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What's in a Name? All 'Ground Leases' Are Not the Same

By Greg Erwin

The term “ground lease” may be used in connection with shopping center development in two ways. In some deals, the developer of the shopping center leases the shopping center land from its owner and develops the shopping center on the leased land, building store buildings and leasing space to the actual users (a “development ground lease”). In other cases, the shopping center developer owns the shopping center land and leases an unimproved portion of the shopping center (usually a “pad” or out-parcel) to a tenant who will build its own building on the leased land and operate a business there, such as a fast food restaurant, drug store or bank (a “retail ground lease”).

While both are commonly referred to as a “ground lease,” there are some big differences. If counsel for a shopping center developer who owns fee title to the shopping center land and is going to “ground lease” an out-parcel to a bank uses a form that is a “development ground lease,” the expectations of the client will be thwarted. Just as significantly, if counsel for a tenant who is ground leasing a small pad in a shopping center is familiar only with a “development ground lease,” the tenant will have greatly exaggerated expectations about what the shopping center landlord will agree to in a retail ground lease. The purpose of this article is to look at these two types of ground leases ' development ground leases and retail ground leases ' and see how key issues differ between the two. The article assumes some familiarity on the part of the reader with respect to ground leases in general.

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