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 There are situations where the nature of tenant's business requires that it use all or nearly all of the space in a building. In other situations, the tenant may require a large space that is built to accommodate the tenant's specific needs. For these tenants, the appropriate leasing vehicle may be a "ground lease" or a "net lease." Those types of leases provide that the tenant, due to its size and use of space, will assume many of the responsibilities that are ordinarily the province of the landlord. While many of the fundamental issues with respect to the relationship between the landlord and the tenant remain the same in a ground lease or net lease situation, some of those issues do not. For example, the components of rent (and escalations of rent) will be configured differently. (See: Components of Rentals) Usually the base rent will be smaller because most or all of the operating expenses will be the responsibility of the tenant, who is using all or nearly all of the space. There are unique issues which come into play when a tenant is ground-leasing space. Issues of title become very important, and title insurance becomes a necessity. For example, issues of subordination to all other interests in the property arise, and the tenant will be in a highly vulnerable position if holders of "superior" interests exercise their rights if the landlord defaults under agreements with them. The tenant can protect itself by insisting on getting an agreement with such superior interest holders that provides that if there is such a default by the landlord, so long as tenant accepts the new landlord and continues to perform under its lease, it will be permitted to remain in place, undisturbed. In the case of the tenant occupying all or substantially all of a building, or a tenant that has built the building, getting this type of an agreement (a "Subordination and Non-Disturbance Agreement") in place as a part of the lease transaction is essential to prevent the tenant from losing its lease because of the landlord's failures.  |
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