Glossary

Appropriation Risk (Non-Appropriation Clause)

Also known as: Non-Appropriation Risk

The risk that a government tenant's lease, despite a long stated term, is legally subject to that government body's annual legislative budget approval -- meaning the lease can effectively terminate early if the legislature simply declines to appropriate funds for the next budget cycle, without the tenant being in default.

Many state and local government leases include a non-appropriation clause, reflecting the legal reality that one legislature generally cannot bind a future legislature's spending decisions beyond the current budget cycle. This means a government lease with a stated 15-year term may, as a technical legal matter, only be a binding one-year (or one-budget-cycle) obligation that renews automatically so long as funds are appropriated -- a structurally different risk profile than a private corporate tenant's lease, where non-payment is a straightforward default. In practice, non-appropriation is rarely exercised for essential government functions (courthouses, jails, administrative offices), and lenders often underwrite around it by weighting the tenant's full-faith-and-credit backing and historical appropriation record heavily, but a careful underwriter should still read the lease's actual renewal and termination mechanics rather than assuming the stated term is as reliable as a conventional corporate lease of the same length.