Prompt Pilotby Write.law
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Analyze

Test a ground lease for financeability and reset risk

Runs the term arithmetic against the loan, audits the leasehold-mortgagee article line by line, rebuilds the fair-market-rent reset into something a lender will fund, and hands back redlines with fallbacks.

About 30 minadvancedReal estate, Transactional

Your prompt5,233 characters

Still to fill in: Ground lease key clauses, Project and capital stack, State and local law

RoleYou are a real-estate lawyer who has structured ground leases for hotels, mixed-use and institutional landowners, and who has sat on the call where a lender's counsel said the leasehold was not financeable. You read the lease in the order a lender reads it (term, reset, mortgagee protections) and you treat an undefined fair-market-rent reset as a defect, not a placeholder.What I needAudit the ground lease below for the Fee owner / landowner in State and local law, given that financing stands at: Construction loan committed, permanent under negotiation. Tell me whether this leasehold is financeable and give me the language to fix what is not.InputsLease clauses: Ground lease key clauses Project and capital stack: Project and capital stack My side: Fee owner / landowner Financing status: Construction loan committed, permanent under negotiation State and local law: State and local lawHow to work this1. Do the term arithmetic first and show it: ground term plus extensions, less loan term plus extensions, less the refinancing tail. A thin remainder is the headline and everything below is secondary. 2. Give every term four things: the clause quoted with its section number, analysis from my side, paste-ready redline, and a fallback I would sign. 3. Treat any fair-market-rent reset as defective until it specifies appraiser selection, valuation basis (land as if vacant and unimproved, or encumbered), valuation date, a collar, and interim rent during a dispute. Supply all five. 4. Audit the leasehold-mortgagee article item by item, marking each present or missing by name: notice and cure direct to the mortgagee, extended non-monetary cure, no termination for lender-curable defaults, a new-lease right, foreclosure and nominee transfer without consent, estoppels on demand. 5. Write the casualty and condemnation waterfalls in priority order as operative language, not as description. 6. Trace improvements from construction to reversion: ownership during the term, condition on hand-back, and whether late-term capital is compensated. 7. Flag anything in State and local law bearing on term limits, recording, mechanic's lien priority, or leasehold transfer tax, and mark it unverified where you are not certain.Ask me firstYou have the lease clauses, the capital stack, and my side above. Ask me these four questions (what the lease text cannot tell you), then stop and wait: 1. What is the loan structure and its outside maturity including extensions, and what refinancing do you expect around the first reset? Term adequacy is a subtraction problem and I need the loan number to do it. 2. Has a lender or rating agency already commented on this lease? If so I am rewriting to their list, not to a general checklist. 3. What does the fee owner actually want from this land in year 40: income, control, the improvements back, or a redevelopment option? Reset and reversion terms follow from that answer, not from convention. 4. Is there an operating sublease, a hotel management or franchise agreement, or a major subtenant that will need recognition from both the fee owner and the leasehold lender? Do not begin the audit until I answer. If I tell you to proceed anyway, state each assumption at the top of your output and mark it [ASSUMPTION - verify].Output formatThree-sentence bottom line: top three issues, whether the leasehold is financeable as drafted, the deal-breakers. Then a section per term in the four-part shape. Then a financeability read listing each lender requirement against the lease as redlined, with remaining gaps named. Close with the negotiation sequence and the walk-away positions. End with one line naming the two of my answers that changed this audit the most, and what you would have called financeable without them. If an answer changed nothing, say so. That question should not have been asked.Never do this- If this audit would fit any ground lease on any site, it is too generic. Tie every conclusion to my term, my loan and my project. - No hedging filler. Cut "arguably," "it should be noted," "it depends," and "customary" used in place of a position. Do not tell me to consult an attorney. I am the one answering to the lender. - Every statute, ordinance, tax rule and lender convention you name must come from my inputs or carry [UNVERIFIED - confirm before relying]. Never invent a state term limit, a rating-agency criterion, or a market rent figure. - Where you do not know how State and local law treats leasehold mortgages, lien priority, or ground-lease term limits, say you do not know. Never call a leasehold financeable on an assumption. - Do not pad. If the mortgagee article is sound, say so in a line and move to the reset. Length is not value.Before you answer- Did I show the term subtraction with actual numbers? - Does the reset language specify all five elements, or did I leave one to the parties? - Is every lender protection marked present or missing by name, and are the waterfalls written as clause text in priority order? - Would this audit be useless against a different ground lease? It should be.

Adds driver's-seat tunes: options instead of answers, questions before work, every citation flagged. Your values come with it.

2

Pressure-test it

Makes the AI switch hats and attack its own answer.

Assume the commitment letter has not gone out yet, and answer as the leasehold lender's outside counsel, working through the ground lease with no appetite for a fight after closing. Which three of my redlines do you still mark inadequate, and what language do you insist on instead? Which single item will you not accept in the lease at all, and will you take it in a separate recognition and non-disturbance agreement? And what would you say about the reset collar if this deal has to be rated?
3

Go deeper

Pushes the work further once the basics are right.

Lender's counsel wants one document, not a memo. Build the leasehold-mortgagee protections checklist to send over: each requirement in one line, mapped to the section of the lease as redlined, marked satisfied or open, with the open items sorted into those that need a lease amendment and those that can travel in a separate recognition agreement. Add the three questions the lender should confirm with the fee owner directly.

Before you run it

What to gather first

  • Term, extensions, and the loan term plus extensions you are underwriting to
  • The rent schedule and every reset date and mechanism
  • The full leasehold-mortgagee article, plus any lender comments already received
  • Casualty, condemnation, transfer, improvements and reversion clauses
  • Whether an operating sublease, hotel manager or franchisor needs recognition

Watch for

  • Some states limit ground-lease terms or impose specific recording and notice requirements. Confirm the rule where the land actually sits before agreeing to a term.
  • Undefined fair-market-rent resets are the single largest source of ground-lease litigation. Nail the appraiser process, the valuation basis, the date, the collar, and the interim rent.
  • Without a new-lease right and direct notice and cure to the mortgagee, the leasehold is functionally unfinanceable no matter how good the rest of the lease reads.
  • The model does not know current lender or rating-agency criteria and will produce plausible-sounding requirements. Treat any it names as unverified until the lender's counsel confirms.
  • Hotel managers and franchisors have their own recognition requirements that can force changes to the ground lease. Surface them before the lease is signed, not during financing.

What comes back

A three-sentence bottom line covering the top three issues, whether the leasehold is financeable as drafted, and the deal-breakers; a section per term with the clause quoted and section-numbered, analysis from the client's side, paste-ready redline and a fallback; a financeability read mapping each lender requirement to the lease as redlined with the remaining gaps named; a negotiation sequence; and walk-away positions.

See an example of what you’ll get
*(After you answer the four questions: permanent loan targeted at 10 years with two one-year extensions and a refinancing expected around year 22, no lender comments yet, fee owner wants long-term income and the improvements back, and a Marriott management agreement is in the structure.)* Bottom line. From the developer side, three problems. The reset at year 25 says only "fair market rent as determined by the parties," which no lender will fund through. The mortgagee article gives consent to mortgage but none of the protections a lender needs, including no new-lease right. And the condemnation waterfall pays the fee owner ahead of the leasehold lender. This leasehold is not financeable as drafted; items one and two are walk-aways. Term. 99 years, no extensions, against a 10-year permanent with two one-year extensions and a refinance around year 22. Arithmetic is comfortable for this loan: 99 less 12 leaves 87 years of tail. The exposure is at the far end: a lender refinancing in year 80 sees a 19-year residual and will amortize hard. Redline: add two 10-year extension options exercisable on 12 months' notice with no continuing default. Fallback: one 10-year option. Rent reset. - *As drafted, § 4.3:* "On each Reset Date, Rent shall be reset to fair market rent as determined by the parties." - *Analysis:* This is not a clause, it is a dispute with a date on it. A lender underwriting past year 25 has no way to model the rent, and a rating agency will size to the worst case. - *Redline:* "'Fair Market Rent' means the fair rental value of the Land considered as if vacant and unimproved, disregarding the value of Tenant's Improvements, zoned for its highest and best use consistent with the Permitted Use. Determination: (a) the parties negotiate for 90 days; (b) failing agreement each appoints an MAI appraiser within 30 days; (c) those two select a third within 15 days; (d) each renders a determination within 60 days; (e) Fair Market Rent is the average of the two closest values. Rent shall not increase by more than 50% over the rent in effect immediately before the Reset Date and shall not decrease. Pending determination Tenant pays 105% of prior rent, reconciled retroactively with interest." - *Fallback:* Same process with a 75% collar. Leasehold-mortgagee protections. - *As drafted, § 12.1:* "Tenant may mortgage its leasehold interest with Landlord's consent, not to be unreasonably withheld." - *Audit:* Notice and cure to mortgagee: missing. Extended non-monetary cure: missing. No termination for lender-curable defaults: missing. New-lease right: missing. Foreclosure and nominee transfer without consent: missing. Estoppels on demand: missing. What the clause gives is permission to encumber, which is the one thing no lender is worried about. - *Redline:* Replace with a full article: mortgaging permitted without consent on notice and delivery of the security documents; Landlord gives written default notice to each Leasehold Mortgagee concurrently with Tenant; Mortgagee has Tenant's cure period plus 30 days for monetary and 60 days for non-monetary defaults, plus such longer period as is reasonably needed to obtain possession and cure, including through foreclosure; Landlord may not terminate for any default the Mortgagee is diligently curing; on any termination the Mortgagee may demand a new lease on the same terms for the balance of the original term within 30 days; foreclosure and assignment to the Mortgagee or its nominee require no consent; Landlord delivers estoppels in customary form on request. - *Fallback:* Same with the non-monetary cure at 45 days. Condemnation waterfall. - *As drafted, § 15.2:* "Awards shall be apportioned between Landlord and Tenant as their interests may appear." - *Redline (total taking), in order:* (i) the Leasehold Mortgagee to the extent of the outstanding debt; (ii) Tenant, the value of the leasehold estate including Improvements; (iii) Landlord, the balance attributable to the fee. Partial taking: rent abates proportionally, Tenant restores with Mortgagee-directed proceeds, and any surplus follows the same order. Improvements and reversion. Tenant owns Improvements during the term; at expiration they pass to Landlord in good operating condition, ordinary wear excepted, with FF&E removable. Add: Tenant has no obligation to undertake capital improvements over $5M in the final 10 years unless an extension has been exercised. Recognition. The Marriott management agreement will require a non-disturbance from both the fee owner and the leasehold lender. That belongs in a separate recognition agreement rather than the lease. Raise it with the fee owner now. It is slower to get after the lease is signed. Financeability read. As redlined, the lease should support the permanent loan, with three items open: whether the lender accepts a 50% reset collar, whether the new-lease right extends to a Mortgagee's assignee, and whether the fee owner will sign the manager recognition. [UNVERIFIED - confirm current lender criteria with their counsel; do not rely on my characterization of what rated debt requires.] Sequence. Mortgagee article, then reset mechanics, then the condemnation waterfall, then extension options, then reversion. The mortgagee article goes first because it costs the fee owner almost nothing and is the item that stops the financing. Walk-away. No new-lease right. A reset with no defined process. A condemnation waterfall that pays the fee ahead of the leasehold debt. What your answers changed. The loan numbers did the most. Ten years plus two one-year extensions is what makes the term subtraction come out at 87 years of tail and takes term off the problem list, and the year-22 refinancing expectation is why the year-25 reset is the headline rather than a drafting cleanup. A lender writing a new ten-year loan in year 22 is underwriting through year 32 and has to size against a rent it cannot model. Without those two numbers I would have had to call financeability open on the arithmetic alone and never reached the reset. The Marriott answer is the entire Recognition section and the third of the three open items in the financeability read; without it that read closes on two opens and nobody raises non-disturbance with the fee owner until the lender's counsel asks for it during financing, which is the expensive version of the same conversation. Your answer that no lender has commented yet changed nothing. The mortgagee audit above is the standard checklist, which is exactly what you get when there is no lender list to write to.
Why this prompt is built the way it is
## Framework 1. **Term is arithmetic.** Ground term plus extensions must exceed loan term plus extensions plus a refinancing tail. Show the subtraction. 2. **The reset is the economic core.** A fair-market-rent reset without appraiser selection, valuation basis, valuation date, a collar, and interim rent is unfinanceable and litigation-prone. 3. **The mortgagee article is a checklist, not a concept.** Notice and cure to the lender, extended non-monetary cure, no termination for lender-curable defaults, a new-lease right, foreclosure and nominee transfer without consent, estoppels on demand. 4. **Waterfalls get written in priority order.** Casualty and condemnation proceeds: lender, then leasehold value, then fee. 5. **Transfers turn on completion.** Pre-completion consent, post-certificate-of-occupancy freedom, plus the standard permitted transfers. 6. **Improvements have a life cycle.** Ownership during the term, condition at reversion, and whether late-term capital gets compensated. 7. **Subleases need recognition** from the fee owner and the leasehold lender, especially with a hotel manager or franchisor in the structure. 8. **Every criticism ships with the replacement language and a fallback.**