As a commercial leasing attorney, I have nervously and carefully been watching the leasing industry during this pandemic that we call the new normal. After a lull in leasing activity, I am happy to report that as of the beginning of autumn, I am seeing a rise in leasing activity, specifically in the area of ground leasing.
A ground lease is the lease of land to a tenant for a long period of time (often between 30 to 99 years) whereby the tenant, at its expense, develops the land and is responsible for all expenses (except for taxes on the land which is usually the landlord’s responsibility) of repair, insurance and maintenance of the property. After the lease expires, the land and all of the buildings and other improvements built by the tenant revert back to the landlord.
A majority of ground lease tenants are franchisees, big box stores and warehouses. Examples are grocery stores, Costco, Target and fast food/quick service restaurants with drive a drive thru lane such as Starbucks and McDonalds.
Ground leases have several benefits to both landlord and tenant.
Conversely, there are drawbacks.
The leasing of land for development by another is a great way for land owners to passively produce income. Developers of the land benefit from earning profit from its operation at the property without having to lay out the initial cost of purchasing land.