Law.com Subscribers SAVE 30%

Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.

In the Spotlight: Exploring the 'Gray' Between Ground and Space Leases

There are frequently varying shades of gray between a true ground lease and a space lease, particularly in retail real estate. The true ground lease is exactly that: a lease of ground ' dirt ' generally for a long term where the landlord has few, if any, obligations and, in fact, few rights other than to collect a rent stream which can only be interrupted in extremely limited circumstances. A space lease, of course, provides a landlord with varying responsibilities from construction to maintenance, repair, enforcement of other tenant obligations, etc., as well as creating various landlord rights such as use restrictions, radius restrictions, continuous operation provisions, etc. Landlords often get into trouble when they blend concepts from both ground and space leases without carefully considering whether the blend actually works throughout the lease term.

One of the prime incentives to incorporate ground lease provisions into a retail space lease is that the landlord can achieve separate financeability for the lease. A landlord can obtain financing for a lease if the premises comprise a separate tax lot and zoning parcel, allowing the landlord to make the tenant liable for all real estate taxes, as well as operating costs. In such instances, however, the landlord must be extremely careful to reserve rights to the demised premises because the demised premises typically comprise not only the tenant's building and parking and related facilities, but also the “excess” real estate surrounding such improvements. In the absence of a specific provision allowing a landlord to make future improvements and lease or sublease such improvements to another tenant, the landlord foregoes its future rights to install billboards, cell phone towers, kiosks, and any other revenue-generating improvements (or, for that matter, any improvements that may positively impact on adjoining properties of the landlord) without first having to come hat-in-hand to the tenant to ask permission. This problem does not arise in normal space leases where the landlord's typical boilerplate language will reserve to the landlord the right to modify and augment common areas and any other portions of the shopping center so long as such changes do not materially adversely affect the tenant's use and enjoyment of its leased premises.



William Crowe

There are frequently varying shades of gray between a true ground lease and a space lease, particularly in retail real estate. The true ground lease is exactly that: a lease of ground ' dirt ' generally for a long term where the landlord has few, if any, obligations and, in fact, few rights other than to collect a rent stream which can only be interrupted in extremely limited circumstances. A space lease, of course, provides a landlord with varying responsibilities from construction to maintenance, repair, enforcement of other tenant obligations, etc., as well as creating various landlord rights such as use restrictions, radius restrictions, continuous operation provisions, etc. Landlords often get into trouble when they blend concepts from both ground and space leases without carefully considering whether the blend actually works throughout the lease term.

One of the prime incentives to incorporate ground lease provisions into a retail space lease is that the landlord can achieve separate financeability for the lease. A landlord can obtain financing for a lease if the premises comprise a separate tax lot and zoning parcel, allowing the landlord to make the tenant liable for all real estate taxes, as well as operating costs. In such instances, however, the landlord must be extremely careful to reserve rights to the demised premises because the demised premises typically comprise not only the tenant's building and parking and related facilities, but also the “excess” real estate surrounding such improvements. In the absence of a specific provision allowing a landlord to make future improvements and lease or sublease such improvements to another tenant, the landlord foregoes its future rights to install billboards, cell phone towers, kiosks, and any other revenue-generating improvements (or, for that matter, any improvements that may positively impact on adjoining properties of the landlord) without first having to come hat-in-hand to the tenant to ask permission. This problem does not arise in normal space leases where the landlord's typical boilerplate language will reserve to the landlord the right to modify and augment common areas and any other portions of the shopping center so long as such changes do not materially adversely affect the tenant's use and enjoyment of its leased premises.



William Crowe Mayo Crowe LLC

This premium content is locked for Entertainment Law & Finance subscribers only

  • Stay current on the latest information, rulings, regulations, and trends
  • Includes practical, must-have information on copyrights, royalties, AI, and more
  • Tap into expert guidance from top entertainment lawyers and experts

For enterprise-wide or corporate acess, please contact Customer Service at [email protected] or 877-256-2473

Read These Next
Bankruptcy Sales: Finding a Diamond In the Rough Image

There is no efficient market for the sale of bankruptcy assets. Inefficient markets yield a transactional drag, potentially dampening the ability of debtors and trustees to maximize value for creditors. This article identifies ways in which investors may more easily discover bankruptcy asset sales.

Judge Rules Shaquille O'Neal Will Face Securities Lawsuit for Promotion, Sale of NFTs Image

A federal district court in Miami, FL, has ruled that former National Basketball Association star Shaquille O'Neal will have to face a lawsuit over his promotion of unregistered securities in the form of cryptocurrency tokens and that he was a "seller" of these unregistered securities.

Why So Many Great Lawyers Stink at Business Development and What Law Firms Are Doing About It Image

Why is it that those who are best skilled at advocating for others are ill-equipped at advocating for their own skills and what to do about it?

Blockchain Domains: New Developments for Brand Owners Image

Blockchain domain names offer decentralized alternatives to traditional DNS-based domain names, promising enhanced security, privacy and censorship resistance. However, these benefits come with significant challenges, particularly for brand owners seeking to protect their trademarks in these new digital spaces.

Coverage Issues Stemming from Dry Cleaner Contamination Suits Image

In recent years, there has been a growing number of dry cleaners claiming to be "organic," "green," or "eco-friendly." While that may be true with respect to some, many dry cleaners continue to use a cleaning method involving the use of a solvent called perchloroethylene, commonly known as perc. And, there seems to be an increasing number of lawsuits stemming from environmental problems associated with historic dry cleaning operations utilizing this chemical.