What is a ground lease?

A ground lease refers to a lease agreement in which the leaseholder rents land rather than the buildings or improvements on it. In this arrangement, the tenant (or lessee) is allowed to build upon the leased land, usually for a specified term, after which ownership of the improvements typically reverts to the landowner. This type of lease is often used in commercial real estate, where a tenant wants to develop a property but does not wish to purchase the land itself.

The core aspect of a ground lease is the tenant’s right to use the land to create and maintain structures, while the land itself remains the property of the lessor. This arrangement can be beneficial for both landlords and tenants, as landlords can receive stable income from the land without having to invest in the construction or management of the buildings, while tenants gain the ability to develop the land to suit their needs.

While other options describe different leasing scenarios, they do not capture the essential nature of a ground lease. For example, a lease involving both land and improvements or a short-term rental agreement does not adhere to the specific characteristics defined in a ground lease, where the focus is exclusively on the land itself and the tenant's rights to erect structures.