Quick Takeaways

  • Tenants own the building but not the land it is built on
  • Ground leases usually run from 20 to 40 years
  • After the lease expires, the improvements belong to the landlord

Source: What Is a Ground Lease? (The Motley Fool, Feb. 18, 2022)

In a ground lease, the tenant pays rent to the landlord and owns the building and improvements. The tenant can save money by only constructing a building without have to buy the land underneath. Owners of ground leases must work with landlords to avoid handing back the buildings to the landlords. Ground leases can be extended to the benefit of both parties. Before you invest in a ground lease, work through the pros and cons. The Ground Lease Valuation Model is a useful tool for evaluating a potential ground lease.

Ground leases are used in commercial real estate. The real estate developer leases the land from the tenant for a period of up to 99 years. The developer makes improvements and at the end of the lease term, the improvements become property of the landowner. This type of lease allows landowners to make a profit from the land without having to sell it. Ground leases are expanding beyond the office and multifamily market in New York across the nation in to hospitality as well.

See References for more information.

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