Opening escrow for ground lease security deposit...common? And when do you usually get paid? (CA)
Hi all,

I am negotiating a single tenant ground lease of unimproved commercial land. The landlord is asking for 6 months rent up front at lease execution.  The subject property is neither entitled nor permitted for the tenant’s intended use, and while we will certainly have a clause in the lease stipulating that the deposit will be completely refundable in the event the city does not approve the use and building permits, the tenant fears things getting litigious in the event the city does not approve the use and the landlord gets pissed and refuses to refund. The tenant is asking for the security deposit to be deposited into escrow, to be released to the landlord upon opening of business.

CA retail Landlords, how would you feel about this? Would not receiving a security deposit of this size up front be a legitimate impediment? I understand many states mandate escrows for security deposits, but in my state (CA) and in my limited CRE brokerage experience, it is not commonplace. Just trying to get a feel for if this would be too much of an ask. 

Also, when do you usually get paid on a ground lease? Lease execution? Tenant open for business? Over the life of the lease? Thanks in advance.
[{"id": "g87lv3r", "text": "In my experience it usually goes the other way especially if the lessor is a Municipality/University/Hospital/Church.  I have rarely seen a ground lease rent start until the development has been completed. \n\nOccasionally I have seen a small deposit held until construction begins to make sure you are working on actually getting entitlements and not trying to flip the contract.  \n\nThat said it DL depends whether the ground rent is substantial or not if you are paying $10k a year that is a lot different than if ground rent is in the six figures.", "replies": [], "depth": 1}, {"id": "g88z875", "text": "I\u2019m in California and it\u2019s typical for a tenant to provide a cash secured \u201cStandby Letter of Credit\u201d (SBLOC) as a security deposit in lieu of just cutting a check to the owner. Typical SBLOC amounts for lease security deposits I\u2019ve seen range from 6-12 months in annual rents. \n\nWhat\u2019s unique about your situation is the lack of entitlements and permitted use zoning. In California, that\u2019s a lengthy process that frequently is unsuccessful, so I\u2019d keep that in mind when considering how willing you are to tie up that much capital indefinitely.", "replies": [], "depth": 1}]