December 14, 2025

A ground lease is a very long-term lease (often 50 to 99 years), where the tenant seems more like an owner. The tenant in a ground lease can get a mortgage on a ground lease interest. The tenant in a ground lease runs all aspects of the building. The benefit of a ground lease to a tenant is the tenant can acquire, run, and profit from a building without buying it. The benefit of a ground lease to the actual owner is that the owner gets to maintain valuable real estate and derive steady income therefrom, without having the expense and effort of running the building.

I was hired as a consultant for a developer (“New Tenant”) who became the tenant in a ground lease (“New Ground Lease”) with a fee owner (“Owner”) on a large commercial building after a former ground lease (“Old Ground Lease”) was terminated. The Old Ground Lease tenant (“Old Tenant”) had the building sublet to many subtenants (“Subtenants”) via a series of identical subleases (“Subleases”).

My main task was figuring out the estate in real property remaining for each of the Subtenants, after the termination of the Old Ground Lease. As you might imagine, most of the Subleases in the building were subordinate to the Old Ground Lease (if the ground lease ends, the subtenancy ends). None of the Subleases had non-disturbance clauses. The subordination language in the Subleases went like this:

This [Sublease] is subject and subordinate to [the Old Ground Lease]…and to the rights of the [Old Tenant] thereunder…This clause shall be self-operative and no further instrument of subordination shall be required.”

Pretty straight forward, right? However, a novel question arose after a close (perhaps too close) reading of the language further down in the subordination clauses in the Subleases. The language went like this:

The [Subtenant] covenants and agrees that if by reason of a default under [the Old Ground Lease]…such…leasehold estate of the [Old Tenant] in the Demised Premises is terminated, the [Subtenant] will attorn to the then holder of the reversionary interest in the premises [Owner, but ultimately the New Tenant] demised by this [Sublease] and will recognize such holder as the [Subtenant’s] landlord under this [Sublease], unless the [Owner/New Tenant] under such [Sublease]…in any proceeding to terminate such [Sublease]…elects to terminate this [Sublease] and the rights of [Subtenant] hereunder…”

Should anything about this awkwardly drafted clause trouble us? Does the clause create some kind of right or entitlement in the Subtenants, in the event of the Old Tenant’s default and the collapse of the Old Ground Lease, to be recognized by the Owner and/or the New Tenant? Does this clause cut against the subordination clause? Is the New Tenant obligated to accept the Subtenants’ attornment?

The answer was no. Neither the Owner nor the New Tenant were required to accept the Subtenants’ attornment. Nothing in the plain language of the clause suggested that the Owner or the New Tenant had any obligation to do anything. Furthermore, in NRP LLC I v. Elo Management LLC, 56 Misc.3d 80 [Appellate Term 1st Dept 2017] a similar issue was dealt with as follows:

The subtenants argue that, upon [Net Tenant]’s default, they became the direct tenants of landlord by operation of paragraph 28 of the net lease. This provision, titled “Contingent Assignment of Subleases,” specifies that if the net lessee is in default in the payment of rent for 10 days after notice, the net lessee assigns all subleases and rents to landlord “until such default shall have been made good” or “cur[ed].”

The subtenants’ reliance upon paragraph 28 is misplaced, both because of the absence of privity, and the fact that the subtenants were not third party beneficiaries as landlord never undertook a duty toward them or intended to confer benefits on them [citations omitted]. In this regard, the subtenants were not parties to or named in the net lease, and their subleases were not yet in existence when the net lease was executed. In fact, any interpretation of paragraph 28 as creating tenancy rights for unnamed, future subtenants would be contrary to the reasonable expectation of the parties to the net lease and would, as a practical matter, eviscerate landlord’s rights therein to increase the rent to market level and recover possession in the event of the net lessee’s rent default, by binding the owner to subleases of the tenant. Since the subtenants did not enter into any non-disturbance agreements with landlord, the subtenants had no greater rights to possession than those possessed by the sublandlord/net lessee whose tenancy was terminated.”

In our matter, as in Elo Management, there was no privity of contract between the Subtenants and the Owner or the New Tenant. Furthermore, none of the Subtenancies had relevant non-disturbance clauses with respect to the Owner or the New Tenant. Eventually, all the Subtenants relented and agreed to vacate.

Respectfully submitted,

Michelle Itkowitz