A ground lease is a long-term lease of land ranging from 10 years to 99 years in some cases. This allows the lessee to develop a piece of land. Ground leases are often commercial real estate products allowing tenants to build a business without the expense of buying the land. They normally allow tenants to make improvements like building a restaurant, supermarket or any other structure. The changes to the property, which help the tenant run his or her business, also increases the value of the land for the owner.
In a ground lease, the property owner has the advantage of retaining ownership of the land, while earning stable income on the property without the expense of developing the land. During the lease agreement, the landowner and tenant decide on how much rent the tenant would have to pay to utilize the land. When the lease term is over, the land goes back to the original owner, that too along with the structure that has been built over the land, unless there are otherwise stipulated terms and conditions.
The landowner not only take the the benefit of the rent from the lessee, but he/she can also capitalize on the improvements made to the property. For the tenant, the lease agreement serves as a comparatively low-cost alternative to buying land for business. As it is a long-term lease, the property owner has a tenant locked into a commitment for a long time. During this term of lease, the landlord cannot sell the land. In addition, any increase in the value of property will add to his/her income taxes.