Lender Issues in Mixed-Use Project Commercial Leasing
Landlords and tenants must be aware of lender requirements when preparing commercial leases in mixed-use developments. Whether an end-user lease, parcel developer ground lease, or condominium unit, the property rights must be financeable. Landlords and tenants should consider the following to ensure that the tenant's interest is financeable:
- What is the lender’s collateral? A condo unit? A leasehold estate?
- Project documents must have priority over financing so that declarations, ground leases or reciprocal easement agreements (REAs) survive a foreclosure event.
- Project assessments cannot prime a lender’s mortgage or deed of trust.
- Project documents and leases must provide for estoppels and Subordination, Non-disturbance, and Attornment Agreements (SNDAs) to protect not only the end user tenant but to provide the lender the comfort that the project will continue even after a foreclosure event.
- Parcel developers of ground leased parcels or fee parcels require the same safeguards for their leasehold mortgage holders that would be found in anyfinanceable ground lease:
- Lenders will want notice of default and the right to cure.
- Lenders will want ability to assign leases with limited use restrictions.
- Lenders will want limitations on lender’s liability on assuming a lease.
- The lease should contain an anti-merger clause if tenant has a purchase option.
- The leased premises and rights to use the balance of mixed-use development should be distinct and well defined.
- Lenders will require their consent to lease modifications.
Larry Lerman is a commercial lending and real estate attorney at Lerch, Early & Brewer in Bethesda, Maryland who structures and documents complex commercial lending arrangements and represents parties who are buying, selling, leasing and financing commercial real estate. For more information on lending issues in mixed-use developments, contact Larry at (301) 657-0163 or firstname.lastname@example.org.