Legal Definitions - ground lease

A ground lease is a long-term agreement where a tenant leases only the land from a property owner, rather than both the land and any existing buildings. Under a ground lease, the tenant typically constructs and owns the buildings or other improvements on the leased land for the duration of the lease term. At the end of the lease, ownership of these improvements usually transfers back to the landowner.

This arrangement allows the landowner to retain ownership of the valuable land while generating income, and it allows the tenant to develop property without the upfront cost of purchasing the land itself. Ground leases are often for very extended periods, such as 50, 75, or 99 years.

• Example 1 (Commercial Development): A real estate developer wants to build a new high-rise apartment complex in a bustling city center. Instead of buying the extremely expensive plot of land outright, they enter into a 99-year ground lease with the current landowner. The developer then secures financing to construct the apartment building, which they will own and operate for the duration of the lease. At the end of the 99 years, the apartment building will become the property of the original landowner.

  This illustrates a ground lease because the developer is leasing only the land, not purchasing it. They are responsible for constructing the "improvements" (the apartment building) and will own those improvements for the lease term. The agreement specifies that the building will revert to the landowner at the lease's conclusion.

• Example 2 (Institutional Use): A municipal government owns a large, undeveloped parcel of land near a public park. To attract economic activity and provide community services without selling off public assets, they offer a 50-year ground lease to a non-profit organization. The non-profit plans to build a community center and sports facilities on the land. The non-profit will own and operate these facilities for the 50-year term, after which the buildings will transfer to the city.

  Here, the municipal government acts as the landowner, leasing only the ground to the non-profit. The non-profit constructs the community center and sports facilities, which are the "improvements" they own and operate for the lease duration. The agreement ensures that the land remains publicly owned, and the improvements eventually revert to the city.