Also called a land lease, the ground lease is one in which a tenant simply rents land, often without improvements of buildings. This is typically a net lease, with the tenant responsible for taxes, insurance and maintenance.
With ground leases, the tenant will then develop the property and build on the land. Because the tenant will need to recoup the high cost of development, most ground leases are long-term. Typical ground leases begin with at least a 40-year term, and sometimes provides for extensions.
This can be an advantageous arrangement for developers and tenants, as they avoid the cost of having to purchase the land. This is particularly true in areas with high land costs, such as downtown urban centers. Leasing also has certain tax advantages compared to purchasing.
When the ground lease expires, the entire property—including any buildings added to it—revert back to the landowner. In some cases, the ground lease may require the tenant to demolish any buildings.
For much more information, please see the Ground Lease article.
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