Ground Lease

Ground leases commonly run 20–99 years and separate ownership of the land from ownership of the building on it: the tenant (ground lessee) builds and operates improvements, pays ground rent, and typically pays all property taxes, insurance, and maintenance as if it were a net lease on the underlying land. At the end of the term, the improvements typically revert to the landowner absent a renewal or purchase option.

Ground leases are common in single-tenant retail pad sites (particularly national chains that prefer to control the building but not tie up capital in land), and increasingly as an exit or hold strategy for owners who want to retain long-term land ownership while monetizing development rights or achieving 1031 treatment on the land component of a sale.

Financing a leasehold interest is more complex than financing fee-simple ownership — lenders scrutinize remaining lease term relative to loan term, subordination provisions, and what happens to the leasehold mortgage if the tenant defaults on ground rent — which is a key diligence item for any buyer acquiring a leasehold position rather than fee title.