What is a ground lease?

Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 4,036 reviews

Jump to Section

Need help with a Ground Lease?

Post Project Now

Whether you’re a brick-n-mortar startup or established business owner, you might have come across the question “What is a ground lease?” when considering real estate options.

We say this because there are plenty of commercial lease structures and a ground lease is one such example that can provide excellent investment opportunities. If you want a lease structure that can help you deploy capital in the real estate industry without having to worry about property management, a ground lease is the right option.

In many cases, leases have a similar structure, in which tenants typically have no ownership rights. The commercial building belongs to an owner and the renter pays monthly payments.

A ground lease, on the other hand, offers a different kind of land contract and has potential to benefit both landowner and tenants a certain way.

As a real estate investor, learning about this lesser-known leasing structure may help open up new investment opportunities.

Ground Lease Overview

A ground lease refers to an agreement that permits tenants to construct a property or building until the lease period ends. Once the lease period is over, the building owner turns over all land improvements to the landowner.

Ground leases are commonly known as “land leases.”The lease structure is to lease the land only. Typically, a landowner can lease land for a long period (50 to 99 years) to an occupant who constructs a property or building on it.

During the ground lease period, the tenant or renter owns any renovations and improvements he makes to the property. It may also include buildings and other areas constructed during the ground lease term.

Macy’s department stores are a good ground lease example. Macy’s owns all the ground-leased stores or buildings, along with the improvements made to the property and land.However, the company pays rent for the land beneath the building.

The following are some of the essential terms of a ground lease:

  • Fees
  • Use provisions
  • Financing conditions
  • Default conditions
  • Landlord rights
  • Tenant rights
  • Lease terms
  • Title insurance

Here is an article on what a ground lease is.

Differences between a Lease and a Ground Lease

Before we delve into a discussion highlighting the differences between a lease and a ground lease, understanding the similarities is important. Like a standard lease, a ground lease requires a lessee or tenants to pay rent to the landlord. In return, the tenant gets the right to use or possess the property for a certain time period.

A ground lease, in general, calls for monthly rent payments on a periodic basis.A landlord ina ground lease can evict the lessee if the tenant fails to make monthly payments. However, the leasing industry includes some set parameters in a ground lease accounting.

And, these parameters distinguish a ground lease froman ordinary lease.

Involvement of a Raw Unimproved Land

A ground lease involves either land with prominent improvements that the owner doesn’t intend to keep in the present condition or raw, unimproved land.

Land Development or Improvement

The second significant difference between an ordinary and a ground lease is the notion that the renter will construct or develop improvement on the piece of land he uses. During the entire ground lease term, the tenant depreciates and owns the improvements.

What happens at the end of a ground lease?

In the end, ownership of the renovations and improvements revert to the ground lessee. He/she may require removing them.

Click here to understand the difference between the types of leases.

Meet some lawyers on our platform

Albert M.

9 projects on CC
View Profile

Michael K.

70 projects on CC
View Profile

Kristen R.

40 projects on CC
View Profile

Wendy C.

2 projects on CC
View Profile

Benefits of a Ground Lease

A ground lease offers an array of benefits to both the landlord and tenants.

Tenant Benefits

The ground lease allows a tenant to build or construct on land in a prime location that he or she can‘t afford to purchase. This is the reason why many large chain retailers and Franchises such as Starbucks and Whole Food choose ground lease for their corporate expansion plan.

Plus, a ground lease doesn’t require tenants to pay down payments to secure the land as an ordinary property purchase requires. That means this lease structure requires less equity that frees up cash to use for other purposes such as land improvement.

Landlord Benefits

The ground lease is equally beneficial for the landowner as they can gain a steady stream of money from their tenants while retaining property ownership. The ground lease comprises an escalation clause guaranteeing rent increase and eviction rights. It protects landlords in case of rent default.

The ground lease also offers tax savings to landlords. When selling a property to someone, they can benefit from the sale as they don’t need to report the gains.

Find out more about the benefits of the ground lease here .

Get Free Bids to Compare

Leverage our network of lawyers, request free bids, and find the right lawyer for the job.

Get Bids Now

Ground Leases and Commercial Real Estate

The ground lease commonly takes place between commercial landlords as they typically need a 50- 99-year lease for the land. The permit to construct a building and simple ground lease pricing make it an ideal type of lease structure for many commercial landlords.

Although it may seem bizarre at first for tenants or developers to construct a property on land owned by another person, it has advantages for both parties. One of the most important advantages for renters is that the lease provides easy access to a desired and well-located piece of land that is otherwise hard to buy.

For instance, you’re a commercial real estate investor and discover a piece of perfect land with excellent visibility. It receives a good amount of traffic and is in the middle of a high-growth city that can offer a high income.You think it is perfect for your customer who is interested in buying a drug store franchise.

But what if you find out that the landlord is not interested in selling the parcel?

It can’t be a dead-end if the landlord is open to creating an income stream from this vacant land with a ground lease. This is perhaps the reason why ground leases are a sought-after option in commercial real estate.

Here is an article on the ground leases and commercial real estate.

What Happens When a Ground Lease Expires?

If your ground lease expires and the tenant doesn’t want to renew it, he has to give up using the land.There are some clauses stipulating that tenants must surrender the changes or improvements they made to the land.

Read more about what happens at the end of a ground lease here .

Summing Up

In a nutshell, a ground lease is a vital component of several commercial real estate deals and transactions. It generally comes with a low yield and an income stream. In fact, the income stream generated from a ground lease is safe, particularly when you choose an unsubordinated type. The type of lease offers attractive benefits to tenants and developers without transferring land ownership.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Lawyers

David H. on ContractsCounsel
View David
5.0 (1)
Member Since:
March 10, 2022

David H.

Technology Contract Attorney
Free Consultation
Get Free Proposal
Michigan (virtual practice)
12 Yrs Experience
Licensed in MI
Western Michigan University - Thomas M Cooley Law School

Michigan licensed attorney. A compelling combination of technology, sourcing, sales, and legal experience. Over 20 years in technology positions negotiating technology engagements and contracts. General practice legal experience. Significant IT contracts experience (from IT sourcing/procurement) with the State of Michigan and Zimmer Biomet (Fortune 500). Excellent people, negotiation, and writing skills; keen eye for continuous improvement. Trusted business partner co-leading or supporting cross-functional integrated business/IT projects.

Michael C. on ContractsCounsel
View Michael
5.0 (1)
Member Since:
March 17, 2022

Michael C.

Managing Member
Free Consultation
Get Free Proposal
12 Yrs Experience
Licensed in NY, TX
Wake Forest University School of Law

A seasoned senior executive with experience leading the legal and compliance functions of healthcare entities through high-growth periods. I have experience managing voluminous litigation caseloads, while also handling all pre-litigation investigations for employment, healthcare regulatory, and compliance matters. Similarly, I have led multiple M&A teams through purchase and sale processes, including diligence and contract negotiations. Finally, I have extensive contract review experience in all matters, including debt and equity financing, healthcare payor contracting, vendor and employment agreements, as well as service and procurement agreements.

Rebecca R. on ContractsCounsel
View Rebecca
5.0 (2)
Member Since:
March 16, 2022

Rebecca R.

Free Consultation
Get Free Proposal
St. Petersburg, FL/Nashville, TN
22 Yrs Experience
Licensed in TN
University of Tennessee College of Law

An experienced commercial contracts attorney with sales, leasing, NDA, SEC compliance, corporate governance, commercial real estate, and employment experience. Also well versed in internal and external policy document and manual creation.

Gregory F. on ContractsCounsel
View Gregory
5.0 (1)
Member Since:
March 23, 2022

Gregory F.

Free Consultation
Get Free Proposal
Atlanta, Georgia
25 Yrs Experience
Licensed in GA, NY
University of Pennsylvania

Greg Fidlon has been practicing exclusively in employment law since 1998. He represents and advises clients in all aspects of the employment relationship. In addition to his litigation work, Greg regularly negotiates and drafts corporate policy handbooks, employment contracts, separation agreements and restrictive covenants. He also develops and presents training programs and has spoken and written extensively on labor and employment law topics.

Sunnita B. on ContractsCounsel
View Sunnita
4.9 (23)
Member Since:
March 28, 2022
Jessee B. on ContractsCounsel
View Jessee
Member Since:
March 14, 2022

Jessee B.

Attorney | Creative at Law
Free Consultation
Get Free Proposal
10 Yrs Experience
Licensed in TN
The University of Memphis—Cecil C. Humphreys School of Law | Juris Doctor, Law)

Whether you're thinking of starting your own business and not sure how to bring your vision to life, or you're a business owner, creative professional, creator, influencer, artist, musician, startup, nonprofit, or entrepreneur who wants to grow your business and protect your content and brand—I can help. Get experienced legal counsel, quality representation, and creative solutions customized to fit your unique needs. Services include: entity formation, business issues, planning, financing, and strategy; contract drafting, review, and negotiation; intellectual property protection; copyright and trademark filing; startup and nonprofit setup and guidance; real estate matters; property purchase, sale, and leasing; assistance with legal issues related to content creation, branding, design, writing, film, music, art, entertainment, social media, e-commerce, marketing, advertising, data and privacy compliance, and more. Questions? Let's work together. Reach out and say hello.

Stephanie C. on ContractsCounsel
View Stephanie
Member Since:
March 8, 2022

Stephanie C.

Free Consultation
Get Free Proposal
Niceville, FL
3 Yrs Experience
Licensed in AL
Southern University Law Center

Alabama Licensed Attorney offering Freelance Services for Wills, Trusts, Probate, Family Law Documents, Criminal Matters, and Real Estate Closings.

Benjamin V. on ContractsCounsel
View Benjamin
Member Since:
March 10, 2022

Benjamin V.

Free Consultation
Get Free Proposal
4 Yrs Experience
Licensed in CO
Columbus School of Law, Catholic University of America

My practice involves counseling businesses and individuals on a variety of contracts, such as business formation, technology/IP, real estate, leases, and even domestic relations agreements. Much of my practice is dedicated to litigation. As such, I approach contract and transactional work from a litigation perspective by advising clients of the risks involved in failing to develop proper contracts. It takes more than knowledge of the law to be a good lawyer. A good lawyer is honest and forthcoming with clients and has a counseling ethos. And, to me, a good lawyer stands in the shoes of the client when considering how to best serve that client. Whether my client is a business or an individual, I am passionate about helping my clients understand their rights, responsibilities, risks, and possibilities.

Mark D. on ContractsCounsel
View Mark
Member Since:
March 15, 2022

Mark D.

Free Consultation
Get Free Proposal
Dallas/Houston Texas
28 Yrs Experience
Licensed in CO, TX
Thomas M Cooley Law School

Partnering with business clients to keep their greatest asset - their employees - from becoming their biggest liability. Mark accomplishes this by working with in-house counsel and human resource professionals of several Fortune 50 companies, as well as many smaller public and privately held profit and not for profit organizations, to provide advice and counsel on the day to day employment and workforce practice issues encountered by those organizations. For over fifteen years Mark has been Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization. He is licensed and practices in both Texas and Colorado and has focused his practice for the last 20 plus years on defending companies in employment and labor related matters. During this time Mark has had extensive experience in handling and responding to a wide range of local, state and federal employment issues that impact the management and operations of businesses in a wide range of industries. Mark's experience includes appearances before state and federal agencies and regulatory boards, litigation in both state and federal courts, defense of class actions and appearances before courts of appeal. While Mark regularly handles matters in litigation, he has a high regard for handling every issue with the best interest of the client’s business. Mark is a published author and regular speaks on labor, employment and workplace practice topics. Whether it be an investigation by the Occupational Safety and Health Administration (OSHA), the Wage & Hour division of the U.S. Department of Labor, or other state agency; an Equal Employment Opportunity Commission (EEOC) or state agency charge claiming a violation of local, state or federal employment or labor laws; or the need for direction on a hiring, termination or business operational issue involving employees, Mark has extensive experience in handling these and many other employment and labor issues.

Joann H. on ContractsCounsel
View Joann
Member Since:
March 23, 2022

Joann H.

Attorney at Law
Free Consultation
Get Free Proposal
23 Yrs Experience
Licensed in FL, NY
University of Buffalo School of Law; SUNY at Buffalo School of Law

I practiced law for the past 22 years in Immigration, Bankruptcy, Foreclosure, Civil Litigation, and Estate Planning. I am interested in downsizing to a more workable schedule to allow the pursuit of other interests.

Pankaj R. on ContractsCounsel
View Pankaj
Member Since:
March 25, 2022

Pankaj R.

Free Consultation
Get Free Proposal
Los Angeles/Inland Empire
14 Yrs Experience
Licensed in AZ, CA
University of Arizona Rogers College of Law

I advise clients in the areas of business, trademarks, real estate, employment, and finance. My overarching goals are to unite creative people and companies to assist them in making sound legal and business decisions. I have been fortunate enough to build a fast-growing, 21st-century law firm with an amazing staff by my side. Our focus is not just on providing invaluable legal insight but creating a better all-around client experience. We provide unique subscription pricing and flat-fee options for our clients, providing billing transparency and enhanced value to all of our wonderful clients. Focus areas: contract drafting, negotiations, research, trademarks international law, entertainment, business development, entity choice; business: manager, team builder, leader, motivator. Speaking Engagements: National Business Institute (NBI) - "Business Contracts 101"

Find the best lawyer for your project

Browse Lawyers Now

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call