Ground Lease

A ground lease is a long-term lease agreement in which a tenant is allowed to develop a piece of land during the lease period, but the land and any improvements revert to the landowner at the end of the lease. Ground leases are commonly used for commercial real estate, allowing developers to build on land they do not own. These leases provide landowners with steady income while enabling tenants to develop property without the upfront cost of purchasing land.

Example

A developer signs a 99-year ground lease to build a shopping center on a parcel of land. At the end of the lease, ownership of the land and the shopping center reverts to the landowner.

Key points

• Long-term lease allowing tenants to develop land without owning it.

• Land and improvements revert to the landowner at the end of the lease.

• Common in commercial real estate for projects like shopping centers and office buildings.

Quick Answers to Curious Questions

What are the advantages of ground leases for developers?

Ground leases reduce upfront costs by eliminating land purchase expenses, allowing developers to invest more capital into building improvements.

How do ground leases benefit landowners?

Landowners receive steady rental income without selling their property, and at the end of the lease, they gain ownership of any improvements.

What are the risks associated with ground leases?

Risks include potential disputes over lease terms, maintenance responsibilities, and the loss of investment if improvements revert to the landowner at the lease’s end.