Definition
A land lease, also known as a ground lease, is a long-term lease agreement where the tenant leases the land itself from the landowner. In this arrangement, the tenant is typically allowed to construct buildings or other improvements on the leased land. However, upon the expiration of the lease, ownership of the land and any improvements made by the tenant usually reverts to the landowner, unless specified otherwise in the lease terms.
Examples
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Agricultural Use: A farmer leases a 50-acre plot of land to grow crops. The farmer does not own the land but has exclusive farming rights during the lease period.
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Commercial Development: A real estate developer leases a parcel of land in a prime location to build a shopping mall. The lease might be for several decades, allowing the developer to operate the mall and collect rents, with eventual reversion of ownership of the land and mall structure to the original landowner.
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Residential Use: A group leases a piece of land for 99 years and constructs a residential community. They manage and maintain the properties but do not own the land itself.
Frequently Asked Questions (FAQs)
What is the typical duration of a land lease?
Land leases often range from 50 to 99 years. The exact duration depends on the agreement between the lessee and the lessor.
Who owns the improvements at the end of the lease term?
Unless otherwise stated in the lease agreement, the landowner usually owns any improvements, such as buildings, at the end of the lease term.
Can land leases be renewed?
Yes, many land leases have provisions for renewal, which can be negotiated between the lessee and lessor.
What is a subordinated ground lease?
A subordinated ground lease allows the tenant to use the leased land as collateral for financing. In this case, the landowner agrees to subordinate their interest to the lender’s claim in the event of a default.
Are land leases common in urban areas?
Yes, land leases are common in urban areas, especially in cities with high property values, as they allow for development without the need for purchasing expensive land outright.
Related Terms
Ground Lease
A ground lease is synonymous with a land lease, referring explicitly to leasing land for a long term, often for development purposes.
Subordinated Ground Lease
A specific type of ground lease where the landlord agrees to subordinate their rights to a lender providing financing to the tenant.
Triple Net Lease (NNN)
A lease agreement where the tenant is responsible for property taxes, insurance, and maintenance, in addition to rent.
Build-to-Suit Lease
A lease agreement where the landlord finances construction to meet the tenant’s specifications.
Online Resources
- Investopedia: Ground Lease
- The Balance: Understanding Ground Leases in Commercial Real Estate
- Real Estate Investing: Ground Lease
References
- Fisher, Jeffrey D. and Robert S. Martin. “Income Property Valuation”. Dearborn Real Estate Education.
- Pivar, William H. and Robert Bruss. “California Real Estate Principles”. Rockwell Publishing.
- Keogh, Gerald. “Real Estate Lease Accounting and Management: Real Estate Challenges With the Lease Accounting Standard ASC 842”. Wiley.
Suggested Books for Further Studies
- “Real Estate Finance and Investments” by William B. Brueggeman and Jeffrey D. Fisher
- “The Encyclopedia of Commercial Real Estate Advice” by Terry Painter
- “Ground Leasing Fundamentals: A Practitioner’s Guide” by Alan M. DiSciullo and Nicholas A. Ziorkal
