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What is a Ground Lease?

Ground leases are a type of long-term lease contract in which a property owner can rent their residential or commercial property to a tenant who will make improvements to the land. Ground leases are common amongst business leases since they permit organizations to operate on expensive genuine estate residential or commercial property that they can’t pay for to buy out right. In turn, property managers can benefit from improvements to the land and tenants can conserve cash on property costs.

A ground lease is a type of long-lasting lease agreement that permits a renter to build-and temporarily own-improvements on the rented land. Ground leases prevail in commercial real estate and can generally last approximately 20-99 years. During the lease term, the renter usually constructs residential or commercial property for service usage. At the end of the term, they’ll move ownership of the residential or commercial property to the landlord.

A large franchise might make use of a ground lease to expand its company into metropolitan locations with high realty expenses. This would permit them to build a branch in a largely inhabited area without needing to acquire costly land upfront.

Because the ground lease process often includes development, tenants might need to secure loans to cover building and other associated costs.

Two main kinds of ground lease agreements account for the risks related to loans:

Subordinated ground leases put the loan lending institution’s claims to the residential or commercial property above the proprietor’s. This produces a higher danger of losing the land if the renter defaults, however allows the landlord to negotiate greater with the tenant. In turn, the occupant may be able to more easily secure a loan with better rates of interest.

Unsubordinated ground leases offer the proprietor concern above the lender. This is a more stable and common choice for proprietors, but it may make it harder for occupants to secure a loan. As an incentive, property managers may provide lower rent costs to occupants who accept an unsubordinated ground lease.

FAQs

Who owns the building in a ground lease?

Generally, occupants in a ground lease only pay lease on the land itself and retain ownership of any improvements they make, such as structures they construct on the residential or commercial property. However, ownership of those improvements transfers to the property owner when the ground lease ends.

What takes place if you default on a ground lease?

That depends upon the context of the lease and which celebration defaults. In a subordinated ground lease, the property manager dangers losing ownership of the land if a renter defaults on a loan. Conversely, the renter could possibly lose the structure they built if the proprietor defaults on financial obligations.

Who pays residential or commercial property taxes in a ground lease agreement?

While it depends on the lease agreement, tenants are generally responsible for residential or commercial property taxes, insurance, maintenance, and repairs.

What’s the difference between ground leases vs. land leases?

Both ground and land leases lease out land to a tenant. However, ground leases tend to permit occupants to develop the land, while a land lease may not.

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A

– Affidavit

– Alimony

– Annual Report

– Appreciation

– Articles of Incorporation

– Articles of Organization

– Asset Turnover Ratio

B

– Beneficiary

– Receipt

– Bookkeeping

– Box 12 on W-2

– Breach of Contract

– Business License

– Entrpreneurs Group (BOG)

C

– CapEx

– Capital

– Cease and Desist Letter

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– Civil Union

– Codicil

– Commis

– Community Residential Or Commercial Property State

– Contested Divorce

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D

– DBA

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E

– EIN Number

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F

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G

– GAAP

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– Ground Lease

H

– Hold Harmless Agreement

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I

– Incorporation

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– Informed Delivery

– Intellectual Residential or commercial property

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J

– Joint Custody

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K

– K- 1

L

– LLC

– LLP

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M

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N

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O

– Operating Agreement.

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P

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Q

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R

– Registered Agent.

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S

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T

– TOD.

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U

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V

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W

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X

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Y

– Yellow Dog Contract.

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Z

– Zoning Laws

Additional resources

– irs.gov.
– usa.gov