MODEL LEASEHOLD MORTGAGEE PROTECTIONS AMERICAN COLLEGE OF REAL ESTATE LAWYERS

Transcription

1 MODEL LEASEHOLD MORTGAGEE PROTECTIONS Prepared by Joshua Stein for AMERICAN COLLEGE OF REAL ESTATE LAWYERS 1999 ANNUAL MEETING The following model document is provided with no guarantee or warranty at all, and does not define a minimum standard of practice. Consent is granted for any attorney to use and adapt this model document for specific transactions, but only where appropriate and correct in context. Copyright 1999 Joshua Stein (212) joshua.stein@lw.com (1) Introductory Comments... 2 (2)... 5 (3) Substantive Comments and Discussion Part 2 and part 3 each has its own table of contents.

2 (1) INTRODUCTORY COMMENTS Description. This document seeks to provide a complete set of Mortgagee Protections that can be used in a long-term ground lease (the Lease ) that is intended to be fully financeable -- i.e., capable of supporting a significant amount of nonrecourse financing secured solely by a lien on the Tenant s interest in the leasehold -- as opposed to merely being capable of being mortgaged, or mortgageable. These Leasehold Mortgagee Protections, and the comments that follow, are written almost totally from the point of view of the (prospective) Leasehold Mortgagee, with limited attention to the concerns of other parties (e.g., minimal notice and opportunity to cure for Fee Mortgagees). These provisions do, however, include a number of tolerable conditions, qualifications, and limitations to a Leasehold Mortgagee s rights, to acknowledge concerns a Landlord should express. In other words, this document is not entirely consistent in its level of concern for the Landlord. These Mortgagee Protections are intended, but not guaranteed, to be complete and state of the art. They should convert a fragile set of possessory rights into a solid and reliable asset. To do it, though, requires perhaps more words than one would like. But these Leasehold Mortgagee Protections are so extensive that, it is hoped, no future prospective Leasehold Mortgagee or its counsel should ever have any basis to object to them, at least absent future legal developments that might raise new issues and concerns. It is hoped that these Mortgagee Protections will prevent the Tenant from ever needing to go back to the Landlord to obtain a lease amendment, which is likely to be expensive or impossible to obtain when needed. Of course, this does not constitute a representation, warranty, or guarantee. It is the nature of ground leases to be complex animals that from time to time produce surprises, typically unpleasant. And sooner or later, either the Landlord or the Tenant will be unhappy with the relationship and the pricing. That is one reason lenders and other investors often hesitate to use them. In some cases, however, the use of a ground lease structure will be the only way to make a transaction work. These Leasehold Mortgagee Protections are quite long. The goal has been to provide an authoritatively complete reference point, rather than a reasonable subset of Leasehold Mortgagee Protections. This way, users can make their own decisions about where to cut back, rather than be stuck with whatever deletions the author chose to make. (From a user s perspective, it s easier to delete what s inappropriate than to think of and create what s not there but should be.) These Leasehold Mortgagee Protections can also be used for cross-checking those in any ground lease, in preparation for selectively beefing up that other ground lease. These Mortgagee Protections may sometimes be too much and should be trimmed back. As one obvious example, in representing the Landlord (rather than the Tenant) it may be 2

3 appropriate to drop a number of these provisions. One could do so and still deliver a reasonable and constructive first draft that would not miss the mark. Brackets indicate blanks to fill in, points to consider, and optional provisions. These Leasehold Mortgagee Protections are still a work in progress and are not final. Any comments, corrections, or suggestions should be directed to the author at the address or telephone number on the cover page. These Leasehold Mortgagee Protections can be obtained in machine-readable form by sending to the author. A Different Approach. As another project for another day, it would certainly be possible to develop a middle-ground and minimal set of Mortgagee Protections one that gives the Leasehold Mortgagee just the basic protection it needs, while honoring the main legitimate concerns of the Tenant and the Landlord, assuming in each case typical plain vanilla motivations and agendas. Such a project could take the form of a mock negotiation to reach a fair and balanced outcome, which might then be promulgated as a recommended document for parties that desire to minimize negotiating time. The author would be interested in participating in such a project. Anyone else who would like to do so should communicate with the author. In the meantime, though, that project should not be confused with the current project, which is rather different and has the great advantage of reducing the likelihood that some future Leasehold Mortgagee or its counsel will be able to find a basis to object to the Lease. Acknowledgments. The author acknowledges the helpful comments and other contributions made by the following attorneys: Randolph Amengual Esanu Katsky Korins & Siger, LLP Stevens A. Carey Pircher, Nichols & Meeks Gary A. Goodman Akin, Gump, Strauss, Hauer & Feld L.L.P. Andrew L. Herz Richards & O Neil, LLP T. Mary McDonald Fix, Spindelman, Brovitz, Turk, Himelein & Shukoff, P.C. Patrick A. Randolph Blackwell Sanders Peper Martin and University of Missouri, Kansas City Benjamin J. Suckewer Herrick, Feinstein LLP Defined Terms. These Mortgagee Protections define certain terms relatively specific to mortgagee protections. When these Mortgagee Protections are used in any Lease, the definitions here need to be reflected in, or tailored to, the particular Lease (for example, Tenant versus 3

4 Lessee ). They can either remain part of the Mortgagee Protections or go into the coordinated set of definitions (the dictionary) in the Lease. These mortgagee protections assume the following terms are already defined in the Lease: Additional Rent Base Rent Business Day Casualty Commencement Date Construction Documents Contest Event of Default Fee Estate Fixed Rent Government Include(ing) Landlord Lease Leasehold Estate Legal Costs Memorandum of Lease Premises Prime Rate Prohibited Person Property Insurance Proceeds Recourse Claims Renewal Option Renewal Term Rent State Sublease Subrent Substantial Casualty Subtenant Tenant Term Termination Date Unavoidable Delay 4

5 (2) MODEL LEASEHOLD MORTGAGEE PROTECTIONS TABLE OF CONTENTS Page 1. DEFINITIONS Bankruptcy Proceeding Casualty Termination Condemnation Condemnation Award Control of the Premises Default Depository Fee Mortgage Fee Mortgagee Foreclosure Event Institutional Lender Insubstantial Condemnation Leasehold Mortgage Leasehold Mortgagee Leasehold Mortgagee s Consent Leasehold Mortgagee s Cure Leasehold Mortgagee s Cure Rights Leasehold Mortgagee s Representative Loss Proceeds Market Value Monetary Default Mortgage Mortgagee Mortgagee Protections New Lease New Lease Delivery Date New Lease Option Period New Tenant Nonmonetary Default Notice Notice of Default Option Permitted Fee Exceptions Personal Default

6 Page 1.35 Personal Obligation Post-Rejection Offset Amount Restoration SNDA Substantial Condemnation Successor Tenant Temporary Condemnation Tenant s Cure Period Expiration Notice Uneconomic DAMAGE OR DESTRUCTION; CONDEMNATION Casualty Substantial Condemnation Insubstantial Condemnation Temporary Condemnation Adjustment of Claims; Payment of Loss Proceeds Settlement or Compromise Prompt Notice Depository FEE MORTGAGES Landlord s Rights Required Provisions in Fee Mortgage Protection of Fee Mortgagees LEASEHOLD MORTGAGES Tenant s Rights Required Provisions in Leasehold Mortgage Effect of Leasehold Mortgage Modifications Required by Leasehold Mortgagee Further Assurances Foreclosure Notice of Leasehold Mortgages Termination of Leasehold Mortgagee s Rights Landlord s Acknowledgment of Leasehold Mortgagee OPERATIONAL PROTECTIONS FOR LEASEHOLD MORTGAGEES Cancellation, Surrender, Amendment, Etc Certain Proceedings Options Copies of Notices Government Notices LEASEHOLD MORTGAGEES NOTICE AND OPPORTUNITY TO CURE Tenant s Cure Period Expiration Notice; Right to Cure Additional Time for Leasehold Mortgagee s Cure Rights

7 Page 6.3 Effect of Cure Quiet Enjoyment Leasehold Mortgagee s Right to Enter Premises Payments by Leasehold Mortgagee LEASEHOLD MORTGAGEE S RIGHT TO A NEW LEASE Documentation and Priority Adjustment for Net Income Pendency of Dispute Assignment of Certain Items Preservation of Former Subleases Landlord s Costs and Expenses Survival INTERACTION OF MORTGAGES WITH OTHER ESTATES AND PARTIES Leasehold Mortgages Leasehold Mortgagee s Representative Interaction Between Lease and Leasehold Mortgage Fee Mortgages Conflicts Among Mortgagees No Merger Subtenant Nondisturbance No Landlord s Lien Collection of Subrent OBLIGATIONS AND LIABILITIES OF CERTAIN PARTIES Recognition; Certain Obligations Limitation of Liability BANKRUPTCY Affecting Tenant Affecting Landlord MISCELLANEOUS Notices No Third Party Beneficiaries Amendment

8 MODEL LEASEHOLD MORTGAGEE PROTECTIONS 1. DEFINITIONS. 1.1 Bankruptcy Proceeding. A Bankruptcy Proceeding means any bankruptcy, insolvency, reorganization, composition, or similar proceeding, whether voluntary or involuntary, under Title 11, United States Code, or any similar state or federal statute for the relief of debtors, including any assignment for the benefit of creditors or similar proceeding. 1.2 Casualty Termination. A Casualty Termination means a termination of this Lease upon the occurrence of a Substantial Casualty, when and as expressly permitted by this Lease. Any election by Tenant of a Casualty Termination shall not be effective without Leasehold Mortgagee s Consent. 1.3 Condemnation. A Condemnation means: (a) any temporary or permanent taking of all or part of (or of the right to use or occupy) the Premises by condemnation, exercise of any right of eminent domain, or any similar proceeding; and/or (b) any action by any Government not resulting in an actual transfer of an interest in (or of the right to use or occupy) the Premises but creating a right to compensation for the Premises, such as a change in the grade of any street upon which the Premises abut. 1.4 Condemnation Award. A Condemnation Award means the entire amount of any award paid or payable to Landlord and/or Tenant after the Commencement Date on account of any Condemnation, as compensation for any Condemnation, including: (1) any interest payable on account of such award; (2) any award made on account of any improvements that are the subject of a Condemnation, whether or not the value of such improvements is the subject of a separate award or otherwise separately determined by the applicable Government; (3) the full amount paid or payable by the condemning authority on account of the estate that is the subject of the Condemnation, as determined pursuant to the Condemnation; and (4) any other sums payable on account of such Condemnation, including on account of any prepayment premium payable under any Mortgage. 1.5 Control of the Premises. For any Leasehold Mortgagee, Control of the Premises means any of the following: (1) possession of the Premises by a receiver or trustee or similar officer appointed pursuant to a judicial proceeding commenced by such Leasehold Mortgagee; (2) such Leasehold Mortgagee s possession of the Premises as mortgagee-inpossession, if and only if Leasehold Mortgagee affirmatively elects in writing in its sole and absolute discretion to become a mortgagee-in-possession; or (3) acquisition of the Leasehold Estate by a Successor Tenant through a Foreclosure Event initiated by such Leasehold Mortgagee.

9 1.6 Default. A Default means any Monetary Default or Nonmonetary Default. Each and every covenant of Tenant under this Lease, if not performed or complied with by Tenant, shall give rise to a Default as to which Tenant and (other than for Personal Defaults) each Leasehold Mortgagee shall have the cure rights provided for in this Lease. 1.7 Depository. A Depository means an Institutional Lender, designated by a Leasehold Mortgagee (or, if no Leasehold Mortgage exists, then by Tenant) to act as Depository where provided for in this Lease. A Leasehold Mortgagee that is an Institutional Lender may designate itself (or its Leasehold Mortgagee s Representative) as Depository. 1.8 Fee Mortgage. A Fee Mortgage means any Mortgage that encumbers all or any part of the Fee Estate or any interest in the Fee Estate and is made and entered into in compliance with this Lease. 1.9 Fee Mortgagee. A Fee Mortgagee means any holder of a Fee Mortgage, and its successors and assigns Foreclosure Event. A Foreclosure Event means any transfer of title to the Fee Estate or the Leasehold Estate as the result of any: (1) judicial or nonjudicial foreclosure; (2) trustee s sale; (3) deed, transfer, assignment, or other conveyance in lieu of foreclosure; (4) other similar exercise of rights or remedies under any Mortgage; or (5) transfer by operation of or pursuant to any Bankruptcy Proceeding, in each case ( 1 through 5 ) whether the transferee is a Mortgagee, a party claiming through a Mortgagee, or a third party Institutional Lender. An Institutional Lender means: (1) a bank, trust company, insurance company, credit union, savings bank, pension, welfare or retirement fund or system, real estate investment trust (or an umbrella partnership or other entity of which a public real estate investment trust is the majority owner), federal or state agency regularly making or guaranteeing mortgage loans, investment bank, subsidiary of a Fortune 500 company (such as AT&T Capital Corporation or General Electric Capital Corporation), real estate mortgage investment conduit, or securitization trust; (2) a trustee or issuer of collateralized mortgage obligations or similar investment entity (provided that such trustee, issuer, or other entity is publicly traded or is sponsored by an entity that otherwise constitutes an Institutional Lender); (3) any entity of any kind actively engaged in commercial real estate financing and having total assets (on the date when its Leasehold Mortgage is executed and delivered, or on the date of such Leasehold Mortgagee s acquisition of its Leasehold Mortgage by assignment from the previous Leasehold Mortgagee) of at least $,000,000; or (4) a corporation, other entity, or joint venture that is a wholly owned subsidiary of or is a combination of any one or more of the foregoing entities, including any of the foregoing when acting as trustee for other lender(s) or investor(s), whether or not such other lender(s) or investor(s) are themselves Institutional Lenders. The fact that a particular entity (or any affiliate of such entity) is a partner, member, or other investor in the then Tenant shall not preclude such entity from being an Institutional Lender and a Leasehold Mortgagee (entitled to all Mortgagee Protections) provided that: (x) such entity has, in fact, made or acquired a bona fide loan to Tenant secured by a Leasehold Mortgage; (y) such entity otherwise qualifies as an Institutional Lender and a Leasehold Mortgagee (as applicable); and 9

10 (z) at the time such entity becomes a Leasehold Mortgagee, no Event of Default exists, unless such Event of Default is simultaneously cured Insubstantial Condemnation. An Insubstantial Condemnation means any Condemnation other than (1) a Substantial Condemnation and (2) a Temporary Condemnation Leasehold Mortgage. A Leasehold Mortgage means any Mortgage that encumbers the Leasehold Estate or any interest in the Leasehold Estate and is made and entered into in compliance with this Lease Leasehold Mortgagee. A Leasehold Mortgagee means any holder of a Leasehold Mortgage, and its successors and assigns Leasehold Mortgagee s Consent. A Leasehold Mortgagee s Consent as to any matter means prior written consent by Leasehold Mortgagee to such matter. If multiple Leasehold Mortgagees exist, then unless the Leasehold Mortgagees agree otherwise in writing, the determination of only the most senior Leasehold Mortgagee shall govern, as described below under the heading Conflicts Among Mortgagees. A Leasehold Mortgagee may withhold consent for any reason or no reason (i.e., in its sole, absolute, and unreviewable discretion) except where expressly stated otherwise. During any period when no Leasehold Mortgagee exists, all references to Leasehold Mortgagee s Consent shall be disregarded Leasehold Mortgagee s Cure. Leasehold Mortgagee s Cure means any Leasehold Mortgagee s Cure of a Default and any actions taken by a Leasehold Mortgagee to cure a Default Leasehold Mortgagee s Cure Rights. Leasehold Mortgagee s Cure Rights means all rights of Leasehold Mortgagee(s) to cure any Default by Tenant Leasehold Mortgagee s Representative. A Leasehold Mortgagee s Representative means from time to time any agent, assignee, designee, nominee, or representative of a Leasehold Mortgagee, provided that such agent, assignee, designee, nominee, or representative is a wholly owned subsidiary, full time employee, legal counsel, or bona fide loan servicer, custodian, or collateral agent of the Leasehold Mortgagee Loss Proceeds. The Loss Proceeds means Condemnation Award(s) and/or Property Insurance Proceeds Market Value. The Market Value of any estate means, as of any specified date, the present fair market value of such estate (including the fair market value of the rights of the holder of such estate in and to any improvements) considered as if the Condemnation had not occurred (and with no adjustment for any expectation of Condemnation), the Leasehold Estate had not been terminated, and the Term included, prospectively, all Renewal Terms except any Renewal Term as to which Leasehold Mortgagee or (with Leasehold Mortgagee s Consent) Tenant gives Notice to Landlord that Tenant would not have exercised the Renewal Option in due course. The Market Value of the Leasehold Estate shall be determined independently of, and 10

11 without regard to, any valuation established pursuant to any judicial or other proceeding (or otherwise by any Government) for purposes of a Condemnation, unless Tenant determines otherwise by Notice to Landlord, with Leasehold Mortgagee s Consent Monetary Default. A Monetary Default means any failure by Tenant to: (1) pay, when and as this Lease requires, any Rent, Impositions, or other sum(s) of money that this Lease requires Tenant to pay, whether to Landlord or to a third party; (2) pay as they become due all insurance premiums that this Lease requires Tenant to pay; or (3) properly apply any Loss Proceeds or other sums of money, if any, that this Lease requires Tenant to apply in a particular manner or for a particular purpose. Notwithstanding the foregoing, if a bona fide dispute shall exist between Landlord and Tenant regarding the amount, calculation, or validity of any item of Rent (other than Fixed Rent or insurance premiums) claimed by Landlord to be payable by Tenant, then Tenant s failure to pay such item of Rent (other than Fixed Rent or insurance premiums) shall not constitute a Monetary Default but only so long as (x) the aggregate amount at issue in all such disputes at any given time shall not exceed $ [fixed dollar figure or some percentage of an inflation-based variable within the Lease]; (y) Tenant shall have deposited the disputed amount with Leasehold Mortgagee; and (z) if the dispute relates to a matter as to which this Lease permits Tenant to prosecute a Contest, Tenant shall continue to satisfy all conditions to such Contest Mortgage. A Mortgage means any mortgage, deed of trust, security deed, contract for deed, deed to secure debt, or other voluntary real property (including leasehold) security instrument(s) or agreement(s) intended to grant real property (including leasehold) security for any obligation (including a purchase-money or other promissory note) encumbering the Leasehold Estate or the Fee Estate, as entered into, renewed, modified, consolidated, increased, decreased, amended, extended, restated, assigned, or supplemented from time to time. If two or more such mortgages are consolidated or restated as a single lien, then all such mortgages so consolidated or restated shall be treated as a single Mortgage. A Mortgage may be either a Fee Mortgage or a Leasehold Mortgage or both Mortgagee. A Mortgagee means the holder of any Mortgage and its successors and assigns Mortgagee Protections. The Mortgagee Protections means, as to any Mortgagee, all rights, protections, and privileges of such Mortgagee as expressly provided for under this Lease, including the following: (1) any right to receive Notices and/or to cure defaults (including, in the case of a Leasehold Mortgagee, all Leasehold Mortgagee s Cure Rights); (2) any requirement for Leasehold Mortgagee s Consent to any matter; (3) in the case of a Leasehold Mortgagee, all provisions of this Lease relating to a New Lease and all rights of any New Tenant or Successor Tenant; and (4) all other rights, protections, and privileges of such Mortgagee under this Lease New Lease. A New Lease means a new lease of the Premises, effective as of (or retroactively to) the Termination Date of this Lease, for the remainder of the Term of this Lease, considered as if this Lease had not been terminated (and Renewal Terms, if, when, and as the corresponding Renewal Options shall have been or shall subsequently be exercised), with New 11

12 Tenant, on all the same terms and provisions of this Lease and in the same form as this Lease. Any New Lease shall include all rights, Options and privileges of Tenant under this Lease, but shall not include any Personal Obligations or any obligations of Tenant (such as initial construction) that have already been performed or no longer apply. Any New Lease or a memorandum thereof shall be in recordable form, and shall include all Mortgagee Protections for the benefit of any Leasehold Mortgagee of New Tenant New Lease Delivery Date. A New Lease Delivery Date means the date when Landlord and New Tenant enter into a New Lease New Lease Option Period. A New Lease Option Period means, upon the occurrence of a Termination Date (other than as the result of (1) the scheduled expiration date of the Term; (2) a Casualty Termination; or (3) a Substantial Condemnation), a period that begins on such Termination Date and ends on the date 90 days after Landlord has given every Leasehold Mortgagee Notice of such Termination Date. The New Lease Option Period shall be tolled and extended during (x) the pendency of any Bankruptcy Proceeding affecting Landlord and (y) any other period during which any Leasehold Mortgagee s right to require Landlord to enter into a New Lease is otherwise restricted or impaired (other than as a result of the acts or omissions of such Leasehold Mortgagee) New Tenant. A New Tenant means the Leasehold Mortgagee that requests a New Lease, or its Leasehold Mortgagee s Representative, or such other Tenant under a New Lease as such Leasehold Mortgagee shall select (but excluding the Tenant originally named in this Lease), all as designated by such Leasehold Mortgagee Nonmonetary Default. A Nonmonetary Default means the occurrence of either of the following, other than a Monetary Default: (1) any substantial breach by Tenant of its obligations under this Lease; or (2) any event or circumstance (not consisting of a breach of Tenant s obligations under this Lease) that, with the passage of time or the giving of notice, or both, or neither, would constitute an Event of Default Notice. A Notice means any approval, consent, demand, designation, election, notice, or request, including any of the foregoing relating to a Default, alleged Default, termination, or alleged termination of this Lease, that any party gives in connection with this Lease Notice of Default. A Notice of Default means any Notice from one party to the other claiming a Default by the recipient Option. An Option means the following rights of Tenant under this Lease, to the extent (if any) otherwise provided for in this Lease: (1) any Renewal Option; (2) any option to purchase the Premises (or any interest therein) or expand the Premises; (3) any option to terminate this Lease, in whole or in part; or (4) Permitted Fee Exceptions. The Permitted Fee Exceptions means: (1) the recorded title exceptions affecting the Fee Estate and prior to this Lease as of the 12

13 Commencement Date, and constituting exceptions in Leasehold Mortgagee s leasehold mortgagee policy of title insurance covering its Leasehold Mortgage; (2) any Fee Mortgages that comply with this Lease; (3) any title exceptions caused by Tenant s acts or omissions, consented to by Tenant in writing (with Leasehold Mortgagee s Consent), or resulting from Tenant s failure to comply with this Lease or with applicable Law; (4) any Construction Documents entered into at Tenant s request (with Leasehold Mortgagee s Consent); and (5) either this Lease or a New Lease and all the terms and provisions of this Lease or such New Lease Personal Default. A Personal Default means any Nonmonetary Default of Tenant that is not reasonably susceptible of cure by a Leasehold Mortgagee, such as (to the extent, if any, that any of the following may actually constitute a Default under this Lease) a Bankruptcy Proceeding affecting Tenant; a prohibited transfer; failure to deliver financial information within Tenant s control; failure to remove or retain any particular officer, employee, or director of Tenant; failure to comply with restrictions on competition or other activities that relate to other sites owned or leased by Tenant; and any other Nonmonetary Default that by its nature relates only to, or can reasonably be performed only by, Tenant or its affiliates. A Personal Default shall also include any Default that consists of Tenant s failure to satisfy or discharge any lien, charge, or encumbrance affecting the Leasehold Estate and prohibited by this Lease, which lien, charge, or encumbrance is either (1) caused by Landlord (other than a Permitted Fee Exception); or (2) junior in priority to the lien of the Leasehold Mortgage (unless such lien, charge, or encumbrance both (a) is not a Permitted Fee Exception, and (b) also attaches to the Fee Estate) Personal Obligation. A Personal Obligation means any obligation under this Lease the breach of which would constitute a Personal Default Post-Rejection Offset Amount. A Post-Rejection Offset Amount means, after a rejection of this Lease in a Bankruptcy Proceeding affecting Landlord, the amount of any offset that Tenant is entitled to claim under 11 U.S.C. 365(h)(1)(B) Restoration. A Restoration means reconstruction of any improvements that are damaged or destroyed by Casualty, or partially remaining after an Insubstantial Condemnation, in each case as nearly as practicable to their condition, quality, and value immediately before the Casualty or Insubstantial Condemnation, as the case may be, with such changes, additions, or alterations (including demolition) as Tenant shall elect to make in conformity with this Lease. Restore shall have a correlative meaning SNDA. An SNDA means a subordination, nondisturbance, and attornment agreement in substantially the form annexed as Exhibit, modified as necessary in Tenant s or any Leasehold Mortgagee s reasonable judgment (with reasonable approval by Landlord) to reflect the parties and the nature and circumstances of the estate affected by such SNDA Substantial Condemnation. A Substantial Condemnation means a Condemnation of the entire Premises or any Condemnation that, in Tenant s judgment (with Leasehold Mortgagee s Consent) renders Uneconomic the portion of the Premises remaining after such Condemnation. Only with Leasehold Mortgagee s Consent, Tenant may waive in 13

14 writing its right to treat as a Substantial Condemnation any Condemnation that would otherwise qualify as such Successor Tenant. A Successor Tenant means: (1) any purchaser, transferee, or assignee of the Leasehold Estate pursuant to a Foreclosure Event, including Leasehold Mortgagee or its assignee, designee, or nominee (if applicable); and (2) such purchaser s, transferee s, or assignee s direct and indirect successors and assigns. Any Successor Tenant shall also have all the rights of a Tenant Temporary Condemnation. A Temporary Condemnation means a Condemnation of the temporary right to use or occupy all or part of the Premises Tenant s Cure Period Expiration Notice. A Tenant s Cure Period Expiration Notice ) means a Notice, from Landlord to each Leasehold Mortgagee, that: (1) states that Tenant s cure period for a particular alleged Default has expired, and (2) describes in reasonable detail such alleged default Uneconomic. A fact, circumstance, or event shall render the Premises Uneconomic if such fact, circumstance, or event does or would, in Tenant s reasonable judgment, with Leasehold Mortgagee s Consent: (1) materially diminish the value or utility of all or a substantial part of the Premises; (2) prevent or impair all or a substantial part of the Premises from being used for any economic purpose; (3) materially impair access to, parking facilities benefiting, or any material service(s) necessary for the economic operation of any substantial part of the Premises; (4) require Restoration whose cost Tenant reasonably estimates in writing would exceed $ ; (5) cause all or part of the Premises not to comply with the operating requirements imposed on Tenant by any franchisor or licensor of Tenant; or (6) cause Tenant s development or operation of all or part of the Premises to be impracticable or commercially uneconomic. 2. DAMAGE OR DESTRUCTION; CONDEMNATION. 2.1 Casualty. If any Casualty occurs after the Commencement Date, then no Rent shall abate. Tenant shall, except as otherwise provided in this paragraph, with reasonable promptness Restore the damaged improvements. Notwithstanding the foregoing, if the Casualty is a Substantial Casualty, then Tenant may, at its election, by Notice to Landlord given within months after the Casualty, but subject to the terms of all Leasehold Mortgages, and only with Leasehold Mortgagee s Consent, elect a Casualty Termination by giving Landlord at least 30 days prior Notice of such Casualty Termination. Upon any Casualty Termination, Tenant shall assign and transfer to Landlord (or Fee Mortgagee) all of Tenant s rights to Property Insurance Proceeds arising from the Casualty, together with any Property Insurance Proceeds already received by Tenant on account of the Casualty. 2.2 Substantial Condemnation. If a Substantial Condemnation occurs after the Commencement Date, then this Lease shall terminate as of the effective date of the transfer of title pursuant to such Substantial Condemnation. Rent shall be apportioned as of the date of termination. Any Condemnation Award shall be allocated between Landlord (subject to the 14

15 rights of Fee Mortgagee(s)) and Tenant (subject to the rights of Leasehold Mortgagee(s)) as follows and in the following order of priority (without duplication) until exhausted: Prepayment Premium. To Leasehold Mortgagee, to the extent that (1) as a result of such Condemnation, any Leasehold Mortgagee is entitled to collect a prepayment premium or any other fee or charge that such Leasehold Mortgagee could not have collected but for the Condemnation and the related prepayment of such Leasehold Mortgagee s loan, and (2) the Condemnation Award directly or indirectly includes or is based upon the amount of such prepayment premium or other payment Costs and Expenses. To reimburse Tenant for Tenant s actual costs and expenses, including Legal Costs, incurred as a result of the Substantial Condemnation and determination and collection of the Condemnation Award Tenant s Claim. Tenant shall, subject to the rights of Leasehold Mortgagees, be entitled to such portion of the Condemnation Award as shall equal the [lesser] [greater] of (1) the principal balance (with accrued interest) secured by, and all other sums payable pursuant to or secured by, all bona fide Leasehold Mortgages or (2) the Market Value of the Leasehold Estate as of the date of transfer of title pursuant to the Condemnation Landlord s Claim. Landlord shall, subject to the rights of Fee Mortgagees, be entitled to receive such portion of the Condemnation Award as shall equal the Market Value of the Fee Estate subject to this Lease. as of the date of transfer of title pursuant to the Condemnation Tenant s Residual Claim. Tenant shall, subject to the rights of Leasehold Mortgagees, be entitled to receive the entire balance of any Condemnation Award remaining after the foregoing application of such Condemnation Award. 2.3 Insubstantial Condemnation. If an Insubstantial Condemnation occurs after the Commencement Date, then Tenant shall hold in trust any Condemnation Award(s) and apply such Condemnation Award(s) first to Restoration of any remaining improvements not taken. Tenant shall perform such Restoration in compliance with this Lease. Any remaining Condemnation Award(s) shall be distributed to Landlord and Tenant as if arising from a Substantial Condemnation that affected only the portion of the Premises taken. From and after transfer of title pursuant to the Insubstantial Condemnation, all Fixed Rent subsequently payable shall be reduced by a fraction whose numerator is the amount of the Condemnation Award paid to Landlord from such Insubstantial Condemnation and whose denominator is the Market Value of the Fee Estate immediately before the transfer of title pursuant to such Insubstantial Condemnation. 2.4 Temporary Condemnation. If a Temporary Condemnation occurs after the Commencement Date and relates to a period longer than 90 days, then Tenant may, with Leasehold Mortgagee s Consent, terminate this Lease effective as of the commencement date of the Temporary Condemnation. In that event only, the Condemnation Award from such Temporary Condemnation shall belong to Landlord. If the Temporary Condemnation relates to a 15

16 period of 90 days or less, or if Tenant does not (with Leasehold Mortgagee s Consent) elect to terminate this Lease on account of the Temporary Condemnation, then the Condemnation Award arising from such Temporary Condemnation (to the extent attributable to periods within the Term) shall be paid to Tenant (subject to the rights of Leasehold Mortgagees) and this Lease shall not be affected in any way. 2.5 Adjustment of Claims; Payment of Loss Proceeds. Unless Tenant has validly elected a Casualty Termination, Tenant shall be solely responsible for adjustment of any Casualty insurance claim, except that (as between Tenant and Leasehold Mortgagees) each Leasehold Mortgagee is authorized and empowered to participate in any settlement, adjustment, arbitration, or proceeding as to any Casualty insurance claim in accordance with and to the extent provided by such Leasehold Mortgagee s loan documents. Landlord assigns to Tenant (and its Leasehold Mortgagee(s)) the right to receive all Loss Proceeds. All Loss Proceeds shall be paid to Leasehold Mortgagee, to be held in trust and disbursed by Leasehold Mortgagee, subject to the terms of the corresponding Leasehold Mortgage and this Lease. If no Leasehold Mortgage exists, then Loss Proceeds shall be paid to Tenant to be held in trust and applied in accordance with this Lease. Loss Proceeds shall under no circumstances be paid to Landlord or any Fee Mortgagee unless (1) some other express provision of this Lease requires Tenant to pay or assign such proceeds to Landlord and such payment or assignment is consistent with the rights of Leasehold Mortgagees under this Lease and, in the case of payment to a Fee Mortgagee, a Fee Mortgage requires that any such proceeds payable to Landlord to be paid instead to the Fee Mortgagee, or (2) Tenant validly elects a Casualty Termination. Landlord and Tenant direct any condemning authority to remit and disburse any Condemnation Awards to the most senior Leasehold Mortgagee (or Tenant) in accordance with this paragraph. 2.6 Settlement or Compromise. Landlord shall not settle or compromise any Condemnation Award without obtaining both (1) consent by Tenant and (2) Leasehold Mortgagee s Consent. Tenant shall be entitled to control such proceedings (to the exclusion of Landlord, if so elected by Tenant) and claim such share of the Condemnation Award as Tenant is entitled to receive under this Lease. Any Leasehold Mortgagee shall also (to the exclusion of Tenant, if so elected by Leasehold Mortgagee) be entitled to appear in any proceedings relating to any Condemnation Award and empowered to participate in any settlement, arbitration, or other proceeding involving any Condemnation. Landlord shall have no right to participate in any proceedings regarding a Temporary Condemnation unless either (x) Tenant, with Leasehold Mortgagee s Consent, elects to terminate this Lease on account of the Temporary Condemnation or (y) Tenant is not legally permitted to participate in such proceedings. In the latter case, Landlord shall participate in such proceedings in accordance with Tenant s instructions, all at Tenant s reasonable expense and using counsel selected, instructed, and paid by Tenant (subject to the rights of Leasehold Mortgagees under their loan documents). 2.7 Prompt Notice. If either party becomes aware of any Casualty or threatened, contemplated, or actual Condemnation, then such party shall promptly give Notice of such Casualty or Condemnation to the other party. 2.8 Depository. Upon request by any Leasehold Mortgagee, all Loss Proceeds intended to be used for Restoration shall be held by Depository, to be disbursed for Restoration 16

17 in accordance with Leasehold Mortgagee s disbursement requirements. Notwithstanding the preceding sentence, if the Loss Proceeds do not exceed an amount equal to months of Base Rent, then they shall be paid to Tenant, who shall hold them in trust to be applied first to Restoration. 3. FEE MORTGAGES. 3.1 Landlord s Rights. Landlord shall have the right to execute and deliver Fee Mortgage(s) at any time and from time to time during the Term, provided that: (1) the Fee Mortgage complies with all other applicable requirements of this Lease; (2) the Fee Mortgagee is subject to the jurisdiction of the courts of the State and is not immune from suit; (3) notwithstanding the absolute subordination of the Fee Mortgagee s estate to this Lease, if requested by Tenant or any Leasehold Mortgagee, the Fee Mortgagee enters into an SNDA with Tenant, any Leasehold Mortgagees, and any Subtenant with whom Landlord is required to enter into an SNDA (and agrees prospectively to enter into such SNDA s with future such Subtenants); and (4) the Fee Mortgagee confirms to Tenant, by recordable instrument, that the Fee Mortgagee s rights are subject and subordinate to this Lease (and estates arising from this Lease) as more fully set forth in this Lease. Any Fee Mortgage entered into in violation of the preceding sentence shall be null and void. Within ten Business Days after Landlord enters into or records any Fee Mortgage after the Commencement Date, Landlord shall provide Tenant with a copy of such Fee Mortgage. Upon a Foreclosure Event under a Fee Mortgage, this Lease shall continue in full force and effect. Tenant shall attorn to the successor holder of the Fee Estate as successor Landlord, provided that such successor holder has assumed in writing all obligations of Landlord under this Lease. Such attornment shall in no way diminish or impair Tenant s rights and remedies against Landlord (all of which Tenant may continue to assert against the successor Landlord), or require Tenant to waive any default by Landlord. Tenant shall not be required to join in any Fee Mortgage or to subordinate this Lease to any Fee Mortgage. If Tenant elects to enter into any such joinder or subordination, then such joinder or subordination shall not be effective without Leasehold Mortgagee s Consent. 3.2 Required Provisions in Fee Mortgage. Each Fee Mortgage shall contain, and shall be deemed to contain, the following provisions or their substantial equivalent. Each Fee Mortgagee, by accepting its Fee Mortgage, shall be deemed to have agreed to the following provisions. Such provisions reflect the definitions contained in this Lease. All such terms shall be (deemed) modified in the Fee Mortgage as appropriate to reflect the definitions in such Fee Mortgage. This Fee Mortgage attaches solely to the Fee Estate, subject to the Lease, and does not encumber the Leasehold Estate. So long as the Lease or a New Lease has not been terminated, this Fee Mortgage is subordinate to the Lease or such New Lease and all estates arising from the Lease or such New Lease (including Subleases, any Leasehold Mortgage, and the rights of any Successor Tenant as holder of the Lease), all as they may be amended or modified from time to time. Notwithstanding anything to the contrary in this Fee Mortgage, Fee Mortgagee shall have no right to receive any Loss Proceeds except to the extent (and under the conditions) payable to Landlord or a Fee Mortgagee under the Lease. Upon 17

18 any Foreclosure Event under this Fee Mortgage, the resulting owner of the Fee Estate shall not have any rights as Landlord (or otherwise) under or with respect to the Lease unless and until such owner of the Fee Estate has executed, acknowledged, and delivered to Tenant an instrument, in recordable form, by which such owner of the Fee Estate assumes all obligations under the Lease, subject to all terms of the Lease, including terms that limit the liability of any Landlord, except as to Recourse Claims. 3.3 Protection of Fee Mortgagees. If Tenant gives Landlord any Notice of Default, then Tenant shall simultaneously give a copy of such Notice of Default to all Fee Mortgagee(s) provided that Tenant shall have received Notice of their names and addresses and their Fee Mortgage(s) shall not have been satisfied or discharged of record. Such Fee Mortgagee(s) shall have the right to cure Landlord s alleged breach or default within the cure period allowed to Landlord, and with like effect as if Landlord had done so. Tenant s failure to give Fee Mortgagee(s) the Notice required by this paragraph shall not be a Default by Tenant, but no Notice by Tenant of any Default by Landlord (or any resulting exercise of rights and remedies by Tenant) shall be effective against such Fee Mortgagee(s) unless and until Tenant shall have given to such Fee Mortgagee(s) such Notice and opportunity to cure. 4. LEASEHOLD MORTGAGES. 4.1 Tenant s Rights. Notwithstanding anything in this Lease to the contrary, Tenant shall have the absolute and unconditional right, without Landlord s consent, at any time and from time to time during the Term, to: (1) execute and deliver one or more Leasehold Mortgage(s) encumbering this Lease and the Leasehold Estate; (2) assign this Lease and the Leasehold Estate as collateral security; and (3) assign any or all of Tenant s rights under this Lease, including any Options, to any Leasehold Mortgagee. Landlord shall not be required to join in, or subordinate the Fee Estate, to any Leasehold Mortgage. There shall be no limit on the amount or nature of any obligation secured by a Leasehold Mortgage; the purpose for which the proceeds of any such financing may be applied; the nature or character of any Leasehold Mortgagee; the subsequent assignment, transfer, or hypothecation of any Leasehold Mortgage; or the creation of participation or syndication interests in or to any Leasehold Mortgage. Leasehold Mortgages may secure construction, permanent, purchase-money, multi-property, general corporate, or any other financing or obligations of any kind. 4.2 Required Provisions in Leasehold Mortgage. Each Leasehold Mortgage shall contain, and shall be deemed to contain, the following provisions or their substantial equivalent. Each Leasehold Mortgagee, by accepting its Leasehold Mortgage, shall be deemed to have agreed to the following provisions. Such provisions reflect the definitions contained in this Lease. All such terms shall be (deemed) modified in the Leasehold Mortgage as appropriate to reflect the definitions in such Leasehold Mortgage. This Leasehold Mortgage attaches solely to the Leasehold Estate and does not encumber the Fee Estate. This Leasehold Mortgage is subject to all the terms and conditions of the Lease. Notwithstanding anything to the contrary in this Leasehold Mortgage, Leasehold Mortgagee shall have no right to receive any Loss 18

19 Proceeds except to the extent (and under the conditions) payable to Tenant or Leasehold Mortgagee under the Lease. No Successor Tenant shall have any rights under the Lease unless and until such Successor Tenant has executed, acknowledged, and delivered to Landlord an instrument, in recordable form, by which Successor Tenant assumes all obligations under the Lease (except as otherwise provided in the Lease), subject to all terms of the Lease, including terms that limit the liability of any Tenant, except as to Recourse Claims. 4.3 Effect of Leasehold Mortgage. Tenant s making of a Leasehold Mortgage shall not be deemed to constitute an assignment or transfer of the Leasehold Estate, nor shall any Leasehold Mortgagee, as such, or in the exercise of its rights under this Lease, be deemed to be an assignee, transferee, or mortgagee in possession of the Leasehold Estate so as to require such Leasehold Mortgagee, as such, to assume or otherwise be obligated to perform any of Tenant s obligations under this Lease except when, and then only for so long as, such Leasehold Mortgagee has acquired ownership and possession of the Leasehold Estate pursuant to a Foreclosure Event under its Leasehold Mortgage (as distinct from its exercise of Leasehold Mortgagee s Cure Rights). 4.4 Modifications Required by Leasehold Mortgagee. If any actual or prospective Leasehold Mortgagee requires any modification(s) of this Lease, then Landlord shall, at Tenant s or such Leasehold Mortgagee s request, promptly execute and deliver to Tenant such instruments in recordable form effecting such modification(s) as such actual or prospective Leasehold Mortgagee shall require, provided that such modification(s) do not modify the Rent, the Term, or any security required to be provided under this Lease, and do not otherwise materially adversely affect Landlord s rights or materially increase Landlord s obligations under this Lease. 4.5 Further Assurances. Upon request by Tenant or by any existing or prospective Leasehold Mortgagee, Landlord shall deliver to the requesting party such documents and agreements as the requesting party shall reasonably request to further effectuate the intentions of the parties as set forth in this Lease, including a separate written instrument in recordable form signed and acknowledged by Landlord setting forth and confirming, directly for the benefit of specified Leasehold Mortgagee(s), any or all rights of Leasehold Mortgagees. 4.6 Foreclosure. Notwithstanding anything to the contrary in this Lease, any Foreclosure Event under any Leasehold Mortgage, or any exercise of rights or remedies under or pursuant to any Leasehold Mortgage, including the appointment of a receiver, shall not in and of itself be deemed to violate this Lease or, in and of itself, entitle Landlord to exercise any rights or remedies, but the foregoing shall not limit Landlord s rights and remedies (subject to all other Mortgagee Protections) if any Default occurs. 4.7 Notice of Leasehold Mortgages. If Tenant enters into any Leasehold Mortgage that complies with the definition of such term, then the Leasehold Mortgagee under such Leasehold Mortgage shall be entitled to all Mortgagee Protections (as against both Landlord and any successor holder of the Fee Estate) from and after such date as Tenant or the Leasehold Mortgagee has given Landlord Notice of such Leasehold Mortgage and Leasehold Mortgagee, accompanied by a copy of the Leasehold Mortgage, recorded or unrecorded. No change of 19

20 address of such Leasehold Mortgagee, or assignment of such Leasehold Mortgage, shall be effective against Landlord unless and until such Leasehold Mortgagee shall have given Landlord Notice of such change or assignment. 4.8 Termination of Leasehold Mortgagee s Rights. If a Leasehold Mortgagee is entitled to Mortgagee Protections, then such entitlement shall not terminate unless and until such time, if any, as either (1) the Leasehold Mortgage shall have been satisfied and discharged of record, except through a Foreclosure Event; (2) such Leasehold Mortgagee has consented in writing to the termination of its Mortgagee Protections; or (3) after Landlord has complied with all Mortgagee Protections, Landlord has validly terminated this Lease, no Leasehold Mortgagee has validly requested (and is entitled to) a New Lease, and the New Lease Option Period has expired. 4.9 Landlord s Acknowledgment of Leasehold Mortgagee. Landlord shall, upon written request, acknowledge receipt of the name and address of any Leasehold Mortgagee (or proposed Leasehold Mortgagee) and confirm to such party that such party is or would be, upon closing of its loan to Tenant or its acquisition of an existing Leasehold Mortgage: (1) a Leasehold Mortgagee (in compliance with the definition of such term, including all applicable conditions and requirements set forth in such definition) entitled to all Mortgagee Protections and (2) an Institutional Lender, if applicable. Such acknowledgment shall, if requested, be in recordable form, and may be recorded. If Landlord reasonably determines that any such acknowledgment requested by Tenant or any (proposed) Leasehold Mortgagee would be inaccurate, then Landlord shall promptly give Notice of such determination to Tenant and the (prospective) Leasehold Mortgagee or assignee, which Notice shall specify the reasonable basis for Landlord s determination. 5. OPERATIONAL PROTECTIONS FOR LEASEHOLD MORTGAGEES. Notwithstanding anything to the contrary in this Lease, if Tenant at any time or from time to time enters into any Leasehold Mortgage, and Tenant or a Leasehold Mortgagee has given Landlord Notice of such Leasehold Mortgage, then: 5.1 Cancellation, Surrender, Amendment, Etc. No cancellation, termination (including Tenant s termination of this Lease pursuant to any express right of termination in this Lease or under applicable law), surrender, acceptance of surrender, abandonment, amendment, modification, or rejection of this Lease, or subordination of this Lease to any Fee Mortgage or other encumbrance on the Fee Estate, shall bind a Leasehold Mortgagee if done without Leasehold Mortgagee s Consent. Nothing in this paragraph shall limit the right of Landlord to terminate this Lease upon occurrence of an Event of Default and the expiration of all Leasehold Mortgagee s Cure Rights without cure of such Event of Default, subject however to (1) provisions of this Lease that limit the right of Landlord to terminate this Lease on account of Personal Default(s) or certain Nonmonetary Defaults; and (2) the right of any Leasehold Mortgagee to obtain a New Lease as provided for in this Lease. 20