Commercial Real Estate Leases - Law Seminars International

Michael P. Ripp of Ryley Carlock & Applewhite PA Speaker 14: 13
What other ASLD lease concepts should a commercial lessee be familiar with?
Property taxes. Lessees from the ASLD are generally exempt from paying
property taxes on the land, but improvements are subject to taxation by the local taxing
authority. 48
Reclassification. The ASLD may cancel a lease upon a reclassification of the
land, either by application for reclassification or upon the ASLD’s initiative. 49 The lessee
at the time of reclassification has a preferred right to lease the reclassified land at the
reappraised rental. 50
Improvements. Any improvements placed on the land by the lessee, but not
approved in advance by the ASLD, are forfeited to the ASLD upon expiration or
cancellation of the lease, and the lessee is liable to the ASLD for damage to the land
caused by the unauthorized improvements and for demolition, removal and restoration
expenses incurred by the ASLD. 51 However, the lessee is entitled to reimbursement for
authorized improvements from the subsequent lessee or purchaser of the property. 52
Preferred right to renew lease. The lessee has a preferred right to renew the lease
for a term not to exceed ten years at a reappraised rental. 53 Not later than 90 days before
the expiration of the lease, the ASLD must notify the lessee by mail of the pending
expiration and send a copy of the notice to any registered mortgagees or other lienholders
by certified mail. 54 However, if the ASLD determines that the continued leasing of the
land to the lessee is not in the best interest of the state trust, the lease will not be
renewed. 55
48 See Benefits of Commercial Leasing on the ASLD’s website (note 37 above). Also see A.R.S.
§ 37-322.03.A.
49
See A.R.S. § 37-290.A. Such a reclassification may also occur upon approval of a development or
secondary plan for urban land that the State Land Commissioner has designated as suitable for a
development plan under A.R.S. § 37-334. See A.R.S. § 37-335.A.
50 See A.R.S. § 37-290.B. An existing lessee also has a preferred right to lease urban land following a
reclassification under A.R.S. § 37-335. The preferred right to lease the reclassified urban land is not
transferable and can be exercised only by the existing lessee. See A.R.S. § 37-335.C.
51 See A.R.S. § 37-321.A.
52 See A.R.S. § 37-322.02.A. A lessee of urban land whose lease is canceled due to reclassification under
A.R.S. § 37-335 may receive reimbursement for non-removable improvements under A.R.S. § 37-322.01
and to receive reasonable compensation for damages sustained by reason of the cancellation of the lease
under A.R.S. § 37-335.01.
53 See Ariz. Const. Art. X, § 10; A.R.S. § 37-291.A.
54 See A.R.S. § 37-291.C.
55 See A.R.S. § 37-291.B.
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Law Seminars International | Commercial Real Estate Leases | 10/03/08 in Phoenix, AZ