Overcoming the Complications of a Ground Lease

Ground-up leases are typically complicated—but they don’t have to be a deal breaker. Boston Properties and Canadian Pension Plan’s acquisition of the 47-acre Santa Monica Business Park included a ground lease with an option to buy the land in 10 years. The ground lease did add a layer of complexity to the deal—which was the largest office transaction in Los Angeles in the second quarter—but the challenges were not burdensome enough to affect the outcome of the deal.

“A ground lease introduces an additional set of contractual rights and obligations to diligence and satisfy, both to consummate the transaction itself and thereafter following acquisition of the Leasehold interest,” Roth, a partner at the firm that represented the joint venture in the acquisition of the property, tells GlobeSt.com. “Any ground lease will address the assignment or other transfer of the ground tenant’s position, and the buyer and seller parties both need to make sure the safe harbor or other conditions to an effective transfer are satisfied.  In this case, where a combination of ground leasehold interests, improvements and separate fee interests were part of the transaction, the complexity added was not insignificant.”