Sixteen terms, defined the way practitioners actually use them — from leased fee vs. leasehold to recognition agreements and why fair-market resets earned their bad name. The vocabulary for owners, lenders, brokers, and advisors working a ground-lease deal.
Sixteen definitions, written the way practitioners use them — each one links to a deeper page where we have one. Bookmark this; send it to your lender, your CPA, or your partner who keeps asking.
A long-term lease of land only — typically 99 years in modern institutional form — under which the tenant owns and operates the building. The landowner's return is the ground rent; the tenant keeps the operating income and upside.
The landowner's position: fee-simple ownership of the land, subject to the ground lease. It is real property (it qualifies for 1031 exchange), and its value is the capitalized ground rent plus the reversion.
The tenant's position: the right to possess and use the property for the lease term, including ownership of the improvements. Leaseholds are bought, sold, financed, and inherited like any real property interest.
The payment for the land, sized in institutional practice at roughly 25–33% of the property's stabilized NOI — leaving 3–4x coverage — with fixed escalations.
The standard institutional form: the landowner does NOT pledge the fee as collateral for the tenant's financing. The fee stays unencumbered; the tenant's lender takes the leasehold. Subordinated ground leases — where the fee backs the tenant's loan — are a different, riskier product; we do not do them.
A clause that reprices ground rent to market at intervals — the cause of history's famous ground-lease disasters. Modern institutional leases replace resets with fixed escalations so the rent is knowable for the full term.
A loan secured by the tenant's leasehold estate and improvements, not by the land. Lenders make them routinely when the lease is financeable: adequate remaining term, fixed rent, and the lender-protection suite.
The direct contract between the landowner and the tenant's lender: the landowner recognizes the lender's rights — notice, cure, foreclosure on the leasehold, a new lease if needed — and agrees not to disturb them.
The tenant's lender receives independent notice of any lease default and its own window to cure, so a borrower's stumble cannot cost the lender its collateral.
If the ground lease is ever terminated (for example in the tenant's bankruptcy), the leasehold lender can demand a replacement lease on identical terms — the backstop that makes leaseholds financeable.
The landowner's right to the improvements at the natural end of the lease. At 99 years its present value is minimal — which is exactly why long ground leases convert land into cheap capital.
A signed statement by landlord or tenant confirming the lease terms and that no defaults exist — relied on by buyers and lenders diligencing the deal.
A short recorded notice of the ground lease that puts the world on record notice without publishing the full economic terms.
Holding an income-producing property primarily for its land value: the building's income carries the site until redevelopment. A ground lease is often how the land value gets monetized without selling the deal.
A sale-leaseback sells the entire property (land + building) and rents it all back. A ground lease sells only the land: the owner keeps the building, the depreciation, and the upside, and the capital raised prices off the safest slice of the income.
The rate at which ground rent is capitalized into land value — typically the long treasury plus a modest spread, roughly 6.25–6.75% today, tighter for housing. Lower than building cap rates because the position is senior and covered.
They are the two halves of one property after a ground lease: the leased fee is the landowner's position (the land, subject to the lease), and the leasehold is the tenant's position (the right to the property for the term, plus ownership of the improvements). Each is real property; each can be sold or financed on its own.
Term and protections: enough remaining years, fixed rent with no market resets, and the lender suite — notice and cure rights, a recognition agreement, and a new-lease remedy. A lease missing those strands the building; a lease drafted with them finances routinely.
In an unsubordinated lease (the institutional standard) the landowner never pledges the fee for the tenant's debt — the fee stays clean and the tenant's lender takes the leasehold. In a subordinated lease the fee itself backs the tenant's loan, putting the land at risk; that is a different, riskier product.
Long enough that the tenant's position behaves like ownership — financeable, sellable, inheritable, with the reversion's present value near zero — and long enough to satisfy lender and rating-agency standards for remaining term throughout the financing's life.
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