Word Of The Day — Ground Lease

The Language of Real Estate
 
With a Ground Lease, you own the improvements, but not the land.
 
Common in Hawaii when I was growing up. My parents purchased a home in Foster Village in 1958, but did not own the land and instead, had a 99 year ground lease. My grandparents also owned a home in Honolulu where the airport is located, and owned the home but not the land.
 
When I was president of the Board of REALTORS in San Diego in 1993, we owned our building, but leased the land. We sold the property with the remaining ground lease to the church next door and purchased a new location for the San Diego Association of REALTORS.
 
From The Language of Real Estate, by John Reilly:
 
A lease of land alone, sometimes secured by improvements placed on the land. Also called a land lease, the ground lease is a means used to separate the ownership of the land from the ownership of the buildings and improvements constructed on the land.
 
In most areas, it is a net lease that creates a tenancy for years, typically for a term of 55, 75, or 99 years. Ground leases do not generally run for longer than 99 years due to early state laws that held leases of 100 years or longer to be transfers of fee simple title rather than leases.
 
The lease rent (called ground rent) normally is fixed for an initial period of 30 years (calculated as a percentage of the assessed valuation of the land on the date of lease execution), with the balance of the rent to be renegotiated on or before the expiration date of the fixed term.
 
The new rent is usually based on a set percentage of the then-appraised value of the property minus the cost of on-site and off-site improvements. Sometimes the rent increase is determined at the time of execution of the lease, and a graduated lease, with fixed increases at stated intervals, is agreed to.
 
In some states, a ground lease is used in both residential and condominium developments; however, it is also popular in commercial property development. Because land ownership is separated from improvement ownership, capital gains taxes on land sales may be avoided and financing requirements may be decreased. (See building lease, net lease, percentage lease, renegotiation of lease.)

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