Choosing a real estate investment strategy can be challenging. There are risks no matter what avenue you choose, but understanding all options, including a ground lease, is important.
A ground lease can be a good option for landlords or property owners who want prime locations, but not understanding what a ground lease is and how it works can be detrimental.
We’ve broken down everything there is to know about the ground lease and what landlords and tenants must consider.
What Is a Ground Lease?
A ground lease is different from any other type of lease. With a ground lease, the tenant owns the building but not the land. The land is undeveloped, and when a tenant leases it, they have the right to develop it while the lease is in effect.
Ground leases typically have very long terms, sometimes as long as 99 years, because when the lease expires, the land and any improvements (including buildings) go back to the owner. Tenants make regular rental payments to the landlord like they would if they rented the building.
Ground Lease Terms and Title
Tenants need to pay attention to the ground lease terms, just as they would the terms to purchase land or property.
The term is essential because they want it at least as long as it takes to recoup the cost of construction or improvements made to the building.
Just as important, however, are the title terms. Even though tenants aren’t buying the land, the title agreement is essential. At a minimum, they should purchase a title insurance policy to protect their leasehold interest in the land.
When signing a ground lease, tenants should consider the following for title commitments:
- They should receive all appendices to the title.
- The grantee on the title’s name should exactly match the name of the landlord to prevent legal issues.
- Ensure the title premiums are paid and the leasehold title policy is executed.
- Determine if any existing loans must be subordinated to the ground lease.
The Benefits and…