A long-term lease (typically 50 to 99 years) where the tenant leases only the land and constructs or maintains the building at its own expense. At lease expiration, the building usually reverts to the landowner.
In a ground lease, the fee simple landowner leases the land to a tenant who builds and operates improvements on it. The tenant holds a leasehold interest and typically pays ground rent based on the land value, not the improvements. Ground leases are common for major commercial developments where the landowner wants to retain ownership while generating income. The tenant finances, constructs, and maintains the building. At expiration, improvements revert to the landowner unless the lease provides purchase options or renewal rights. Ground lease financing involves separate valuations of the fee and leasehold interests.
A ground lessor includes CAM-style charges for "land maintenance" in addition to ground rent, passing through costs like property tax increases, landscaping, and road maintenance that should be included in the ground rent calculation.
In a ground lease, ensure the ground rent includes all land-related costs or that pass-throughs are explicitly defined and capped. Negotiate purchase options at lease expiration to avoid losing the building improvements you financed.
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Find My OverchargesThis page provides general educational information. It is not legal advice and may not reflect the most current law in your state. Consult a licensed attorney for advice specific to your situation.
