Featured News 2014 What is a Ground Lease?

What is a Ground Lease?

A ground lease is an agreement in which a tenant is allowed to develop a piece of property during the lease period. After this, all the land and all improvements on the land will be turned over to the property owner when the tenant moves on. A ground lease indicates that the improvements will be owned by the property owner unless an exception is created. Also, all relevant taxes during the lease period will be paid for by the tenant. Normally, ground leases last for at least 10 years or more.

A ground lease is normally a long-term lease, as lease holders would be unwilling to build costly improvements if they would only enjoy them temporarily. A ground lease allows a landlord to receive the property with all improvements once the term of the lease expires. This means that the landlord has the right to sell his or her property at a higher rate because of the improvements made by the tenant.

It may seem strange that any tenant would want to put money into a property that he or she could not sell later for a higher price, but often the ground lease will keep the tenant from being required to buy the property at a higher rate. Normally ground leases are used in commercial operations.

There are some major advantages for landlords when it comes to ground leases. For one, landlords won't have to pay income tax on then execution of a ground lease and the landlord retains the fee ownership to the property.

Also, landlords may retain some element of control over the development and uses of the land that is leased on the ground lease. Many ground leases require that a tenant develop, construct, and operate a specific type of commercial project and not change the nature of the project without the landlord's prior approval. This means that the landlord still has a lot of authority over the project taking place in a ground lease.

For a tenant, there are two major advantages of ground leases. For one, a ground lease reduces the tenant's front-end development costs because it eliminates land acquisition costs. Also, all rent payments made under a ground lease are deductible by the tenant for state and income tax purposes, This can help the tenant to save a lot of money in the long run. On the other hand, a ground lease is often more expensive in the long run. As well, a tenant normally doesn't have as much flexibility over the development of the land and the use and operation of property because of the restrictions that may be contained in the ground lease.

If you are interested in creating or entering a ground lease, don't hesitate to contact a local real estate attorney to discuss this decision in detail. You may want to observe all pros and cons of a ground lease before you choose to enter into this committed agreement. Whether you are a landlord or a tenant, use this directory to locate a trusted attorney who can help you with your case today!

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