The Thousand-Year Lease

Look at the Chrysler Building in NYC, and what do you see?

The Abu Dhabi Investment Council sees a crown jewel among its many holdings - it put together a 90% ownership stake in the iconic building three years ago.

But if you're The Cooper Union, you see the land underneath, which you're renting to someone else. Cooper updated its lease in 1998, and the current sheepskin runs through 2147. That's the time-tested policy of other longstanding groups like the Dutch Reformed Church in Harlem: lease your Manhattan land (lawyers call it collecting ground rent) but never, ever sell it. 

As readers know, I like to contemplate long spans of time. There are many parcels on Manhattan Island with leases running to 2050 and well beyond: the St. Regis Hotel, the Empire State Building; and the 27 houses of Pomander Walk, a row of Tudors between 94th and 95th Streets, which are under leases expiring after 2100. 

While some long leases have only perfunctory annual payments and are really title transfers in disguise, there are many cases in which the agreement truly acts like a lease even across very long spans. One 200-year commercial lease in New York has a payment term adjusted every two decades, based on a renewed appraisal. Until the Depression, some leases required payment in gold bullion or at least gold certificates.

Lease terms of 200 years are only the short end of the subject. The IRT's 999-year obligations as lessee for its old elevated railway triggered a 30-year court fight, ended only by bankruptcy. The peculiarity known as the ultra-long lease appears in every country that operated under the feudal real estate system of England. That includes Hong Kong, Singapore, India, and Kenya. There are thousands of leases with terms over 700 years. Harvard has one of those, for the Arnold Arboretum, at a dollar a year. It's obligated to make the land available to any resident from dawn to dusk each day of the year for another 800-odd years or so. 

Some medieval leases run 5,000 to 20,000 years, making them members of the “ultra-long lease” group. The longest property leases (one million years) have turned up in Paisley, Scotland.

By law the UK now bans newly-drafted leases from running more than 199 years, though ultra-long leases, if signed before 2001, are still fully enforceable as long as the terms can be calculated objectively.

The reason for the ban on adding to the population of ultra-long-leases is that the reversionary clause in an ultra-long lease (meaning, restrictions that allow the freeholder to terminate the lease and reclaim the land if violated) get harder to interpret as the decades and then centuries roll by. 

One example is a 1929 lease term that required prime London land to be held for the benefit of the “working classes." Decades later, developers who wanted to tear down the subsidized housing on the land and erect houses for the rich sought to overthrow this term as irrelevant to the economy of 2002.

Here's a question for the Crown Estate and the comparatively few fortunate foundations and families that own immensely valuable commercial property in the lower reaches of New York and London: if sea levels rise through 2100, and all the evidence points that way, are the leases enforceable? If mega-engineering a la Venice is held up as the solution, how many people outside of the affected area will be willing and able to pay for it?

It's not academic for lower Manhattan, because the fringes are low-lying landfill that top out a few feet above sea level. Climate Central published this map of New York last week, showing zones that will flood during a storm surge bringing water five feet above high tide:

More to come about what lawyers are saying these days about the Act of God defense to contract enforcement.