Full Definition
A ground lease separates land ownership from building ownership. The land owner (lessor) leases the land long-term (typically 40-99 years) to a tenant (lessee) who builds and owns the improvements. At lease end, the improvements typically revert to the land owner. Ground leases trade at tight cap rates because the land owner has minimal risk.
Example
McDonald's signs a 20-year ground lease on a corner lot. McDonald's builds and owns the restaurant building. The lessor receives monthly land rent. After 20-30 years, the building reverts to the lessor.
Related Terms
Fee Simple
The most complete form of real estate ownership — full ownership of both land and improvements, with no time limit.
NNN Lease (Triple Net Lease)
A commercial lease where the tenant pays property taxes, insurance, and maintenance on top of base rent — making the landlord's income almost entirely passive.
Reversion Value
The estimated sale value of a property at the end of an investor's hold period or at the end of a ground lease term.