What is a ground lease in real estate?

A ground lease in real estate specifically refers to a lease of bare, undeveloped land. This type of lease allows the tenant to develop the property according to their business needs while the land remains under the ownership of the lessor. The tenant typically has the right to use the land for a predetermined length of time, and they may construct buildings or make improvements on the land.

At the end of the lease term, ownership of all the improvements typically reverts to the landowner, which distinguishes ground leases from other types of leases where the tenant might have more control over the improvements or outright ownership of the structures. This arrangement is often beneficial for both parties: the landowner earns a steady income from the lease, and the tenant can use the land without the initial capital expenditure of purchasing it.