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24 Guidebook for Developing and Leasing Airport Property
2.2.18 Liens
Improvements on leased airport property are often financed, and the bank or lending institu-
tion is likely to require some type of security against the money to be loaned. Liens are the common
instrument in this regard, as the lender has a recorded interest in the improvements and a right to
claim ownership of those improvements should the borrower default on the loan. Liens are typ-
ically recorded at the appropriate courthouse as a legal claim against real property. In the event
of default of the loan, the lender will have first claim to the property if it has a first lien position,
or stand behind the first lien holder in the case of a second lien position. Lien position establishes
priority for satisfying claims against the real property that secures collateral interest.
The caveat to this basic real estate principle is that the airport sponsor is restricted from disposal
of property without FAA concurrence. In this case, a lien on the property itself must be precluded
in the lease agreement. Lenders cannot be allowed to dispose of public airport property in the
interest of satisfying a defaulted loan. The improvements can serve as security against debt--
though the airport sponsor would typically restrict the placement of liens to new development
it has approved--with strict conditions for cure (e.g., payment of outstanding rents owed).
Specifically, lease language should include airport sponsor approval of any new tenant the lender
wishes to place in facilities encumbered by a lien, in the event of loan default, to preserve com-
patibility of the airport sponsor's vision for airport development. Ultimately, a lien on tenant
improvements will generally provide less security than a traditional lien placed on fee simple
property owned by the borrower.
2.2.19 Defaults
The defaults section of a lease should stipulate the scenario(s) in which the terms of the lease
have been violated. This section should include methods for curing the default, as well as periods
of time that must pass without curing before the lease can be terminated. For example, typical
default provisions will include termination language that speaks to what happens in the event
the tenant does not pay the agreed-upon rents. But, the defaults section should also include language
that allows the tenant to cure, the timeframe in which this must occur, and how penalties or late
fees are to be applied. Additionally, default language in this example should address how the airport
sponsor will apply or pursue security deposits, bonds, or letters of credit. Essentially, the defaults
section will describe which (if not all) violations of the lease provisions will trigger lease default,
the actions the airport sponsor intends to take in the event of default, and the recourses that the
lessee is entitled to if provisions and/or terms of the lease are not met.
Default language that speaks to a failure to pay rent is perhaps the most common, but should
not be the only parameter for lease default language. Failure to comply with airport rules and/or
regulations, environmental damage to airport property, inappropriate use of airport land and/or
facilities, and illegal activities are other examples that the airport sponsor should consider address-
ing within the context of a defaults section of a lease. Language that requires the tenant to comply
with local, state, and federal laws, rules, and regulations, which may change during the course of
the lease term, should be considered in order to protect the airport sponsor if the regulatory
environment changes.
Default clauses should be considered from both the airport sponsor's perspective and the lessee's
perspective. Specifically, the airport sponsor should consider events that would be unacceptable
to the tenant and allow for language that responds to the needs of the lessee. However, the airport
sponsor should never restrict its ability in any of the lease provisions to operate and develop
the airport in a manner that is consistent with federal grant assurances. While the defaults sec-
tion should consider and accommodate, when able, the perspective of the tenant, the lease
should not restrict or penalize the airport sponsor in carrying out its primary objective of oper-
