What is a Ground Lease and Leasehold Interest?
A ground lease is a long-term agreement in which a property owner leases only the land to another party, while the tenant (Lessee) owns and operates the buildings or other improvements on that land. Ground leases often last between 20 and 100 years.
A leasehold interest refers to the rights held by the tenant under a ground lease. The tenant (Lessee) may build, own, and use improvements on the property much like an owner would, while making lease payments to the landowner (Lessor). At the end of the lease term, control of the land and any improvements generally reverts to the landowner.
Ground leases are often found in high-value locations where landowners prefer to retain ownership of the property but do not wish to develop or operate it themselves. Instead, they lease the land to a developer or business that constructs and manages the improvements. This arrangement is common for office buildings in downtown business districts or other population-dense, urban locations.
Ground leases are also frequently used in retail developments. In many shopping centers, major retailers want to construct and own their buildings, while the developer wishes to retain ownership of the land. As a result, the retailer leases the land—often for 40 years or more—and builds its own facility on the site. Banks, national restaurant chains, and large department stores commonly utilize this structure.
If you are interested in ground leasing, call Nicole Jones at Jones Wadsworth Commercial Real Estate: (256) 886-7700.
