Casualty and Condemnation Provisions: Balancing...

Casualty and Condemnation Provisions: Balancing

Conflicting Interests of Lenders, Borrowers, and

TenantsUsing SNDAs to Address Lease Requirements, Special Issues With Ground Leases

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THURSDAY, MARCH 5, 2020

Presenting a live 90-minute webinar with interactive Q&A

Ren R. Hayhurst, Founder, Ren RH Legal Consultants, Costa Mesa, Calif.

Anthony Palazzo, General Counsel, Cali Kader, Cranford, NJ

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Presentation Notes to Slide Number 7

• Allocate Risk for Injuries in Common Areas.

In most states, a landlord is liable for all actions occurring in a common area (albeit, liability dependson the level of control over the area). In some states, a landlord can also be held liable for torts or crimes which occur in a common area, again depending on the level of control over the area exercised by the landlord. As a result, parties should be mindful when defining which areas are under their respective control. The parties can, of course, further allocate risk through specific drafting and negotiation of indemnity and insurance provisions. Parties to a lease should be mindful of the liability that each could incur in the event a third party is injured on the property and should allocate risk accordingly.

• Consult with the Insurance Carrier.

The landlord form of lease should be prepared in conformity with the Insurance Policy and asimportantly the landlord should make sure that the tenant’s insurance coverage requirements can be satisfied by the Tenants at a reasonable cost; otherwise the Tenant’s may have difficulty satisfying the lease requirements. Have the tenant confirm that tenant will be able to obtain precisely what will be required. The landlord should be named as an additional insured and typically prior notice to the landlord is required before cancellation or amendment. Similarly, many tenants require the landlord to carry liability and casualty insurance. All of these details should be carefully reviewed with the applicable party’s carrier

• Remember the Lender Today and Tomorrow.

The landlord’s mortgage may require that the lender approve any new lease or amendment to anexisting lease. In that case the lease will need to be submitted to the lender for its prior written approval before it is signed. The landlord should also consider future refinancing. Lenders expect subordination of the tenants’ interests to their mortgage. It is much easier to provide for automatic subordination in a lease than try to obtain subordination concessions from each tenant after a lease has been signed. The lease should include the tenant’s acknowledgment that it is automatically subordinate to any current or future mortgage on the landlord’s interest, and require the execution of an estoppel certificate upon request in order to satisfy a future lender’s requirements.

• Be Clear if the Parties and Business Operations are to Stay the Same.

As good business practice, Landlords should attempt to obtain certainty as to the identities of theirtenants and the nature of their business operations. Thus, there should be a prohibition against assignment or subletting of the lease without prior written consent of the landlord. The lease should also often includes a provision prohibiting a change in the tenant’s specified business operations, prohibiting “going out of business” sales, and providing that abandonment by the tenant or cessation of operations (i.e., “going dark”) constitutes a default. This is particularly important if a major anchor tenant will enhance the landlord’s ability to attract and keep smaller tenants.

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• Narrow the circumstances when your landlord can terminate your lease. (Tenant)

A tenant whose business is dependent on location, and/or one that has made significant financial investments in improvements to the premises, should attempt to limit the owner’s right to terminate as follows:

a) If the landlord intends to exercise its right to terminate, it should do so no laterthan 30 days after the date of the loss to enable the tenant to plan for thefuture.

b) The landlord should be allowed to terminate only if an independent designprofessional determines the restoration of the building and/ or the premises willtake an extended period of time.

• Insist on Timely Restoration of Building and Premises. (Tenant)

The landlord should not be allowed to terminate simply because its insurance doesn’t cover the full cost of the repairs.

a) If the landlord insured the tenant improvements, the landlord’s exercise of itstermination option should be contingent on the owner’s assignment to the tenantof any insurance claims and/or proceeds related to damages to the tenantimprovements.

b) Tenant should have a termination right if the damage is substantial. If more than anagreed upon amount of tenant’s space is damaged (e.g., 30%, 40%), or if the buildingis so damaged that your landlord's restoration work would take more than apredetermined period of time, then tenant should have its own option to terminate.The timing for the restoration work should be based upon the determination of areputable and independent licensed architect, engineer or contractor.

c) If the landlord chooses to rebuild, allow tenant the right to terminate if there aresubstantial delays. If the estimated time for restoration is exceeded by apredetermined period of time (e.g., 2 or 3 months), for whatever reason, tenant shouldhave a right to walk away.

- Negotiate broader and specific ability for Tenant to terminate lease. (Tenant)

a) While most leases obligate the owner to restore the building and the premises in theevent of a casualty, they usually don’t describe the owner’s restoration obligation insufficient detail. Leases should be modified to make clear that the owner’s restorationobligation includes all mechanical, electrical, and plumbing systems serving the buildingand the premises; the heating, ventilation, and air conditioning systems serving thebuilding and the premises; the roof, foundation, and interior and exterior windows andwalls of the building and premises; and the tenant improvements located in thepremises, unless the tenant prefers to be the party to restore the tenant improvements.In the event any restoration obligations are shifted to the tenant, the tenant should beentitled to recover any insurance proceeds related to the items the tenant will be

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obligated to repair.

b) Any attempt by an owner to make its obligation to repair contingent on the recovery ofinsurance proceeds sufficient to pay for the repairs should be resisted. Insurance claimsinvolving major losses frequently take years to fully resolve and the owner should notbe allowed to delay pending resolution of its insurance claims.

c) As a practical matter, without insurance proceeds, many owners cannot afford tofully restore a property following a major loss, which is one of the reasons it isimportant for tenants to reserve the right to terminate, as dis- cussed above. Whileit may seem harsh to hold an owner to a firm construction schedule following acasualty, most tenants cannot afford a delay greater than six months, regardless of thecause of the delay.

• Don’t Make Termination Right Contingent soley as to Damage to the Premises.

Most casualty provisions are triggered only in the event of actual property damages arising from a casualty. If a casualty results in a building determined by local, state or federal government to be unsafe due to damages to neighboring structures, and occupancy is prohibited for an extended period of time, the tenant should have the right to terminate the lease.


• File Record Notice of Essential Provisions.Both landlords and tenants prefer to keep the business terms of the lease to themselves and out of the public record. However, some provisions should be placed of record, giving notice to third parties to protect the interests of both parties to the lease. No landlord should be faced with construction liens as a result of work performed on behalf of a tenant. Most leases not only require the prior written approval of the landlord for any tenant alterations, but the tenant also typically is required to notify its contractors, suppliers and other material men that the landlord’s interest in the property cannot be subjected to liens. The lease must also give the landlord the right to record a Memorandum of Lease specifically expressing the prohibition of liens against the landlord’s interest. Only by recording such a document will there be absolute protection for the landlord over any subsequently recorded liens. Similarly, if a tenant negotiates an option to purchase, a non-competition restriction or a similar special right, it must be placed of record in order to provide real protection against the rights of third parties.

• Clearly Allocate Risk for Injuries in Common Areas.In states like Florida, a landlord can be held liable for torts or crimes which occur in a common area depending on the level of control over the area exercised by the landlord. As a result, parties should be mindful when defining which areas are under their respective control. The parties can, of course, further allocate risk through the careful drafting and negotiation of indemnity and insurance provisions. Parties to a lease should be mindful of the liability that each could incur in the event a third party is injured on the property, and should allocate risk accordingly.

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• Lender ForeverThe landlord’s mortgage may require that the lender approve any new lease or amendment to an existing lease. In that case the lease will need to be submitted to the lender for its prior written approval before it is signed. The landlord should also consider future refinancing. Lenders expect subordination of the tenants’ interests to their mortgage. It is much easier to provide for automatic subordination in a lease than try to obtain subordination concessions from each tenant after a lease has been signed. The lease should include the tenant’s acknowledgment that it is automatically subordinate to any current or future mortgage on the landlord’s interest, and require the execution of an estoppel certificate upon request in order to satisfy a future lender’s requirements.

• Acceleration of Rental-onlyThere are few tools for enforcing a lease more powerful than acceleration of rent. Under Florida law, absent such an acceleration clause, if a tenant defaults, the landlord must either wait for each monthly installment of rent to accrue before attempting to collect it, or terminate the lease and thereby waive the right to collect future rental. An acceleration clause allows the landlord to claim all amounts due under the lease through the end of the lease term immediately upon a default, even though those amounts are for future installments. Upon accelerating the rent, a landlord may be required by the lease or by applicable law to its mitigate damages by attempting to relet the premises to a replacement tenant. The leverage created through accelerating rent can justify this additional obligation. Whether as a landlord or a tenant, it is important to note the existence or absence of an acceleration clause. It dramatically shifts the power between the parties in the event of a default.

• Default and Notice Prior to a Default.Whether a landlord or a tenant, it is important to include express provisions in a lease regarding notification of a default and providing an opportunity to cure. Most leases require delivery of notice to a tenant prior to the landlord’s declaration of a default. It is less common to include provisions requiring a tenant to notify a landlord before declaring a default. As a result, despite having never previously complained in writing, tenants often will assert that a landlord is in default only after the landlord commences litigation. Essentially, the tenant will use an allegation of a landlord default as a defense to the landlord’s enforcement of the lease. The best tool to prevent such nuisance allegations by either party is to require that all allegations of default be in writing and require a notice and cure period.

• Beware Amendment language "As if included"Often an Amendment to Lease has language “All provisions of Original Lease are included herein as set forth in full" . In most situations this language is satisfactory. However, certain provisions should be repeated in any Amendment. Otherwise you may be allowing an opening.

• Include a Broad Definition of Rent.Commercial leases usually provide for the payment of rent, common area maintenance charges, taxes, insurance, late fees and various other expenses by a tenant. A well-drafted lease will contain a provision which provides that “all sums due hereunder shall be considered rent or additional rent.” The inclusion of a catchall provision eliminates ambiguity as to the demand period associated with different monetary obligations and allows any monetary default to be enforced using the state’s rental default statute.

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Defined terms matter in commercial leases, and should be structured such that ambiguity is removed when it comes to enforcement.

• Business Operations are to Stay the Same.Landlords often want certainty as to the identities of their tenants and the nature of their business operations. Thus, there is often a prohibition against assaignment or subletting of the lease without prior written consent of the landlord. The lease also often includes a provision prohibiting a change in the tenant’s specified business operations, prohibiting “going out of business” sales, and providing that abandonment by the tenant or cessation of operations (i.e., “going dark”) constitutes a default. This is particularly important if a major anchor tenant will enhance the landlord’s ability to attract and keep smaller tenants.

• Prepare to work with Tenant in matters of Casualty

Model Clause. As to any Casualty where Landlords makes a claim with Landlord’s Insurance Company, Tenant agrees to assist Landlord in a commercially reasonable manner with gathering information or reports of condition as to fixtures, equipment, roof, windows, frames, doors and/or any structural component connected to or with or servicing Tenant’s premises. Assistance shall include affirmations or attestations as reasonably requested.


A condemnation action taking all or part of a leased premises is a real possibility during any lease term, and the condemnation clause in the lease should be negotiated so that the landlord and tenant each understand their respective rights in the potential valuation and use issues. This paper has touched on some of the more common issues that may arise, but the issues can be as varied and unusual as the property itself. Lawyers must be aware of condemnation issues in drafting leases and in representing clients in condemnation cases involving the recovery of compensation for either the landlord or the tenant.

The following condemnation clause addresses many of the issues and may give some ideas for resolving other issues:

If the whole of the leased premises shall be taken for any public or quasi public purpose or use under any statute, or by right of eminent domain, or by private purchase by any public authority in lieu of the exercise of the right of eminent domain or if any part of the leased premises is so taken and the part not so taken is insufficient for the reasonable operation of tenant’s business, then, in either of such events, this lease shall cease and expire on the date when possession shall be taken thereunder of the leased premises or part thereof and all rents, taxes, and other charges shall be prorated and paid to such date.

In the event that only a part of the leased premises is so taken and the part not so taken shall be sufficient for the reasonable operation of the tenant’s business,

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this lease shall remain unaffected except:

(a) Until restoration pursuant to (b) below, the tenant shall be entitledto a prorate reduction in the rent and any other charges payableby tenant hereunder, after the date of such taking, based on theproportion which the space so taken bears to the space originallydemised, provided that consideration shall be given to therespective values of the space taken and the space not taken.

(b) The landlord shall promptly after such taking, and at thelandlord’s own cost and expense, restore that part of theimprovements not so taken to as near its former condition as thecircumstances will permit.

In case of such taking, whether of all or any part of the leased premises, and regardless of whether this lease survives, the entire award shall belong solely to the landlord, and the tenant hereby assigns such award to the landlord; provided, however, landlord shall have no interest in any award made to tenant for landlord shall have no interest in any award made to tenant for damage to tenant’s business or for the taking of tenant’s fixtures and personal property within the leased premises paid for by tenant and for relocation expenses if a separate award for such items is available to tenant. Tenant shall be entitled to make claim in its own name to the condemning authority for the value of said fixtures and personal property, damage to tenant’s business and relocation expenses.

MODEL LEASE CLAUSES IN CASUALTY

Casualty. If the building or the Premises are made partially or substantially untenantable by fire or other casualty, Lessor may elect either to (a) terminate this Lease as of the date of such fire or other casualty by delivery of notice of termination to Lessee within thirty (30) days after said date, or (b) without termination of this Lease, proceed with due diligence to repair, restore or rehabilitate the building or the Premises, other than leasehold improvements installed by Lessee or paid for by Lessee within ninety (90) days (Upon Lessor’s election to repair or rebuild the Premises, Lessee must vacate the Premises immediately and must promptly remove all rubbish, debris, merchandise, furniture, equipment, inventory and any other personal property). In the event such fire or other casualty is due to an act of negligence by Lessee, its employees, agents, servants, invitees or guests, such repair, restoration or rehabilitation of the building or the Premises or both shall be paid for by Lessee to the extent that Lessor’s receipt of proceeds from its fire and extended coverage insurance policies are insufficient to complete such repair, restoration or rehabilitation. If Lessor elects not to repair, and the building or the Premises, or both, have been damaged by casualty due to the act or neglect of Lessee, his employees, agents, servants, invitees or guests, the Lessee shall pay to the Lessor upon demand the difference between the proceeds received by Lessor from its fire and extended coverage insurance, if any, and the fair market value of the building or the Premises, or both. If all or any

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part of the Premises are rendered substantially untenantable, by fire or other casualty not due to an act of negligence of Lessee, its employees, agents, servants, invitees or guests, and this Lease is not terminated, rent shall abate for all or the part of the Premises which are untenantable on a per diem basis from and after the date of the fire or other casualty, and until the Premises are repaired and restored. Lessee’s rent abatement, in the event of partial untenantability of the Premises, shall be calculated based upon the portion of the total rent which the amount of square foot area in the Premises that cannot be occupied to the total square foot area of all the Premises. Such abatement shall be the sole remedy of Lessee except, if the time to repair or rebuild the Premises shall exceed six (6) months, Lessee may exercise the option to terminate the Lease.

Landlord Control Of Common Areas: All parking areas, driveways, entrances and exits thereto, pedestrian sidewalks and ramps, landscaped areas, exterior stairways and all other common areas and facilities provided by Lessor for the common use of tenants of said building(s) and their officers, agents, employees and customers, shall at all times be subject to the exclusive control and management of Lessor, and Lessor shall have the right from time to time to establish, modify and enforce reasonable rules and regulations with respect to the use of all such common areas and regulations with respect to the use of all such common areas and facilities. Lessor shall have the right to operate and maintain the same in such manner as Lessor, in its sole discretion, shall determine from time to time, including without limitation, the right to employ all personnel and to make all rules and regulations pertaining to and necessary for the proper operation and maintenance of said common areas and facilities.

Repair Obligation. In the event the Premises, or the Building of which the Premises are a part, or any portion thereof, is damaged or destroyed by any casualty, then Landlord shall rebuild and restore the Premises or Building, as the case may be, to substantially its condition immediately prior to the damage or destruction, including, without limitation: (1) all mechanical, electrical, and plumbing systems serving the Building and the Premises; (2) the heating, ventilation, and air conditioning systems serving the Building and the Premises; (3) the roof, foundation, and interior and exterior windows and walls of the Building and the Premises; and (4) all Tenant Improvements constructed in the Premises prior to the date of damage or destruction either by Landlord, or by Tenant with Landlord’s consent and/ or approval. Notwithstanding the foregoing, Landlord shall have no obligation to repair any damage to, or to replace any of Tenant’s personal property, furnishings, fixtures, equipment, or other such property or effects of Tenant, all of which shall be Tenant’s responsibility to repair or replace, at Tenant’s sole cost and expense, unless said damages are caused by Landlord’s negligence or intentional wrongdoing. Landlord shall commence the repairs required of it under this Section within thirty (30) days of the date of damage or destruction, and the repairs shall be completed within one hundred eighty (180) days of commencement of repairs. In the event Landlord is delayed in the commencement or completion of repairs by Force Majeure (as defined in this Lease), Landlord’s delay for commencement or completion of repairs shall be extended in accordance with the Force Majeure provision of this Lease.

Termination of Lease. Notwithstanding anything to the contrary in landlord’s duty to repair, in the event the Premises, or the Building of which the Premises are a part, or any

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portion thereof, is damaged or destroyed when less than twelve (12) months remain of the Lease Term (provided Tenant has irrevocably waived any option to extend the Lease Term), then Landlord may, at its option, either (1) rebuild or restore the Premises or Building and repair the damaged portions thereof at Landlord’s own expense as required under Section 1 above; or (2) terminate this Lease effective as of the date the damage or destruction occurred. If Landlord does not provide Tenant written notice of Landlord’s exercise of its option to terminate the Lease in accordance with this Section within thirty (30) days after the damage or destruction, Landlord shall have waived its option to terminate the Lease. If material damage or destruction occurs to the Premises and/or the Building such that they cannot be fully and completely repaired and/or reconstructed for any reason within two hundred ten (210) days of the casualty, or such that they are not fully and completely repaired and/or reconstructed for any reason within two hundred ten (210) days of the casualty, and Landlord has not exercised its option to terminate the Lease in accordance with this Section, Tenant may terminate this Lease upon thirty days prior written notice to Landlord, unless Tenant’s actions or omissions are the cause of the damage, in which event Tenant shall have no right to terminate and Tenant shall indemnify Landlord for its losses therefrom to the extent required under this Lease. If Landlord or Tenant elects to terminate this Lease as provided in this paragraph, no obligation shall accrue under this Lease after the effective date of such termination.

Abatement of Rent. Tenant shall be entitled to abatement of Rent (including, without limitation, Base Rent and Additional Rent) by reason of damage to and/or destruction of the Premises or the Building, or any portion thereof, to the extent that the Premises and/or the Building cannot reasonably and comfortably be used by Tenant for the conduct of its business, in which event the Rent shall abate proportionately commencing on the date the damage to and/or destruction of the Premises and/or Building occurred until the Building and/or the Premises are fully restored. Notwithstanding the provisions of this paragraph, if any such damage is due to the fault or neglect of Tenant, or any of its employees, agents, suppliers, shippers, customers, or invitees, then there shall be no abatement of Rent by reason of such damage, unless and until Landlord is reimbursed for such abatement pursuant to any rental insurance policy that Landlord may, in its sole discretion, elect to carry.

Landlord Limitation on Liability. Anything contained in this Lease to the contrary notwithstanding, Lessee shall look solely to the assets of Landlord, excluding its members assets, in the Premises for the collection of any judgment (or other judicial process) requiring the payment of money by Lessor in the event of any default or breach by Lessor with respect to any of the terms and provisions of this Lease to be observed or performed by Lessor, subject, however, to the prior rights of the holder of any mortgage covering the Premises, and no other assets of Lessor shall be subject to levy, execution or other judicial process for the satisfaction of Lessee’s claim, and Lessor shall not be liable for any such default or breach except to the extent of Lessor’s estate in the Premises.

New York Bar Association Standard Casualty Clause

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Article 1. Casualty

Section 1.1 If (a) the Premises is damaged by fire or other casualty, or (b) the Building (including any Building system) is damaged by fire or other casualty so that Tenant is deprived of reasonable access to the Premises or any part of the Premises, or the Premises or any part of the Premises, is unusable by Tenant for the reasonable conduct of Tenant’s normal business in the Premises, Tenant shall give prompt notice to Landlord. Subject to the provisions of this Article (a) Landlord shall, at Landlord’s expense, repair the damage, excluding the damage to Tenant’s Work or Tenant’s Property and (b) Tenant shall, at Tenant’s expense, promptly remove Tenant’s Property from the Premises to the extent required by Landlord in connection with Landlord’s repair of the damage. Until the repairs to be performed by Landlord are substantially completed, the Rent shall be reduced in proportion to the area of the Premises to which Tenant shall not have reasonable access or which is unusable by Tenant for the reasonable conduct of Tenant’s normal business in the Premises.

Section 1.2 If the cost of repairing any damage to the Building by fire or other casualty exceeds 25 percent of the replacement cost of the Building as reasonably estimated by a reputable contractor, architect or engineer selected by Landlord, then, whether or not the Premises are damaged, Landlord shall have the right, by notice to Tenant within 60 days following the date of the damage, to terminate this lease, provided Landlord simultaneously terminates all other leases in the Building which under the circumstances may then be terminated by Landlord. If this lease is terminated pursuant to this Section, the Term shall expire on the 30th day after the notice is given (and any Rent paid by Tenant to Landlord for any period after that date shall be promptly refunded by Landlord to Tenant).

Section 1.3 If a fire or other casualty results in the reduction of Rent pursuant to Section 14.1 with respect to 50 percent or more of the Premises, Landlord shall, within 30 days following the fire or other casualty, deliver to Tenant an estimate by a reputable contractor, architect or engineer selected by Landlord of the time required to substantially complete the repair of the Premises. If (a) the estimate exceeds one year following the fire or other casualty (or the remaining Term is less than one year), (b) there is then no Default and (c) Tenant did not cause the fire or other casualty, Tenant shall have the right, by notice to Landlord within 15 days following the date Tenant receives the estimate, to terminate this lease effective the date which is 60 days following the date of its notice, in which event Tenant shall pay the Rent to the date of termination (or the date of the fire or other casualty for that part of the Premises with respect to which the Rent is reduced pursuant to Section 14.1), and the Term shall expire on that date.

Section 1.4 If (a) this lease is not terminated as provided in this Article, (b) the repair required by this Article to be performed by Landlord is not substantially complete one year following the fire or other casualty (or, if Section 14.3 applies, within the period set forth in the estimate), and (c) there is then no Default. Tenant shall have the right, by notice to Landlord within 10 days following the end of that period, to terminate this lease effective the date which is 30 days following the date of its notice, in which event Tenant shall pay the Rent to the date of termination (or the date of the fire or other casualty for that part of the Premises with respect to which the Rent is reduced pursuant to Section 14.1), and the Term shall expire on that date.

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Section 1.5 This Article constitutes an express agreement governing any damage to or destruction of the Premises or the Building by fire or other casualty, and Section 227 of the Real Property Law of the State of New York, and any other similar Law shall have no application to a fire or other casualty.

New York Bar Association Standard Condemnation Clause

Article 2. Condemnation

Section 2.1 If as the result of a taking by condemnation or similar legal action of an Authority (a) all of the Premises, or so much thereof as renders the Premises wholly unusable by Tenant, is taken, (b) a portion of the Building or the Land is taken, resulting in Tenant no longer having reasonable access to or use of the Premises, (c) all or substantially all of the Building or the Land is taken or (d) a portion of the Building is taken resulting in Landlord’s determination to demolish the Building, the Term shall expire on the date of the vesting of title. In that event, the Rent shall be apportioned as of the date of termination and any Rent paid by Tenant to Landlord for any period after that date shall be promptly refunded by Landlord to Tenant.

Section 2.2 In the event of any such taking of all or any part of the Premises, the Building or the Land, Landlord shall be entitled to receive the entire award. Tenant shall have no claim against Landlord or any Authority for the value of the unexpired portion of the Term or Tenant’s Work, and Tenant hereby assigns to Landlord all of its right in and to any such award. Tenant may, however, at Tenant’s expense, make a separate claim to the appropriate Authority for the value of Tenant’s Property and for moving expenses, provided such claim and award, if any, do not result in a reduction of the award which would otherwise be paid to Landlord.

Section 2.3 If a taking does not result in the termination of this lease (a) Landlord shall, at Landlord’s expense, as soon as practicable, restore that part of the Premises, the Building or the Land not taken, so that the Premises are usable, and (b) from and after the date of the vesting of title, the Rent shall be reduced in the same proportion as the area of the Premises, if any, which was taken.

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ATTACHMENT “A”

BANK LOAN

1.1 Defend Security.

(i) Defense of Beneficiary. Trustor shall, at its own expense, appear in and defend any action or proceeding that is reasonably likely to materially affect Beneficiary’s security or the rights or powers of Beneficiary or Trustee or that purports to affect any of the Property. If Trustor fails to perform any of its covenants or agreements contained in this Deed of Trust, the Loan Agreement, or any of the other Loan Documents, or if any action or proceedings of any kind (including but not limited to any bankruptcy, insolvency, arrangement, reorganization or other debtor relief proceeding) is commenced that is reasonably likely to affect Beneficiary’s or Trustee’s interest in the Property or Beneficiary’s right to enforce its security, then Beneficiary and/or Trustee may, at their option, make any appearances, disburse any sums and take any actions as may be necessary or desirable to protect or enforce the security of this Deed of Trust or to remedy the failure of Trustor to perform its covenants, including without limitation payment on behalf of Trustor of any taxes, assessments, liens, insurance premiums, and repair or maintenance costs (without, however, waiving any default of Trustor).

(ii) Payment of Defense Fees and Costs. Trustor agrees to pay all reasonable out–of–pocket expenses of Beneficiary and Trustee incurred under Section [___] above (including but not limited to reasonable fees and disbursements of counsel). Any sums disbursed or advanced by Beneficiary or Trustee shall be additional indebtedness of Trustor secured by this Deed of Trust and shall be payable by Trustor upon demand. Any such sums so disbursed or advanced by Beneficiary shall bear interest at the Default Rate as set forth in the Loan Agreement. This Section shall not be construed to require Beneficiary or Trustee to incur any expenses, make any appearances, or take any other actions.

1.2 Assignment of Proceeds.

1.2.1 Definition of Proceeds. Subject to the provisions of the Ground Lease, ]Trustor hereby assigns to Beneficiary, as security for Trustor’s obligations under the Loan Documents, all compensation, awards and other payments (collectively “Compensation”) payable to Trustor in connection with any taking of all or any portion of the Property for public use, and any Proceeds of any related settlement regardless of whether eminent domain proceedings are instituted in connection therewith. Trustor shall deliver to Beneficiary immediately upon receipt all Compensation. The term “Proceeds” shall mean all insurance proceeds on the Property, all proceeds of a sale of all or any portion of the Property (subject to the release provisions of the Loan Agreement), and all causes of action, claims, Compensation, awards and recoveries for any damage, condemnation or taking of all or any part of the Property or for any damage or injury to it or for any loss or diminution in value of the Property. All Proceeds are hereby assigned to and shall be paid to Beneficiary. At Beneficiary’s option, Beneficiary may appear in and prosecute (either in its own name or in the name of Trustor) or participate in any suits or proceedings relating to any such Proceeds and may adjust, compromise or settle any claim in connection therewith.

1.2.2 Application of Proceeds. Subject to the provisions of Section [___] below [and the provisions of the Ground Lease], Beneficiary shall apply any Proceeds received by it as follows: first, to the payment of all of Beneficiary’s reasonable costs and expenses (including but not limited to reasonable legal fees and disbursements) incurred in obtaining those sums; and, then, in Beneficiary’s discretion and without regard to the adequacy of its security, to the payment of the indebtedness and obligations secured by this Deed of Trust. Any application of such funds to the indebtedness secured hereby shall not be construed to cure or waive any Event of Default or invalidate any acts of Beneficiary or Trustee arising out of such Event of Default.

1.2.3 Application of Insurance Proceeds. Notwithstanding the foregoing, but subject to the provisions of the Ground Lease, any insurance proceeds or condemnation or eminent domain awards (in addition to any funds provided by Trustor, as set forth in Section [__] below) shall be applied to the restoration of the Property pursuant to Section [__] below, provided that:

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(a) The Improvements on the Property are able to be restored in their entirety with such proceeds or awards;

(b) Trustor is not in default under any of the Loan Documents beyond the expiration of any applicable cure periods; and

(c) The method for disbursement of any such proceeds or awards by Beneficiary for restoration shall be subject to the terms and conditions of Section [___] below.

Provided, however, that nothing herein shall prevent Beneficiary from applying any such insurance proceeds or condemnation or eminent domain awards and/or Trustor’s funds in accordance with the terms of Section [___] if, as required by California law, Beneficiary is able to demonstrate that its security for the Loan has been impaired.

1.3 Damage and Destruction. Notwithstanding anything contained herein to the contrary, if any part of the Property is damaged or destroyed by any means, including, without limitation, by flood, earthquake, wind or fire, Trustor shall, subject to Beneficiary making all Proceeds available, promptly restore the Property to its prior undamaged condition in accordance with the following[ (and subject to any applicable provisions of the Ground Lease)]:

(i) Plan of Restoration. Trustor shall present within sixty (60) days of such damage or destruction to Beneficiary a plan for restoration which includes, among other things, plans and specifications prepared by an architect satisfactory to Beneficiary, cost estimates and time schedules which in Beneficiary’s sole discretion are satisfactory;

(ii) Construction Contract. Trustor shall enter into, with Beneficiary’s prior written consent, which consent shall not be unreasonably withheld, a contract with contractor(s) providing for the complete restoration in accordance with such restoration plan previously approved by Beneficiary within ninety (90) days of such damage or destruction; and

1.4 Application of Insurance Proceeds. The Proceeds available by reason of such damage or destruction that are received by Beneficiary pursuant to Section [___] above (less Beneficiary’s reasonable costs and expenses incurred in obtaining such funds) plus additional sums provided to Beneficiary by Trustor for restoration purposes shall be at least equal to the anticipated costs of competing such construction, which anticipated costs shall include, but not be limited to, appropriate interest reserves and contingency funds reasonably required by Beneficiary.

(iii) Conditions to Disbursement of Proceeds. [Subject to the provisions of Section [___] of the Ground Lease and the provisions of Section [___] of the Loan Agreement, Beneficiary shall hold the Proceeds and any funds that Trustor is required to provide in an interest-bearing account and shall disburse them to Trustor to pay the costs of the work. Interest on all such funds shall accrue at the rate of interest then being paid by Beneficiary to regular savings account customers and shall be credited to Trustor. Trustor shall provide evidence reasonably acceptable to Beneficiary that all work has been completed lien-free, in a workmanlike manner and in accordance with all legal requirements. Trustor agrees that the conditions described above are reasonable. [Subject to the terms of the Ground Lease (including Section [___] which obligates Trustor to restore under certain circumstances and Sections ___], [___] and [___] which set forth terms regarding the disposition and application of Proceeds),] if the foregoing conditions are not satisfied, or if an Event of Default occurs and is continuing after Beneficiary’s receipt of the Proceeds, Beneficiary may, at Beneficiary’s absolute discretion, apply all or any of the Proceeds to pay or prepay, the Obligations shall remain in full force and effect and the payment thereof shall not be excused. [Notwithstanding the foregoing, the rights of Beneficiary as to the application of all Proceeds shall be subject to the terms of the Ground Lease and applicable law governing the use of insurance proceeds and condemnation awards.]

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LIFE COMPANY LOAN

(i) Security Interest. Trustor grants and assigns to Lender a security interest to secure payment and performance of all of the Secured Obligations, in all of the following described personal property in which Trustor now or at any time hereafter has any interest ("Collateral"):

(a) All goods, building and other materials, supplies, work in process, equipment, machinery, fixtures, furniture, furnishings, signs and other personal property, wherever situated, which are or are to be incorporated into, used in connection with or appropriated for use on the Property;

(b) all rents, issues, deposits and profits of the Property (to the extent, if any, they are not subject to the Absolute Assignment of Rents and Leases);

(c) all inventory, accounts, cash receipts, deposit accounts, impounds, accounts receivable, contract rights, general intangibles, chattel paper, instruments, documents, notes, drafts, letters of credit, insurance policies, insurance and condemnation awards and proceeds, any other rights to the payment of money, trade names, trademarks and service marks arising from or related to the Property or any business now or hereafter conducted thereon by Trustor;

(d) all permits, consents, approvals, licenses, authorizations and other rights granted by, given by or obtained from, any governmental entity with respect to the Property;

(e) all deposits or other security now or hereafter made with or given to utility companies by Borrower with respect to the Property;

(f) all advance payments of insurance premiums made by Borrower with respect to the Property;

(g) all plans, drawings and specifications relating to the Property;

(h) all loan funds held by Lender, whether or not disbursed;

(i) all funds deposited with Lender pursuant to any Loan Document, including, without limitation, all "Restoration Funds" as defined herein; and

(j) all reserves, deferred payments, deposits, accounts, refunds, cost savings and payments of any kind related to the Property or any portion thereof, including, without limitation, (i) all "Impounds" as defined herein together with all replacements and proceeds of, and additions and accessions to, any of the foregoing, and (ii) all books, records and files relating to any of the foregoing. As to all of the above-described personal property which is or which hereafter becomes a "fixture" under applicable law, this Deed of Trust constitutes a fixture filing under the Arizona Uniform Commercial Code, as amended or recodified from time to time ("UCC").

* * *

(ii) Defense and Notice of Losses, Claims and Actions. Trustor shall protect, preserve and defend the Property and title to and right of possession of the Property, the security of this Deed of Trust and the rights and powers of Lender and Trustee hereunder at Trustor's sole expense against all adverse claims, whether the claim (a) is against a possessory or non-possessory interest; (b) arose prior or subsequent to the Closing Date; or (c) is senior or junior to Trustor's or Lender's rights. Trustor shall give

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Lender and Trustee prompt notice in writing of the assertion of any claim, of the filing of any action or proceeding, of the occurrence of any damage to the Property and of any condemnation offer or action.

* * *

(iii) Insurance and Condemnation Proceeds.

(a) Assignment of Claims. Trustor absolutely and irrevocably assigns to Lender all of the following rights, claims and amounts (collectively, "Claims"), all of which shall be paid to Lender:

(i) all awards of damages and all other compensation payable directly or indirectly by reason of a condemnation or proposed condemnation for public or private use affecting all or any part of, or any interest in, the Property;

(ii) all other claims and awards for damages to or decrease in value of all or any part of, or any interest in, the Property;

(iii) all proceeds of any insurance policies payable by reason of loss sustained to all or any part of the Property; and

(iv) all interest which may accrue on any of the foregoing.

Trustor shall give Lender prompt written notice of the occurrence of any casualty affecting, or the institution of any proceedings for eminent domain or for the condemnation of, the Property or any portion thereof. So long as no Default has occurred and is continuing at the time, Trustor shall have the right to adjust, compromise and settle any Claim of $50,000 or less without the consent of Lender, provided, however, all awards, proceeds and other sums described herein shall continue to be payable to Lender. Lender may commence, appear in, defend or prosecute any Claim exceeding $50,000, and may adjust, compromise and settle all Claims (except for Claims which Trustor may settle as provided herein), but shall not be responsible for any failure to commence, appear in, defend, prosecute or collect any such Claim regardless of the cause of the failure. All awards, proceeds and other sums described herein shall be payable to Lender.

(b) Release of Insurance Proceeds. Notwithstanding any other provision of this Deed of Trust, in the event of loss, damage by any casualty in an amount of fifty percent (50%) of the loan amount or less, Beneficiary will agree to release the insurance proceeds of the restoration subject to the following conditions:

(i) Trustor is not in default under this Deed of Trust or any of the other loan documents;

(ii) Trustor proceeds and pursues diligently and expeditiously the repair or restoration of the damaged portion of the Property;

(iii) Lender has received evidence of rent loss insurance satisfactory in form and amount to Lender at the time of the closing of the loan and at the time of the loss;

(iv) Lender approves of the plans and specifications for the restoration or repair work and evidence satisfactory to Lender that at least eighty percent (80%) of the improvements will be leased and occupied under leases approved in writing by Lender after restoration and repair;

(v) Sufficient funds shall be on deposit with Lender at all times to complete the restoration or repair work, as certified by an inspecting architect approved by Lender in its discretion;

(vi) Trustor provides completion and performance bonds and builder's all-risk insurance satisfactory to Lender in its discretion;

(vii) Any insurer does not assert any defense against Trustor or any tenant pursuant to any insurance policy covering the Property;

(viii) Lender shall have the option of applying any surplus proceeds remaining after restoration or repair to the indebtedness secured by this Deed of Trust;

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(ix) The insurance funds will be disbursed in not more than five (5) increments of not less than $50,000.00 each, except for the last disbursement;

(x) Prior to any disbursement, Trustor's inspecting architect/engineer or Lender's correspondent will certify the completion of the work in accordance with the approved plans and specifications and that there are sufficient funds on deposit with Lender to complete the work;

(xi) Such other conditions as are customarily required by a local construction lender, or otherwise reasonable; and

(xii) Evidence satisfactory to Lender that parking ingress/egress shall at all times meet local codes and tenant requirements and the Property at all times shall meet all zoning requirements.

(c) Excessive Damage. Notwithstanding any other provision of this Deed of Trust, in the event of loss, damage by any casualty in an amount greater than fifty percent (50%) of the loan amount, Lender may elect at its sole discretion to apply any proceeds to either the indebtedness or repair.

FANNIE MAE TYPE TERM LOAN

A. PROPERTY AND LIABILITY INSURANCE.

1. Borrower shall keep the Improvements insured at all times against such hazards as Lender may from time to time require, which insurance shall include but not be limited to coverage against loss by fire, windstorm and allied perils, general boiler and machinery coverage, and business income coverage. Lender's insurance requirements may change from time to time throughout the term of the Indebtedness. If Lender so requires, such insurance shall also include sinkhole insurance, mine subsidence insurance, earthquake insurance, and, if the Mortgaged Property does not conform to applicable zoning or land use laws, building ordinance or law coverage. In the event any updated reports or other documentation are reasonably required by Lender in order to determine whether such additional insurance is necessary or prudent, Borrower shall pay for all such documentation at its sole cost and expense. If any of the Improvements is located in an area that is either (i) identified by the Federal Emergency Management Agency (or any successor to that agency) ("FEMA") as an area having special flood hazards or (ii) designated by FEMA as Zone D, and if flood insurance is available in that area, Borrower shall insure such Improvements against loss by flood. If Lender so requires, such insurance shall also include business income/rental value insurance for all relevant perils to be covered in the amount required by Lender, but in no case less than the effective gross income attributable to the Mortgaged Property for the preceding 12 months, as determined by Lender in Lender's discretion. All insurance required pursuant to this Section shall be referred to as "Property Insurance". All policies of Property Insurance must include a non-contributing, non-reporting mortgagee clause in favor of, and in a form approved by, Lender, and shall provide that the insurer will notify Lender in writing of cancelation of policies at least 10 days before the cancelation of the policy by the insurer for nonpayment of the premium or nonrenewal and at least 30 days before cancelation by the insurer for any other reason.

2. All premiums on insurance policies required under this Section shall be paid in the manner provided in Section [___] above, unless Lender has designated in writing another method of payment. All such policies shall also be in a form approved by Lender. Borrower shall deliver to Lender a legible copy of each insurance policy (or duplicate original) and Borrower shall promptly deliver to Lender a copy of all renewal and other notices received by Borrower with respect to the policies and all receipts for paid premiums. At least 30 days prior to the expiration date of a policy, Borrower shall deliver to Lender a legible copy of each renewal policy (or a duplicate original) in a form satisfactory to Lender.

3. Borrower shall maintain at all times commercial general liability insurance, workers' compensation insurance and such other liability, errors and omissions and fidelity insurance coverages

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as Lender may from time to time require. All policies for general liability insurance must contain a standard additional insured provision, in favor of, and in a form approved by, Lender.

4. All insurance policies and renewals of insurance policies required by this Section shall be in such amounts and for such periods as Lender may from time to time require, shall be in such form and contain such endorsements as Lender may from time to time require, and shall be issued by insurance companies satisfactory to Lender.

5. Borrower shall comply with all insurance requirements and shall not permit any condition to exist on the Mortgaged Property that would invalidate any part of any insurance coverage that this Instrument requires Borrower to maintain.

6. In the event of loss, Borrower shall give immediate written notice to the insurance carrier and to Lender. Borrower hereby authorizes and appoints Lender as attorney-in-fact for Borrower to make proof of loss, to adjust and compromise any claims under policies of property damage insurance, to appear in and prosecute any action arising from such property damage insurance policies, to collect and receive the proceeds of property damage insurance, and to deduct from such proceeds Lender's expenses incurred in the collection of such proceeds. This power of attorney is coupled with an interest and therefore is irrevocable. However, nothing contained in this Section shall require Lender to incur any expense or take any action. Lender may, at Lender's option, (i) hold the balance of such proceeds to be used to reimburse Borrower for the cost of restoring and repairing the Mortgaged Property to the equivalent of its original condition or to a condition approved by Lender (the "Restoration"), or (ii) apply the balance of such proceeds to the payment of the Indebtedness, whether or not then due. To the extent Lender determines to apply insurance proceeds to Restoration, Lender shall do so in accordance with Lender's then-current policies relating to the restoration of casualty damage on similar properties.

7. Lender shall not exercise its option to apply insurance proceeds to the payment of the Indebtedness if all of the following conditions are met: (i) no Event of Default (or any event which, with the giving of notice or the passage of time, or both, would constitute an Event of Default) has occurred and is continuing; (ii) Lender determines, in its discretion, that Borrower has sufficient funds to complete the Restoration; (iii) Lender determines, in its discretion, that the rental income from the Mortgaged Property after completion of the Restoration will be sufficient to meet all operating costs and other expenses, Imposition Deposits, deposits to reserves and loan repayment obligations relating to the Mortgaged Property; and (iv) Lender determines, in its discretion, that the Restoration will be completed before the earlier of (A) one year before the maturity date of the Note or (B) one year after the date of the loss or casualty.

8. If the Mortgaged Property is sold at a foreclosure sale or Lender acquires title to the Mortgaged Property, Lender shall automatically succeed to all rights of Borrower in and to any insurance policies and unearned insurance premiums and in and to the proceeds resulting from any damage to the Mortgaged Property prior to such sale or acquisition.

B. CONDEMNATION.

1. Borrower shall promptly notify Lender of any action or proceeding relating to any condemnation or other taking, or conveyance in lieu thereof, of all or any part of the Mortgaged Property, whether direct or indirect (a "Condemnation"). Borrower shall appear in and prosecute or defend any action or proceeding relating to any Condemnation unless otherwise directed by Lender in writing. Borrower authorizes and appoints Lender as attorney in fact for Borrower to commence, appear in and prosecute, in Lender's or Borrower's name, any action or proceeding relating to any Condemnation and to settle or compromise any claim in connection with any Condemnation. This power of attorney is coupled with an interest and therefore is irrevocable. However, nothing contained in this Section shall require Lender to incur any expense or take any action. Borrower hereby transfers and assigns to Lender all right, title and interest of Borrower in and to any award or payment with respect to (i) any Condemnation, or any conveyance in lieu of Condemnation, and (ii) any damage to the Mortgaged Property caused by governmental action that does not result in a Condemnation.

2. Lender may apply such awards or proceeds, after the deduction of Lender's expenses incurred in the collection of such amounts, at Lender's option, to the restoration or repair of the Mortgaged

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Property or to the payment of the Indebtedness, with the balance, if any, to Borrower. Unless Lender otherwise agrees in writing, any application of any awards or proceeds to the Indebtedness shall not extend or postpone the due date of any monthly installments referred to in the Note, Section [___] of this Instrument or any Collateral Agreement, or change the amount of such installments. Borrower agrees to execute such further evidence of assignment of any awards or proceeds as Lender may require.

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ATTACHMENT “B”

RECORDING REQUESTED BY AND WHEN

RECORDED RETURN TO: [TO BE COMPLETED]

(SPACE ABOVE THIS LINE FOR RECORDER'S USE)

SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT

NOTICE: THIS SUBORDINATION AGREEMENT RESULTS IN THE LEASEHOLD ESTATE IN THE PROPERTY BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF SOME OTHER OR LATER SECURITY INSTRUMENT.

This SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT ("Agreement") is made as of [DATE], by and among [NAME OF TENANT] ("Lessee"), and [NAME OF BORROWER] ("Lessor"), for the benefit of [NAME OF LENDER] ("Lender").

RECITALS

A. Lender intends to make a bridge/term/construction loan to Lessor in the maximum face amount of ________________________ Dollars ($____________.00) (as may be amended, extended and/or modified, the "Loan"), which Loan is evidenced by that certain Loan Agreement of even date herewith (as may be amended, extended and/or modified, the “Loan Agreement”).

B. Pursuant to the terms of the Loan Agreement, the Loan is evidenced by that certain promissory note of even date herewith executed by Lessor in favor of Lender (as may be amended, extended and/or modified, the “Note”).

C. The Loan is to be secured by, among other things, that certain Deed of Trust, Assignment of Leases and Rents and Security Agreement (Including Fixture Filing) dated as of even date herewith (as may be amended, extended and/or modified, the "Deed of Trust"), affecting real property in ______ County, [State], described in the attached Exhibit "A" ("Property") and encumbering Lessor's fee title interest in the Property.

D. Lessee and Lessor entered into an unrecorded lease ("Lease"), the date and basic terms of which are attached hereto as Exhibit "B", by which Lessee has agreed to lease from Lessor certain premises ("Leased Premises") constituting all or a portion of the Property as set forth in said Exhibit “B”.

E. Lender is willing to make the Loan provided the Deed of Trust is a lien and charge upon the Property, including without limitation the Leased Premises, prior and superior to the Lease and provided that Lessee expressly subordinates the Lease to the lien and charge of the Deed of Trust.

F. Lessee is willing that the Deed of Trust shall constitute a lien or charge upon the Leased Premises which is prior and superior to the Lease and is willing to attorn to Lender provided Lender grants Lessee a non-disturbance and attornment agreement as provided herein.

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TERMS AND CONDITIONS

NOW, THEREFORE, in consideration of the foregoing recitals, the mutual covenants and conditions set forth hereinbelow, and in order to induce Lender to make the Loan referred to above, the parties hereto agree as follows:

1. DEFINITION OF LEASE. As used in this Agreement, "Lease" includes, without limitation, all right, title and interest that Lessee may have in all or any portion of the Leased Premises, whether granted by the terms of the Lease, by a separate written or oral agreement or otherwise.

2. NO UNAPPROVED ASSIGNMENT OR SUBLETTING. Except as may otherwise be expressly provided in the Lease, Lessee shall not assign the Lease, nor sublet any portion of the Leased Premises, and Lessor shall not consent to any such assignment or subletting if required pursuant to the terms of the Lease or otherwise requested, without the prior written consent of Lender, which consent shall not be unreasonably withheld.

3. SUBORDINATION OF LEASE.

3.1 Subordination. The Deed of Trust and any amendments, modifications, renewals and extensions thereof shall unconditionally be and remain at all times a lien and charge on the Leased Premises, prior and superior to the Lease, to the leasehold estate created thereby and to all rights and privileges of Lessee or any other lessee thereunder, and the Lease, the leasehold estate created thereby and all rights and privileges of Lessee or any other lessee thereunder are hereby subjected and made subordinate to the lien and charge of the Deed of Trust in favor of Lender.

3.2 Effect of Changes to the Loan. This Agreement shall extend to any and all increases, renewals, extensions, modifications, substitutions, and consolidations of the Loan, and of any other documents securing the Loan, and Lender may, without notice or demand, and without affecting the subordination hereunder:

3.2.1 renew, compromise, extend, accelerate or otherwise change the time for payment or otherwise change the terms of the Loan or any part thereof, including increase or decrease of interest thereon,

3.2.2 waive or release any part of its lien on the Property,

3.2.3 apply proceeds from the sale of the Property and direct the order or manner of sale thereof as Lender, in its discretion, may determine, and

3.2.4 assign its rights hereunder or under the Loan, or both, in whole or in part.

4. LESSEE'S ACKNOWLEDGMENTS. Lessee agrees, declares and acknowledges each of the following:

4.1 No Duty or Obligation. Lender in making disbursements pursuant to any agreement with Lessor is under no obligation or duty to, nor has Lender represented that it will, see to the application of the proceeds of the Loan by Lessor or any other persons to whom Lender disburses the proceeds of the Loan. Any application or use of such proceeds for purposes other than those provided for in any agreement between Lender and Lessor shall not defeat the subordination made in this Agreement, in whole or in part.

4.2 Waiver. Lessee intentionally subordinates the Lease, the leasehold estate created thereby together with all rights and privileges of Lessee or any other lessee thereunder in favor of the lien and charge upon the Leased Premises of the Deed of Trust, and understands that in reliance upon and in consideration of this subordination, specific loans and advances are being and will be made and specific monetary and other obligations are being undertaken and will be entered into which would not be made or entered into but for said reliance upon this subordination.

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4.3 Entry Upon Property. Subject to the requirements set forth in Section [___] of the Lease, Lender may enter upon the Leased Premises and inspect the same at any reasonable time upon reasonable prior notice to Lessee, provided that any such entry and inspection are undertaken at a time and in a manner which is least disruptive to Lessee's business operations within the Leased Premises as is reasonably practicable under the circumstances.

5. NON-DISTURBANCE. So long as Lessee is not in default (beyond any period given Lessee in the Lease to cure such default) in the payment of rent or additional charges or in the performance of any of the other terms, covenants or conditions of the Lease on Lessee's part to be performed, Lessee shall not be disturbed by Lender in its possession of the Leased Premises during the term of the Lease, or any extension or renewal thereof, or in the enjoyment of its rights under the Lease. Lender shall not join Lessee as a party defendant in any action or proceeding foreclosing the Deed of Trust. Further, in the event of a transfer of the Property to Lender or any purchaser from Lender (after Lender has taken title to the Property by foreclosure or deed in lieu thereof) or pursuant to a trustee's sale conducted under the Deed of Trust ("Purchaser"), the Lease shall continue in full force and effect as a direct lease between Lender or Purchaser and Lessee, upon and subject to all of the terms of the Lease for the balance of the term remaining.

6. ATTORNMENT; LIMITATION OF LIABILITY.

6.1 Lessee's Attornment. If the interest of Lessor under the Lease shall be acquired by Lender or any Purchaser by reason of the exercise of the power of sale contained in the Deed of Trust or by foreclosure or other proceedings brought to enforce the rights of the holder thereof, by deed in lieu of foreclosure or by any other method, and Lender or Purchaser succeeds to the interest of Lessor under the Lease, Lessee shall attorn to Lender or Purchaser as its landlord, and be bound to Lender or Purchaser under the terms of the Lease for the balance of the term thereof and any extensions or renewals thereof. Said attornment is to be effective and self–operative without the execution of any other instruments on the part of either party hereto immediately upon Lender's or Purchaser's succeeding to the interest of the lessor under the Lease; provided, however, that Lessee agrees to provide written confirmation of its attornment within ten (10) days after receipt of a written request for such confirmation by Lender or Purchaser. In any such event as described above, the Lease shall continue in accordance with its terms between Lessee as lessee and Lender or Purchaser as lessor; provided, however, that:

6.1.1 No Personal Liability. Lender's liability under the Lease shall be limited to its ownership interest of Lender in the Property, and Lender shall only be liable for the lessor's obligations under the Lease accruing during the period of time that Lender is the owner of the Property;

6.1.2 No Liability for Prior Lessor's Acts or Omissions. Lender shall not be liable for any act or omission of any prior lessor (including Lessor) for which Lender has not received notice and opportunity to cure pursuant to Section 7 below;

6.1.3 Not Subject to Offsets or Defenses. Lender shall not be subject to any offsets or defenses which Lessee might have against any prior lessor (including Lessor), except for any offsets or defenses that may continue (provided Lender has received notice and opportunity to cure pursuant to Section 7 below) or that may arise during Lender's ownership of the Property;

6.1.4 Not Bound by Prepayment of Rent. Lender shall not be bound by any prepayment of rent more than thirty (30) days in advance or deposit, rental security or any other sums deposited with any prior lessor (including Lessor) under the Lease unless actually received by Lender;

6.1.5 Not Bound by Amendment. Lender shall not be bound by any material amendment or modification of the Lease made without Lender's consent (which shall not be unreasonably withheld or delayed);

6.1.6 Not Bound To Conduct Construction Work. Lender shall not be bound to commence or complete any restoration of improvements following any casualty not required to be insured

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under the Lease or for the costs of any restoration in excess of any proceeds recovered under any insurance required to be carried under the Lease; and

6.1.7 Not Bound by Environmental Indemnity. Notwithstanding any term of the Lease, upon foreclosure of the Deed of Trust, acceptance of deed in lieu thereof or other similar transfer, any environmental/hazardous material indemnity and/or reimbursement provisions under the Lease shall not be applicable to, or enforceable against, Lender or its successors and assigns.

Notwithstanding any other provision of this Section 6.1 to the contrary, the provisions of Sections 6.1.1 through 6.1.7 shall not be applicable to any Purchaser of the Property.

6.2 Application of Insurance Proceeds. Any insurance proceeds or condemnation or eminent domain awards shall be applied in accordance with the terms and provisions of the Lease only so long as:

6.2.1 The improvements on the Property are able to be restored in their entirety with such proceeds or awards (and/or with such other funds as Lender shall reasonably determine are available from any source other than from Lender for such purposes); and

6.2.2 Lessee is not in default under the Lease beyond the expiration of any applicable cure periods.

Provided, however, that nothing herein shall (a) prevent Lender from applying any such proceeds or awards in accordance with the terms of the Deed of Trust if, as required by California law, Lender is able to demonstrate that its security has been impaired, or (b) be deemed to terminate any claim which Lessee may have against a prior landlord (including, without limitation, Lessor) for any breach, act or omission of Lessor or any other prior landlord under the Lease.

7. NOTICE AND CURE RIGHTS. Lessee agrees with Lender that from and after the date hereof, Lessee will not terminate or seek to terminate the Lease by reason of any act or omission of the lessor thereunder or for any other reason until Lessee shall have given written notice, by registered or certified mail, return receipt requested, of said act or omission to Lender, which notice shall be addressed to [LENDER], attention ______________, [LENDER ADDRESS]; and until a period of time equal to the greater of: (a) the time allowed Lessor under the Lease, or (b) thirty (30) days, shall have elapsed following the giving of such notice, during which period Lender shall have the right, but not be obligated, to remedy such act, omission or other matter.

8. ENTIRE AGREEMENT. This Agreement shall be the whole and only agreement with regard to the subjection and subordination of the Lease and the leasehold estate created thereby together with all rights and privileges of Lessee or any other lessee thereunder to the lien and charge of the Deed of Trust, and shall supersede and cancel (but only insofar as would affect the priority between the Deed of Trust and the Lease) any prior agreements as to such subjection or subordination, including, without limitation, those provisions, if any, contained in the Lease which provide for the subjection or subordination of the Lease and the leasehold estate created thereby to a deed or deeds of trust or to a mortgage or mortgages. In the event that Lender acquires title to the Leased Premises either by way a non-judicial foreclosure or a judicial foreclosure, pursuant to a short sale or other agreement between Lender and Lessor or any other means permitted under applicable law, then (a) Lender shall have no liability for any costs, expenses or security deposits prior to the date Lender takes title to the Leased Premises, and shall terminate upon the sale and/or assignment of said Leased Premises to a new owner of the Leased Premises, (b) Lender shall have no liability for any environmental obligations of Lessor, other than any environmental releases and/or environmental liabilities caused by Lender only during the period described above subsection (a) above herein, and/or (c) any (i) lease disputes between Lessor and Lessee which commenced, either formally by the filing of an action, lawsuit, arbitration, and/or mediation, and (ii) informally via communications between said parties, whether written or verbally, any of which disputes occurred prior to the date Lender acquires title to the Leased Premises. In specific, and not by way of limitation, the liabilities described herein shall be the sole responsibility of Lessor, and Lessor shall indemnify and provide a defense for Lender during any period when Lender holds title to the Leased Premises; the obligations of Lessor as provided herein shall survive the repayment of the Loan and/or Lender’s acquisition of the Leased Premises as set forth herein and/or by operation by law.

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9. GOVERNING LAW. This Agreement shall be governed by and construed according to the laws of the State of California.

10. ATTORNEYS' FEES. Lessor shall promptly pay to Lender from Lessor's own funds and not from the proceeds of the Loan, upon demand, with interest thereon from the date of demand at the "Default Rate" (as described in the Loan Agreement), reasonable attorneys' fees and all costs and other expenses paid or incurred by Lender in enforcing or exercising its rights or remedies created by, connected with or provided for in this Agreement. In the event of any dispute between Lender and Lessee, the prevailing party in such a dispute shall be entitled to payment in full by the non-prevailing party of all costs and expenses (including without limitation attorneys' fees and other related expenses) incurred by the prevailing party in resolving the dispute, whether by court action, arbitration, reference, mediation or some other alternative dispute resolution procedure.

11. MISCELLANEOUS PROVISIONS. This Agreement shall inure to the benefit of and shall be binding upon Lessee, Lessor and Lender, and their respective heirs, personal representatives, successors and assigns. This Agreement may not be altered, modified or amended except in writing signed by all of the parties hereto. In the event any one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. This Agreement and any attached exhibits requiring signatures may be executed in counterparts, but all counterparts shall constitute but one and the same document.

[Remainder of page intentionally left blank.] [Signatures follow on next page.]

Signature Page 1 SNDA

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.

NOTICE: THIS SUBORDINATION AGREEMENT CONTAINS A PROVISION WHICH ALLOWS THE PERSON OBLIGATED ON YOUR LEASE TO OBTAIN A LOAN, A PORTION OF WHICH MAY BE EXPENDED FOR OTHER PURPOSES THAN IMPROVEMENT OF THE LAND.

LESSEE

[NAME OF TENANT]

By: ______________________,

LESSOR/BORROWER [NAME OF BORROWER]

By: ______________________,

Notary Acknowledgement SNDA

CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT

A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.

STATE OF CALIFORNIA ) COUNTY OF ______________ ) On ______________________, 20__, before me, ,

Date (Here Insert Name and Title of the Officer) personally appeared

Name(s) of Signer(s) , who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature

Signature of Notary Public

Place Notary Seal Above

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EXHIBIT "A" Legal Description

[TO BE ADDED]

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EXHIBIT "B" Basic Lease Terms

1. LEASE DATE. ___________________.

2. LEASED PREMISES DESCRIPTION. ___________________.

3. RENT AMOUNT. As set forth in Section(s) [______] of the Lease.

4. LEASE TERM. As set forth in Section(s) [______] of the Lease.

5. RENEWAL OPTION(S). None OR As set forth in Section(s) [______] of the Lease.

6. INSURANCE. As set forth in Section(s) [______] of the Lease.

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ATTACHMENT “C”

RECORDING REQUESTED BY AND WHEN

RECORDED RETURN TO: [TO BE COMPLETED]

(SPACE ABOVE THIS LINE FOR RECORDER'S USE)

GROUND LESSOR ESTOPPEL CERTIFICATE

[DATE]

PROPERTY NAME: _____________________________________

PROPERTY ADDRESS:_____________________________________

(include county) _____________________________________

_____________________________________

(the “Mortgaged Property”)

LEASE DATE: _____________________________________

GROUND LESSOR: _____________________________________

_____________________________________

_____________________________________

(“Ground Lessor”)

GROUND LESSEE: _____________________________________

_____________________________________

_____________________________________

(“Ground Lessee”)

Ground Lessor acknowledges that (a) ____________________________, a ______________________ (together with its successors and assigns, “Lender”) has agreed, subject to the satisfaction of certain terms and conditions, to make a loan (the “Mortgage Loan”) to Ground Lessee, which Mortgage Loan is or will be secured by a lien on Ground Lessee’s leasehold interest in the Mortgaged Property (the “Premises”), and (b) Lender is requiring this Ground Lessor Estoppel Certificate (this “Estoppel”) as a condition to its making the Mortgage Loan. Accordingly, Ground Lessor hereby certifies, confirms, covenants and agrees to Lender and its transferees, successors and assigns, as follows:

1. A true, complete and correct copy of the lease between Ground Lessor and Ground Lessee with respect to the Premises, together with any other amendment, supplement or agreement related

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thereto, is attached hereto as Schedule I (collectively, the “Lease”). Other than as attached on Schedule I, the Lease has not been modified, changed, altered, assigned, supplemented or amended in any respect. The Lease is not in default and is valid and in full force and effect on the date hereof. The Lease represents the entire agreement between Ground Lessor and Ground Lessee with respect to the Premises.

2. Ground Lessor hereby consents to the Mortgage Loan secured by a lien as to the leasehold estate created by the Lease, and to the encumbrance of a security lien against Ground Lessee’s leasehold estate as security for repayment of the Mortgage Loan, it being expressly understood and agreed that Lender intends to assign the Loan to Fannie Mae, and that Fannie Mae, its successors and assigns, may specifically rely on the provisions of this Estoppel Certificate.

3. The Lease provides for an original term of _______________ (___) years, commencing on __________________ and expiring on __________________.

4. The Lease makes the following provision for renewal or extension of its term beyond the original term: (initial one)

(___) the Lease does not contain an option(s) or other right to renew or extend for any additional term or terms.

(___) the Lease contains an option for ___________ additional term(s) of ________ years each.

5. The rent currently payable by Ground Lessee to Ground Lessor under the Lease is $_________ [per annum, payable in monthly installments]. All rent and other charges due and currently payable by Ground Lessee under the Lease through the date hereof have been fully paid by Ground Lessee.

6. The Lease is valid and in full force and effect, and there is no existing default or unfulfilled obligation on the part of Ground Lessee in any of the terms and conditions of the Lease, and no event has occurred or condition exists which, with the passing of time or giving of notice or both, would constitute an event of default under the Lease.

7. Ground Lessor has no right to terminate the Lease [other than as follows: _______________].

8. Ground Lessee has no option or right of first refusal to purchase the Premises or any part thereof.

9. Ground Lessee owns all improvements located on the Premises [except as follows: ___________________].

10. Ground Lessor agrees that it shall not accept a voluntary surrender or termination of the Lease for so long as the Premises are subject to the Mortgage Loan.

11. Ground Lessor shall not terminate, cancel, amend or modify the Lease without the prior written consent of Lender.

12. Ground Lessor agrees that if Ground Lessor or Ground Lessee initiates any appraisal, arbitration, litigation or other dispute resolution proceeding affecting the Lease, then Ground Lessor and Ground Lessee shall simultaneously notify Lender, and Lender will have the right to participate in such proceeding on Ground Lessee’s behalf, or exercise any or all of Ground Lessee’s rights in such proceeding, in each case (at Lender’s option) to the exclusion of Ground Lessee.

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13. There are no mortgages encumbering Ground Lessor’s fee estate in the Mortgaged Property and Ground Lessor acknowledges and agrees that it will not mortgage or otherwise encumber its fee estate in the future.

14. Ground Lessor has not assigned, mortgaged, conveyed, transferred, encumbered, hypothecated or granted to any party any interest in the Lease or the Premises (other than recorded easements, rights of way or similar recorded encumbrances of record as of the date hereof) other than to Ground Lessee, or granted to any party any right or option to purchase the Premises or any interest of Ground Lessor in the Lease other than options granted to Ground Lessee under the Lease. Ground Lessor has not subordinated its interest in the Lease to any mortgage lien or other encumbrance on the fee.

15. Ground Lessor consents to the right of Lender to foreclose on the Mortgage Loan and sell or take title to or possession of the leasehold estate of Ground Lessee in its own name or in the name of an assignee or nominee without Ground Lessor’s prior consent. In the event of any such foreclosure or any other exercise by Lender of rights and remedies (whether under the Mortgage Loan or under applicable law), as a result of which Lender (or its designee or nominee) or a third party purchaser becomes owner of the leasehold estate, or delivery of a deed or other conveyance of Ground Lessee’s interest in lieu of any of the foregoing, Ground Lessor agrees that Lender (or its designee or nominee) or a third party purchaser at a foreclosure sale or a transferee that receives a deed in lieu of foreclosure shall only be liable for acts or omissions taking place during the period in which Lender (or its designee or nominee) or such third party purchaser at a foreclosure sale or transferee that receives a deed in lieu of foreclosure had record title to the leasehold estate, and Ground Lessor will provide for an automatic release of Lender (or its designee or nominee) or any third party purchaser at a foreclosure sale or transferee that receives a deed in lieu of foreclosure.

16. Upon receipt of notice from the Ground Lessor of a default by Ground Lessee under the Lease, Lender may, but shall not be obligated to, cure any default of Ground Lessee within the time frame set forth in the Lease afforded to cure such default, and the lapse of thirty (30) days after the expiration of such time frame to cure such default; provided, however, that with respect to any default of Ground Lessee under the Lease which cannot be remedied within such time frame, if Lender commences to cure such default within such time and thereafter diligently proceeds with such efforts and pursues the same to completion, Lender shall have such time as is reasonably necessary to complete curing such default. Notwithstanding the foregoing, with respect to any default of Ground Lessee under the Lease that cannot be remedied without Lender obtaining possession of the Premises, any cure period afforded to Borrower in the Lease shall not commence until Lender obtains possession of the Premises, as long as all other defaults which reasonably can be cured by Lender without Lender obtaining possession of the Premises are so cured, and provided that Lender commences to exercise any rights to obtain possession or to effect foreclosure, and diligently pursues the exercise of such rights thereafter.

17. Lender will rely on the covenants and agreements made by Ground Lessor herein in connection with Lender’s agreement to make the Mortgage Loan and Ground Lessor agrees that Lender may so rely on such representations and agreements.

[Remainder of Page Intentionally Blank]

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IN WITNESS WHEREOF, the undersigned has signed and delivered this Ground Lessor Estoppel Certificate under seal (where applicable) or has caused this Ground Lessor Estoppel Certificate to be signed and delivered under seal (where applicable) by its duly authorized representative. Where applicable law so provides, the undersigned intend(s) that this Ground Lessor Estoppel Certificate shall be deemed to be signed and delivered as a sealed instrument.

GROUND LESSOR:

__________________________________

By: (SEAL)

Name:

Title:

GROUND LESSEE:

__________________________________

By: (SEAL)

Name:

Title:

SNDA

CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT

A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.

STATE OF CALIFORNIA ) COUNTY OF ______________ ) On ______________________, 20__, before me, ,

Date (Here Insert Name and Title of the Officer) personally appeared

Name(s) of Signer(s) , who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature

Signature of Notary Public

Place Notary Seal Above

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