🏠 What Is a Ground Lease in Real Estate?

A ground lease is a long-term lease agreement in which a tenant leases land from a property owner and typically builds on it. The tenant owns the building or improvements during the lease term, while the land remains owned by the landlord. Ground leases are common in commercial real estate, planned communities, and long-term development projects.

How a Ground Lease Works

Under a ground lease, the tenant pays rent for the land but may build structures such as homes, offices, or retail buildings. At the end of the lease, ownership of improvements often reverts to the landowner, depending on the agreement.

  • Landowner retains land ownership — but not necessarily the buildings during the lease term.
  • Tenant may develop the property — constructing buildings or commercial improvements.
  • Long-term lease terms — commonly 30, 49, 75, or 99 years.
  • Reversion clause — improvements may revert to the landowner when the lease ends.
  • Rent escalations — may be fixed, tied to CPI, or renegotiated at intervals.

Ground leases reduce upfront costs for tenants while allowing landowners to earn long-term income.

Why Ground Leases Matter in Real Estate

Ground leases create opportunities for development without requiring land purchase, but they also introduce long-term obligations and risks.

  • Lower upfront costs — businesses or developers avoid buying expensive land.
  • Long-term planning — common in commercial districts, airports, university property, and master-planned communities.
  • Financing considerations — lenders scrutinize ground leases; some restrict loan terms to the remaining lease period.
  • Ownership implications — improvements often revert to the landowner at lease expiration.

Common uses:

  • Retail developments (shopping centers, hotels, restaurants)
  • Master-planned communities and mixed-use developments
  • Public land leased to private developers
  • Community land trust housing models

Example of a Ground Lease

A developer signs a 99-year ground lease with a city to build a hotel on publicly owned land:

  • The city keeps ownership of the land.
  • The developer owns the hotel building during the lease.
  • The developer pays ground rent annually.
  • At the end of 99 years, ownership of the hotel may transfer to the city, depending on the terms.

This arrangement allows both parties to benefit: the city earns revenue without selling land, and the developer avoids a large land acquisition cost.

Why Ground Leases Matter for FSBO Sellers

While ground leases are more common in commercial real estate, some residential homes — especially in resort areas or community land trust neighborhoods — sit on leased land. FSBO sellers should understand how ground leases affect marketing, pricing, and buyer financing.

  • Lease terms must be disclosed to buyers before listing.
  • Financing may be limited if a lease has fewer than 30 years remaining.
  • HOA communities may include land-lease arrangements.
  • MLS listings must clearly indicate “land lease” when applicable.

Sellers using Flat Fee MLS through Brokerless can highlight lease details to attract qualified buyers and avoid surprises during escrow.

🔗 Related Resources for Buyers & Sellers

Frequently Asked Questions

Do lenders finance homes on ground leases?
Yes, but many lenders require the remaining lease term to exceed the mortgage term (typically 30 years).

Do improvements revert to the landowner?
Often yes — depending on the ground lease terms at expiration.

Are ground leases common in residential real estate?
They are less common but appear in resort areas, retirement communities, and community land trust neighborhoods.

Are ground leases cheaper than buying land?
Upfront costs are lower, but long-term lease payments must be considered.

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