tenant, or Tenant’s principals or
constituent entity(ies), and receives: (a) a pledge of equity or other ownership interests of
Tenant; or (b) a preferred equity or other ownership interest in Tenant. The successors and
assigns of any such Person shall also be a “Mezzanine Lender.”
“Minor Construction” means any Construction that Tenant elects in its discretion, or this
Lease requires Tenant, to undertake from time to time, except Major Construction.
“Modification” means any abandonment, amendment, cancellation, discharge, extension,
modification, rejection, renewal, replacement, restatement, substitution, supplement, surrender,
termination, or waiver of a specified agreement or document, or of any of its terms or provisions,
18
or the acceptance of any cancellation, rejection, surrender, or termination of such agreement,
document, or terms.
“Modify” means agree to, cause, make, or permit any Modification.
“Monetary Default” means Tenant’s failure to pay any Rent or other money (including
Real Estate Taxes and insurance premiums) when and as this Lease requires.
“Mortgage” means any mortgage, deed of trust, security deed, contract for deed, deed to
secure debt, or other voluntary real property (including leasehold) security instrument(s) or
agreement(s) intended to grant real property (including leasehold) security for any obligation
(including a purchase-money or other promissory note) encumbering the Leasehold Estate or the
Fee Estate, as entered into, renewed, modified, consolidated, increased, decreased, amended,
extended, restated, assigned (wholly or partially), collaterally assigned, or supplemented from
time to time, unless and until paid, satisfied, and discharged of record. If two or more such
mortgages are consolidated or restated as a single lien or held by the same Leasehold Mortgagee
or Fee Mortgagee (as applicable), then all such mortgages so consolidated, restated, or shall
constitute a single Mortgage. A Mortgage may be either a Fee Mortgage or a Leasehold
Mortgage or both. A participation interest in (or partial assignment of the secured loan) a
Mortgage does not itself constitute a Mortgage.
“Mortgagee” means a holder of any Mortgage and its successors and assigns.
“New Lease” means a new lease of the Premises and related customary documents such
as a memorandum of lease and a deed of Improvements. Any New Lease shall: (a) commence
immediately after this Lease terminated; (b) continue for the entire remaining term of this Lease,
as if no termination had occurred, subject to any Preemptive Rights; (c) give New Tenant the
same rights to Improvements that this Lease gave Tenant; (d) have the same terms, including
Preemptive Rights, and the same priority, as this Lease, subject to any subsequent written
amendments made with Leasehold Mortgagee’s consent; and (e) require New Tenant to cure,
with reasonable diligence and continuity, within a reasonable time, all Defaults (except TenantSpecific Defaults) not otherwise cured or waived.
“New Tenant” means Leasehold Mortgagee or its designee or nominee, and any of their
successors and assigns.
“Nonmonetary Default” means Tenant’s [material]: (a) failure to comply with any
affirmative or negative covenant or obligation in this Lease, except a Monetary Default; or (b)
breach of any representation or warranty (as of the date made or deemed made).
“Notice” means any consent, demand, designation, election, notice, or request relating to
this Lease, including any Notice of Default. Notices shall be delivered, and shall become
effective, only in accordance with the “Notices” Article of this Lease.
“Notify” means give a Notice.
“Notice of Default” means any Notice claiming or giving Notice of a Default or alleged
Default.
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“Permitted Equity Owner” means:
Until Completion. Until the Construction Completion Date for the Initial
Development, only: (a) any Principal, any Person a Principal Controls, any immediate
family member (including a domestic partner) of any Principal, a trust for the benefit of
any of the foregoing, or any transferee upon the death of any of the foregoing; (b) any
Institutional Lender that makes an equity investment in Tenant or provides equity
financing to the Principals; (c) any other holder of an Equity Interest in Tenant, which
other holder Landlord has approved, such approval not to be unreasonably withheld; and
(d) any holder of an Equity Interest that is of a purely passive and nonvoting nature; and
After Completion. Thereafter, any Person that holds or acquires an Equity Interest
in Tenant.
“Permitted Exceptions” means only: (1) the recorded title exceptions affecting the Fee
Estate and prior to this Lease as of the Commencement Date, listed as exceptions in Tenant’s
leasehold policy of title insurance for this Lease; (2) any title exceptions (including Subleases)
caused by Tenant’s acts or omissions, consented to or requested by Tenant, or resulting from
Tenant’s Default; (3) any Application made at Tenant’s request; (4) this Lease and its terms and
provisions; (5) any state of facts an accurate survey would show; and (6) the additional matters
listed in Exhibit __.
“Person” means any association, corporation, Government, individual, joint venture,
joint-stock company, limited liability company, partnership, trust, unincorporated organization,
or other entity of any kind. (This does not limit any Transfer restriction.)
“Plans and Specifications” means plans and specifications for Major Construction,
prepared by Tenant’s Architect, submitted in such machine-readable format as is then customary
in the architectural profession, consisting of architectural plans; elevations and sections
indicating principal areas, core design and location; location, number and capacity of elevators;
basic structural system; minimum estimated electrical capacity and distribution system; general
type of plumbing system; facade, placement, and orientation; gross and rentable square foot
analysis; and principal types of HVAC systems. Tenant may modify the Plans and Specifications
at any time or from time to time, so long as they comply with the Development Criteria. The
“Plans and Specifications” shall mean the original Plans and Specifications as so modified.
“Post-Foreclosure Tenant” means: (1) any assignee, purchaser, or transferee of the
Leasehold Estate through a Foreclosure Event, including Leasehold Mortgagee or its designee;
and (2) the direct and indirect successors and assigns of “1.” Any Post-Foreclosure Tenant shall
have all the rights and obligations of Tenant under this Lease, subject to the Nonrecourse Clause
and the terms of this Lease.
“Preemptive Right” means any expansion, extension, purchase, or renewal option; right
of first refusal or first offer; or other preemptive right this Lease gives Tenant.
“Prime Rate” means the prime rate or equivalent “base” or “reference” rate for corporate
loans that, at Tenant’s election, by Notice to Landlord, is from time to time: (a) published in the
Wall Street Journal; (b) announced by any large United States “money center” commercial bank
20
Tenant designates; or (c) if such rate is no longer so published or announced, then a reasonably
equivalent rate published by an authoritative third party that Tenant reasonably designates.
Notwithstanding anything to the contrary in this paragraph, the Prime Rate shall never exceed
the Usury Limit.
“Principals” of Tenant means, until the Construction Completion Date for the Initial
Development, the Guarantors and ___________. Thereafter, such term means instead such
owners of Equity Interests in Tenant (if any) as Tenant shall have designated by Notice to
Landlord from time to time.
“Prohibited Lien” means any mechanic’s, vendor’s, laborer’s, or material supplier’s
statutory lien or other similar lien arising from work, labor, services, equipment, or materials
supplied, or claimed to have been supplied, to Tenant or any Subtenant (or anyone claiming
through either), which lien attaches (or may attach upon termination of this Lease) to the Fee
Estate. An Equipment Lien is not a Prohibited Lien.
“Property Insurance” means insurance providing coverage for the Premises, the Building,
and Building Equipment, against loss, damage, or destruction by fire and other hazards
encompassed under the broadest form of property insurance coverage then customarily used for
like properties in the County (except earthquake or war risk) from time to time during the Term,
in an amount equal to ___% of the replacement value (without deduction for depreciation) of the
Building and Building Equipment (excluding excavations and foundations) and in any event
sufficient to avoid co-insurance, with “ordinance or law” coverage. Such insurance may contain
a deductible clause not exceeding $__________ times the CPI Adjustment Factor. To the extent
customary for like properties in the County at the time, such insurance shall include coverage for
explosion of steam and pressure boilers and similar apparatus located on the Premises; an
“increased cost of construction” endorsement; and an endorsement covering demolition and cost
of debris removal. Property Insurance shall also include rental or business interruption insurance
in an amount at least equal to ________ times annual Fixed Rent and Real Estate Taxes and
providing for a ___-month extended period of indemnity.
“Property Insurance Proceeds” means net proceeds (after reasonable costs of adjustment
and collection, including Legal Costs) of Property Insurance, when and as received by Landlord,
Tenant, Depository, or any Mortgagee, excluding proceeds of Tenant’s business interruption
insurance in excess of Rent.
“Punchlist Work” means Construction, of an insubstantial nature, the noncompletion of
which will not delay issuance of a temporary certificate of occupancy for the Development or the
applicable portion thereof or materially interfere with use of the Development as this Lease
contemplates.
“Real Estate Taxes” means all general and special real estate taxes (including taxes on
FF&E, sales taxes, use taxes, and the like), BID payments, assessments, municipal water and
sewer rents, rates and charges, excises, levies, license and permit fees, fines, penalties and other
governmental charges and any interest or costs with respect thereto, and charges for public
utilities (including gas, electricity, light, heat, air conditioning, power and telephone and other
communication services), general and special, ordinary and extraordinary, foreseen and
21
unforeseen, of any kind and nature whatsoever that at any time before or during the Term and
applicable to the Term or any part of it may be assessed, levied, imposed upon, or become due
and payable out of or in respect of, or charged with respect to or become a lien on, the Premises,
or the sidewalks or streets in front of or adjoining the Premises, or any vault, passageway or
space in, over or under such sidewalk or street, or any other appurtenances of the Premises, or
any FF&E, Building Equipment or other facility used in the operation thereof, or the rent or
income received therefrom, or any use or occupancy thereof. “Real Estate Taxes” shall not,
however, include any of these, all of which Landlord shall pay before delinquent or payable only
with a penalty: (a) any franchise, income, excess profits, estate, inheritance, succession, transfer,
gift, corporation, business, capital levy, or profits tax, or license fee, of Landlord; (b) any item
listed in this paragraph that is levied, assessed, or imposed against the Premises during the Term
based on the recapture or reversal of any previous tax abatement or tax subsidy, or compensating
for any previous tax deferral or reduced assessment or valuation, or correcting a miscalculation
or misdetermination, relating to any period(s) before the Commencement Date; and (c) interest,
penalties, and other charges for items “a” and “b.” If at any time during the Term the method of
taxation prevailing at the Commencement Date shall be altered so that any new tax, assessment,
levy (including any municipal, state or federal levy), imposition, or charge, or any part thereof,
shall be measured by or be based in whole or in part upon the Premises and imposed upon
Landlord, then all such new taxes, assessments, levies, Real Estate Taxes, or charges, or the part
thereof to the extent that they are so measured or based, shall be deemed to be included within
the term “Real Estate Taxes,” to the extent that such Real Estate Taxes would be payable if the
Premises were the only property of Landlord subject to such Real Estate Taxes.
“Rent” means Fixed Rent and Additional Rent.
“Rent Regulation” means any Law that provides for rent control, rent stabilization, rent
arbitration, mandatory renewal, continued occupancy after contractual expiration, or any other
similar rights of any tenant or subtenant beyond those negotiated on a free market and arm’s
length basis.
“Restoration” means, after a Loss, the alteration, clearing, rebuilding, reconstruction,
repair, replacement, restoration, and safeguarding of the damaged or remaining Improvements,
substantially consistent with their condition before the Loss, subject to such Construction as
Tenant shall perform in conformity with this Lease, subject to any changes in Law that would
limit the foregoing.
“Restoration Funds” means any Loss Proceeds (and deposits by Tenant) to be applied to
Restoration.
“Restore” means accomplish a Restoration.
“Revaluation Date” means: __________.
“Scheduled Expiration Date” means 11:59 p.m. on _______. To the extent that Tenant
exercises any Renewal Option(s), the Scheduled Expiration Date means 11:59 p.m. on the last
day of the corresponding Renewal Term.
22
“Security” means $_________ at the Commencement Date, subject to reduction as
follows, based on progress of completion of Initial Development as certified by Tenant’s
Architect and reasonably confirmed by Landlord and its advisers.
Upon This Percentage of Completion of
Initial Development:
25%
50%
75%
Construction Completion Date
Reduced Security
Amount:
$________
$________
$________
$0
“Senior,” when referring to multiple Mortgage(s), means the Mortgage that is most senior
in lien of the same type (Fee or Leasehold). Where “Senior” is used as a comparative term as
against any specified Mortgage, such term refers to any Mortgage of the same type (Fee or
Leasehold) that is senior in lien to such specified Mortgage. Priority of liens shall be determined
under the Section of this Lease entitled “Multiple Leasehold Mortgages.” If only one Mortgage
of a particular type exists, then it shall be deemed the “Senior” Mortgage of such type.
“SNDA” means a subordination, nondisturbance, and attornment agreement, in
recordable form, in substantially the form of Exhibit ___, modified as necessary in Tenant’s or
any Leasehold Mortgagee’s reasonable judgment to reflect the parties and the nature and
circumstances of the estates that such SNDA affects.
“SNDA-Eligible Sublease” means a Sublease that Tenant (or any Person claiming by or
through Tenant) enters into in good faith and at arm’s length provided that:
Affiliation. The Subtenant is not an Affiliate of the sublessor;
Configuration. The configuration of the subleased space is commercially
reasonable and would not unreasonably interfere with or impair the marketability of any
portion of the remaining Premises;
Credit. Either: (a) Subtenant’s (or its guarantor’s) net worth exceeds ____ times
the annual fixed or base Subrent payable under such Sublease (commencing after the
expiration of any applicable Subrent abatement or “free rent” period under the Sublease)
(the “Annual Base Subrent”); (b) Subtenant has delivered to Tenant a security deposit
equal to at least ____ times Annual Base Subrent; or (c) Subtenant’s (or its guarantor’s)
creditworthiness is commercially reasonable under the circumstances;
Free Rent. Any “free rent” or rent abatement periods are commercially
reasonable, but shall not exceed ____ months in the aggregate; in addition, Subrent may
abate in a commercially reasonable manner based upon a Loss or other contingencies
commonly addressed in space leases;
No Declining Base Subrent. Payments of fixed or base Subrent are not scheduled
to decrease during such Sublease (but may abate based on Loss or other contingencies
commonly addressed in space leases);
23
Occupancy. The Sublease allows the Subtenant to use and occupy its premises for
commercial (not residential) purposes permitted by this Lease;
Rent; Escalations; Terms. When the Sublease is signed: (a) Subrent and
escalations are at least ___% of fair market value; (b) all other terms and conditions of
the Sublease are commercially reasonable; and (c) the Sublease does not violate this
Lease;
SNDA with Landlord. The Subtenant has (if Landlord requires) entered into an
SNDA with Landlord;
SNDA with Leasehold Mortgagee. If any Leasehold Mortgage exists, then at least
one Leasehold Mortgagee has entered (or simultaneously enters or has agreed in writing
to enter) into a subordination, nondisturbance, and attornment agreement with such
Subtenant, and Tenant has given Landlord written evidence thereof; and
Term. The term (including option and renewal terms) ends before the earlier of (a)
___ years after the commencement date of the Sublease; or (b) the day before the
Scheduled Expiration Date.
For this definition, any criteria that refer to market conditions or to commercial reasonableness
shall be determined based upon the certificate of a licensed real estate broker, provided that such
broker has: (a) at least 10 years’ experience in leasing similar real property in the County; and
(b) not negotiated any transaction in the Premises in the preceding ___ months.
“State” means the state or commonwealth where the Premises are located.
“Structure” of the Premises means only the concrete floors, footings, foundation, loadbearing walls, roof, roof support system, and structural steel or other structural support system of
the Premises.
“Sublease” means, for the Premises, any: (a) sublease; (b) agreement or arrangement
(including a concession, license, management, or occupancy agreement) allowing any Person to
occupy, use or possess; (c) subsublease or any further level of subletting; or (d) Modification or
assignment of “a” through “c.” (Any reference to Subleases does not diminish, impair, limit, or
waive any limit on Subleases.)
“Subrent” means all money due and payable by Subtenants under Subleases.
“Subrent Payment Notice” means a notice from Landlord to any Subtenant, directing
such Subtenant to pay its Subrent to Landlord and not to Tenant.
“Substantial Casualty” means a Casualty that: (a) renders ___% or more of the Premises
not capable of being used or occupied; (b) occurs less than ____ before the end of the Term and
renders ___% or more of the Premises not capable of being used or occupied; (c) requires
Restoration whose cost Tenant reasonably estimates in writing would exceed $_________; or (d)
pursuant to Law, prevents the Premises from being Restored to the same bulk, and for the same
use(s), as before the Casualty.
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“Substantial Condemnation” means any Condemnation that (a) takes the entire Premises;
(b) in Tenant’s reasonable determination (with Leasehold Mortgagee’s Consent) renders the
remaining Premises Uneconomic; or (c) occurs less than _____ before the end of the Term.
“Subtenant” means any Person entitled to occupy, use, or possess any Premises under a
Sublease.
“Supplementary Agreement” means the Guaranty and any other agreement, guaranty,
letter of credit, security agreement, or other document (except this Lease) by which any Person
provides assurances, credit enhancement, or security for any party’s performance under this
Lease.
“Surety Bond” means a surety company payment, performance, and completion bond, in
form and substance and issued by a surety company licensed in the State in an amount equal to at
least ___% of the cost (as estimated by Tenant’s Architect and approved by Senior Leasehold
Mortgagee) of all materials and labor for any Major Construction for which a Surety Bond is
required, guaranteeing to Landlord (and to such other Persons as Tenant shall determine
appropriate) Builder’s completion18 of such Major Construction, in accordance with the contract
with Builder, fully paid and free and clear of all liens, encumbrances, security interests, and other
charges, except as this Lease permits.
“Temporary Condemnation” means a Condemnation of the temporary right to use or
occupy all or part of the Premises.
“Tenant-Specific Default” means any Default that: (a) arises from any lien or
encumbrance attaching solely to the Leasehold Estate (not the Fee Estate) but junior to the
Leasehold Mortgage; or (b) Leasehold Mortgagee or New Tenant cannot reasonably cure.
“Tenant’s Architect” means an architect that is: (a) selected by Tenant; (b) not Affiliated
with any Principal; (c) licensed in the State; and (d) reasonably qualified and experienced in
overseeing projects similar to the Major Construction for which such architect is engaged.19 As
of the Commencement Date, Tenant’s Architect is ______________________. Landlord
confirms that such firm complies with this paragraph. Tenant may replace Tenant’s Architect at
any time, subject to this definition.
“Term” means the Initial Term, as extended from time to time by Tenant’s valid exercise
of Renewal Option(s) to include one or more Renewal Term(s).
“Transfer” of any property means any of these, whether by operation of law or otherwise,
whether voluntary or involuntary, and whether direct or indirect: (a) any assignment,
conveyance, grant, hypothecation, mortgage, pledge, sale, or other transfer, whether direct or
18
A Surety Bond backs only Builder’s payment and performance. It does not back Tenant’s obligation to pay
Builder. In theory, Tenant should be able to obtain a bond to back the latter obligation. If not, other security
measures exist.
19
Tenant may consider clause “d” too qualitative, inviting disputes. If so, one could more tightly define the
required experience.
25
indirect, of all or any part of such property, or of any legal, beneficial, or equitable interest or
estate in such property or any part of it (including the grant of any easement, lien, or other
encumbrance); (b) any conversion, exchange, issuance, modification, reallocation, sale, or other
transfer of any direct or indirect Equity Interest(s) in the owner of such property by the holder of
such Equity Interest(s); (c) any transaction described in “b” affecting any Equity Interest(s) or
any other interest in such property or in any such owner (or in any other direct or indirect owner
at any higher tier of ownership) through any manner or means whatsoever; or (d) any transaction
that is in substance equivalent to any of the foregoing. A transaction affecting Equity Interests, as
referred to in clauses “b” through “d,” shall be deemed a Transfer by Tenant even though Tenant
is not technically the transferor. [A “Transfer” shall not, however, include any of the foregoing
(provided that the other party to this Lease has received Notice thereof) of any Equity Interest:
(a) that constitutes a mere change in form of ownership with no material change in beneficial
ownership and is a tax-free transaction under federal income tax law and the State real estate
transfer tax; (b) to member(s) of the immediate family(ies) of the transferor(s) or trusts for their
benefit; or (c) to any Person that, as of the Commencement Date, holds an Equity Interest in the
entity whose Equity Interest is being transferred.]
“Transferred Development Rights” means any Development Rights that Landlord or
Tenant acquires pursuant to this Lease.
“Trust Funds” means any funds that this Lease requires or allows Landlord (or anyone
acting for Landlord) to hold, and in which Tenant has an interest.
“Unavoidable Delay” means delay in performing any obligation under this Lease (except
payment of money) arising from or on account of any cause whatsoever beyond the obligor’s
reasonable control, despite such obligor’s reasonable diligent efforts, including industry-wide
strikes, labor troubles or other union activities (but only to the extent such actions affect similar
premises at that time and do not result from an act or omission of the obligor), the obligor’s
inability to obtain required labor or materials after commercially reasonable efforts to do so,
litigation (unless caused by the obligor), Loss, accidents, Laws, governmental preemption, war,
or riots. Unavoidable Delay shall exclude delay caused by the obligor’s financial condition,
illiquidity, or insolvency. Any obligor claiming Unavoidable Delay shall Notify the obligee: (a)
within 30 days after such obligor knows of any such Unavoidable Delay; and (b) within 10 days
after such Unavoidable Delay ceases to exist. To be effective, any such Notice must describe the
Unavoidable Delay in reasonable detail. Where this Lease states that performance of any
obligation is subject to Unavoidable Delay(s) or words of similar import, such Unavoidable
Delay(s) shall extend the time for such performance only by the number of days by which such
Unavoidable Delay(s) actually delayed such performance.
“Uneconomic” means that the Premises or any substantial part of the Premises: (1) is
materially diminished in value or utility; (2) cannot be used for its previously intended purpose;
(3) is subject to material impairment of access to, parking facilities benefiting, or any material
service(s) necessary or appropriate for economic operation; (4) requires Restoration whose cost
Tenant reasonably estimates in writing would exceed ____ times the then-current aggregate
Market Value of the Fee Estate and the Leasehold Estate; (5) does not comply with any operating
requirements under any license or franchise held by Tenant; (6) cannot reasonably be operated as
a _____________, whether in a manner substantially consistent with past practice or on a scale
26
that is smaller but nevertheless profitable (after taking into account the payment of all expenses,
including Rent as adjusted after any Condemnation) and reasonably feasible; or (7) cannot be
developed or operated in a commercially reasonable manner.
“Usury Limit” means the highest rate of interest, if any, that Law allows under the
circumstances.
“Waiver of Subrogation” means a provision in, or endorsement to, any property insurance
policy, by which the carrier agrees to waive rights of recovery by way of subrogation against
either party to this Lease for any loss such policy covers.
2.
TERM.
2.1
Initial Term. The initial term of this Lease (the “Initial Term”) shall: (a)
commence on the Commencement Date; and (b) continue until the Scheduled Expiration Date,
unless terminated sooner. If the Commencement Date is not the first (or the Expiration Date is
not the last) day of a Lease Year, then from the Commencement Date through the day before the
first Lease Year (or from the day after the last Lease Year through the Expiration Date), the
parties shall have all the same rights and obligations under this Lease (including regarding Rent)
that they do during the first (or the last, as applicable) full Lease Year, all prorated daily.
2.2
Renewal Option(s). Tenant shall have the right and option (each such right and
option, a “Renewal Option”) to extend and renew this Lease upon all the same terms and
conditions (except as this Lease otherwise expressly states), for one or more additional
successive periods, as provided for below (each, a “Renewal Term”) after the Initial Term
expires. Tenant shall exercise each Renewal Option, if at all, by giving Landlord Notice of such
exercise at most 30 months, and at least 18 months, before the first day of the corresponding
Renewal Term. Notwithstanding the preceding sentence, Landlord shall give Tenant at least 90
and at most 180 days’ prior written notice of the date when Tenant’s right to exercise any
Renewal Option will expire (a “Reminder Notice”). Tenant’s period to exercise any Renewal
Option (and the Term, on all the same terms and conditions that applied during the last year of
the Term as it existed before such extension) shall automatically be extended, and shall continue
in force, until the date 90 days after Tenant has received Landlord’s Reminder Notice. Any
extension of the Term under the previous sentence constitutes a continuation of the Term of this
Lease, and not a separate, independent, or additional term of occupancy or interest in real
property.20 After the last Renewal Term, Tenant shall have no further right to renew or extend
the Term. Tenant may not Transfer the Renewal Option separately from this Lease. The Renewal
Option is irrevocably appurtenant to and part of this Lease and the Leasehold, and incapable of
separation from this Lease.21 The Renewal Terms are:
20
The Rule Against Perpetuities may require the preceding sentence.
21
Consider how the Rule Against Perpetuities may affect long-term Lease options, particularly if the parties
agree on mechanisms by which those options may remain open indefinitely.
27
Renewal Terms
Number
1
2
3
4
5
Commencing
Ending
2.3
Conditions to Exercise. If Tenant fails to validly and timely exercise any Renewal
Option, then all subsequent Renewal Options shall terminate. Each Renewal Option shall remain
effective notwithstanding Tenant’s Default, unless and until all cure periods for such Default
available to Tenant and Leasehold Mortgagee(s) have expired without cure and Landlord has
terminated this Lease, whereupon Tenant’s Renewal Option shall terminate. No other conditions,
express or implied, shall limit Tenant’s right to exercise any Renewal Option(s).
3.
RENT.
3.1
Fixed Rent. Tenant shall pay Landlord, without notice or demand, in lawful
money of the United States of America, a net annual rental (the “Fixed Rent”) as follows:
Term
Initial
Renewal 1
Renewal 2
Renewal 3
Renewal 4
Renewal 5
Fixed Rent
Annual
$________
$________
$________
$________
$________
$________
Monthly
$________
$________
$________
$________
$________
$________
3.2
Renewal Term. If Tenant exercises any Renewal Option, then on the first day of
the corresponding Renewal Term, Fixed Rent shall be adjusted to equal [the greater of: (a) the
Fixed Rent as in effect (as previously adjusted) during the last Lease Year before such Renewal
Term; or (b)] ____% of the Land Value of the Premises as of the [day that is ___ days before
the] first day of such Renewal Term.
3.3
Determination of Land Value. If Tenant exercises any Renewal Option, then the
parties shall promptly endeavor to agree upon the Land Value for that Renewal Term. If, ____
months before the first day of such Renewal Term, they have not agreed, then either shall notify
the other of the impasse. Each party shall within 10 Business Days after the effective date of
such Notice designate an Appraiser. The two Appraisers so designated shall within 10 Business
Days designate a third. If either party fails to timely designate an Appraiser, and does not cure
such failure within 10 Business Days after Notice of such failure, then the one Appraiser the
other party designated shall resolve the dispute. Within 10 Business Days after designation of the
Appraiser(s), each party shall simultaneously submit to the Appraiser(s), with a copy to the other
party, such party’s proposed Land Value, with such information and supporting materials as each
submitter determines appropriate. Within 10 Business Days after the parties have made their
28
submissions, the Appraiser(s), by majority vote (or by the determination of the one Appraiser, if
only one Appraiser is designated), shall select as Land Value either Landlord’s proposal or
Tenant’s proposal. The Appraiser(s) shall have no authority to designate any other Land Value.
(If a party fails to make a timely proposal, then the submission and exchange of proposals shall
be deferred by 10 Business Days. The party that was ready to proceed shall give the other party
immediate Notice of such deferral and the consequences of failing to make a timely proposal. If,
after such deferral and such Notice, a party still fails to make a timely proposal, then the other
party’s proposal shall automatically be deemed the Land Value, provided only that the
Appraiser(s) determine(s) that such proposal is not commercially unreasonable, arbitrary, or
capricious.) The Land Value the Appraiser(s) determine(s) shall be the Land Value for all
purposes of this Lease. The parties shall promptly confirm such Land Value in writing. Landlord
and Tenant may each, by Notice to the other, delegate to one Mortgagee all its rights under this
paragraph. The recipient of such Notice shall be bound by such delegation from and after receipt
of such Notice. Any such delegation shall remain effective until the related Mortgagee has either
satisfied and discharged its Mortgage of record or given Notice terminating such delegation.
3.4
Payment; Proration; Etc. Tenant shall pay Fixed Rent in equal monthly
installments in advance on the first day of each month. Tenant shall pay all Rent payable to
Landlord by good and sufficient check payable to Landlord or by wire transfer, at such address
as Landlord shall designate from time to time.
3.5
Additional Rent. In addition to Fixed Rent, Tenant shall pay Landlord (or the
appropriate third party, as applicable), as additional rent under this Lease, all Additional Rent.
Except where this Lease provides otherwise, Tenant shall pay all Additional Rent within ___
days after receipt of an invoice and reasonable backup documentation.
3.6
No Allocation to FF&E. No Rent is allocable to any FF&E.
3.7
No Offsets. Tenant shall pay all Rent without offset, defense, claim, counterclaim,
reduction, or deduction of any kind whatsoever.
3.8
Government Restriction on Rent. During any period when any Rent shall be or
become uncollectible, reduced, or required to be refunded because of any Rent Regulation (a
“Rent Regulation Period”), Tenant shall enter into such agreement(s) and take such other steps as
Landlord may reasonably request and as may be legally permissible to permit Landlord to collect
the maximum Rent that, from time to time during such Rent Regulation Period, may be legally
permissible (and not in excess of the amounts then reserved therefor under this Lease to the
extent then due and payable under this Lease). After any Rent Regulation Period: (a) Rent shall
become and thereafter be payable in accordance with this Lease; and (b) Tenant shall promptly
pay in full to Landlord, unless prohibited by Law, an amount equal to the excess, if any, of the
following during the Rent Regulation Period: (1) the Rent that this Lease required Tenant to pay;
less (2) the Rent Tenant actually paid.22
22
The Government that decides to implement Rent Regulation will surely also invalidate clauses like this
one, but it probably does no harm.
29
4.
ADDITIONAL PAYMENTS BY TENANT; REAL ESTATE TAXES.
4.1
Landlord’s Net Return. This Lease shall constitute an absolutely “net lease.” The
Fixed Rent shall give Landlord an absolutely “net” return for the Term, free of any expenses or
charges for the Premises, except as this Lease expressly provides. Tenant shall pay as Additional
Rent and discharge (subject to Tenant’s right of Contest as this Lease expressly provides), before
failure to pay creates a material risk of forfeiture or penalty, each and every item of expense, of
every kind and nature whatsoever, related to or arising from the Premises, or by reason of or in
any manner connected with or arising from the leasing, operation, management, maintenance,
repair, use, or occupancy of, or Construction affecting, the Premises. Notwithstanding anything
to the contrary in this Lease, Tenant need not pay, Tenant may offset against Rent any sums paid
by Tenant on account of, and Landlord shall Indemnify Tenant against payment of, these items
payable, accrued, or incurred by Landlord: (a) Fee Debt Service; (b) depreciation, amortization,
brokerage commissions, financing or refinancing costs, management fees, or leasing expenses
for the Fee Estate or the Premises; (c) consulting, overhead, accounting, tax preparation, other
professional fees, travel, legal and staff costs, bank service charges, and other costs incidental to
Landlord’s ownership of the Premises and administration and monitoring of this Lease, including
such costs Landlord incurs in reviewing anything Tenant delivers under this Lease (except where
this Lease expressly provides otherwise) or determining whether Tenant is in compliance with
this Lease; (d) any costs or expenses that Landlord incurs in or for any Arbitration, except to the
extent that this Lease requires Tenant to pay such costs or expenses; (e) any costs arising from or
under any instrument or agreement affecting the Premises (but not a Permitted Exception) and to
which Landlord is a party and Tenant is not a party; (f) any Real Estate Taxes, insurance
premiums, utilities, operating expenses, or other costs related to the Premises that accrued before
the Commencement Date; (g) any sums payable by Landlord under this Lease; and (h) all other
costs or expenses that, by their nature, are personal to Landlord or Landlord’s business of
investing in real estate or ownership of the Fee Estate.
4.2
Real Estate Taxes. Tenant shall pay and discharge all Real Estate Taxes payable
or accruing for all period(s) within the Term, before failure to pay creates a material risk to
Landlord of forfeiture or penalty, subject however to Tenant’s right of Contest as this Lease
expressly provides. Tenant shall also pay all interest and penalties any Government assesses for
late payment of any Real Estate Taxes, except late payment because Landlord failed to remit any
payment for Real Estate Taxes (paid to Landlord by Tenant) in accordance with Tenant’s
reasonable instructions (provided they involve only ministerial functions) or failed to promptly
forward Tenant a copy of any applicable bill that Landlord receives. In the latter case Landlord
shall pay such interest and penalties. Tenant shall within a reasonable time after Notice from
Landlord give Landlord reasonable proof that Tenant has paid any Real Estate Taxes that this
Lease requires Tenant to pay. Tenant shall have the sole right and authority to contest Real
Estate Taxes, in compliance with the Contest Conditions.
4.3
Assessments in Installments. To the extent Law allows, Tenant may apply to have
any assessment payable in installments. Tenant shall then pay and discharge only such
installments as become due and payable during the Term.
4.4
BID Decisions. If any proposal is made to include the Premises in any BID (or to
Modify the terms of any BID, including the amount or calculation of any required payments or
30
assessments) and the owner of the Premises is entitled to vote in favor of or against such
proposal, then Tenant shall decide how to vote, the parties shall cooperate to effectuate such
decision, and Tenant shall have full power to represent the Premises in all matters regarding the
BID, provided that at the time of determination: (a) no uncured Event of Default exists; and (b)
the unexpired Term is ____ years or more.
4.5
Direct Payment by Landlord. If any Additional Rent must be paid directly by
Landlord, then: (a) Landlord appoints Tenant as Landlord’s attorney-in-fact to make such
payment; and (b) if the payee nevertheless refuses to accept payment from Tenant, then Tenant
shall Notify Landlord and shall pay such amount to Landlord in a timely manner with reasonable
instructions on remittance of such payment. Landlord shall with reasonable promptness comply
with Tenant’s reasonable instructions. Landlord shall Indemnify Tenant against Landlord’s
failure to do so.
4.6
Utilities. Tenant shall arrange and pay for all fuel, gas, light, power, water,
sewage, garbage disposal, telephone, and other utility charges, and the expenses of installation,
maintenance, use, and service in connection with the foregoing, for the Premises during the
Term. Landlord shall have absolutely no liability or responsibility for the foregoing, provided
that Landlord performs its obligations regarding any related Application.
5.
USE.
5.1
Permitted Use. Tenant may use the Premises for any lawful purpose.23 Tenant
need not operate the Premises or conduct business of any nature in the Premises, or use or
operate the Premises in any particular manner. Tenant may discontinue operation of the Premises
at any time or from time to time. Tenant may vacate the Premises.
5.2
Exclusive Control. Tenant shall have exclusive control, possession, occupancy,
use, and management of the Premises, subject only to Permitted Exceptions. Tenant shall have
the exclusive right to install signage on or at the Premises, or to Transfer the right to install such
signage during the Term. Tenant may enter into, terminate, or Modify any existing or future
contract for management or operation of the Premises or provision of services to the Premises.
Any such contracts shall automatically expire on the Expiration Date. Tenant may cancel and
terminate any management contracts that exist on the Commencement Date. Landlord shall
Indemnify Tenant for any such cancellation or termination.
5.3
Management Fees. Tenant shall timely pay and discharge all fees, costs, and
expenses related to or arising from the management or operation of the Premises and the
provision of services to the Premises, including all operating expenses of Tenant and the
Premises.
23
Landlord may prefer a narrower use, but in that case any future land revaluation should also reflect the
narrower permitted use, which will tend to reduce Fixed Rent after any land-value-based adjustment. As a general
proposition, ground leases should give Tenant great flexibility on use. That will not be true, however, if Landlord
owns other nearby real property or is a Government.
31
6.
COMPLIANCE.
6.1
Generally. [To the extent that Tenant’s failure to do so will or may subject
Landlord to any civil or criminal liability; violate any express written order or notice of violation
issued by any Government; cause an imminent risk to health or safety; result in any lien, charge,
or other liability affecting Landlord or the Fee Estate; or create a material risk of forfeiture or
loss of the Fee Estate,] Tenant shall during the Term, at Tenant’s expense, in all material
respects, subject to Tenant’s right of Contest: (a) comply with all Laws and Permitted
Exceptions; and (b) procure and comply with all required Approvals.
6.2
Copies of Notices. Landlord shall promptly give Tenant a copy of any notice of
any kind regarding the Premises or any Real Estate Taxes (including any bill or statement), and
any notice of nonrenewal or threatened nonrenewal of any Approval that Landlord receives from
any Government, utility company, insurance carrier, or insurance rating bureau.
7.
MAINTENANCE AND CONSTRUCTION.
7.1
Obligation to Maintain. Except to the extent that (a) this Lease otherwise
expressly provides or allows or (b) Tenant is performing Construction in compliance with this
Lease, Tenant shall during the Term keep and maintain the Premises in [a condition of order and
repair sufficient to comply with Law] [good order, condition, and repair], subject to Loss
(governed by other provisions of this Lease), reasonable wear and tear, and any other conditions
that this Lease does not require Tenant to repair. Tenant’s obligation to maintain the Premises
includes an obligation to make all repairs that the Premises (including plumbing, heating, air
conditioning, ventilating, electrical, lighting, fixtures, walls, Structure, building systems,
ceilings, floors, windows, doors, plate glass, skylights, landscaping, driveways, site
improvements, curb cuts, parking lots, fences and signs located in, on or at the Premises, together
with any sidewalks and streets adjacent to the Premises) may require by Law from time to time
during the Term, whether structural or nonstructural, foreseen or unforeseen, capital or operating.
Tenant shall remove trash, snow, and debris from the Premises and the adjoining sidewalk, and
maintain them in a reasonably clean condition.
7.2
Construction. At Tenant’s sole cost and expense, Tenant may perform any
Construction, without Landlord’s consent, as Tenant shall consider necessary or appropriate,
subject however to the provisions of this Lease that limit or condition any Major Construction.
To the extent that Tenant commences any Construction, Tenant shall complete it with reasonable
diligence and within a reasonable period. Tenant shall pay for all Construction when and as
required by the parties that perform such Construction. Tenant shall timely obtain and promptly
deliver to Landlord, for Landlord’s information, all Approvals necessary or appropriate for any
Construction. All Improvements that Tenant constructs on the Land shall become part of the
Premises.
7.3
Plans and Specifications. To the extent that Tenant obtains plans and
specifications or surveys (including working plans and specifications and “as-built” plans and
specifications and surveys) for any Construction, Tenant shall promptly upon Landlord’s request
give Landlord a copy, subject to the terms of any agreement between Tenant and the applicable
architect, engineer, or surveyor. Tenant shall exercise reasonable efforts to cause its agreements
32
with such professionals to permit these deliveries, which are for Landlord’s information only
except to the extent, if any, this Lease otherwise expressly states.
7.4
Excavations. If an excavation shall be made (or authorized) upon land adjacent to
the Land, then Tenant shall either: (a) afford to the Person causing or authorized to cause such
excavation a license to enter the Premises, in accordance with Tenant’s reasonable instructions,
to perform such work as such Person shall reasonably deem necessary or desirable, and as
Tenant shall reasonably approve, provided that such Person agrees to preserve and protect the
Premises from injury or damage and to support the Premises by proper foundations; or (b)
perform or cause to be performed, without cost or expense to Landlord in its capacity as
Landlord under this Lease, work as described in clause “a” to the extent reasonably necessary
under the circumstances. Notwithstanding anything to the contrary in this paragraph, Tenant
shall comply with all Law that requires access to the Premises for any excavation on adjacent
land. Tenant shall not, because of any excavation or work described in this paragraph, have any
claim against Landlord in its capacity as such for damages, indemnity, or suspension,
diminution, abatement, or reduction of Rent. Any payment made because of any excavation
described in this paragraph during the Term shall belong to Tenant free of any claim by
Landlord.
7.5
Applications and Approvals. Tenant shall apply to each applicable Government
for such Approvals as any Construction shall require. Upon Tenant’s request, Landlord shall,
without cost to Landlord, promptly join in and execute any Application as Tenant reasonably
requests, and otherwise reasonably cooperate with Tenant in obtaining Approvals, provided that:
(a) such Application is in customary form and imposes no material obligations (beyond
obligations ministerial in nature or merely requiring compliance with Law) upon Landlord; (b)
no uncured Event of Default exists; and (c) Tenant reimburses Landlord’s Legal Costs. Landlord
grants to Tenant a power of attorney, coupled with an interest, and therefore irrevocable, to sign
on Landlord’s behalf any Application that this Lease requires Landlord to sign. Promptly upon
Tenant’s request and without charge (except reimbursement of Landlord’s Legal Costs),
Landlord shall furnish all information in its possession that Tenant reasonably requests for any
Application. Landlord assumes no liability by cooperating with any Construction. Tenant shall
Indemnify Landlord regarding such cooperation.
7.6
Landlord Nonopposition. Unless an uncured Event of Default exists, Landlord
shall not appear in opposition to any Application brought, sought, or defended by Tenant before
any Government arising out of any Application consistent with this Lease.
8.
DEVELOPMENT AND MAJOR CONSTRUCTION.
8.1
Initial Development. Tenant shall, in compliance with this Lease, cause the
Construction Commencement Conditions to be satisfied, and the Construction Commencement
Date to occur, for Initial Development, on or before the Initial Development Commencement
Deadline. [Any dispute about whether the Construction Commencement Conditions have been
satisfied shall be resolved by Arbitration.] [Landlord acknowledges that the Construction
Commencement Conditions for the Initial Development have all been satisfied at the
Commencement Date.] Tenant shall cause the Construction Completion Date for the Initial
Development to occur on or before the Initial Development Completion Deadline.
33
8.2
Major Construction. Tenant shall not commence demolition of existing
improvements, excavation, or any other substantial on-site physical element of any Major
Construction unless Tenant has met the Construction Commencement Conditions for such Major
Construction.
8.3
Plans and Specifications. After Landlord receives any Plans and Specifications,
Landlord shall have ten Business Days in which to Notify Tenant that they do not comply with
this Lease. If Landlord does not give such Notice within such period, then Landlord shall thereby
have waived any right to assert such noncompliance regarding: (a) the Plans and Specifications
delivered to Landlord; or (b) any Construction performed substantially in compliance with such
Plans and Specifications, as amended, modified, or further developed in the ordinary course. If
Tenant changes the Plans and Specifications, then Tenant shall promptly on Landlord’s request
deliver copies of such changes to Landlord for its information. Neither the retention of the Plans
and Specifications nor any other action Landlord takes regarding the Plans and Specifications
shall constitute an opinion or representation on their sufficiency.
8.4
Prosecution and Completion. If Tenant starts to demolish any improvements on
the Premises, or starts excavation, then Tenant shall prosecute such work with reasonable
diligence. When Tenant completes it, Tenant shall with reasonable promptness and reasonable
diligence commence, prosecute, and complete Tenant’s Major Construction in a good and
workerlike manner in compliance with Law, the Development Criteria, and this Lease.
8.5
License of Construction Documents. Tenant grants Landlord a license to use all
Construction Documents and Plans and Specifications for purposes of any law related to
intellectual property. Such license includes the right to modify or amend the Plans and
Specifications and the right to grant sublicenses. Tenant represents and warrants that it has the
power and authority to grant such license. Landlord shall not exercise its rights under any license
of Construction Documents or Plans and Specifications granted to Landlord under this Lease
unless this Lease has terminated and the New Lease Option Period has expired and no Leasehold
Mortgagee has requested a New Lease.
8.6
Major Subcontracts. Each Major Subcontract shall contain language substantially
to the effect of the sample language that follows this paragraph. Promptly after Builder enters
into any Major Subcontract, Tenant shall direct Builder to give Landlord a copy of it. Upon
Landlord’s request, but no more than once every 90 days, Tenant shall direct Builder to give
Landlord copies of any material Modifications of each Major Subcontract. Builder may modify
Major Subcontracts, provided Builder acts in good faith and does not materially change the
language this paragraph requires. The required language is as follows:
Subcontractor acknowledges that Builder has assigned this Subcontract to
Landlord, including the benefit of all payments made on account of this
Subcontract, subject to the rights of Leasehold Mortgagees. Subcontractor
consents to such assignment and shall perform under this Subcontract for
Landlord, provided only that Landlord pays all sums previously due, and
all sums due on account of such performance. Landlord’s exercise of its
rights under such assignment shall not be deemed an assumption of this
Subcontract. Notwithstanding anything to the contrary contained in this
34
assignment, Landlord shall not exercise its rights under this assignment
unless and until Landlord has re-entered upon the Premises following an
Event of Default (after the expiration of applicable notice and grace
periods, including all Leasehold Mortgagee’s Cure Rights and rights to
obtain a New Lease) by Tenant before the complete performance of this
Subcontract. This paragraph shall not be amended or modified without
Landlord’s prior written consent, but nothing in this paragraph shall limit
the right of Builder and Subcontractor to modify or amend any other terms
of this Subcontract from time to time in good faith. Landlord’s consent is
not necessary to any such modification or amendment of such other terms
of this Subcontract.
8.7
Insurance During Major Construction. Before Tenant commences (and at all times
during) any Major Construction or any related excavation or demolition, terminating on the
Construction Completion Date for such Major Construction, in addition to the other insurance
this Lease requires, Tenant shall at its expense procure and maintain, or cause to be procured and
maintained, these insurance coverages, by separate policy or endorsement(s) to other policies, all
in compliance with the general requirements of this Lease on insurance:
8.7.1
Builder’s Risk Insurance. “All risk” builder’s risk insurance on a
completed value (nonreporting) basis, in an amount sufficient to prevent coinsurance, but in any
event not less than 100% of replacement value including cost of debris removal but excluding
foundation and excavations, naming Landlord and Tenant, as their interests may appear. Such
insurance shall also: (a) contain a waiver of subrogation against subcontractors; (b) state that
“permission is granted to complete and occupy”; (c) cover, for replacement value, all materials
and equipment on or about any offsite storage location intended for use for the Premises; and (d)
provide for a deductible not exceeding $_______ times the CPI Adjustment Factor.
8.7.2
Liability Insurance. Contractor’s comprehensive general liability
insurance for not less than $________ for personal injury and $________ for broad form
property damage, including premises-operations liability, contractor’s protective liability for all
subcontractors’ operations, completed operations, contractual liability (referring to the indemnity
provisions of the applicable construction contract(s)), and for any foundation, excavation or
demolition work, an endorsement that such operations are covered and that the “XCU
Exclusions” have been deleted, which insurance may be in the form of a single limit policy or
policies.
8.7.3
Automobile Insurance. Automobile liability insurance for all owned,
non-owned, leased, rented, or hired vehicles, providing coverage with a combined single limit of
at least $1,000,000.
8.7.4
Workers’ Compensation Insurance. Workers’ compensation and
disability benefits insurance covering all Persons employed for such Major Construction.
8.7.5
Demolition. During any demolition or excavation, such additional
liability insurance as shall be reasonably customary to cover the added risks of such demolition
or excavation.
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8.7.6
[Increases in Insurance. To the extent that the foregoing insurance
provides less coverage than that normally and customarily maintained for properties similar to
the Premises during similar Major Construction, Landlord may, from time to time, increase such
coverage, upon at least 180 days’ prior Notice to Tenant, but Landlord shall not require such
increases more than once every _____ years and such increases shall not in aggregate exceed the
CPI Adjustment Factor.]
8.8
Conditional Assignment of Financing Commitment. Provided that such
assignment complies with the Construction Loan, Tenant assigns to Landlord Tenant’s rights
under the Construction Loan. Although such assignment is presently effective, Landlord shall not
exercise or seek to exercise any rights as assignee unless and until the Lease has been terminated,
the New Lease Option Period has expired without a request for a New Lease, and Tenant’s
lender has consented in writing to such assignment. Tenant shall exercise reasonable efforts to
obtain Tenant’s lender’s actual written consent to such assignment, but need not pay money or
commence litigation to obtain it. No fact or circumstance, except Tenant’s lender’s actual written
consent, shall be deemed to constitute Tenant’s lender’s consent to such assignment. Tenant’s
lender’s acceptance of a Leasehold Mortgage shall not be deemed consent to the foregoing
assignment, but shall constitute Tenant’s lender’s acknowledgment that such assignment (subject
to all conditions and limitations in this paragraph) does not violate the Construction Loan. If
Tenant’s lender does not consent to such assignment, then such failure shall not constitute a
Default. Tenant’s lender is under no obligation to consent to such assignment and may refuse
such consent in its sole and absolute discretion. Unless and until Tenant’s lender has actually
consented to such assignment in writing and this Lease has terminated, Landlord shall not be
entitled to exercise against Tenant’s lender any rights of Tenant, and may not assert any other
claims against Tenant’s lender with respect to the Construction Loan. The purpose of this
assignment is solely to allow Landlord to obtain the benefit of the Construction Loan, free of any
claims by Tenant, if and when both: (a) this Lease has terminated; and (b) Tenant’s lender in its
sole and absolute discretion has in writing consented to this assignment and agreed to recognize
Landlord as successor borrower under the Construction Loan. Landlord shall not be deemed to
have assumed the Construction Loan except under an express written assumption.
8.9
Certain Deliveries. When Tenant has obtained a temporary certificate of
occupancy for at least ___% of the rentable square footage of the Development, as evidenced by
a certificate of Tenant’s Architect (a copy of which Tenant shall give Landlord), Tenant shall
thereafter obtain and give Landlord copies of: (a) within 18 months, two complete sets of “asbuilt” plans and specifications for the entire Development (except commercial Subtenant
improvements) and an “as-built” survey showing no encroachments except as the Development
Criteria permit; and (b) within ____ months, a final certificate of occupancy for the entire
Development.
8.10 Abandonment. Tenant may, at Tenant’s option, abandon the Initial Development
at any time until the Construction Completion Date for the Initial Development has occurred,
provided that: (a) Tenant gives Landlord Notice of Tenant’s election to abandon; (b) such Notice
is accompanied by Leasehold Mortgagee’s Consent to such abandonment; and (c) Tenant with
reasonable diligence completes Construction Substitute Performance within a reasonable time
after Tenant’s Notice of abandonment. Pursuant to the Limited Guaranty, the Guarantors have
guarantied Tenant’s obligations to complete Construction Substitute Performance if and when
36
the preceding sentence requires it. If and when Tenant and the Guarantors have completed
Construction Substitute Performance, the Guarantors shall have no further obligations under the
Limited Guaranty.24
9.
TRANSFERRED DEVELOPMENT RIGHTS.
9.1
Acquisition. Tenant may at any time during the Term require Landlord to acquire
additional Development Rights in accordance with the further provisions of this Article. [Except
as this Article provides, Tenant shall have no right to, and shall not, acquire any Development
Rights for the benefit of the Land or the Premises.]
9.2
Negotiations. Tenant may at its option negotiate the terms of any purchase of
Transferred Development Rights with the seller of such Development Rights. Tenant is under no
obligation whatsoever to enter into any such negotiations and has not represented that Tenant
will do so. Without Tenant’s consent, Landlord shall not at any time communicate or negotiate
with any other property owner about purchasing Development Rights for the Land. Tenant may
enter (or require Landlord to enter) into an agreement to acquire such Development Rights, the
terms of which Tenant and the grantor of such Development Rights shall determine in their sole
and absolute discretion, provided that Tenant meets these conditions for such Development
Rights:
9.2.1
No Landlord Liability. The acquisition and utilization of such
Development Rights shall be without liability, present or future, to Landlord, except that (a)
Landlord shall bear its own attorneys’ fees and other transaction costs in negotiating and closing
such acquisition; (b) Landlord shall pay for such Development Rights to the extent this Lease
requires; and (c) if reasonably necessary under the circumstances, or if Landlord requests,
Landlord rather than Tenant shall enter into the agreement to acquire the Transferred
Development Rights, but such agreement shall be on reasonable and customary terms and
reasonably satisfactory to Landlord. Landlord’s attorneys’ fees (and other transaction costs)
reasonably incurred in negotiating and closing any acquisition of Development Rights shall
constitute part of Landlord’s TDR Investment from the date incurred, but Tenant need not
otherwise reimburse them. Landlord shall not pay or incur any brokerage fees, commissions, or
other compensation to acquire Transferred Development Rights without Tenant’s prior written
consent.
9.2.2
Landlord’s Interest. When acquired, any Transferred Development
Rights shall be deemed part of the Land and the Fee Estate for all purposes of this Lease and
shall become Landlord’s property, subject to Tenant’s rights under this Lease, which rights shall
extend to the Transferred Development Rights.
24
Guarantors may want to be able to abandon a disastrous project without needing to complete construction.
This paragraph and the definition of “Construction Substitute Performance” establishes a right to abandon by
attempting to restore the landlord to its position when it signed the lease, and compensating the landlord with a
payment of liquidated damages. Because landlords do not regard liquidated damages as a reasonable substitute for a
completed building, they may hesitate to agree to the mechanism proposed here. In some cases, though, it may be
necessary to make the transaction work.
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9.2.3
No Right to Disturb. The grantor of such Development Rights (and
anyone claiming through such grantor) shall have no right to disturb the possession and right to
possession of the Development or any part of it erected within or using such Development
Rights.
9.2.4
Title Insurance Coverage. Landlord may purchase, at Landlord’s
expense (but such expense shall be treated as part of Landlord’s TDR Investment), a title
insurance policy issued by a title insurance company licensed to do business in the State,
insuring in Landlord fee simple title to the Development Rights or an endorsement to Landlord’s
fee policy insuring a negative easement over the Development Rights parcel, in each case if and
to the extent obtainable from such title insurance company, further insuring that the possession
and right to possession of the Development or part of it erected within or utilizing the benefits of
such Development Rights shall not be disturbed by the grantor of such Development Rights or
any Person claiming through such grantor for so long as such Development stands.
9.2.5
No Loss, Forfeiture, or Lien. Any future default under any agreement
for acquisition of such Development Rights shall not result in any loss of the Premises, the
Development, the Fee Estate, any Fee Mortgage, any Leasehold Mortgage, or any part thereof or
in the placing of any lien that attaches to or affects the Fee Estate.
9.3
Payment.
9.3.1
Within
After Commencement Date. To the extent that the cost of
the Transferred Development Rights acquired before or on the _______ anniversary of the
Commencement Date, as such cost is agreed to between Tenant and the grantor of those
Transferred Development Rights, exceeds $___ per square foot of developable floor area, Tenant
shall pay that excess. (If Tenant requires Landlord to enter into a direct contract for the purchase
of Transferred Development Rights, then Tenant shall deposit with Landlord an amount equal to
such excess when Tenant requires Landlord to do so.) Landlord shall otherwise pay the entire
cost of such Transferred Development Rights to the extent acquired before or on the _______
anniversary of the Commencement Date. Any agreement for the purchase of Development
Rights shall not be effective without consent by all Leasehold Mortgagees. Landlord shall cause
all Fee Mortgagees to join in such agreement (and the closing documents under such agreement)
as reasonably necessary to accomplish the transfer of the Transferred Development Rights in a
manner reasonably satisfactory to Tenant.
9.3.2
After Years. If Tenant wishes to acquire Development Rights after
the ______ anniversary of the Commencement Date, then Tenant shall Notify Landlord and offer
that Landlord shall pay for those Transferred Development Rights on the same terms, and to the
same extent, and with the same effect on the parties’ rights and obligations, as if those
Transferred Development Rights were acquired before such date (but any Fixed Rent adjustment
shall not become effective until the closing date of the purchase of such Transferred
Development Rights). If, ___ days after receiving such Notice, Landlord has not accepted
Tenant’s offer, then Tenant may at its option pay the entire cost of such Transferred
Development Rights. In that case, such Transferred Development Rights shall at no time be
considered in determining Fixed Rent, but such acquisition shall be subject to all other
provisions of this Lease.
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9.4
Rent Adjustment. To the extent that Landlord actually pays or incurs any
Landlord’s TDR Investment, on the first day of the first calendar month following Landlord’s
payment or incurrence of Landlord’s TDR Investment, and continuing until [the next Fixed Rent
adjustment based on Land Value], annual Fixed Rent (payable in equal monthly installments)
shall increase by an amount equal to ___% of Landlord’s TDR Investment. Such incremental
Fixed Rent shall be deemed a part of Fixed Rent for all purposes.
9.5
Utilization. If Tenant obtains Transferred Development Rights (regardless of who
paid for them), then Tenant shall utilize ___% of the maximum floor area then allowed to be
constructed on the Land, after taking into account any increase in development potential
resulting from such Transferred Development Rights.
9.6
Additional Agreements. Without Landlord’s prior written consent, which
Landlord may withhold for any reason or no reason, Tenant shall not: (a) Transfer any
Development Rights to any other real property from the Land; or (b) enter into or record any
agreement or instrument to combine the Land with any other land into a single or combined
zoning lot, unless such agreement transfers Development Rights solely to (not from) the Land
and otherwise complies with this Lease.
10.
SECURITY.
10.1 Delivery and Use of Security. At the Commencement Date, Tenant has deposited
with Landlord the Security, receipt of which Landlord acknowledges, to secure Tenant’s
performance and observance of Tenant’s obligations under this Lease. Landlord may deduct
from the Security an amount equal to: (a) any Rent that Tenant fails to pay; (b) all reasonable
sums that Landlord expends as the result of an Event of Default; and (c) an amount equal to
Landlord’s reasonable costs of recovering possession, reletting the Premises, and any and all
other damages legally recoverable by Landlord, together with reasonable out-of-pocket costs and
expenses incurred by Landlord, upon the occurrence of an Event of Default. Tenant shall
promptly replenish the Security to the extent of any such deduction.
10.2
Letter of Credit.
10.2.1 Terms; Replacement and Extension. Provided that no uncured Event of
Default exists, Tenant may replace the Security with (or deposit in lieu of the Security) an
irrevocable commercial standby letter of credit for the amount of the Security this Lease then
requires, provided that: (a) the form and substance of such letter of credit are reasonably
satisfactory to Landlord; (b) such letter of credit is payable upon Landlord’s presentation of the
original of such letter of credit together with a sight draft to the issuer, accompanied by
Landlord’s signed statement that Landlord is entitled to draw on such letter of credit; (c) the
issuer is a member bank of the New York Clearing House Association; and (d) the issuer
maintains a branch in the Borough of Manhattan or the State of Florida where such letter of
credit may be presented for payment. In addition to the foregoing, such letter of credit shall
provide for its: (i) continuance for at least one year from issuance; and (ii) to the extent
reasonably obtainable by Tenant at no additional cost, automatic extension for additional periods
of one year from initial expiry date and each subsequent expiry date, unless the issuer gives
Landlord Notice of its intention not to renew such letter of credit not less than 60 days before
39
such expiry date (a “Nonrenewal Notice”). If Tenant delivers a letter of credit in lieu of Security,
then Landlord shall consent to reduce or release such letter of credit when and as this Lease
would entitle Tenant to any reduction or release of the Security.
10.2.2 Use of Letter of Credit. If any of these events occurs, then Landlord
may draw upon the balance of the letter of credit in an amount equal to the aggregate amount of
the Security this Lease then requires: (a) the issuer delivers (i) a Nonrenewal Notice or (ii)
Notice that such issuer no longer intends to maintain a branch in the Borough of Manhattan or
State of Florida at which Landlord may draw upon such letter of credit, and, in either case “i” or
“ii,” Tenant fails to deliver a replacement letter of credit that complies with this Lease within 20
days after Tenant receives notice of the occurrence of “i” or “ii” (for purposes of which, the
parties shall reasonably cooperate to facilitate the simultaneous exchange of the old letter of
credit for the new letter of credit); (b) an Event of Default under this Lease; (c) if the remaining
term of the letter of credit is at any time less than 30 days, but Tenant has not delivered an
extension or renewal of such letter of credit for at least one year; or (d) Landlord Transfers this
Lease to a third party (or pledges it to a Fee Mortgagee) and the issuer of the letter of credit does
not consent to and cooperate as necessary to effectuate the transfer of the letter of credit to such
third party (or Fee Mortgagee), at no cost to Landlord (or Fee Mortgagee).
10.3 Release of Security. On each date when the definition of “Security” provides for a
reduction of the Security, Landlord shall promptly release to Tenant part of the Security then
held by Landlord, so that after such release the amount of such Security shall not exceed the
reduced amount such definition specifies. If and when Tenant is entitled to the release of all
Security, Landlord shall release to Tenant the entire Security, and Tenant’s obligation to
maintain or restore such Security shall terminate (except as this Lease otherwise requires during
certain Major Construction). Notwithstanding anything in this paragraph, Landlord need not
release any Security until Tenant has cured all Monetary Defaults and Events of Default.
10.4 Interest on Security. If the Security is in the form of cash, Landlord shall deposit
it in an account maintained with a banking organization within the Borough of Manhattan, which
account shall earn interest at a rate that shall be the prevailing rate earned by other such deposits
made with banking organizations in the Borough of Manhattan. Landlord shall promptly Notify
Tenant of the name and address of the banking organization in which Landlord deposits the
Security. Landlord shall be entitled to receive, as administration expenses, a sum equivalent to
one percent per annum upon the Security (including any additional Security deposited with
Landlord at any time during the Term pursuant to this Lease, but excluding any letter of credit
replacing any Security in accordance with this Lease), which shall be in lieu of all other
administrative and custodial expenses. The balance of the interest paid by the banking
organization shall be the money of Tenant and shall either be held in trust by Landlord until
repaid or applied for the use or rental of the Premises, or annually paid to Tenant.
10.5 Assignment by Landlord. If Landlord Transfers (as collateral or otherwise) its
interest in this Lease in compliance with this Lease, then Landlord shall transfer the Security to
such transferee (as collateral or otherwise). Upon such transfer, Landlord shall be automatically
freed and relieved from all liability for the return of the Security,25 provided that (a) such
25
Tenant may want the transferor to remain liable if the transferee’s credit does not meet a certain standard.
40
transferee assumes by written agreement with Tenant all of Landlord’s past, present, and future
obligations regarding the Security; and (b) Landlord notifies Tenant of such transferee and the
name and address of such transferee. Without limiting the generality of the foregoing, this
paragraph shall apply to every transfer of the Security to a successor Landlord. Landlord (and its
successors and assigns) shall in no event be bound by any assignment, encumbrance, attempted
assignment, or attempted encumbrance of the Security in violation of this provision.
10.6 No Assignment by Tenant. Tenant shall not assign or encumber or attempt to
assign or encumber the Security, except (a) in connection with an assignment of this Lease
complying with this Lease; or (b) assignment of the Security to a Post-Foreclosure Tenant or a
New Tenant when either acquires this Lease.
11.
PROHIBITED LIENS.
11.1 Tenant’s Covenant. If a Prohibited Lien is filed then Tenant shall, within 30 days
after receiving Notice from Landlord of such filing (but in any case within 15 days after receipt
of Notice from Landlord of commencement of foreclosure proceedings), commence appropriate
action to cause such Prohibited Lien to be paid, discharged, bonded, or cleared from title. Tenant
shall thereafter prosecute such action with reasonable diligence and continuity. If Landlord
receives notice of any such filing, then Landlord shall promptly Notify Tenant. Nothing in this
Lease shall be construed to: (a) limit Tenant’s right of Contest; or (b) obligate Tenant regarding
any lien that results from any act or omission by Landlord. If any Subtenant causes a Prohibited
Lien, then Tenant’s obligations under this paragraph shall be suspended so long as both: (a)
Tenant is with reasonable diligence endeavoring to cause the Subtenant to remove the Prohibited
Lien; and (b) the holder of the Prohibited Lien has not commenced foreclosure proceedings.
11.2 Protection of Landlord. NOTICE IS HEREBY GIVEN THAT LANDLORD
SHALL NOT BE LIABLE FOR ANY LABOR OR MATERIALS FURNISHED OR TO BE
FURNISHED TO TENANT UPON CREDIT, AND THAT NO MECHANIC’S OR OTHER
LIEN FOR ANY SUCH LABOR OR MATERIALS SHALL ATTACH TO OR AFFECT THE
FEE ESTATE. NOTHING IN THIS LEASE SHALL BE DEEMED OR CONSTRUED IN ANY
WAY TO CONSTITUTE LANDLORD’S CONSENT OR REQUEST, EXPRESS OR
IMPLIED, BY INFERENCE OR OTHERWISE, TO ANY CONTRACTOR,
SUBCONTRACTOR, LABORER, EQUIPMENT OR MATERIAL SUPPLIER FOR THE
PERFORMANCE OF ANY LABOR OR THE FURNISHING OF ANY MATERIALS OR
EQUIPMENT FOR ANY CONSTRUCTION, NOR AS GIVING TENANT ANY RIGHT,
POWER OR AUTHORITY TO CONTRACT FOR, OR PERMIT THE RENDERING OF, ANY
SERVICES, OR THE FURNISHING OF ANY MATERIALS THAT WOULD GIVE RISE TO
THE FILING OF ANY LIENS AGAINST THE FEE ESTATE. TENANT SHALL
INDEMNIFY LANDLORD AGAINST ANY CONSTRUCTION UNDERTAKEN BY
TENANT OR ANYONE CLAIMING THROUGH TENANT, AND AGAINST ALL
PROHIBITED LIENS.
12.
HAZARDOUS SUBSTANCES.
12.1 Restrictions. Tenant shall not cause or permit to occur on, under or at the
Premises during the Term: (a) any violation of any Environmental Law; or (b) the use,
41
generation, release, manufacture, refining, production, processing, storage, or disposal of any
Hazardous Substance, or transportation to or from the Premises of any Hazardous Substance,
unless both: (i) reasonably necessary and customary to conduct any legal business in the
Premises in accordance with customary standards in such business, or to operate and maintain
the Premises for uses this Lease permits and (ii) in compliance with all Environmental Laws.
12.2 Compliance; Clean-Up. Tenant shall, at Tenant’s expense: (a) comply with
Environmental Law and, to the extent Environmental Law requires, clean up any Hazardous
Substance Discharge; (b) make all submissions to, deliver all information required by, and
otherwise fully comply with all requirements of any Government under Environmental Laws; (c)
if any Government requires any clean-up plan or clean-up because of a Hazardous Substances
Discharge, prepare and submit the required plans and all related bonds and other financial
assurances; (d) promptly and diligently carry out all such clean-up plans; (e) Indemnify Landlord
against any Hazardous Substances Discharge or violation of Environmental Law, including all
matters described in clauses “a” through “d”; (f) keep Landlord fully informed of any actions
necessary or appropriate for Tenant to take to comply with this Section; (g) give Landlord copies
of all documents, notices, and other written communications that Tenant or its consultant(s)
sends or receives regarding the matters described in this Section; and (h) allow Landlord and its
designees to inspect the Premises (in such manner as they reasonably require) at any time to
determine the status of any matters described in this Section. Any party’s obligations under this
paragraph shall not limit that party’s rights against third parties.
13.
INDEMNIFICATION; LIABILITY OF LANDLORD.
13.1 Obligations. Landlord and Tenant shall each Indemnify the other against any: (a)
wrongful act, wrongful omission, or negligence of the Indemnitor (and anyone claiming by or
through the Indemnitor) or its or their partners, members, directors, officers, or employees; (b)
breach or default by the Indemnitor under this Lease; or (c) breach of any representation or
warranty the Indemnitor makes in this Lease. In addition, Tenant shall Indemnify Landlord (both
during and after the Term) against any of these that occurs during the Term or occurs so long as
Tenant remains in possession of any part of the Premises after the Expiration Date: (u) any
Contest Tenant initiates; (v) any Application made at Tenant’s request; (w) use, occupancy,
control, management, operation, and possession of the Premises; (x) any Construction and any
agreements that Tenant (or anyone claiming through Tenant) makes for any Construction; (y) the
condition of the Premises or any street, curb or sidewalk adjoining the Premises, or of any vaults,
tunnels, passageways or space under, adjoining or appurtenant to the Premises; and (z) any
accident, injury or damage whatsoever caused to any person in or on the Premises or upon or
under the sidewalks adjoining the Premises. Notwithstanding anything to the contrary in this
Lease, no Indemnitor must Indemnify any Indemnitee regarding the Indemnitee’s intentional acts
or omissions or negligence. This paragraph does not apply to Environmental Law and Hazardous
Substances Discharges, which this Lease covers elsewhere.
13.2 Liability of Landlord. During the Term: (a) Tenant is and shall be in exclusive
control and possession of the Premises; and (b) Landlord shall not be liable for any injury or
damage to any property (of Tenant or any other Person) or to any person occurring on or about
the Premises, unless caused by Landlord’s intentional act, omission, or negligence. Landlord’s
right to enter and inspect the Premises is intended solely to allow Landlord to ascertain whether
42
Tenant is complying with this Lease and (to the extent this Lease allows) to cure any Default.
Such provisions shall not impose upon Landlord any liability to third parties, but nothing in this
Lease shall be construed to exculpate, relieve, or Indemnify Landlord from or against any
liability of Landlord: (y) to third parties existing at or before the Commencement Date; or (z)
arising from Landlord’s intentional acts or omissions or negligence.
13.3 Indemnification Procedures. Wherever this Lease requires any Indemnitor to
Indemnify any Indemnitee:
13.3.1 Prompt Notice. Indemnitee shall promptly Notify Indemnitor of any
claim. To the extent, and only to the extent, that Indemnitee fails to give prompt Notice and such
failure materially prejudices Indemnitor, Indemnitor shall be relieved of its indemnity obligations
for such claim.
13.3.2 Selection of Counsel. Indemnitor shall select counsel reasonably
acceptable to Indemnitee. Counsel to Indemnitor’s insurance carrier shall be deemed satisfactory.
Even though Indemnitor shall defend the action, Indemnitee may, at its option and its own
expense, engage separate counsel to advise it regarding the claim and its defense. Such counsel
may attend all proceedings and meetings. Indemnitor’s counsel shall actively consult with
Indemnitee’s counsel. Indemnitor and its counsel shall, however, fully control the defense.
13.3.3 Cooperation. Indemnitee shall reasonably cooperate with Indemnitor’s
defense, provided Indemnitor reimburses Indemnitee’s actual reasonable out of pocket expenses
(including Legal Costs) in providing such cooperation.
13.3.4 Settlement. Indemnitor may, with Indemnitee’s consent, not to be
unreasonably withheld, settle the claim. Indemnitee’s consent shall not be required for any
settlement by which: (w) Indemnitor procures (by payment, settlement, or otherwise) a release of
Indemnitee by which Indemnitee need not make any payment to the claimant; (x) neither
Indemnitee nor Indemnitor on behalf of Indemnitee admits liability; (y) the continued
effectiveness of this Lease is not jeopardized in any way; and (z) Indemnitee’s interest in the
Premises is not jeopardized in any way.
13.3.5 Insurance Proceeds. Indemnitor’s obligations shall be reduced by net
insurance proceeds Indemnitee actually receives for the matter giving rise to indemnification.
14.
RIGHT OF CONTEST.
14.1 Tenant’s Right; Contest Conditions. Notwithstanding anything to the contrary in
this Lease, Tenant shall have the exclusive right to contest, at its sole cost, by appropriate legal
proceedings diligently conducted in good faith, the amount or validity of any Real Estate Taxes
or Prohibited Lien; the valuation, assessment, or reassessment (whether proposed, phased, or
final) of the Premises for Real Estate Taxes; the amount of any Real Estate Tax; the validity of
any Law or its application to the Premises; the terms or conditions of, or requirements for, any
Approval; or the validity or merit of any claim against which this Lease requires Tenant to
Indemnify Landlord (any of the foregoing, a “Contest”). Tenant may defer payment or
performance of the contested obligation pending outcome of the Contest, provided that Tenant
43
causes these conditions (collectively, the “Contest Conditions”) to remain satisfied (and any
dispute about Tenant’s satisfaction of the Contest Conditions shall be resolved by Arbitration):
14.1.1 No Criminal Act. Such deferral or noncompliance shall not constitute a
criminal act by Landlord or subject Landlord to a material risk of any fine or penalty, except civil
penalties for which Tenant has given Landlord a bond, letter of credit, or other security
reasonably satisfactory to Landlord (the “Contest Security”) in an amount equal to the
reasonably estimated amount of such civil penalties.
14.1.2 No Liability. Such deferral or noncompliance creates no material risk of
a lien, charge, or other liability of any kind against the Fee Estate, unless Tenant has given
Landlord Contest Security equal to the reasonably estimated amount of such lien, charge, or
other liability.
14.1.3 No Forfeiture. Such deferral or noncompliance will not place the Fee
Estate in material danger of being forfeited or lost.
14.1.4
expense to Landlord.
No Cost to Landlord. Such Contest shall be without cost, liability, or
14.1.5 Diligence. Tenant shall prosecute such Contest with reasonable
diligence and in good faith.
14.1.6 Payment. If required for such Contest, Tenant shall have paid the
Contested Real Estate Taxes or other matter.
14.1.7 Collection of Real Estate Taxes. If such Contest relates to any Real
Estate Tax, then such Contest shall suspend its collection from Landlord and the Fee Estate.
14.1.8 No Tax Deed. If, at any time, payment of any Real Estate Taxes is
necessary to prevent the imminent (i.e., within 30 days) delivery of a tax deed of the Fee Estate
for nonpayment, then Tenant shall pay or cause to be paid the sums in sufficient time to prevent
delivery of such deed.
14.1.9 No Event of Default. No Event of Default shall exist under this Lease at
the time of such Contest.
14.1.10 Security. If the amount at issue in such Contest (and all other Contests
then pending) exceeds an amount equal to ____ months Fixed Rent, then Tenant shall, before
proceeding with such Contest, give Landlord Contest Security equal to such excess (less any
Contest Security otherwise provided for the same Contest).
14.1.11 Named Parties. If Landlord has been named as a party in any action,
then Tenant shall cause Landlord to be removed as such party and Tenant substituted in
Landlord’s place, if permissible under the circumstances.
14.2 Landlord Obligations and Protections. Landlord need not join in any Contest
unless (a) Tenant has complied with the Contest Conditions; and (b) such Contest must be
44
initiated or prosecuted in Landlord’s name. In such case, Landlord shall cooperate, as Tenant
reasonably requests, to permit the Contest to be prosecuted in Landlord’s name. Landlord shall
give Tenant any documents, deliveries, and information in Landlord’s control and reasonably
necessary for Tenant to prosecute its Contest. Landlord shall otherwise assist Tenant in such
Contest as Tenant reasonably requires. Tenant shall pay all reasonable costs and expenses,
including Legal Costs, of any Contest. Tenant shall, at Landlord’s request, advance (when
Landlord incurs them) such reasonable costs and expenses that Landlord incurs or reasonably
anticipates incurring, for Tenant’s Contest and Landlord’s assistance with such Contest.
14.3 Miscellaneous. Tenant shall be entitled to any refund of any Real Estate Taxes
(and penalties and interest paid by Tenant), to the extent attributable to periods within the Term,
whether such refund is made during or after the Term. When Tenant concludes Tenant’s Contest
of any Real Estate Taxes, Tenant shall pay the amount of such Real Estate Taxes (if any) as has
been finally determined in such Contest to be due, to the extent attributable to periods within the
Term, and any costs, interest, penalties, or other liabilities in connection with such Real Estate
Taxes. Upon final determination of Tenant’s Contest of a Law, Tenant shall comply with such
final determination. So long as the Contest Conditions remain satisfied, Landlord shall enter no
objection to any Contest. Landlord may contest any matter for which Tenant is entitled to (but
does not) prosecute a Contest, but only if: (a) Landlord Notifies Tenant of Landlord’s intention
to do so; (b) Tenant fails to commence such Contest within 15 days after receipt of such Notice;
and (c) Landlord’s contest complies with all conditions and covenants that would apply to a
Contest by Tenant, transposing references to the parties and their interests as appropriate.
14.4 Contest Security. Landlord shall promptly release any Contest Security to Tenant
after the Contest has been resolved and Tenant has performed its obligations, if any, as
determined by such resolution. Landlord shall hold any Contest Security in the same manner as
the Security.
15.
INSURANCE.
15.1 Tenant to Insure. Tenant shall, at its sole expense, during the Term, maintain this
insurance, or its then reasonably available equivalent: (a) Property Insurance; and (b) Liability
Insurance.
15.2 Nature of Insurance Program. All insurance policies this Lease requires shall be
issued by carriers that: (a) have a policyholders’ rating of “B+-VIII” or better, based on the latest
rating publication of Property and Casualty Insurers by A.M. Best Company (or its equivalent if
such publication ceases to be published); and (b) are lawfully doing business in the State. Tenant
may provide any insurance under a “blanket” or “umbrella” insurance policy, provided that (i)
such policy or a certificate of such policy shall specify the amount(s) of the total insurance
allocated to the Premises, which amount(s) shall equal or exceed the amount(s) required by this
Lease and shall not be reduced for claims made for other properties; and (ii) such policy
otherwise complies with this Lease.
15.3 Policy Requirements and Endorsements. All insurance policies this Lease requires
shall contain (by endorsement or otherwise) these provisions:
45
15.3.1 Insureds. Liability Insurance policies shall name Landlord as an
“additional insured” and all Mortgagees this Lease allows as “additional insureds.” Property
Insurance policies shall name _____________ as loss payee as its interest may appear and each
Mortgagee this Lease allows under a standard noncontributing mortgagee clause.
Notwithstanding anything to the contrary in this paragraph, all Property Insurance Proceeds shall
be paid and applied as this Lease provides.
15.3.2 Primary Coverage. All policies shall be written as primary policies not
contributing to or in excess of any coverage that Landlord may carry.
15.3.3 Contractual Liability. Liability Insurance policies shall contain
contractual liability coverage, for Tenant’s indemnity obligations under this Lease, to the extent
covered by customary contractual liability insurance coverage. Tenant’s failure to obtain such
contractual liability coverage shall not relieve Tenant from any indemnity obligation under this
Lease.
15.3.4 Notice to Landlord. The insurance carrier shall undertake to give
Landlord 30 days’ prior Notice of cancellation or nonrenewal, except for nonpayment of
premiums, provided that failure to give such Notice shall not adversely affect the rights or
increase the obligations of the insurance carrier.
15.4 Deliveries to Landlord. On the Commencement Date, and no later than 10 days
before any Liability Insurance or Property Insurance expires or is cancelled, Tenant shall deliver
to Landlord certificates of insurance evidencing Tenant’s maintenance of all Liability Insurance
and Property Insurance this Lease requires, in each case providing coverage for at least one year
from the date delivered. In the event of any dispute regarding Tenant’s compliance with the
insurance requirements of this Lease, Tenant may at Tenant’s option obtain a certificate from a
reputable insurance broker confirming such compliance. Such certificate shall be dispositive.
15.5 Tenant’s Inability to Obtain Insurance. So long as (a) any insurance (except
Property Insurance) this Lease requires is, after diligent effort by Tenant, unobtainable at
commercially reasonable rates through no act or omission by Tenant; (b) a Leasehold Mortgagee
that is an Institutional Lender has waived the provision or maintenance of such insurance; and (c)
Tenant obtains the maximum insurance coverage reasonably obtainable and Notifies Landlord of
the extent of Tenant’s inability to obtain the full insurance this Lease requires. Tenant’s
obligation to procure and maintain such insurance as is unobtainable shall be excused, but only
so long as conditions “a” through “c” are satisfied. Notwithstanding the foregoing, if Landlord at
any time can procure for Tenant such insurance at commercially reasonable rates at any time
after Tenant’s Notice of inability to do so (and before Tenant has withdrawn such Notice), then
Tenant shall obtain and maintain such insurance at Tenant’s expense and pay Landlord a onetime administrative fee equal to 5% of the annual premium for such insurance.
15.6 Waiver of Certain Claims. To the extent that Landlord or Tenant purchases any
policy of property insurance, the party purchasing such insurance (the “Insurance Purchaser”)
shall attempt to cause the insurance carrier to agree to a Waiver of Subrogation, if not already in
the policy. If any insurance policy cannot be obtained with a Waiver of Subrogation, or a Waiver
of Subrogation is obtainable only by paying an additional premium, then the Insurance Purchaser
46
shall so Notify the other party. The other party shall then have 10 Business Days after receipt of
such Notice either to (a) direct the Insurance Purchaser to place such insurance with a company
reasonably satisfactory to the other party and willing to issue the insurance with a Waiver of
Subrogation at no greater or additional cost, or (b) agree to pay the additional premium if such a
policy can be obtained only at additional cost. To the extent that the parties actually obtain
insurance with a Waiver of Subrogation, the parties release each other, and their respective
authorized representatives, from any claims for damage to any person or the Premises that are
caused by or result from risks insured against under such insurance policies.
15.7 No Representation. Neither party makes any representation that the limits, scope,
or forms of insurance coverage this Lease requires are adequate or sufficient.
16.
LOSSES AND LOSS PROCEEDS.
16.1 Prompt Notice. If either party becomes aware of any Casualty or actual,
contemplated, or threatened Condemnation, then such party shall promptly so Notify the other
party and its Mortgagees.
16.2 Casualty. If any Casualty occurs after the Commencement Date, then no Rent
shall abate. Tenant shall, except as otherwise provided in this paragraph, Restore with reasonable
promptness. If the Casualty is a Substantial Casualty, then Tenant may, by Notice to Landlord
given within ___ months after the Casualty, but only with Leasehold Mortgagee’s Consent, elect
a Casualty Termination effective __ days after such Notice. Upon any Casualty Termination,
Tenant shall assign and transfer to Landlord (subject to the rights of Fee Mortgagee(s)) all of
Tenant’s rights to Property Insurance Proceeds Tenant received, or is entitled to receive, because
of the Casualty. If, however, pursuant to Law, the Premises cannot be Restored to the same bulk,
and for the same use(s), as before the Casualty, then upon any resulting Casualty Termination
Tenant shall be entitled to receive and retain (as a first priority claim to the Property Insurance
Proceeds) a portion of the Property Insurance Proceeds equal to the Market Value of the
Leasehold Estate. Unless Tenant has validly elected a Casualty Termination: (a) this Lease shall
not terminate; and (b) Tenant shall be solely responsible for negotiating and adjusting any
Property Insurance Proceeds, subject however to the Senior Leasehold Mortgagee’s loan
documents.
16.3 Substantial Condemnation. If a Substantial Condemnation occurs after the
Commencement Date, then as of the Condemnation Effective Date the Expiration Date shall
occur and the parties shall apportion Rent. Landlord shall not settle or compromise any
Condemnation Award without both consent by Tenant and Leasehold Mortgagee’s Consent.
Tenant may at its option control such proceedings (to the exclusion of Landlord, if Tenant so
elects) and claim such share of the Condemnation Award as Tenant is entitled to receive under
this Lease. Any Leasehold Mortgagee shall also (to the exclusion of both Landlord and Tenant,
to the extent Leasehold Mortgagee so elects subject to such Leasehold Mortgagee’s loan
documents) be entitled to appear and participate in any Condemnation Dispute Resolution
Proceeding. Any Condemnation Award shall be paid to Depository. Landlord (subject to the
rights of Fee Mortgagee(s)) and Tenant (subject to the rights of Leasehold Mortgagee(s)) shall
allocate the Condemnation Award as follows and in this order of priority, without duplication,
until exhausted:
47
1.
Prepayment Premium. To Leasehold Mortgagee, to the extent that both (1)
because of such Condemnation, any Leasehold Mortgagee imposes any fee or charge that such
Leasehold Mortgagee could not have collected but for the Condemnation and the related
prepayment of such Leasehold Mortgagee’s loan; and (2) the Condemnation Award was directly
or indirectly increased by such fee or charge.
2.
Costs and Expenses. To reimburse Tenant (subject to the rights of Leasehold
Mortgagees) for Tenant’s actual costs and expenses, including Legal Costs, incurred in the
Substantial Condemnation and determining and collecting the Condemnation Award.
3.
Tenant’s Claim. Tenant shall, subject to the rights of Leasehold Mortgagees,
receive such portion of the Condemnation Award as shall equal the [lesser] [greater] of (1) all
sums secured by all Leasehold Mortgages26; or (2) the Market Value of the Leasehold Estate at
the Condemnation Effective Date.
4.
Landlord’s Claim. Landlord shall, subject to the rights of Fee Mortgagees, receive
such portion of the Condemnation Award as shall equal the Market Value of the Fee Estate, at
the Condemnation Effective Date.27
5.
Tenant’s Residual Claim. Tenant shall, subject to the rights of Leasehold
Mortgagees, receive the entire remaining Condemnation Award.
16.4 Insubstantial Condemnation. If an Insubstantial Condemnation occurs after the
Commencement Date, then any Condemnation Award(s) shall be paid to Depository and applied
first toward Restoration, in the same manner as Restoration after Casualty. Whether or not the
Condemnation Award is adequate, Tenant shall, at its expense, Restore in compliance with this
Lease. After Tenant has completed and fully paid for Restoration, any remaining Condemnation
Award shall be distributed to Landlord and Tenant as if it arose from a Substantial
Condemnation that affected only the part of the Premises taken, with an equitable allocation of
all elements taken into account in determining such distribution. After the Condemnation
Effective Date, all Fixed Rent shall decrease by a fraction whose numerator is the amount of the
Condemnation Award paid to Landlord and whose denominator is the Market Value of the Fee
Estate immediately before the Condemnation Effective Date.
16.5 Near End of Term. If an Insubstantial Condemnation occurs during the last ____
years of the Term, then Tenant, upon __ days’ prior Notice to Landlord, given at any time within
26
Landlord may propose to add: “but only to the extent that the principal amount secured by those Leasehold
Mortgages, as of the date they were closed, did not exceed [75%] of the Market Value of the Leasehold Estate on
that date.” Tenant would insist that Market Value be based on the Leasehold Mortgagee’s third-party appraisal to
avoid debates.
27
Landlord would prefer to swap this paragraph with the preceding paragraph, and perhaps even to move this
paragraph to the front of the line completely. Landlord’s support for that proposition: “I’m functionally a first
mortgagee. I have to be paid first every month. I should also be paid first if a Government decides to convert our
real property into a pot of cash. I should have the same first claim to Loss Proceeds as a first mortgagee.” Leasehold
Mortgagees tend to feel otherwise, believing that their role justifies a first claim to the Condemnation Award. The
allocation of condemnation proceeds probably creates more trouble than it’s worth, but if the parties get it wrong
then this can impair financeability and salability.
48
__ days after such Insubstantial Condemnation, may cancel or terminate this Lease, provided
such Notice is accompanied by Leasehold Mortgagee’s Consent. Upon such termination, the
Rent shall be apportioned as of the date of termination, and Tenant need not Restore. In that
event, the balance of the Condemnation Award, less any reasonable amounts expended by
Tenant to the date of termination to safeguard, clear, or make emergency repairs to the Premises
(the costs of which shall be reimbursed to Tenant from the Condemnation Award), shall belong
to Landlord free of any claim by Tenant.
16.6 Temporary Condemnation. If a Temporary Condemnation occurs after the
Commencement Date and relates to a period longer than 90 days, then Tenant may, with
Leasehold Mortgagee’s Consent, terminate this Lease effective as of the Condemnation Effective
Date. In that event, and to the extent that the period of such Temporary Condemnation otherwise
includes any period outside the Term, the Condemnation Award from such Temporary
Condemnation shall belong to Landlord. If the Temporary Condemnation relates to a period of
90 days or less, or if Tenant does not (with Leasehold Mortgagee’s Consent) terminate this Lease
because of the Temporary Condemnation, then Tenant (subject to the rights of Leasehold
Mortgagees) shall receive the Condemnation Award (to the extent attributable to periods within
the Term) and this Lease shall not be affected in any way. Landlord shall have no right to
participate in any Temporary Condemnation proceedings unless either (a) Tenant, with
Leasehold Mortgagee’s Consent, elects to terminate this Lease because of the Temporary
Condemnation; or (b) Tenant may not legally participate in such proceedings. In the latter case,
Landlord shall participate in such proceedings in accordance with Tenant’s instructions, all at
Tenant’s reasonable expense and using counsel selected, instructed, and paid by Tenant, subject
to the rights of Senior Leasehold Mortgagee under its loan documents.
16.7 Use of Loss Proceeds. Landlord assigns to Tenant (and its Leasehold
Mortgagee(s)) the right to receive all Loss Proceeds. All Loss Proceeds shall be paid to
Depository, to be disbursed by Depository, subject to the terms of the Senior Leasehold
Mortgage and this Lease. If Landlord receives any Loss Proceeds, Landlord shall promptly remit
them to Depository. If a Loss is an Immaterial Loss, then (subject to the terms of the Senior
Leasehold Mortgage on disbursement of Loss Proceeds to Restore) the Depository shall release
all Loss Proceeds to Tenant, to be applied first to Restoration. If a Loss is not an Immaterial
Loss, then Depository shall retain the Loss Proceeds and pay them over to Tenant from time to
time, upon these terms, for Restoration. Depository shall first reimburse Landlord and Tenant
from such Loss Proceeds for their actual, necessary, and proper costs and expenses in collecting
such Loss Proceeds. Depository shall release Loss Proceeds to Tenant from time to time as
Restoration progresses in accordance with the procedures required by the Senior Leasehold
Mortgagee. If no Leasehold Mortgage exists, then Depository shall disburse the Loss Proceeds
from time to time pursuant to normal and customary disbursement procedures consistent with
this Lease, but excluding any requirement for a guaranty, bond, security, or other credit
enhancement or credit support measures. Until Tenant has completed and paid for Restoration,
Tenant shall hold all Loss Proceeds in trust to be used first to Restore and for no other purpose. If
any Prohibited Lien is filed against the Premises, Tenant shall not be entitled to receive any
further installment of Loss Proceeds until Tenant has satisfied, bonded, or otherwise discharged
such Prohibited Lien when and as this Lease requires. When Tenant has completed and paid for
Restoration, Depository shall release to Tenant, and Tenant may retain (subject to rights of
Leasehold Mortgagees) any remaining Loss Proceeds. If Restoration Funds are insufficient to
49
Restore, then Tenant shall nevertheless Restore at its expense. Depository shall not release any
Loss Proceeds until and unless Tenant has expended on such Restoration an amount equal to any
such insufficiency.
16.8 Payments for Fee Estate. Loss Proceeds shall under no circumstances be paid to
Landlord or any Fee Mortgagee unless (1) some other express provision of this Lease requires
Tenant to pay or assign such proceeds to Landlord and such payment or assignment is consistent
with the rights of Leasehold Mortgagees under this Lease and, in the case of payment to a Fee
Mortgagee, a Fee Mortgage requires that such proceeds payable to Landlord be paid instead to
Fee Mortgagee; or (2) Tenant validly elects a Casualty Termination. Landlord and Tenant direct
any condemning authority to remit and disburse any Condemnation Awards to Senior Leasehold
Mortgagee (or Tenant) in accordance with this Lease.
16.9 Continuation of Lease. Except as this Lease expressly provides, this Lease shall
not terminate, be forfeited, or be affected in any other manner, and Tenant waives any right to
quit or surrender the Premises or any part of the Premises, because of any Loss or any resulting
untenantability. Unless and until this Lease has been validly terminated, Tenant’s obligations
under this Lease, including the obligation to pay Rent, shall continue unabated, subject to the
Nonrecourse Clause.
17.
REPRESENTATIONS AND WARRANTIES.
Landlord represents and warrants to Tenant that these facts and conditions exist and are
true as of the Commencement Date. In addition, Tenant makes, for the benefit of Landlord,
certain reciprocal representations and warranties as set forth below.
17.1 Due Authorization and Execution. Landlord has full right, title, authority, and
capacity to execute and perform this Lease, the Memorandum of Lease, and any other
agreements and documents to which Landlord is a party and referred to or required by this Lease
(collectively, the “Lease-Related Documents”); the execution and delivery of the Lease-Related
Documents have been duly authorized by all requisite actions of Landlord; the Lease-Related
Documents constitute valid, binding, and enforceable obligations of Landlord; and neither the
execution of the Lease-Related Documents nor the consummation of the transactions they
contemplate violates any agreement (including Landlord’s organizational documents), contract,
or other restriction to which Landlord is a party or is bound. Tenant makes to Landlord
representations and warranties reciprocal to those in the preceding sentence. Both parties’
representations and warranties in this paragraph shall continue to apply in full force and effect
throughout the Term as if made continuously during the Term.
17.2 No Litigation. There is no existing or, to Landlord’s knowledge, pending or
threatened litigation, suit, action, or proceeding before any court or administrative agency
affecting Landlord, any constituent entity or individual of Landlord, or the Premises that would,
if adversely determined, materially adversely affect Landlord, the Premises, this Lease, the
50
Leasehold Estate, or Tenant’s ability to develop and operate the Premises for
_______________.28
17.3 No Pending Condemnation. There is no existing or, to Landlord’s knowledge,
pending or threatened Condemnation affecting any portion of the Premises or any pending public
improvements in, about, outside or appurtenant to the Premises that will materially adversely
affect the use and operation of the Premises as a ____________, the value of the Premises, or
access to the Premises or that will create additional cost to any owner or Tenant of the Premises
by means of special assessments or otherwise.
17.4 Equipment Liens. The Premises are free and clear of any rights or claims of a type
that, if Tenant entered into or granted them after the Commencement Date, would constitute
Equipment Liens.
17.5 FIRPTA. Landlord is not a “foreign person” within the meaning of Section
1445(f)(3) of the United States Internal Revenue Code of 1986.
17.6 No Pending Construction or Liens. Landlord is not a party to any contract for any
Construction. No Person has the right to claim any mechanic’s or supplier’s lien arising from any
labor or materials furnished to the Premises before the Commencement Date.
17.7 No Other Tenants. Tenant is the only lessee of the Premises. No other Person has
any right to lease, use, or occupy the Premises at any time, or any right to obtain such a right.
17.8 Ownership of Equity Interests in Landlord. At the Commencement Date, 100% of
the Equity Interests in Landlord are owned and held, beneficially and of record, as follows:
Holder
18.
Percentage Held
LANDLORD’S TRANSFERS.
18.1 Landlord’s Right to Convey. Landlord (or the holder of any Equity Interest in
Landlord) may Transfer the Fee Estate (or such Equity Interest) from time to time, but only if (a)
the transferor has first complied with Tenant’s ROFR; (b) such transaction and the resulting
ownership of Landlord do not otherwise violate this Lease; and (c) Landlord promptly Notifies
Tenant of such Transfer. If any transaction violates the preceding sentence, then: (w) it shall be
null, void, and of no force or effect;29 (x) notwithstanding the foregoing, Tenant shall be entitled
28
From Landlord’s perspective, this paragraph gives Tenant much broader assurances than Tenant really
needs.
29
It often does not suffice to prohibit a Transfer. One needs to go a step further and say that a Transfer is null
and void. If Tenant truly cares about preventing Landlord Transfers, Tenant should think about imposing meaningful
remedies if such a Transfer occurs and is not rescinded within a certain time. For example, why not reduce the Rent
if such a Transfer occurs? Absent such measures, Tenant would have trouble establishing damages or obtaining a
remedy.
51
to equitable relief to cancel and rescind it; (y) Tenant may terminate this Lease30; and (z) Tenant
may exercise any other available right or remedy.
18.2 Release of Landlord. Upon any Transfer of the entire Fee Estate in compliance
with this Lease, the grantor shall be automatically freed and relieved from all liability (excluding
liability previously accrued) for performance of any covenants or obligations to be performed by
Landlord after the Transfer, provided that: (i) Landlord delivers and turns over to the grantee all
Trust Funds; and (ii) such successor Landlord acknowledges to Tenant receipt of such Trust
Funds and assumes Landlord’s past, present, and future obligations under this Lease, subject to
the Nonrecourse Clause. This Lease shall bind Landlord only while Landlord owns the Fee
Estate, except as to any liabilities and obligations accrued before the date of Transfer of the Fee
Estate or arising from failure to turn over any Trust Funds.
18.3 Zoning Lots. Without Tenant’s prior written consent, which Tenant may withhold
for any reason or no reason, Landlord shall enter into no Development Rights Transfer.
18.4 Tenant’s Right of First Refusal. If Landlord desires to Transfer the Fee Estate,
then, provided that this Lease has not terminated or expired, Landlord shall first offer (the
“Landlord’s Offer”) to Transfer the Fee Estate to Tenant or a purchaser Tenant procures31
(“Tenant’s ROFR”) before offering it to any other Person,32 all as follows:33
18.4.1 Certain Exempt Transactions. Tenant’s ROFR shall not apply to: (a) the
grant of a bona fide Fee Mortgage to an Institutional Lender; (b) any Transfer through a
Foreclosure Event; or (c) after any Foreclosure Event, any subsequent Transfer(s) by anyone
whose title derives directly or indirectly from any Transfer that constituted a Foreclosure Event.
18.4.2 Landlord’s Offer. Landlord’s Offer shall be in writing and shall set forth
the terms on which Landlord proposes to Transfer the Fee Estate. Such terms shall: (a) require
either payment in cash at closing34 or deferred payments secured, if at all, only by a standard
printed form Fee Mortgage; (b) not involve any other property; (c) not require either purchaser or
30
Tenant will usually have no interest in terminating the Lease.
31
In these situations, Tenant will often have no interest in purchasing when the time actually comes but will
decide to find a purchaser, either to put the Fee Estate in friendly hands or to accomplish a “flip.” The timelines in
any ROFR make either process very difficult.
32
Is this a right of first refusal or a right or first offer? What is the difference?
33
The author’s recent experience suggests that no ROFR will ever actually work the way the parties think it
will, and that the parties and their counsel are overoptimistic – perhaps even hubristic – to think they can “get
everything right.” The author offers no assurances about the sample language offered here. Landlord should
strenuously resist any pre-emptive rights of this type. Tenant may have the better of the argument, as the whole
premise of a ground lease consists of the proposition that “Landlord doesn’t want to sell.” If Landlord changes its
mind, shouldn’t Tenant get “first shot” at making the deal Tenant originally wanted to make, i.e., a purchase? As a
result, rights of first refusal are extremely common in ground leases. Even if the author is correct that they will never
really work as well as the parties expect, they may at least force the parties to have a conversation and perhaps a
negotiation.
34
What about a deposit?
52
seller to perform or bear any material post-closing obligations or deliver any guaranties35; (d)
allow the purchaser to assign its contract; and (e) require conveyance of title subject only to
_________________. The Transfer shall otherwise be on the terms of a standard printed form
contract of sale used in the State for improved real property and selected by Tenant, modified as
necessary in Tenant’s reasonable judgment to reflect the terms of Landlord’s Offer, with a
closing 60 to 180 days (as Tenant designates on 30 days’ Notice to Landlord) after the date
Tenant has accepted Landlord’s Offer. Time shall not be of the essence for the closing date.36
18.4.3 Acceptance. Landlord’s Offer shall remain open for 30 days after
Tenant receives it. If Tenant accepts Landlord’s Offer, then the parties shall perform in
accordance with the resulting contract. Tenant’s failure to perform shall not constitute a Default
under this Lease but shall only entitle Landlord to retain Tenant’s deposit.
18.4.4 Sale to Third Party. If Tenant fails to accept Landlord’s Offer within 30
days after receipt, then Landlord may Transfer the Fee Estate to any other Person, except as set
forth below, provided that the Transfer closes within 180 days after the date of Landlord’s Offer
and complies with the limitations and requirements that apply to “Landlord’s Offer.” If,
however, Landlord desires to Transfer the Fee Estate for a price less than [95]% of the price in
Landlord’s Offer, or on terms that in any other way are materially more favorable to the
purchaser than those in Landlord’s Offer, then Landlord shall again deliver to Tenant a
Landlord’s Offer. The procedure described above shall again apply, but Tenant’s response period
shall be 15 days.
18.4.5 Transferees. Any purchaser (or direct or indirect subsequent purchaser)
of the Fee Estate or any interest in the Fee Estate, except a Transferee through a Foreclosure
Event under a Fee Mortgage, shall be bound, as to subsequent Transfers, by Tenant’s ROFR,
whether or not the instrument(s) of Transfer to that purchaser so state.37
18.5 Equity Interests. If the holder of any Equity Interest in Landlord or in
_________________ desires to Transfer that Equity Interest or any part of it, then that holder
shall comply with Tenant’s ROFR, but each reference to the Fee Estate shall refer to such Equity
Interest and each reference to Landlord shall refer to the holder of that Equity Interest. Landlord
shall cause that holder to comply with Tenant’s ROFR.38
35
This prohibition seeks to prevent Landlord from “gaming the system” by coming up with a sale that Tenant
cannot match or could not reasonably match. What if Landlord wants to undertake a more complicated transaction in
good faith? This is an example of the deficiencies of a typical ROFR.
36
Rights of first refusal often say very little about the actual terms of any purchase by Tenant. This paragraph
makes an effort to plug that gap. Although conceivably one could attach a form of contract, that does not seem to be
common. Also, a sale of real estate is really not all that complicated a transaction; we simply make it complicated.
37
Landlord will prefer to cut off the ROFR at the earliest possible point, including: (a) if Tenant does not
exercise it; or (b) after a certain number of years.
38
This “broad brush” statement of the concept may require substantial amplification. The ROFR provisions,
if fully thought through, may become the longest and most complicated part of the Lease – but the author submits
that they will never work perfectly.
53
19.
FEE MORTGAGES.
This Lease and the Leasehold Estate shall at all times be and remain prior and superior to
all Fee Mortgages and the rights of all Fee Mortgagees. Any inconsistency between any Fee
Mortgage and this Lease shall be resolved in favor of this Lease. Every Fee Mortgage shall: (a)
be, and state that it is, subject and subordinate to this Lease and any New Lease; (b) attach only
to the Fee Estate; and (c) contain Fee Mortgagee’s irrevocable consent and subordination to any
documents or agreements affecting the Premises that this Lease requires Landlord to deliver to
Tenant or at Tenant’s request. A Foreclosure Event under any Leasehold Mortgage shall impair
no estate or right under the Fee Estate or any Fee Mortgage and shall transfer only the Leasehold
Estate.
20.
TENANT’S TRANSFERS.
20.1 Tenant’s Absolute Right. Tenant may Transfer this Lease or the Leasehold Estate
without Landlord’s consent, except that Tenant shall not Transfer this Lease,39 and any Transfer
of this Lease shall be void and an incurable Event of Default under this Lease: (a) to the extent
that this Lease otherwise expressly prohibits or restricts that Transfer (for example, restrictions
on Transfer before the Construction Completion Date for the Initial Development)40; (b) if the
Transferee is (or can elect to be) immune from civil process; (c) if the assignee does not assume
all obligations and liabilities of Tenant under this Lease pursuant to documents reasonably
satisfactory to Landlord. Tenant shall pay all transfer and other taxes payable on account of any
Transfer by Tenant or any holder of any Equity Interest in Tenant. Tenant shall promptly Notify
Landlord of any Transfer. That notice shall include unredacted copies of all documents
evidencing that Transfer and all its terms and conditions. After Tenant assigns this Lease and the
assignee assumes it through documents reasonably satisfactory to Landlord, the assignor shall
have no obligation or liability under this Lease, except: (a) any obligation to hold and apply
Restoration Funds held by the assignor at the date of the assignment, unless transferred to the
assignee; (b) any unperformed obligations that arose before the assignment, unless assumed in
writing, in recordable form, by the assignee; and (c) _______________. If Tenant assigns this
Lease, then as between Landlord and Tenant, Tenant shall be deemed to have assigned to the
assignee or transferee all claims against Landlord then existing, and the assignee shall be
deemed, by assuming this Lease, to have assumed all liabilities and obligations of Tenant then
existing or thereafter arising under this Lease, except as this Lease otherwise expressly states.
20.2 Initial Development. Notwithstanding anything to the contrary in this Lease, until
the Construction Completion Date for the Initial Development: (a) Tenant may not Transfer this
Lease without Landlord’s consent, which consent Landlord may withhold in its sole and absolute
discretion, except (i) to an Affiliate of Tenant (provided that the Principals Control such
assignee) that assumes this Lease, (ii) as security under Leasehold Mortgage(s) that comply with
this Lease, (iii) through a Foreclosure Event, or (iv) any Transfer(s) made by any Post39
If the Lease permits certain Transfers, then the drafter still must remember to say all other Transfers are
prohibited; null and void; and an incurable Event of Default under the Lease. Drafters often forget.
40
The parties will often negotiate other Transfer restrictions, which may turn out to be the most hotly
negotiated issues in the Lease. The language here represents the minimum restrictions that would “always” appear in
a development Ground Lease.
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Foreclosure Tenant or New Tenant and their successors and assigns; and (b) no Equity Interest in
Tenant shall be subject to any Transfer without Landlord’s consent, which consent Landlord may
withhold in its sole and absolute discretion, unless such Transfer is made: (i) to a Permitted
Equity Owner, (ii) to a Leasehold Mortgagee assigned such Equity Interest(s) as security for a
Leasehold Mortgage, or through any exercise of remedies, or (iii) by anyone who obtains those
Equity Interest(s) through “ii” and their successors and assigns.
20.3 Substitution of Guarantor. If Tenant assigns this Lease in compliance with this
Lease, then Tenant may deliver to Landlord a replacement for the Guaranty (in the same form as
the Guaranty) issued by an Acceptable Replacement Guarantor, by which Acceptable
Replacement Guarantor assumes all undischarged obligations under the previous Guaranty. Only
if Tenant delivers a replacement Guaranty as this paragraph contemplates, then the previous
Guaranty shall be cancelled and of no force or effect as it relates to this Lease, and Landlord
shall upon request deliver reasonable evidence of cancellation, including the original Guaranty
marked “Cancelled” or a lost instrument affidavit and indemnity in customary form.
21.
SUBLEASES.
21.1 Tenant’s Right. Except to the extent that this paragraph provides otherwise,
Tenant may enter into or Modify any Sublease, terminate any Sublease or evict any Subtenant,
and grant any consent under any Sublease, all without Landlord’s consent. Notwithstanding the
previous sentence, Tenant shall not take any of the foregoing actions, and must obtain Landlord’s
prior consent to any such action, if: (a) an Event of Default exists or Landlord has given Tenant
Notice of a Default and such Default has not been cured; (b) a transaction with a Subtenant is not
entered into on an arm’s length basis; or (c) the action (except a complete termination of the
Sublease and surrender of the Subtenant’s possesion) involves a Subtenant that is or may be
entitled to any protections under Rent Regulation. No Sublease shall affect any obligations of
Tenant or rights of Landlord under this Lease, all of which shall continue in full force and effect
notwithstanding any Sublease. Any Sublease shall expire no later than one hour before the
Expiration Date. The fact that any Subtenant causes any Default shall not relieve Tenant of
responsibility for that Default, or of Tenant’s obligation to cure it. Tenant shall take all steps
reasonable and necessary to prevent any such Default.
21.2 Assignment of Subrents. To secure Tenant’s performance, Tenant assigns,
transfers, and sets over to Landlord, subject to the conditions in this paragraph (and the rights of
Leasehold Mortgagees), Tenant’s right, title, and interest in and to all Subleases and Subrent.
Tenant grants to Landlord, and its agents and representatives, a right to enter, and sufficient
possession of, the Premises to permit and assure Landlord’s collection of Subrent. Landlord’s
exercise of such rights shall not constitute an eviction of Tenant. Unless and until this Lease has
terminated, Tenant shall have a license to exercise its right, title, and interest in and to all
Subleases and Subrent. Landlord may revoke such license, at its option, if and only if this Lease
has terminated. Upon any such revocation, Landlord may collect Subrent directly from
Subtenants, and apply the net amount collected to the Rent. No such collection shall be, or be
deemed to be, Landlord’s waiver of any terms of this Lease, acceptance of any Subtenant as
Tenant, or release of Tenant from any obligations under this Lease. Any sums Landlord collects
in excess of the net amount Landlord applies against Rent shall (so long as this Lease has not
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been terminated) belong to Tenant and be promptly refunded to Tenant (subject to the rights of
Leasehold Mortgagee).
21.3 Required Provisions. Each Sublease shall contain provisions in form and
substance substantially as set forth below in this Section. By executing its Sublease, each
Subtenant shall be deemed to have agreed to these provisions, which reflect the definitions in this
Lease. All such defined terms shall be modified in the Sublease as appropriate to reflect the
definitions in the Sublease.
All terms, covenants, and provisions of this Sublease and all rights,
remedies, and options of Subtenant under this Sublease are and shall at all
times remain fully subject and subordinate in all respects to the Lease. If
the Lease and the Leasehold Estate terminate, then this Sublease shall
terminate. In that event, Subtenant, only at the option and request of
Landlord (except as Landlord has agreed otherwise in writing), shall attorn
to Landlord and recognize Landlord as Subtenant’s direct landlord under
this Sublease. Subtenant shall execute and deliver, at any time and from
time to time, upon the request of Tenant, Landlord, or any Mortgagee, any
instrument necessary or appropriate to evidence such attornment.
Subtenant appoints each of the foregoing as Subtenant’s attorney-in-fact,
irrevocably, with full power of substitution, to execute and deliver any
such instrument. This appointment is coupled with an interest and is
irrevocable. Subtenant waives any Law that may allow Subtenant to
terminate this Sublease or surrender possession of the demised
subpremises if the Lease terminates.
21.4 Conditions to Effectiveness of Certain Transactions. No assignment or Sublease
of the entire Premises or substantially the entire Premises shall be effective or have any validity
unless and until such assignment or Sublease otherwise substantially complies with this Lease
and Landlord has received: (a) an executed counterpart of the assignment; (b) in the case of an
assignment, an executed assumption of this Lease by the assignee, in recordable form, effective
as of the date of assignment; (c) in the case of a Sublease of all or substantially all the Premises,
a copy of the executed Sublease complying with this Lease; and (d) Notice of the assignee or
Subtenant.
22.
NONDISTURBANCE OF SUBTENANTS.
22.1 SNDA-Eligible Subleases. Landlord shall, within _____ Business Days after
Notice from Tenant at any time or from time to time, enter into (and cause each Fee Mortgagee
to join in) and deliver to Tenant a recordable SNDA with any Subtenant, provided that: (a) such
Subtenant’s Sublease is an SNDA-Eligible Sublease; (b) Tenant gives Landlord a copy of such
Sublease, which Sublease shall contain all provisions required by and otherwise comply with this
Lease; and (c) no uncured Monetary Default and no Event of Default shall exist. If Landlord fails
to execute and return to Tenant any SNDA within ____ Business Days after Landlord’s receipt
of such SNDA, then Landlord authorizes and instructs Tenant to execute that SNDA on
Landlord’s behalf. Landlord appoints Tenant as Landlord’s attorney-in-fact, irrevocably, with
full power of substitution, to execute and deliver any such SNDA for and on behalf of Landlord.
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This appointment is coupled with an interest and is irrevocable. Tenant shall promptly record
each SNDA. Any unrecorded SNDA shall not bind a purchaser of the Fee Estate.41
22.2 Sublease Negotiations. If Tenant intends to request an SNDA for any Sublease
under negotiation, then Tenant may deliver to Landlord a term sheet for such Sublease and
request that Landlord promptly confirm that nothing in the economic or business terms of such
Sublease, as set forth in such term sheet, would cause the Sublease not to be an SNDA-Eligible
Sublease. Landlord shall not withhold such confirmation absent a correct basis for doing so.
22.3 Amendments to SNDA-Eligible Subleases. If Landlord receives Notice (which
Notice includes a copy) of any amendment of any Sublease for which Landlord delivered an
SNDA, then Landlord shall, within __ Business Days after receiving that Notice, either: (a)
Notify Tenant and Subtenant that, after that amendment, the Sublease remains an SNDA-Eligible
Sublease (a “Confirmation Notice”); or (b) Notify Tenant and Subtenant that, taking into account
such amendment, the Sublease is no longer an SNDA-Eligible Sublease, on reasonable grounds
stated in that Notice in reasonable detail (a “Rejection Notice”). If Landlord fails to deliver a
Rejection Notice within that time, then Landlord shall be deemed to have delivered a Rejection
Notice. Tenant and Subtenant may rely on any such Notice or deemed Notice. If Landlord and
Tenant cannot resolve any dispute about whether a Sublease (as amended) remains an SNDAEligible Sublease within 30 days after Landlord delivers a Rejection Notice, then the parties shall
expeditiously seek to resolve that dispute through Arbitration. If it is ultimately determined that
Landlord was correct, then Tenant and the affected Subtenant may either: (a) rescind the affected
amendment; or (b) continue the effect of such amendment, but confirm to Landlord in writing
that Landlord would not be bound by such amendment after any termination of this Lease. Upon
the occurrence of either “a” or “b,” the status of the Sublease as an SNDA-Eligible Sublease
shall be determined as if such amendment had never been executed.
22.4 Collection of Subrent. Landlord shall not send any Subrent Payment Notice
unless: (a) an SNDA to which Tenant has consented in writing gives Landlord authority to send a
Subrent Payment Notice; and (b) an Event of Default exists. If Landlord collects any Subrent,
then Landlord shall apply it first to pay all Rent then due. Landlord shall then remit to Leasehold
Mortgagee, and not to Tenant, any remaining Subrent. Tenant directs Landlord accordingly. If
Landlord sends a Subrent Payment Notice, Tenant cures all Events of Default, and this Lease has
not been terminated, then Landlord shall, at Tenant’s expense (including Landlord’s Legal
Costs), promptly give each Subtenant a notice rescinding Landlord’s Subrent Payment Notice.
23.
LEASEHOLD MORTGAGES.
Notwithstanding anything in this Lease to the contrary, without Landlord’s consent, at
any time(s): (a) [provided that any monetary or material nonmonetary Event of Default has been,
or simultaneously is, cured,] Tenant may grant Leasehold Mortgage(s) [provided that each
Leasehold Mortgagee is an Institutional Lender]; (b) any Leasehold Mortgagee may initiate and
41
Without this provision, a purchaser of the Fee Estate cannot determine which Subtenants have SNDA
protections. Similar but lesser issues arise regarding subsequent amendments of SNDA-Eligible Subleases. The form
of SNDA should, at a minimum, require the Subtenant to issue an estoppel certificate to Landlord to facilitate future
conveyances of the Fee Estate.
57
complete any Foreclosure Event and exercise any other rights and remedies against Tenant and
the Leasehold Estate (but not the Fee Estate) under its Leasehold Mortgage; and (c) any PostForeclosure Tenant may assign this Lease. Landlord need not join in, or “subordinate the Fee
Estate to,” any Leasehold Mortgage. No Leasehold Mortgage shall reduce any party’s rights or
obligations under this Lease. Notwithstanding anything to the contrary in this Lease, from and
after the date when Landlord has received Notice of any Leasehold Mortgagee, for such
Leasehold Mortgagee and its successors and assigns:
23.1 Lease Impairments. Any Lease Impairment made without Leasehold Mortgagee’s
consent shall (at Leasehold Mortgagee’s option) be null, void, and of no force or effect, and not
bind Tenant, Leasehold Mortgagee, or New Tenant.
23.2 Notices. Any Notice from Landlord to Tenant shall have no effect unless
Landlord gives a copy to Leasehold Mortgagee. If any Default occurs for which Landlord
intends to exercise any remedy, Landlord shall promptly give Leasehold Mortgagee a Default
Notice.
23.3 Opportunity to Cure. Landlord shall accept Leasehold Mortgagee’s Cure at any
time until __ days after both: (a) Tenant and Leasehold Mortgagee have received the Default
Notice for that Default; and (b) Landlord has Notified Leasehold Mortgagee that Tenant’s cure
period for that Default has expired. If Leasehold Mortgagee cannot reasonably cure the Default
within Leasehold Mortgagee’s cure period under the preceding sentence, it shall have such
further time as it reasonably needs so long as it proceeds with reasonable diligence. If Leasehold
Mortgagee cannot reasonably cure a Default without possession, or if any Tenant-Specific
Default(s) occur(s), Leasehold Mortgagee shall be entitled to such additional time as it
reasonably needs to consummate a Foreclosure Event and obtain possession, provided Leasehold
Mortgagee timely exercises its cure rights for all other Defaults. If Leasehold Mortgagee
consummates a Foreclosure Event, Landlord shall waive all Tenant-Specific Defaults.
23.4 Cure Rights Implementation. Whenever Leasehold Mortgagee’s time to cure a
Default or consummate a Foreclosure Event has not expired, Landlord shall not terminate this
Lease, accelerate any rent, or otherwise interfere with Tenant’s or Leasehold Mortgagee’s
possession and quiet enjoyment of the Leasehold Estate. Leasehold Mortgagee may enter the
Premises to seek to cure a Default. This right or its exercise shall not be deemed to give
Leasehold Mortgagee possession.
23.5 New Lease. If this Lease terminates for any reason (except with Leasehold
Mortgagee’s consent or because of a Loss, subject to the provisions of this Lease on Lease
Impairments), even if Leasehold Mortgagee failed to timely exercise its cure rights for a Default,
Landlord shall promptly give Leasehold Mortgagee a Lease Termination Notice. By giving
Notice to Landlord on or before the day that is ___ days after Leasehold Mortgagee receives
Landlord’s Lease Termination Notice (the “New Lease Option Period”), Leasehold Mortgagee
may require Landlord to promptly enter into a New Lease with New Tenant. Landlord need not
do so, however, unless New Tenant has, consistent with the Lease Termination Notice: (a) cured
all reasonably curable Defaults (except Tenant-Specific Defaults); and (b) reimbursed Landlord’s
reasonable costs and expenses (including reasonable attorneys’ fees and expenses) to terminate
this Lease, recover the Premises, and enter into the New Lease.
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23.6 New Lease Implementation. If Leasehold Mortgagee timely requests a New Lease
in conformity with this Lease, then from the date this Lease terminates until the parties execute
and deliver a New Lease, Landlord shall not: (a) operate the Premises in an unreasonable
manner; (b) terminate Sublease(s) except for the Subtenant’s default; or (c) lease any Premises
except to New Tenant. When the parties sign a New Lease, Landlord shall transfer to New
Tenant all Subleases (including any security deposits Landlord held), service contracts, Premises
operations, and net income Landlord collected from the Premises during the period described in
the previous sentence, and Landlord shall cause every Fee Mortgagee to subordinate
unconditionally to the New Lease.
23.7 Tenant’s Leasehold Rights. If Tenant’s period to exercise any Preemptive Right
expires, Landlord shall promptly Notify Leasehold Mortgagee. Until __ days after Leasehold
Mortgagee receives such Notice, Leasehold Mortgagee may exercise such Preemptive Right for
Tenant. Notwithstanding anything to the contrary in this Lease, so long as Leasehold
Mortgagee’s time to obtain a New Lease has not expired, it may exercise Tenant’s rights
(including Preemptive Rights) under this Lease, even if a Default exists or Tenant has otherwise
not satisfied conditions within Tenant’s control. Tenant irrevocably assigns to Leasehold
Mortgagee: (a) to the exclusion of Tenant and any other person, any right to exercise any
Bankruptcy Termination Option; and (b) any right of Tenant to object to any Bankruptcy Sale by
Landlord.
23.8 Certain Proceedings. If Landlord or Tenant initiates any Dispute Resolution
Proceeding, then the parties shall simultaneously Notify Leasehold Mortgagee. Leasehold
Mortgagee may participate in such proceedings on Tenant’s behalf, or exercise any or all of
Tenant’s rights in such proceedings, in each case (at Leasehold Mortgagee’s option) to the
exclusion of Tenant. No settlement shall be effective without Leasehold Mortgagee’s consent,
unless Tenant simultaneously pays the settlement, [the amount at issue does not exceed
$___________,] and the claimant has released (or does not assert) any claim against Leasehold
Mortgagee.
23.9 No Personal Liability. No Leasehold Mortgagee, Post-Foreclosure Tenant, or
New Tenant shall ever have any liability under this Lease beyond its interest in this Lease, even
if it becomes Tenant or assumes this Lease. Any such liability shall: (a) not extend to any Default
that occurred before such Tenant took title to this Lease (or a New Lease), except as identified in
a Default Notice (or Lease Termination Notice) delivered to Leasehold Mortgagee before such
Tenant took title; and (b) terminate if and when any such Tenant assigns (and the assignee
assumes) or abandons this Lease (or a New Lease).
23.10 Multiple Leasehold Mortgagees. If at any time multiple Leasehold Mortgagees
exist of which Landlord has received Notice: (a) any consent by or Notice to Leasehold
Mortgagee refers to all Leasehold Mortgagees; (b) except under clause “a,” the most senior
Leasehold Mortgagee may exercise all rights of Leasehold Mortgagee(s), to the exclusion of
junior Leasehold Mortgagee(s); (c) to the extent that the most senior Leasehold Mortgagee
declines to do so, any other Leasehold Mortgagee may exercise those rights, in order of priority;
and (d) if Leasehold Mortgagees do not agree on priorities, a written determination of priority
issued by a title insurance company licensed in the State shall govern.
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23.11 Miscellaneous. Notwithstanding anything to the contrary in this Lease, Leasehold
Mortgagee may: (a) exercise its rights through an affiliate, assignee, designee, nominee,
subsidiary, or other Person, acting in its own name or in Leasehold Mortgagee’s name (and
anyone acting under this clause “a” shall automatically have the same protections, rights, and
limitations of liability as Leasehold Mortgagee); (b) refrain from curing any Default; (c) abandon
such cure at any time; or (d) withhold consent or approval for any reason or no reason, except
where this Lease states otherwise. Any such consent or approval must be written. To the extent
any Mortgagee’s rights under this Lease apply after this Lease terminates, they shall survive such
termination. As between Tenant and any Leasehold Mortgagee, to the extent that a Leasehold
Mortgage (or any document it secures) limits a Leasehold Mortgagee’s rights in a manner
inconsistent with this Lease, those limitations shall govern.
24.
EQUIPMENT LIENS.
24.1 Tenant’s Rights. If at any time or from time to time Tenant desires to enter into or
grant any Equipment Lien that otherwise complies with this Lease, and provided that no uncured
Event of Default exists, then upon Tenant’s request Landlord shall enter into (and shall cause
every Fee Mortgagee to enter into) such customary documentation regarding the Financed FF&E
as Tenant reasonably requests, providing for matters such as: (a) waiver of any right to take
possession of such Financed FF&E upon an Event of Default; (b) waiver of any other right, title,
or interest in the Financed FF&E; and (c) agreements to enable the holder of such Equipment
Lien to repossess such Financed FF&E if such holder exercises remedies under its Equipment
Lien. Tenant shall not enter into any Equipment Lien that causes any Prohibited Lien.
24.2 Required Provisions for Equipment Liens. If Tenant enters into any Equipment
Lien, then Tenant shall: (i) not file (or cause or permit to be filed) that Equipment Lien as a lien
against the Premises or any part of the Premises (except the Financed FF&E) and (ii) cause the
documents for that Equipment Lien to include a statement in substantially this form:
Notwithstanding anything to the contrary in this document, this chattel
mortgage, conditional sales agreement, title retention agreement, or
security agreement shall not create or be filed as a lien against the land,
building and Landlord’s improvements constituting the real property in
which the Financed FF&E covered hereby are to be located or installed.
25.
QUIET ENJOYMENT; TITLE TO CERTAIN PREMISES; CERTAIN
AGREEMENTS.
25.1 Quiet Enjoyment. So long as this Lease has not been terminated, Landlord
covenants that Tenant shall and may peaceably and quietly have, hold, and enjoy the Premises
for the Term, subject to the terms of this Lease, without molestation, hindrance, or disturbance
by or from Landlord or by anyone claiming by or through Landlord or having title to the
Premises paramount to Landlord, and free of any encumbrance created or suffered by Landlord,
except Permitted Exceptions.
25.2 Access and Inspection. Notwithstanding anything to the contrary in this Lease,
Landlord and its agents, representatives, and designees may enter the Premises upon reasonable
60
Notice during regular business hours, solely to: (a) ascertain whether Tenant is complying with
this Lease; (b) cure Tenant’s Defaults; (c) inspect the Premises and any Construction; (d)
perform any tests, borings, and other analyses as Landlord reasonably determines necessary or
appropriate relating to (non)compliance with any Law or possible Hazardous Substances
Discharge; or (e) show the Premises to a prospective Transferee or Fee Mortgagees. In entering
the Premises, Landlord and its designees shall not unreasonably interfere with operations on the
Premises and shall comply with Tenant’s reasonable instructions. Landlord shall Indemnify
Tenant against any claims arising from Landlord’s entry upon the Premises, except upon
termination of this Lease or an Event of Default.
25.3 Title. Notwithstanding anything to the contrary in this Lease, during the Term
Tenant shall own all Improvements, Building Equipment, and FF&E in, on, or at the Premises or
otherwise constituting part of the Premises. All benefits and burdens of ownership of the
foregoing, including title, depreciation, tax credits, and all other tax items, shall be and remain in
Tenant during the Term.
26.
EVENTS OF DEFAULT; REMEDIES.
26.1 Definition of “Event of Default.” An “Event of Default” means occurrence of any
one or more of these, and an Event of Default shall no longer exist for any purpose if Tenant has
cured all matters otherwise constituting Events of Default:
26.1.1 Monetary Default. If a Monetary Default occurs and continues for 10
Business Days after Notice from Landlord, specifying in reasonable detail the amount of money
not paid and the nature and calculation of each such payment.
26.1.2 Prohibited Liens. If Tenant fails to comply with any obligation
regarding Prohibited Liens and does not remedy such failure within 15 days after Notice from
Landlord.
26.1.3 Initial Development. If Tenant fails to cause either of these for the
Initial Development: (a) the Construction Commencement Date to occur on or before the Initial
Development Commencement Deadline; or (b) the Construction Completion Date to occur on or
before the Initial Development Completion Deadline.
26.1.4 Bankruptcy or Insolvency. If Tenant or Guarantor ceases to do business
as a going concern, ceases to pay its debts as they become due or admits in writing that it is
unable to pay its debts as they become due, or becomes subject to any Bankruptcy Proceeding
(except an involuntary Bankruptcy Proceeding dismissed within 180 days after commencement),
or a custodian or trustee is appointed to take possession of, or an attachment, execution or other
judicial seizure is made with respect to, substantially all of Tenant’s or Guarantor’s assets or
Tenant’s interest in this Lease (unless that appointment, attachment, execution or other seizure
was involuntary and is contested with diligence and continuity and is vacated and discharged
within 180 days).
26.1.5 Nonmonetary Default. If any other Nonmonetary Default occurs and
Tenant does not cure it within 45 days after Notice from Landlord describing it in reasonable
detail, or, in the case of a Nonmonetary Default that cannot with due diligence be cured within
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45 days from such Notice, if Tenant does not (x) within 45 days from Landlord’s Notice advise
Landlord of Tenant’s intention to take all reasonable steps to cure such Nonmonetary Default;
(y) duly commence such cure within such period, and then diligently prosecute such cure to
completion; and (z) complete such cure within a reasonable time under the circumstances (not
necessarily limited to 45 days).
26.2 Remedies. If an Event of Default occurs, then Landlord shall, at Landlord’s
option, have any or all of these remedies, all cumulative, so exercise of one remedy shall not
preclude exercise of another, in addition to any other remedies available at law or in equity or
under this Lease. Subject in all cases to applicable Law, Landlord’s remedies include:
26.2.1 Termination of Tenant’s Rights. Landlord may terminate Tenant’s rights
to possess the Premises by any lawful means, in which case this Lease and the Term shall
terminate, that date of termination shall be the Expiration Date, and Tenant shall immediately
surrender possession to Landlord.
26.2.2 Taking Possession. Landlord may re-enter and take possession of the
Premises with process of law, whether by summary proceedings or otherwise, and remove
Tenant, with or without having terminated this Lease, and without thereby being liable for
damages or guilty of trespass. This is intended to constitute an express right of re-entry by
Landlord. Except as this Lease or Law expressly requires, Tenant, for and on behalf of itself and
all persons claiming by, through or under Tenant, expressly waives any right to service of notice
of intention to re-enter under any Law and any and all right of redemption under any Law, or reentry or repossession or to restore the operation of this Lease if Tenant is dispossessed by a
judgment or by warrant of any court or judge or in case of re-entry or repossession by Landlord
or any expiration or termination of this Lease. No re-entry by Landlord, whether had or taken
under summary proceedings or otherwise, shall absolve or discharge Tenant from liability under
this Lease. The terms “enter,” “re-enter,” “entry,” and “re-entry,” as used in this Lease, are not
restricted to their technical legal meanings.
26.2.3 Suits Before Expiration Date. Landlord may sue for damages or to
recover Rent from time to time at Landlord’s election.
26.2.4 Receipt of Moneys. No receipt of money by Landlord from Tenant after
termination of this Lease, or after the giving of any notice of termination of this Lease, shall
reinstate, continue, or extend this Lease or affect any notice theretofore given to Tenant, or waive
Landlord’s right to enforce payment of any Rent payable or later falling due, or Landlord’s right
to recover possession by proper remedy, except as this Lease expressly states otherwise, it being
agreed that after service of notice to terminate this Lease or the commencement of suit or
summary proceedings, or after final order or judgment for possession, Landlord may demand,
receive, and collect any moneys due or thereafter falling due without in any manner affecting
such notice, proceeding, order, suit or judgment, all such moneys collected being deemed
payments on account of use and occupation or, at Landlord’s election, on account of Tenant’s
liability.
26.2.5 No Waiver. No failure by Landlord to insist upon strict performance of
any covenant, agreement, term, or condition of this Lease or to exercise any right or remedy
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upon a Default, and no acceptance of full or partial Rent during continuance of any such Default,
shall waive any such Default or such covenant, agreement, term, or condition. No covenant,
agreement, term, or condition of this Lease to be performed or complied with by Tenant, and no
Default, shall be Modified except by a written instrument executed by Landlord. No waiver of
any Default shall affect or alter this Lease. Each and every covenant, agreement, term and
condition of this Lease shall continue in full force and effect with respect to any other then
existing or subsequent Default of such covenant, agreement, term or condition of this Lease.
26.2.6 Security Devices. Landlord may change the locks and other security
devices providing admittance to the Premises.
26.2.7 Conditional Limitation. Landlord may serve upon Tenant a written 30day notice of cancellation and termination of this Lease. Upon the expiration of such 30-day
period, this Lease and the Term shall automatically and without any action by anyone terminate,
expire, and come to an end, by the mere lapse of time, as fully and completely as if the expiration
of such 30-day period were the Expiration Date. The passage of such 30-day period constitutes
the limit beyond which Tenant’s tenancy no longer exists. Tenant shall then quit and surrender
the Premises to Landlord but remain liable as this Lease provides. It is a conditional limitation of
this Lease that the Term shall terminate and expire as set forth in this paragraph. This paragraph
is intended to establish a conditional limitation and not a condition subsequent. Nothing in this
paragraph shall limit Landlord’s right to commence and prosecute a summary dispossess
proceeding under New York Real Property Actions and Proceeding Law Article 7.
26.2.8 Damages. Even if Tenant has cured Tenant’s Default, Landlord may
recover from Tenant all damages Landlord incurs by reason of Tenant’s Default, including
reasonable costs of recovering possession, reletting the Premises, and any and all other damages
legally recoverable by Landlord, and reimbursement of Landlord’s reasonable out of pocket
costs, including Legal Costs and bank fees for checks returned by the bank. Such damages shall
include, at Landlord’s election, either (a) the present value, calculated at a discount rate equal to
[the then-current Prime Rate plus ___ Percent (___%) per annum], of the excess42 of the total
Fixed Rent under this Lease over the fair market rental value of the Premises for the balance of
the Term; or (b) the Rent payable to Landlord provided for in this Lease, when and as due and
payable under this Lease, less (in the case of this clause “b” only) Landlord’s actual proceeds of
reletting less Landlord’s actual reasonable costs of reletting. Landlord may recover such
damages at any time after Tenant’s default, including after expiration of the Term.
Notwithstanding any Law to the contrary, (x) Landlord need not commence separate actions to
enforce Tenant’s obligations for each month’s Rent not paid, or each month’s accrual of
damages for Tenant’s Default, but may bring and prosecute a single combined action for all such
Rent and damages; and (y) Landlord may not recover any consequential damages for Tenant’s
Default.
26.2.9 Injunction of Breaches. Whether or not an Event of Default has
occurred, Landlord may obtain a court order enjoining Tenant from continuing any Default or
from committing any threatened Default. Tenant specifically and expressly acknowledges that
damages would not constitute an adequate remedy for any Nonmonetary Default.
42
This “excess” will often be zero or negative, making this measure of damages meaningless.
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26.2.10 Continue Lease. Landlord may at Landlord’s option maintain Tenant’s
right to possession. In that case, this Lease shall continue and Landlord may continue to enforce
it, including the right to collect Rent when due and any remedies for nonpayment.
26.2.11 Restoration Funds. Upon any termination of this Lease, to the extent
that Landlord or Depository then holds any Restoration Funds, they shall be applied solely as
Landlord directs, including as a payment toward any sums then payable to Landlord.
26.3 Proceeds of Reletting. Landlord shall apply any proceeds of any reletting as
follows, without duplication, but including any Default Interest on all such sums:
26.3.1 Landlord’s Costs. First, to pay to itself the cost and expense of
terminating this Lease, re-entering, retaking, repossessing, repairing, performing any
Construction, and the cost and expense of removing all persons and property from the Premises,
including in such costs reasonable and customary brokerage commissions and Legal Costs;
26.3.2 Preparation for Reletting. Second, to pay to itself the cost and expense
reasonably sustained in securing any new tenants and other occupants, including in such costs all
brokerage commissions, Legal Costs, and any other reasonable costs of preparing the Premises
for reletting;
26.3.3 Costs of Maintenance and Operation. Third, to reimburse Landlord for
its reasonable costs to maintain and operate the Premises;
26.3.4 Tenant’s Liability. Fourth, to pay to itself any balance remaining on
account of Tenant’s liability to Landlord; and
26.3.5
Residue. If any residue remains, then to Tenant.
26.4 Exculpation; Landlord’s Sole and Exclusive Remedy. Notwithstanding anything
to the contrary in this Lease, Landlord’s right to terminate this Lease and re-enter the Premises
and take possession of the Premises (and collect damages from Tenant, but only to the extent of
Tenant’s interest in the Premises) shall constitute Landlord’s sole and exclusive remedy for any
Default or Event of Default. Landlord expressly waives, releases, and relinquishes any and all
right to recover damages or any other sum, or have any other remedy against Tenant, except to
the extent of Tenant’s interest in the Premises.
26.5 Tenant’s Late Payments; Late Charges. If Tenant fails to make any payment to
Landlord required under this Lease within __ days after such payment is first due and payable,
then in addition to any other remedies of Landlord, and without reducing or adversely affecting
any of Landlord’s other rights and remedies, Tenant shall pay Landlord within __ days after
demand Default Interest on such late payment, beginning on the date such payment was first due
and payable and continuing until the date when Tenant actually makes such payment. In
addition, and without limiting any other rights or remedies of Landlord, Tenant shall pay
Landlord, as Additional Rent, an administrative charge equal to ___% of any payment that
Tenant fails to pay within____ days after such payment is first due and payable. Such
administrative charge is intended to compensate Landlord for the inconvenience and staff time
incurred by Landlord to handle the late or missed payment, shall not be deemed a penalty or
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compensation for use of funds, and shall not be credited against any other obligations of Tenant
under this Lease.
26.6 Landlord’s Right to Cure. If Tenant at any time fails to make any payment or take
any action this Lease requires, then Landlord, after __ Business Days’ Notice to Tenant, or in an
emergency with such notice (if any) as is reasonably practicable under the circumstances, and
without waiving or releasing Tenant from any obligation or Default and without waiving
Landlord’s right to take such action as this Lease may permit as a result of such Default, may
(but need not) make such payment or take such action. Tenant shall reimburse Landlord, as
Additional Rent, for an amount equal to (a) all reasonable sums paid, and reasonable costs and
expenses (including Legal Costs) incurred, by Landlord in exercising its cure rights under this
paragraph; and (b) Default Interest on “a.”
26.7 Holding Over. If for any reason or no reason Tenant remains in the Premises after
the Expiration Date, then Landlord will suffer injury that is substantial, difficult, or impossible to
measure accurately. Therefore, if Tenant remains in the Premises after the Expiration Date, for
any reason or no reason, then in addition to any other rights or remedies of Landlord, Tenant
shall pay to Landlord, as liquidated damages and not as a penalty, for each month (prorated daily
for partial months) during which Tenant holds over after the Expiration Date, a sum equal to:
120% (for the first month or partial month of holding over), 133% (for the second month or
partial month of holding over), and 150% (for each subsequent month or partial month of
holding over) times the monthly Rent, including Additional Rent, payable under this Lease
during the year preceding the Expiration Date.
26.8 Waivers. LANDLORD AND TENANT IRREVOCABLY WAIVE ALL RIGHTS
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, COUNTERCLAIM, OR OTHER
LITIGATION ARISING OUT OF OR RELATING TO THIS LEASE, THE PARTIES’
RELATIONSHIP REGARDING THE PREMISES, ENFORCEMENT OF THIS LEASE,
TENANT’S USE OR OCCUPANCY OF THE PREMISES, ANY CLAIM OF INJURY OR
DAMAGE ARISING BETWEEN LANDLORD AND TENANT, OR ANY ACTIONS OF
LANDLORD IN CONNECTION WITH OR RELATING TO THE ENFORCEMENT OF THIS
LEASE. TENANT WAIVES ANY RIGHT OF REDEMPTION PROVIDED FOR BY LAW.
TENANT WAIVES ANY RIGHT TO INTERPOSE ANY COUNTERCLAIM IN ANY
ACTION BY LANDLORD TO ENFORCE THIS LEASE OR LANDLORD’S RIGHTS AND
REMEDIES UNDER THIS LEASE.
26.9 Accord and Satisfaction; Partial Payments. No payment by Tenant or receipt by
Landlord of a lesser amount than the amount owed under this Lease shall be deemed to be other
than a part payment on account by Tenant. Any endorsement or statement on any check or letter
accompanying any check or payment of Rent shall not be deemed an accord or satisfaction.
Landlord may accept any such check or payment without prejudice to Landlord’s right to recover
the balance of such Rent or pursue any other remedy.
26.10 Miscellaneous. Landlord and Tenant further agree as follows with respect to any
Defaults and Landlord’s rights and remedies.
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26.10.1 Survival. No termination of this Lease and no taking possession of or
reletting the Premises shall relieve Tenant of its liabilities and obligations hereunder, all of which
shall survive such expiration, termination, repossession, or reletting, but subject to any
limitations on personal liability or recourse in this Lease.
26.10.2 Multiple Suits. Landlord may sue to recover damages, or sum(s) equal
to any installment(s) of Rent payable by Tenant, from time to time at Landlord’s election.
Nothing in this Lease requires Landlord to await the date when this Lease or the Term would
have expired absent an Event of Default and a resulting termination of this Lease.
26.10.3 Receipt of Monies. Unless such payment shall fully cure all Monetary
Defaults, no receipt of moneys by Landlord from Tenant after the giving of a termination notice
or a notice to obtain possession, or after the retaking of possession by Landlord as aforesaid,
shall reinstate, continue, or extend the Term or affect any notice previously given to Tenant,
waive Landlord’s right to enforcement of Rent payable by Tenant or thereafter falling due, or
waive Landlord’s right to recover possession of the Premises. After the service of any such
notice, or commencement of any suit or summary proceedings, or after a final order or judgment
for possession of the Premises, Landlord may demand, receive, and collect any moneys due or
thereafter falling due without in any manner affecting such notice, proceeding, order, suit, or
judgment, unless such payments fully cure all Monetary Defaults. Any sums so collected
(without thereby curing all Monetary Defaults) shall instead be deemed payments on account of
use and occupation of the Premises or, at Landlord’s election, to have been made on account of
Tenant’s liability under this Lease.
26.10.4 No Double Recovery. In no event shall Landlord be entitled, directly or
indirectly, to recover twice for the same element of Landlord’s damages.
27.
END OF TERM.
Upon any Expiration Date: (a) all Improvements, FF&E, and Building Equipment shall
become Landlord’s property; (b) Tenant shall deliver to Landlord possession of the Premises, in
the condition this Lease requires, subject to any Loss that this Lease does not require Tenant to
Restore; (c) Tenant shall surrender any right, title, or interest in and to the Premises and deliver
such evidence and confirmation thereof as Landlord reasonably requires; (d) Tenant shall deliver
the Premises free and clear of all: (i) Subleases,43 and (ii) liens except (1) Permitted Exceptions
and (2) liens that Landlord or any of its agents caused; (e) Tenant shall assign to Landlord,
without recourse, and give Landlord copies or originals of, all assignable licenses, permits,
contracts, warranties, and guarantees then in effect for the Premises; (f) the parties shall
cooperate to achieve an orderly transition of operations from Tenant to Landlord without
interruption, including delivery of books and records (or copies of books and records) as
Landlord reasonably requires; (g) the parties shall adjust for Real Estate Taxes, all other
expenses and income of the Premises, and any prepaid Rent and shall make such payments as
shall be appropriate on account of such adjustment in the same manner as for a sale of the
43
This requirement will tie Tenant’s hands on its space leasing program during the last five or so years of the
Term. The parties may negotiate a mechanism for Landlord to recognize after the Term certain Subleases that
Tenant entered into during the Term.
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Premises44 (but any sums otherwise payable to Tenant shall first be applied to cure any Default);
(h) the parties shall terminate the Memorandum of Lease; and (i) Tenant shall assign to
Landlord, and Landlord shall reimburse Tenant for, all utility and other service provider deposits
for the Premises.45 Notwithstanding anything to the contrary in this paragraph, Tenant may
remove from the Premises any FF&E and Building Equipment that (in either case) Tenant
acquired after the Commencement Date, but Tenant must do so, if at all, before or within 30 days
after the Expiration Date. Tenant shall not, however, remove any _____________. [Tenant shall
repair any material damage from such removal.46] During such 30-day period: (x) Tenant may
enter the Premises for such purposes, without being deemed a holdover; (y) Landlord shall have
no obligation to preserve or protect such FF&E or Building Equipment; and (z) in entering the
Premises, Tenant shall comply with Landlord’s reasonable instructions. Tenant’s FF&E and
Building Equipment not removed within 30 days after the Expiration Date shall be deemed
abandoned.
28.
NOTICES.
All Notices shall be in writing and shall be addressed to Landlord and Tenant (and their
designated copy recipients) as set forth in Exhibit ___. Notices (including any required copies as
set forth in Exhibit ___ ) shall be delivered by Federal Express or other overnight (one-night47)
courier service to the addresses set forth in Exhibit ___, in which case they shall be deemed
delivered on the date of delivery (or when delivery has been attempted twice, as evidenced by
the written report of the courier service) to such address(es).48 Notwithstanding the foregoing,
Notices for the regular payment of Rent under this Lease (as opposed to late payments, for
example) may be sent by first class mail, in which case they shall be deemed delivered three
Business Days after deposit in the United States mail, provided that no postal strike (or other
event likely to disrupt postal service) is then in effect. Either party may change its address by
giving Notice in compliance with this Lease. Notice of such a change shall be effective only
upon receipt. Any party giving a Notice may request the recipient to acknowledge receipt of such
Notice. The recipient shall promptly comply with any such request, but failure to do so shall not
limit the effectiveness of any Notice. Any attorney may give any Notice on behalf of its client.
44
The end of the Term functions much like the closing of a conveyance of income-producing real property
from Tenant to Landlord. Landlord’s counsel may want to consider other issues that arise under purchase and sale
contracts.
45
Occasionally a ground lease will require Tenant to return the Premises as vacant land with all
improvements demolished. The author has found no reason to think a court would refuse to enforce that
requirement, even if a Tenant had constructed improvements that spanned the property lines of the Premises.
46
This bracketed language sometimes appears but invites a lawsuit. As a practical matter, any damage Tenant
causes will probably have no significance, because Landlord or the next developer of the Premises will totally
reposition and renovate the Improvements.
47
Some case somewhere once said that “overnight” didn’t mean one night but any number of nights.
48
The author disfavors notices by email. It may make sense for participants in real estate transactions to
establish dedicated email addresses solely for sending and receiving notices, with a reliable mechanism to make sure
nothing falls between the cracks. There may also be a business opportunity for someone to establish a service to give
notices by email with proof of delivery. Ask a litigator how they feel about the issues of proof entailed by giving
formal notices by email.
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No Notice shall be effective unless and until a copy of such Notice has been delivered to the
intended recipient’s Mortgagee(s) of which the sender shall have received Notice.
29.
NO BROKER.
Each party: (a) represents and warrants that it did not engage or deal with any broker or
finder, except Broker, in connection with this Lease and no person except Broker is entitled to
any commission or finder’s fee on account of any agreements or arrangements made by such
party; and (b) shall Indemnify the other party against any breach of such representation.
Landlord shall compensate Broker under a separate agreement and Indemnify Tenant against any
claims by Broker.
30.
NONRECOURSE.
Notwithstanding anything to the contrary in this Lease, the liability under this Lease of
Landlord and Tenant (including any New Tenant or Post-Foreclosure Tenant) and each of their
parent(s), subsidiary(ies), or affiliated corporations or other entities, and any of their constituent
partners, joint venturers, or tenants-in-common, for damages or otherwise, shall be enforceable
against, and shall not extend beyond, their interests in the Premises (including the proceeds
thereof). No property or assets whatsoever, except Landlord’s or Tenant’s (as applicable) interest
in the Premises (including the proceeds thereof), shall be subject to levy, execution or any other
enforcement procedure for the satisfaction of any remedies (monetary or otherwise) of the other
party arising under or in connection with this Lease. The limitation of liability and limitation of
remedy in this paragraph shall not apply in any way to, and shall not be construed to limit or
preclude, personal liability (if any) arising under any Supplementary Agreement. No shareholder,
officer, member, manager, director, agent, or employee of Tenant or Landlord shall have any
liability under this Lease, but this shall not limit any liability arising under the express terms of
any Supplementary Agreement. (This Lease sometimes refers to this paragraph as the
“Nonrecourse Clause.”) Nothing in this Nonrecourse Clause shall limit the liability of any
guarantor under any guaranty.
31.
ADDITIONAL DELIVERIES; THIRD PARTIES.
31.1 Estoppel Certificates. Up to twice a year, each party to this Lease (a “Requesting
Party”) may require the other party (a “Certifying Party”) to execute, acknowledge, and deliver
to the Requesting Party (or directly to a designated third party) up to four original counterparts of
an Estoppel Certificate. The Certifying Party shall sign, acknowledge, and return such Estoppel
Certificate within 15 days after request, even if the Requesting Party is in Default. Any Estoppel
Certificate shall bind the Certifying Party.
31.2 Further Assurances. Each party shall execute and deliver such further documents,
and perform such further acts, as may be reasonably necessary to achieve the parties’ intent in
entering into this Lease. Upon request from Tenant or any Leasehold Mortgagee (prospective or
current), Landlord shall promptly, under documentation reasonably satisfactory to the requesting
party: (a) acknowledge any Subtenant’s nondisturbance and recognition rights (provided such
Subtenant joins in such agreement); (b) agree directly with Leasehold Mortgagee that it may
exercise against Landlord all Leasehold Mortgagee’s rights in this Lease; (c) certify (subject to
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any then exception reasonably specified) that this Lease is in full force and effect, that no Lease
Impairment has occurred, that to Landlord’s knowledge no Default exists, the date through
which Rent has been paid, and other similar matters as reasonably requested; and (d) provided
Tenant reimburses Landlord’s reasonable attorneys’ fees and expenses, amend this Lease as any
current or prospective Leasehold Mortgagee reasonably requests, provided such amendment does
not materially adversely affect Landlord or reduce any payment.
31.3 Memorandum of Lease. Upon request by either, the parties shall promptly
execute, acknowledge, and deliver duplicate originals of a Memorandum of Lease. Either party
may record such Memorandum of Lease. Any taxes imposed upon such recording shall be paid
by the party that [bears primary liability under Law for payment of such taxes] [caused such
recordation to occur]. If the parties amend this Lease, then the parties shall have the same rights
and obligations regarding a memorandum of such amendment as they do for the Memorandum of
Lease. Tenant may at any time by notice to Landlord elect to require the Memorandum of Lease
to be terminated, in which case: (a) the parties shall terminate the Memorandum of Lease; and
(b) the parties acknowledge that Tenant shall rely on notice by possession rather than
constructive notice by recordation of the Memorandum of Lease.
31.4 Modification. Any Modification of this Lease must be in writing signed by the
party to be bound.
31.5 Successors and Assigns. This Lease shall bind and benefit Landlord and Tenant
and their successors and assigns, but this shall not limit or supersede any Transfer restrictions.
Nothing in this Lease confers on any Person (except Landlord, Tenant, Leasehold Mortgagees,
and Fee Mortgagees) any right to insist upon, or to enforce against Landlord or Tenant, the
performance or observance by either party of its obligations under this Lease.
32.
MISCELLANEOUS.
32.1 Confidentiality. Landlord shall in a commercially reasonable manner maintain the
confidentiality of any information that this Lease requires Tenant to give Landlord. Landlord
shall require any actual or prospective Fee Mortgagee or Transferee to maintain the
confidentiality of such materials, all under a direct confidentiality agreement between Tenant and
the actual or prospective Fee Mortgagee or Transferee, in normal and customary form reasonably
satisfactory to Tenant.
32.2 Costs and Expenses; Legal Costs. In the event of any litigation or dispute (except
an Arbitration) between the parties, or claim made by either party against the other, arising from
this Lease or the landlord-tenant relationship under this Lease, or Landlord’s enforcement of this
Lease upon a Default, or to enforce or interpret this Lease or seek declaratory or injunctive relief
in connection with this Lease, or to exercise any right or remedy under or arising from this
Lease, or to regain or attempt to regain possession of the Premises or terminate this Lease, or in
any Bankruptcy Proceeding affecting the other party to this Lease, the prevailing party shall be
entitled to reimbursement of its Legal Costs with Default Interest and all other reasonable costs
and expenses incurred in enforcing this Lease or curing the other party’s default. [If either party
requests any amendment or modification to this Lease, then such party shall reimburse the other
party’s Legal Costs incurred in considering, reviewing, and otherwise processing such request.]
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32.3 No Consequential Damages. Whenever either party may seek or claim damages
against the other party (whether by reason of a breach of this Lease by such party, in
enforcement of any indemnity obligation, for misrepresentation or breach of warranty, or
otherwise), neither Landlord nor Tenant shall seek, nor shall there be awarded or granted by any
court, arbitrator, or other adjudicator, any speculative, consequential, collateral, special, punitive,
or indirect damages, whether such breach shall be willful, knowing, intentional, deliberate, or
otherwise. The parties intend that any damages awarded to either party shall be limited to actual,
direct damages sustained by the aggrieved party. Neither party shall be liable for any loss of
profits suffered or claimed to have been suffered by the other.
32.4 No Merger. If the Leasehold Estate and the Fee Estate are ever commonly held,
they shall remain separate and distinct estates (and not merge) without Leasehold Mortgagee’s
and Fee Mortgagee’s consent.
32.5 No Waiver by Silence. Failure of either party to complain of any act or omission
on the part of the other party shall not be deemed a waiver by the noncomplaining party of any of
its rights under this Lease. No waiver by either party at any time, express or implied, of any
breach of this Lease shall waive such breach or any other breach.
32.6 Performance Under Protest. If a dispute arises regarding performance of any
obligation under this Lease, the party against which such obligation is asserted shall have the
right to perform it under protest, which shall not be regarded as voluntary performance. A party
that has performed under protest may institute appropriate proceedings to recover any amount
paid or the reasonable cost of otherwise complying with any such obligation, with interest at the
Prime Rate.
32.7 Survival. All rights and obligations that by their nature are to be performed after
any termination of this Lease shall survive any such termination.
32.8 Unavoidable Delay. Each party’s obligation to perform or observe any
nonmonetary obligation under this Lease shall be suspended during such time as such
performance or observance is prevented or delayed by Unavoidable Delay.
32.9 Vault Space. Any vaults and other areas now existing or later built extending
beyond the building line of the Premises are not part of the Premises, but Tenant may occupy and
use them during the Term, subject to applicable Law and payment of all applicable Real Estate
Taxes. No revocation by any Government of any license or permit to maintain and use any such
vault shall in any way affect this Lease or the Rent. Landlord makes no representation or
warranty about any such vault or Tenant’s right to use or occupy it for any purpose, or any fees
or taxes that may be imposed on account of such use or occupancy.
33.
INTERPRETATION, EXECUTION, AND APPLICATION OF LEASE.
33.1 Captions. The captions of this Lease are for convenience and reference only. They
in no way affect this Lease.
33.2
Counterparts. This Lease may be executed in counterparts.
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33.3 Delivery of Drafts. Neither party shall be bound by this Lease unless and until
such party shall have executed and delivered at least one counterpart of this Lease. The
submission of draft(s) or comment(s) on drafts shall bind neither party in any way. Such draft(s)
and comment(s) shall not be considered in interpreting this Lease.
33.4 Entire Agreement. This Lease contains all terms, covenants, and conditions about
the Premises. The parties have no other understandings or agreements, oral or written, about the
Premises or Tenant’s use or occupancy of, or any interest of Tenant in, the Premises.
33.5 Governing Law. This Lease, its interpretation and performance, the relationship
between the parties, and any disputes arising from or relating to any of the foregoing, shall be
governed, construed, interpreted, and regulated under the laws of the State, without regard to
principles of conflict of laws.
33.6 Partial Invalidity. If any term or provision of this Lease or its application to any
party or circumstance shall to any extent be invalid or unenforceable, then the remainder of this
Lease, or the application of such term or provision to persons or circumstances except those as to
which it is invalid or unenforceable, shall not be affected by such invalidity. All remaining
provisions of this Lease shall be valid and be enforced to the fullest extent Law allows.
33.7 Principles of Interpretation. No inference in favor of or against any party shall be
drawn from the fact that such party has drafted any part of this Lease. The parties have both
participated substantially in its negotiation, drafting, and revision, with advice from counsel and
other advisers. A term defined in the singular may be used in the plural, and vice versa, all in
accordance with ordinary principles of English grammar, which also govern all other language in
this Lease. The words “include” and “including” shall be construed to be followed by the words:
“without limitation.” Each of these terms shall be interpreted as if followed by the words “(or
any part of it)” except where the context clearly requires otherwise: Building Equipment; FF&E;
Fee Estate; Land; Leasehold Estate; Premises; Structure; and any other similar collective noun.
Every reference to any document, including this Lease, refers to that document as Modified from
time to time (except, at Landlord’s option, any Modification that violates this Lease), and
includes all exhibits, schedules, and riders to that document. The word “or” includes “and.”
33.8 Reasonableness. Wherever this Lease states that a party shall not unreasonably
withhold approval: (a) that party shall not unreasonably delay or condition that approval; (b) no
withholding of approval shall be deemed reasonable unless withheld by Notice specifying
reasonable grounds, in reasonable detail, for that withholding, and indicating specific reasonable
changes in the proposal under consideration that would make it acceptable; (c) if a party grants
its consent (or fails to object) to any matter, that shall not waive its rights to withhold consent to
any further or similar matter; and (d) any dispute on the withholding or delay of consent shall be
determined by Arbitration.
34.
STATE-SPECIFIC PROVISIONS.
34.1 Delivery of Premises. Tenant waives the provisions of New York Real Property
Law (the “RPL”) § 223-a. The provisions of this Lease on Landlord’s delivery of the Premises
constitute “an express provision to the contrary” under RPL § 223-a.
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34.2 Casualty. The provisions of this Lease on Casualty are an express agreement as to
damage or destruction of the Premises by fire or other casualty. RPL § 227, providing for such a
contingency absent an express agreement, shall not apply.
34.3 Window Cleaning. Tenant shall not clean, nor require, permit, suffer or allow any
window in the Premises to be cleaned, from the outside in violation of Labor Law § 202, or any
other Law, including the rules of the Board of Standards and Appeals.
34.4 Statutory Right of Redemption. Tenant waives the right of redemption under New
York Real Property Actions and Proceedings Law (“RPAPL”) § 761.
34.5 Security. To the extent General Obligations Law (“GOL”) § 7-103 requires: (a)
Landlord shall deposit the Security in an account maintained with a bank that has an office in the
State; (b) that account shall earn interest at the prevailing rate earned by other such deposits
made with banks in the City; (c) Tenant acknowledges that Landlord has notified Tenant of the
name and address of the bank in which Landlord shall deposit the Security (i.e., the Security
Deposit Bank); (d) Landlord may receive, as administration expenses, a sum equal to 1% per
annum upon the Security, in lieu of all other administrative and custodial expenses; and (e) the
balance of the interest paid by the bank shall belong to Tenant and Landlord shall hold it in trust
until repaid, applied to pay Rent, or annually paid to Tenant.
34.6 Zoning Lot Waiver. Tenant irrevocably waives any and all right(s) it may have in
connection with any zoning lot merger or transfer of development rights relating to the Land or
the Project, including any rights Tenant may have to be a party to, to contest, or to execute, any
Declaration of Restrictions (as defined in New York City Zoning Resolution [eff. December 15,
1961, as amended] § 12-10) relating to the Land or the Project that would cause the Premises to
be merged with or unmerged from any other zoning lot pursuant to such Zoning Resolution or to
any document of a similar nature and purpose, provided, however that any such document shall
not impair Tenant’s right to occupy the Premises for the uses this Lease allows. This Lease shall
be subject and subordinate to any such Declaration of Restrictions or any other document of
similar nature and purpose now or later affecting the Land or the Project, provided, however that
any such document shall not impair Tenant’s right to occupy the Premises for the uses this Lease
allows or Landlord’s obligations under this Lease. In confirmation of that subordination and
waiver, Tenant shall execute and deliver promptly any certificate or instrument that Landlord
reasonably requests.
34.7 Yellowstone Actions. If Landlord gives Tenant a Default Notice or a notice of
termination of this Lease predicated upon any Default except one described in RPAPL § 751(1)
(any such notice, a “Remedies Notice”), then Landlord may Notify Tenant (either in the
Remedies Notice or in some other Notice; either, a “Deferral Notice”) that if Landlord is ever
entitled to obtain a warrant of eviction as a result of the Default that was the basis of the
Remedies Notice (an “Eviction Entitlement”), Landlord shall defer obtaining a warrant of
eviction for up to 10 days (or such longer period as Tenant reasonably requires to cure its
Default) (the “Final Cure Period”), provided that, within 10 days after the Eviction Entitlement,
Tenant deposits with Landlord a cash undertaking, in the amount Landlord reasonably requires
(or the court requires) to the effect that Tenant will cure the Default within the Final Cure Period
(the “Cure Undertaking”). If Landlord gives a Deferral Notice but Tenant fails to timely deposit
72
the Cure Undertaking, or having timely deposited the Cure Undertaking fails to cure the Default
within the Final Cure Period, then Landlord’s Deferral Notice shall be of no force or effect and
Landlord may obtain and enforce a warrant of eviction. Tenant acknowledges that if Landlord
gives Tenant a Deferral Notice, then for any related Remedies Notice, Eviction Entitlement, or
warrant of eviction: (a) Tenant has no basis for a so-called “Yellowstone” injunction, or any
similar relief; (b) Tenant shall not seek any such injunction or other relief; and (c) if Tenant does
seek such an injunction or other relief, Tenant shall be deemed to have committed an incurable
Event of Default under this Lease.49
34.8 Consumer Contract Statutes. Tenant acknowledges that this Lease is not entered
into for personal, family or household purposes, and therefore GOL § 5-327 (and any other Law
whose effect is limited to transactions entered into for personal, family, or household purposes)
has no application to this Lease.
34.9 Waiver of Stay. Tenant expressly waives, for every Tenant Party, any rights under
Civil Practice Law and Rules § 2201, in connection with any holdover proceeding or other action
or proceeding about this Lease or Tenant’s rights as a tenant of the Project.
34.10 No Implied Consent to Remaining in Possession. Notwithstanding anything to the
contrary in RPAPL § 711(2) or any other applicable Law or rule of procedure, Landlord’s
acceptance of any partial payment on account of Rent, even if acknowledged in writing, shall not
be deemed to constitute Landlord’s “express consent in writing to permit the tenant to continue
in possession” as referred to in RPAPL § 711(2). Landlord shall not be deemed to have granted
such “express consent in writing to permit the tenant to continue in possession” unless such
alleged written consent by Landlord expressly refers to RPAPL § 711(2) and expressly states
(i.e., contains substantially these words): “Landlord consents to Tenant’s remaining in possession
notwithstanding nonpayment of Rent.”
34.11 Sidewalk Repairs. To the extent that this Lease requires Tenant to maintain or
repair any sidewalk, Tenant shall perform all obligations of Landlord (and shall Indemnify
Landlord against any liability) under City Administrative Code § 2-710 and –711.
34.12 Conveyance of Fee Estate. If Landlord conveys the Fee Estate, then Landlord
shall immediately Notify Tenant of that conveyance, so Tenant can, to the extent Law requires,
comply with the requirements of GOL § 5-322.2(1), which requires the “owner” of a building
under Construction to notify the contractor, by certified mail, within five days of any change in
ownership of the land under that building.50
[Signatures on Next Page.]
49
This paragraph is nonstandard and not generally seen. It responds to an anomaly in the statutes that govern
commercial leasing remedies, and a leading New York case (spawned by that statutory anomaly) that converts many
commercial eviction actions into full-blown litigation proceedings.
50
That’s what the words of the statute require. No available cases interpret the statute.
73
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the
Commencement Date.
[SIGNATURE BLOCKS]
Attachments:
Index of Defined Terms
Exhibit __ = Legal Description
Exhibit __ = Additional Permitted Exceptions
Exhibit __ = Notice Addresses (Including Required Copy Recipients)
Exhibit __ = Arbitration Rules
74
INDEX OF DEFINED TERMS
Acceptable Replacement Guarantor ........... 1
Additional Rent........................................... 2
Affiliate ....................................................... 2
Affiliated ..................................................... 2
Annual Base Subrent................................. 23
Application.................................................. 2
Appraiser..................................................... 2
Approvals.................................................... 2
Arbitration................................................... 2
Architect’s Certificate ................................. 2
Bankruptcy Law.......................................... 3
Bankruptcy Proceeding............................... 3
Bankruptcy Sale .......................................... 3
Bankruptcy Termination Option ................. 3
BID.............................................................. 3
Broker ......................................................... 3
Builder......................................................... 3
Building....................................................... 3
Building Equipment .............................. 3, 71
Business Day............................................... 3
Casualty....................................................... 4
Casualty Termination.................................. 4
Certifying Party......................................... 68
Commencement Date.................................. 1
Completion Deposit .................................... 5
Completion Guaranty.................................. 4
Condemnation ............................................. 4
Condemnation Award ................................. 4
Condemnation Effective Date..................... 4
Confirmation Notice ................................. 57
Construction................................................ 4
Construction Commencement Conditions .. 4
Construction Commencement Date ............ 6
Construction Completion Date ................... 6
Construction Documents............................. 6
Construction Loan....................................... 7
Construction Substitute Performance ......... 7
Contest ...................................................... 43
Contest Conditions.................................... 44
Contest Security........................................ 44
Control ........................................................ 7
County......................................................... 7
CPI .............................................................. 7
CPI Adjustment Factor ............................... 7
Cure Undertaking...................................... 72
Default......................................................... 7
Default Interest............................................ 7
Default Notice ............................................. 8
Deferral Notice.......................................... 72
Depository................................................... 8
Development ............................................... 8
Development Criteria.................................. 8
Development Rights.................................... 9
Development Rights Transfer ..................... 9
Dispute Resolution Proceeding................... 9
Environmental Law..................................... 9
Equipment Lien........................................... 9
Equity Interest............................................. 9
Estoppel Certificate..................................... 9
Event of Default........................................ 61
Eviction Entitlement ................................. 72
Existing Zoning........................................... 9
Expiration Date ......................................... 10
Fee Debt Service ....................................... 10
Fee Estate ............................................ 10, 71
Fee Mortgage ............................................ 10
Fee Mortgagee .......................................... 10
FF&E................................................... 10, 71
Final Cure Period ...................................... 72
Financed FF&E......................................... 10
Fixed Rent................................................. 28
Foreclosure Event ..................................... 10
GOL .......................................................... 72
Government............................................... 11
Guarantor .................................................... 1
Guarantors................................................. 11
Guaranty...................................................... 1
Hazardous Substances............................... 11
Hazardous Substances Discharge ............. 11
Immaterial Loss ........................................ 12
Improvements ............................................. 1
include....................................................... 71
including ................................................... 71
Indemnified Risk....................................... 12
Indemnify.................................................. 12
Indemnitee................................................. 12
1
Indemnitor................................................. 12
Initial Development .................................. 12
Initial Development Commencement
Deadline ................................................ 13
Initial Development Completion Deadline 13
Initial Term ............................................... 27
Institutional Lender................................... 13
Insubstantial Condemnation...................... 14
Insurance Purchaser .................................. 46
Land ...................................................... 1, 71
Land Value................................................ 14
Landlord................................................ 1, 15
Landlord’s Offer ....................................... 52
Landlord’s TDR Investment ..................... 15
Laws.......................................................... 15
Lease ........................................................... 1
Lease Impairment...................................... 15
Lease Termination Notice......................... 16
Lease Year ................................................ 16
Leasehold Estate ................................. 16, 71
Leasehold Mortgage.................................. 16
Leasehold Mortgagee................................ 16
Leasehold Mortgagee’s Consent............... 16
Leasehold Mortgagee’s Cure .................... 17
Leasehold Mortgagee’s Cure Rights......... 17
Lease-Related Documents ........................ 50
Legal Costs................................................ 17
Liability Insurance .................................... 17
Limited Guaranty ...................................... 17
Loss ........................................................... 17
Loss Proceeds............................................ 17
Lower-Risk Restoration ............................ 17
Major Construction ................................... 17
Major Construction Period........................ 17
Major Subcontracts ................................... 18
Market Value ............................................ 18
Memorandum of Lease ............................. 18
Mezzanine Lender..................................... 18
Minor Construction................................... 18
Modification.............................................. 18
Modify....................................................... 19
Monetary Default ...................................... 19
Mortgage ................................................... 19
Mortgagee ................................................. 19
New Lease................................................. 19
New Lease Option Period ......................... 58
New Tenant............................................... 19
Nonmonetary Default................................ 19
Nonrecourse Clause .................................. 68
Nonrenewal Notice ................................... 40
Notice........................................................ 19
Notice of Default....................................... 19
Notify ........................................................ 19
or 71
Permitted Equity Owner ........................... 20
Permitted Exceptions ................................ 20
Person........................................................ 20
Plans and Specifications ........................... 20
Post-Foreclosure Tenant ........................... 20
Preemptive Right ...................................... 20
Premises ................................................ 1, 71
Prime Rate................................................. 20
Principals................................................... 21
Prohibited Lien.......................................... 21
Property Insurance .................................... 21
Property Insurance Proceeds..................... 21
Punchlist Work.......................................... 21
Real Estate Taxes...................................... 21
Rejection Notice........................................ 57
Remedies Notice ....................................... 72
Reminder Notice ....................................... 27
Renewal Option ........................................ 27
Renewal Term........................................... 27
Rent ........................................................... 22
Rent Regulation ........................................ 22
Rent Regulation Period ............................. 29
Requesting Party ....................................... 68
Restoration ................................................ 22
Restoration Funds ..................................... 22
Restore ...................................................... 22
Revaluation Date....................................... 22
RPAPL ...................................................... 72
RPL ........................................................... 71
Scheduled Expiration Date ....................... 22
Security ..................................................... 23
Senior ........................................................ 23
SNDA........................................................ 23
SNDA-Eligible Sublease .......................... 23
State........................................................... 24
Structure.............................................. 24, 71
Sublease .................................................... 24
Subrent ...................................................... 24
2
Subrent Payment Notice ........................... 24
Substantial Casualty.................................. 24
Substantial Condemnation ........................ 25
Subtenant................................................... 25
Supplementary Agreement........................ 25
Surety Bond .............................................. 25
Temporary Condemnation ........................ 25
Tenant ......................................................... 1
Tenant’s Architect..................................... 25
Tenant’s ROFR ......................................... 52
Tenant-Specific Default ............................ 25
Term.......................................................... 25
Transfer ..................................................... 25
Transferred Development Rights .............. 26
Trust Funds ............................................... 26
Unavoidable Delay.................................... 26
Uneconomic .............................................. 26
Usury Limit............................................... 27
Waiver of Subrogation.............................. 27
3
EXHIBIT __
LEGAL DESCRIPTION
EXHIBIT __
ADDITIONAL PERMITTED EXCEPTIONS
Permitted Exceptions shall include all of these, as they existed on ______________:
1.
All leases, subleases, tenancies and rights of occupancy affecting the Premises
caused or permitted by Tenant or by anyone claiming by, through, or under Tenant;
2.
All rights, if any, for electricity, gas, telephone, water, cable television, and any
other utilities to maintain and operate lines, cables, poles, and distribution boxes in, over, and
upon the Premises;
3.
Possible projections or encroachments of retaining walls, foundations, stoops,
areas, steps, sills, trim, cornices, standpipes, fire escapes, coal chutes, casings, ledges, water
tables, lintels, porticos, keystones, windows, hedges, copings, cellar doors, sidewalk elevators,
fences, fire escapes, and the like, or similar projections or objects upon, under, or above any
adjoining buildings or streets or avenues or those belonging to adjoining premises which
encroach upon the Premises or within any set-back areas, and variations between the lines of
record title and fences, retaining walls, hedges, and the like;
4.
Variations between the tax diagram or the tax map and the record description;
5.
Zoning, environmental, municipal, building, and all other laws, regulations or
similar matters imposed by any federal, state, municipal, or local government or any public or
quasi-public board, authority, or similar agency having jurisdiction over the Premises or any
portion thereof;
6.
All notes or notices of any violation of law or municipal ordinances, orders, or
requirements noted in or issued by any governmental or quasi-governmental authority or
departments having or asserting jurisdiction, now or hereafter affecting the Premises;
7.
The lien for all taxes, charges, rents, assessments, and any other governmental
charges which are not yet due and payable;
8.
Any Fee Mortgage, but only if Tenant can obtain a leasehold policy of title
insurance affirmatively insuring that such Fee Mortgage is subordinate to this Lease.
NY\1080000.4
10-07-2013 09:40
EXHIBIT __
NOTICE ADDRESSEES (INCLUDING REQUIRED COPY RECIPIENTS)
Party:
Landlord
Notice Address:
With a Copy to:
File No.: ________________
Tenant
File No.: ________________
4840-1346-9959, v. 4
NY\1080000.4
10-07-2013 09:40
PROFESSIONAL EDUCATION BROADCAST NETWORK
Speaker Contact Information
GROUND LEASES: STRUCURING AND DRAFTING ISSUES
Joshua Stein
Joshua Stein PLLC – New York City
(o) (212) 906-1342
[email protected]