What is a Ground Lease? Revaluate Knows.
Real Estate Terms: Ground Lease
A ground lease is a long-term lease of land (often 99 years), on which a tenant is permitted to
erect structures and make land improvements. During the term of the lease the tenant is responsible
for taxes, maintenance, insurance, and other expenses associated with the property. At the end of the
lease the land reverts back to the owner.
Several condominiums and coops in New York City are subject to ground leases. If you are
considering buying a unit in such a building, here are a few factors to consider:
• Increased expenses. In addition to common carrying expenses (mortgage, maintenance fees,
tax), owners in a ground leased building are also responsible for paying a share of the rent owed
under the ground lease.
• Risk when the lease expires. When the lease runs out, typically a new lease will be negotiated
between the tenants and the land owner. However, if both sides cannot reach an agreement,
in theory the tenants must vacate the property and the building would be demolished. This
leaves the tenants with little bargaining power in such a negotiation, and little recourse to a land
owner insisting on a drastically higher rent.
• Mortgage approval. Mortgage companies generally want to secure both the building and the
land as collateral, and may be reluctant to extend credit for units in ground leased buildings,
particularly those that are schedule to expire in the next 30 years.
• Reduced price. A big benefit of ground leased buildings, which may offset all of the above
drawbacks, is that they are often priced significantly lower than comparable buildings that do
not have ground leases.
More information:
http://www.businessdictionary.com/definition/ground-lease.html#ixzz3AsYV2rUx
