Wealth Opportunities in Commercial Real Estate: Management, Financing, and Marketing of Investment Properties

Ground Lease Restrictions

Similar to CC&Rs, restrictions might be found in a ground lease that affects the property to be built prior, during, and after construction. For example, it is common for a hospital to control the land surrounding the hospital campus. If the hospital and the developer seek to enter into a ground lease with the objective being for the developer to then build a medical office building on the land (to the hospital's and developer's mutual benefit), the developer must be careful to scrutinize what, if any, restrictions the hospital imposes. It is common for the hospital to seek to avoid competition by providing that, for example, all tenants in the contemplated medical building be medical doctors on the hospital's staff. It is also possible that certain uses might be prohibited; for example, a surgical center, physical and occupational therapy, or imaging (including MRI, CAT scan, X-ray, etc.). The developer should be primarily concerned, especially in light of these restrictions, that he may not be able to completely lease the building. To address the developer's fear, a compromise might be drafted to provide that in the event the building is less than a certain percentage leased after a certain time frame, some or all of the restrictions might be lifted.