Back to Basics: Ownership Structures and the Ground Lease

Back to Basics: Ownership Structures and the Ground Lease

Fee Simple Ownership vs. Leasehold

Leasehold ownership, on the other hand, is a type of ownership where the tenant has the right to use and occupy the property for a specific period.  The tenant does not own the property outright but has the right to use the land, including the right to sub-lease to one or more tenants.

Leased fee ownership is a hybrid ownership structure that combines elements of fee simple ownership and leasehold ownership. In a leased fee ownership structure, the landlord owns the land, while the tenant owns the improvements for its own use on the land. Under this structure the landlord may lease portions of the land to various tenants This ownership structure is common in commercial real estate, where the tenant constructs a building on the landlord’s land and then leases the building and land back from the landlord.

The Ground Lease

A ground lease is a long-term lease agreement between a landowner (fee-simple ownership) and a tenant (leasehold interest ownership) where the tenant is granted a bundle of rights that include the right to develop, improve and benefit from all of the buildings on top of the land. The landlord maintains ownership of the land, receives compensation in the form of an up-front payment, or periodic rental payments, and once the lease expires the improvements revert to the landowner.

Ground leases can be used for commercial, industrial, or residential development and are common in urban areas where land is both scarce and expensive. Ground lease terms range from ten to ninety-nine years, or even longer.