Sample Entry from
Encyclopedia of Ground Leases

Fee Mortgages

Whenever Landlord and Tenant negotiate a Lease, the first issue on their minds often relates to Leasehold Mortgages, and the need to make the Leasehold Estate financeable. Those issues certainly matter tremendously, because after signing the Lease Tenant will almost universally plan to soon obtain a substantial construction loan secured by a Leasehold Mortgage. But the parties also need to think about Fee Mortgages and how they interact with the Lease.

To start with, the Fee Estate needs to be financeable, just like the Leasehold Estate. Any Lease should thus include a limited set of Fee Mortgagee protections, recognizing that Fee Mortgagees have concerns similar to, but narrower than, those of Leasehold Mortgagees. The ability to finance both the Fee Estate and the Leasehold Estate, potentially to support more debt than if a single party owned and occupied the entire Premises without the existence of a Lease, represents a fundamental reason to create Leases.

This Encyclopedia entry looks at Fee Mortgage issues from five perspectives: (i) Fee Mortgagee’s due diligence in reviewing a Lease; (ii) other concerns of Fee Mortgagee; (iii) concerns of Tenant; (iv) concerns of Landlord; and (v) the interplay between a Fee Mortgage and First Rights. Because the agenda of…

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