Description
A typical ground lease is a land lease agreement wherein the lessee or tenant pays rent on a parcel of land and can build and modify the property there. After the lease term is up, the leased land, all new property built on it, and any additions to that current property transfer in ownership to the landlord or lessor.
Borrower as the lessor
With the Borrower as the lessor (landlord/land-owner) of a ground-leased property, the leased fee interest as loan collateral, the documents can handle the ground lease in the similar way as a non-ground, tenant lease.
The documents place market expectations as to the nature and assignment of any leases to the lender with additional options for the lender to have a say in any future leases or renewals, all during the life of the loan. The borrower has the same reporting, financial, insurance, and property requirements regarding any lease on the mortgaged property. Whether the ground lessee is handling any of those requirements is still an item the lender is addressing through the borrower's participation in the loan. Property requirements are in section D of the loan agreement. Leases are addressed in the assignment of leases and rents of such documents and the security instrument. Within the documents, Leases are those that cover or affect the Mortgaged Property. The Mortgage Property, among other things, includes not just the Land, but all Improvements constructed or at any time in the future constructed or placed upon the Land.
The documents define "Leases" expansively as all present and future leases, subleases, licenses, concessions, or grants or other possessory interests now or hereafter in force, whether oral or written, covering or affecting the Mortgaged Property, or any portion thereof, and all modifications, extensions, or renewals. A ground lease is a possessory interest and falls squarely within this definition.
The Assignment of Rents and Leases provisions absolutely and unconditionally assign to Lender all of the Borrower's right, title, and interest in and to all Leases and all Rents — which includes ground rent payments from a ground lease tenant — as well as Borrower's rights to modify, extend, or terminate any such lease (subject to Lender's approval).
The lease covenants in the Deed of Trust govern all Leases under the Mortgage, requiring among other things that all leases be subordinate to the Mortgage, that tenants attorn to Lender, and that Lender's prior written approval be obtained for new leases, modifications, and terminations — all of which apply equally to a ground lease.
"Rents" is also broadly defined to include all rents, revenues, and other income of the Land or the Improvements — capturing ground rent just as it would any other rental income stream.
GoDocs documents handle all lease situations, including those where the Borrower is the lessor under a ground lease. The existing definitions, assignment provisions, and lease covenants fully encompass ground leases, ensuring the Lender retains full control and a security interest over any ground lease affecting the collateral — including the right to collect ground rents upon default and to approve or reject any new, modified, or terminated ground lease.
Borrower as the lessee
Separately, the leasehold interest as loan collateral is identified via their own data field for such a scenario that can be activated with the "Borrower is or will be the Ground Lessee under a Ground Lease." on the Property page. Such loans are documented in much the same way as above, but with the inclusion of additional lender provisions and conditions that address the leasehold nature of the collateral.
For any ground lease scenario, your review of the lease would be to understand the contributions to the mortgaged property for the loan collateral. Ground leases, even those with the borrower as the lessor, should be reviewed for acceptability in the lender's underwriting and business requirements. It is imperative that the lender review any lease for such requirements, as deemed necessary by the lender, prior to closing the loan. The loan documents only cover the parties to the loan (borrower and lender) with regard to the loan itself. The loan documents will not, themselves, modify or amend any other agreements. The lease will control the agreement between the lessor and lessee. This will include when and how the leasehold interest is returned to the landlord.
You should ensure the borrower is the owner of all the mortgaged property and all such property is correctly identified in the legal description.
User Interface
Navigate to the "Property Tab" and scroll down to the "Property Type" section.
Select the check box that says "Borrower is or will be the Ground Lessee under a Ground Lease"
Then select the appropriate option for ground lease coverage, and use the instructions below in blue to complete the description of the ground lease
(a) All property covered by ground lease
(b) Portion of property covered by ground lease
GoDocs Software Output Sample
The description of the Ground Lease input in the Order will appear on the following Exhibit
