Instead of buying a piece of land, an alternative means to occupy it is to use a ground lease. A ground lease is an arrangement in which a tenant rents a piece of land over a long period of time, and then has the right to improve the land in any way that he wants.
Ground Lease Basics
The basic idea behind a ground lease is that the owner of a piece of land rents it to someone else without actually improving it. The landlord goes into the lease with the assumption that the tenant will improve the land by constructing some kind of building on it. The tenant will pay for the construction of the building and will retain the rights to use it during the life of the lease contract. At the end of the lease, the agreement can either be renewed or the tenant must move out of the property.
Considerations for the Landlord
The ground lease is an advantageous solution for the landlord for several reasons. The landlord does not have to worry about selling the land, but he can still generate revenue from it. Another advantage of this type of arrangement is that it does not involve the landlord coming up with the money to construct a building on the property. On the other hand, if the tenant moves in and does not pay the rent for the land, the eviction process can be complicated once the tenant has a building constructed.
Considerations for the Tenant
The tenant in this type of arrangement can secure a desirable piece of real estate without the large initial investment in the raw land. In many cases, the best land is not for sale, and this can be a way to still gain access to it. The drawback to using this method for a tenant is that he has to invest a considerable sum in the construction of a building without the assurance of knowing what will happen to it after the lease is finished.
The ground lease is typically a very long-term arrangement for both parties. For instance, many ground leases are set up with 99-year terms. After the term has expired, the tenant may have an option to renew the lease for a certain amount of time. With most ground leases, the tenant can actually sell the building with the ground lease intact. This creates a situation where the agreement can legally be transferred to another party.