Last updated: September 27, 2026
What is a ground lease?
A ground lease lets a tenant use land owned by someone else, often to develop or operate a commercial property over a long term. The landowner retains the land. Rent, development rights, operating costs, financing protections, and the treatment of improvements during and after the term are governed by the agreement.
How a ground lease works
Securing a site does not always require purchasing it. A developer can instead negotiate a lease of the land and invest in improvements on the leased site. The developer's interest is a leasehold rather than ownership of the underlying land.
The agreement should identify permitted uses, development obligations, rent, taxes and insurance, maintenance, transfer rights, renewal options, and what happens at expiration. Long terms can give a project time to recover its investment, but a long term alone does not make a lease financeable or commercially attractive.
Ground leasing compared with purchasing the land
Consideration Ground lease Land purchase
Initial land cost Avoids purchasing the fee interest, but may involve premiums, deposits, and other upfront costs. Requires a purchase price and associated transaction costs. Land ownership The landlord retains the land; the tenant holds contractual leasehold rights. The buyer acquires the land, subject to title restrictions and any financing. Ongoing obligations Ground rent and other agreed expenses, potentially with future rent resets. Ownership expenses and any debt service; no ground rent to a landowner. Control and financing The lease can require approvals and lender protections. Control is subject to applicable law, title restrictions, and financing terms. End of term Renewal, removal, surrender, or transfer of improvements follows the agreement. Ownership continues unless the property is transferred or otherwise lost.
Why a developer or landowner might choose a ground lease
For a developer, leasing can provide access to a site whose owner does not want to sell and can leave more initial capital available for the project. The tradeoff is a continuing rent obligation and contractual restrictions that can affect development, refinancing, sale, and the project's value as the term runs down.
For a landowner, a lease can produce income while retaining the land. The owner must still assess tenant credit, permitted use, development performance, environmental obligations, and the consequences of default. The parties' interests do not automatically align; the agreement needs to address them explicitly.
How ground rent can change
Fixed rent: an agreed amount for a defined period.Scheduled increases: predetermined steps, such as a negotiated percentage increase at stated intervals.Index-linked adjustments: changes tied to an index such as CPI, with any caps, floors, and calculation dates specified.Percentage rent: rent connected to defined revenue or income, with clear reporting and audit provisions.Reappraisal resets: rent determined using an agreed valuation process at specified dates.
A reappraisal provision needs more than the words “market value.” The parties should specify what is valued, assumptions about permitted use and improvements, the resulting rent calculation, and how disagreements are resolved. Model plausible future payments across the term instead of assessing the initial rent alone.
Subordinated and unsubordinated ground leases
These terms concern the priority of interests when financing is involved. In a subordinated arrangement, the landowner may agree to subordinate its fee interest to specified project financing, potentially exposing that interest to the lender's remedies. In an unsubordinated arrangement, the fee interest generally is not pledged on that basis; a lender may instead finance the tenant's leasehold interest.
The actual documents determine which interest secures the loan and which rights have priority. An unsubordinated lease is not an unconditional guarantee that the landowner has “first claim” over every asset or payment. Review the ground lease, mortgage documents, and applicable law together.
Financing a leasehold project
Discuss financing requirements before finalizing the lease. Issues can include the term remaining beyond loan maturity, renewal rights, lender notices, time to cure tenant defaults, assignment and foreclosure rights, and protection if the lease terminates. There is no single remaining-term rule that should be assumed for every commercial lender or project.
The lease also needs to address casualty and condemnation: who controls insurance proceeds, whether rebuilding is required, and how rent and termination rights operate. A project that works at closing may become difficult to refinance if these provisions or future rent resets are overlooked.
Documented examples
McDonald's reports that its real-estate leases include ground leases, in which it leases land and generally owns the building, as well as leases of both land and buildings. That distinction matters: a restaurant franchise arrangement should not automatically be described as a simple land-only lease. See its 2025 annual report .
Brookfield Place offers another example. Battery Park City Authority announced an extension of its ground lease from 2069 through 2119 in December 2025. It illustrates why renewal terms can be a major part of a long-lived commercial property's planning. See the authority's announcement .
What happens when the lease ends?
The landowner has retained the land throughout the term. The agreement determines whether improvements are surrendered, removed, purchased, or dealt with through renewal or another arrangement. Ownership of improvements during the term also needs to be understood from the documents. Do not assume every lease produces the same outcome.
Before marketing a leasehold interest, state the remaining term, renewal options, rent and reset provisions, expense responsibilities, and material transfer conditions clearly. Verify building-area figures with our BOMA guide and floor-area guide . Use CREOP's commercial real estate software to present the reviewed property information, and get in touch to discuss your marketing workflow.
Use our ground-lease rent schedule calculator to project a fixed rent-increase schedule from your own assumptions.
Frequently asked questions
Is a land lease the same as a ground lease?
The terms can overlap. Ground lease commonly describes a land lease for a development or operating project, while land lease can also describe other uses of land. The agreement, rather than the label, defines the permitted use, term, rent and rights to improvements.
What is a ground lease in commercial real estate?
A ground lease lets a tenant use land owned by another party, often for a long-term development or operating project. The agreement governs rent, development rights, expenses, financing protections, and improvements.
What is a subordinated ground lease?
In a subordinated arrangement, the landowner may agree to subordinate its fee interest to specified financing. In an unsubordinated arrangement, that interest generally is not pledged on that basis. The documents establish the interests involved and their priority.
How long does a ground lease last?
The parties negotiate the term and any renewal options. Commercial development leases can last for decades, but there is no universal term or 99-year maximum to assume for every site and jurisdiction.
Who owns the building on leased land?
The landowner retains the land. Rights to the building and other improvements during the term and at expiration depend on the agreement and applicable law; they should be identified separately from land ownership.
What happens when a ground lease expires?
The lease governs renewal rights and the treatment of improvements, which may include surrender, removal, or another agreed arrangement. The landowner has retained land ownership throughout the lease.