SKYLINE PROPERTIES

220 East 42nd StreetSuite 3102 I New York, NY 10017

Phone: 212.537.9239 Fax: 212.257.7028 info@skylineprp.com

Copyright 2019 Skyline Properties

 

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WHAT IS A GROUND LEASE?

In the simplest form, a ground lease is a long-term net lease (usually 49 years or 99 years) of land including any improvements on the said land.  Assets that can be subject to a ground lease include but are not limited to, vacant land, office buildings, and large residential buildings. 

 

Advantages for Owners/Ground Lessor:

  • The owner retains ownership to the property and therefore:

  • is not responsible for any capital gains or transfer tax payments they would incur if they were to sell (although there are instances where transfer taxes might be incurred);

  • keep the property in the family and thus will generate a hassle-free income stream for generations;

  • they can mortgage the leased property; and

  • can sell the property.

  • The ground lessee (the tenant) under the ground lease would be responsible for all of the management, costs, and expenses of the leased property.

  • The ground lessee will maximize the potential and improve the property by:

  • making capital improvements to the existing structure; or

  • in the case of a development site, they will be constructing a new building.

  • Many ground leases contain a clause (reversionary clause) which transfers any improvements made by the tenant to the landlord at the end of the lease.

Advantages for Tenants/Ground Lessee:

  • The tenant’s basis would be significantly reduced because the tenant would not need to provide the upfront capital that is needed to purchase the property.

  • If an owner is unwilling to sell his property, this gives the tenant/investor a way to utilize this asset in a way that can benefit both parties.

  • The tenant can mortgage the lease, however, any financing obtained will not be against the leased asset.