Ground Leases

Ground leases are lease agreements where the use of land is given in exchange for rent, but they also will provide for improvements to be placed on the land by the user. Such improvements can be buildings or other structures.

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Complexities with Ground Leases

When you are looking at a ground lease, as a land owner, you should exercise some caution. There are many complexities with ground leases that can cause them to become a hassle for you. For instance, if a lessee makes improvements and builds on the land, but then defaults, what will happen? What type of ownership and responsibility does the lessee take on buildings or structured improvements to the property? Additionally, are you prepared to stick with a ground lease agreement that may be as long as 99 years? All of these questions warrant your attention before you venture into a ground lease.

Be Aware of Liens

Liens are basically debts. When there is a lien on a property, that property is being used to secure repayment of a loan or some other claim. What you should be concerned with is that a lien can affect the ability to transfer ownership. How does this affect your ground leased property? Well, if there is a lien on the building itself and your tenant should default or you wish to sell the property, the lien can cause problems. When looking for a property, be very aware of any liens on any part of the property.

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Environmental History

As you probably know, the history of an environment can have a lot to do with the property’s performance. For instance, you probably would not want a piece of land near Chernobyl. By checking the environmental history of a property you will find out about any chemical spills or toxic dumps that have been done on the property and thus can prevent a bad investment. Do your homework and find out as much as possible about the environmental history of any commercial property you want to look at.