A
ground lease provides use and occupancy of a vacant building site or unimproved
land in return for rental payments. The agreement usually contains a provision
that a building is to be erected by the tenant. Frequently, it contains a
provision concerning the disposition of the building at the end of the term of
the lease. The building, although erected at the expense of the tenant,
usually becomes real estate and therefore, unless otherwise provided for, the
property of the landlord at the end of the lease. The lease may also
provide that the landlord, at the expiration of the term, will pay the tenant
all or part of the cost of the appraised value of the building. The term
of the lease, including rental privileges, should be long enough to allow the
tenant time to amortize the entire cost of the building during that period of
occupancy.
Ground leases are often based a certain percentage of the value of the land, including taxes, liability insurance, and other charges, net to the Lessor. No set of rules preside over ground leases, and each transaction is specifically negotiated by the parties.