Ground Leases•8 min read•November 20, 2023
Ground Lease Subordination: What You Need to Know
Understanding subordination provisions in ground leases and their impact on financing and value.
Subordination is one of the most critical—and misunderstood—provisions in ground lease documentation. It directly affects a tenant's ability to finance and the overall value of the leasehold interest.
Types of Subordination
- Full subordination: Ground lessor subordinate to leasehold mortgage
- Partial subordination: Limited to certain loan amounts
- Non-disturbance provisions and their importance
- Recognition agreements with lenders
Negotiation Considerations
Both lessors and tenants should carefully consider subordination terms at lease inception, as they significantly affect future flexibility and value.
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