Ground Lease - Land Lease
A ground lease, also referred to as a land lease, is a lease of vacant land usually by a developer for a period generally running for 50 to 99 years. A ground lease permits a developer to build an office building, retail property, hotel, apartment building, or parking structure without having to raise the funds to purchase the property. However, at the end of the lease terms, the landowner/lessor will become the owner of the constructed improvements. During the period of the lease, the lessee pays rent and is usually required to pay property taxes and insurance.
Ground leases are often used by franchisor companies who buy suitable commercial land sites and then lease them to franchisee companies.
Ground lease tenants almost always obtain construction financing and later permanent financing for their projects. This almost always requires the land lessor to subordinate its interest to the construction and permanent lenders. The terms of any subordination agreement must be carefully negotiated as it becomes a major element of risk for the ground lessor.
Our firm can assist in the negotiation of a ground lease which should always be approved by legal counsel.