Commercial Land Lease Agreement: Everything You Need to Know

A commercial land lease agreement is a contract signed between parties over a ground lease transaction.3 min read

What Is a Ground Lease?

A ground lease or land lease is a lease of the land. Generally, land leases can range from 50-99 years and allow the tenant to build on the land. In a ground lease, the landowner is different from the owner of improvements or buildings on the land.

Why Ground Leases Make Sense

While it can seem strange for an individual or tenant to build on another person's land, a ground lease provides numerous benefits to the contracting parties. Here are some of the benefits of ground leases:

  • The most important advantage of a ground lease is that it allows tenants to access lands in prime locations where it may be impossible to buy land.
  • Ground leases save the tenant the initial cost of buying the land, reducing the upfront equity requirements for the investment, increasing yield, and providing liquidity for other projects.
  • A ground lease provides the landowner with a steady source of income from a reliable tenant without losing ownership of the land.
  • Ground leases include provisions that allow the landowner to increase the rent over the term of the lease and protect against defaults.
  • Land leases usually carry a reversionary clause that makes the landowner the new owner of improvements to the land when the lease expires.

Subordinated vs. Unsubordinated Ground Leases

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