Glossary

Ground Lease

Also known as: Land Lease

A long-term lease (commonly 50-99 years) of the land underneath a building, where the tenant (the ground lessee) owns or constructs the improvements and pays the landowner (the ground lessor) periodic ground rent, splitting a single property into a fee-simple (leased-fee) interest and a leasehold interest that can each be separately valued, financed, and sold.

A ground lease separates land ownership from building ownership: the ground lessor retains fee title to the land and collects ground rent, while the ground lessee holds a leasehold estate, builds or operates improvements on the land, and captures the economics of those improvements for the lease term. Because the two interests are legally and economically distinct, each is valued and financed on its own terms -- a lender to the ground lessee generally looks to a leasehold mortgage secured by the improvements and the remaining lease term, not the underlying fee, and requires assurances (a recognition and non-disturbance agreement, adequate remaining term relative to the loan) that its collateral won't evaporate if the ground lease terminates or the lessor and lessee have a dispute. Ground rent is typically structured with periodic resets (fixed step-ups, CPI adjustments, or periodic fair-market-value rent renegotiations) to keep the landowner's return from eroding over a multi-decade term.