Lease Structure
Ground Lease
Own the land, let the tenant build the building
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. The lessee pays ground rent, property taxes, insurance, and all maintenance. At lease end, improvements typically revert to the land owner — providing long-term reversion value in addition to rent.
Term
40-99 years (20-year initial + multiple options typical)
Rent Bumps
10% every 5 years, or CPI-linked
Cap Rate
3.75% - 5.25% (tightest in CRE)
Tenants
Investment-grade national tenants
Who Pays What?
| Expense | Tenant | Landlord |
|---|---|---|
| Ground Rent | — | — |
| Property Taxes | — | |
| Insurance (Land + Building) | — | |
| All Maintenance | — | |
| Building Construction | — | |
| Building Repairs | — | |
| Utilities | — | |
| Building Replacement (if needed) | — |
Pros
- +Tightest cap rates in commercial real estate (3.75-5%)
- +Minimal landlord risk — you own only land
- +Reversion value at lease end (tenant's building becomes yours)
- +Tenant bears 100% of building maintenance/replacement risk
- +Inflation protection via rent bumps
- +Very attractive to multi-generational wealth structures
Cons
- −Lowest current yield of any lease structure
- −Long-term capital lockup (40-99 years)
- −Limited flexibility during lease term
- −No depreciation benefit (you own land only)
- −Complex to 1031 exchange out of
Common Use Cases
How It Compares
Ground lease is fundamentally different from NNN — you own only the land, not the building. Tighter cap rates reflect the extremely low risk profile. Reversion value at lease end creates multi-generational wealth-building potential that fee simple doesn't offer.
Investor Perspective
Ground leases are the safest income real estate in commercial. If you can accept the lower current yield (3.75-5% vs. 5.5-7% for absolute NNN), you get near-institutional-grade income with minimal risk. Especially attractive for long-term holders and family wealth structures.
Other Lease Types
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