The like-kind regulations treat a leasehold of real property with thirty years or more remaining as equivalent to a fee. Above that line a ground lease behaves like ownership for exchange purposes. Below it, it does not, and a long list of things stop working at once.
Because a long leasehold sits on the same side of the line as a fee, an investor can relinquish a fee and acquire a leasehold, or relinquish a leasehold and acquire a fee, and stay inside the like-kind requirement. Ground leases are not a special category. They are ordinary real property with a clock on them.
That is why a newly created leased fee works as replacement property, and why a leasehold position in a long ground lease is not automatically disqualified from an exchange. The question is never the label. It is the number of years left.
There are two thirty-year thresholds in the life of a ground lease and they are not the same test. Confusing them is common and expensive.
| Test | Where it lives | What it measures |
|---|---|---|
| Like-kind | Exchange regulations | Years remaining on the lease must be 30+ |
| Financeability | Agency leasehold guidance | Lease must run 30+ years past loan maturity |
The financing test bites first and bites harder. A lease with forty years left will not support a ten-year loan under the agency standard, because ten plus thirty is forty and there is no cushion. The exchange test bites later, at thirty years remaining, and when it does the leasehold quietly stops being like-kind to a fee.
Owners assume a ground lease is fine until close to expiry. It is not. The value of a leasehold begins to fall the year it stops being financeable, because the buyer pool collapses to cash buyers, and it falls again when it stops being exchangeable, because the buyer pool loses every investor who needs deferral.
Both of those happen decades before the improvements revert. A leasehold with thirty-five years left is already a different asset than the same leasehold with fifty.
There is no financial engineering that adds term. Either the fee owner extends, or the leasehold owner buys the fee, or the fee changes hands to someone who will re-paper the lease to an institutional standard. Those are the three exits and they all require the fee owner's signature.
That is where we work. We buy fee positions and rewrite the lease to a ninety-nine year unsubordinated form that is financeable and exchangeable again, which usually makes the leasehold worth materially more than it was the day before.
Generally yes where the option is the tenant's to exercise. The measurement looks at the term the tenant can compel, not only the base term. Your qualified intermediary will want to see the option language itself.
Yes. It sits far above the thirty-year line for most of its life.
When fewer than thirty years remain, measured including options the tenant controls.
No, and this is the common error. Lenders under agency leasehold guidance want thirty years beyond loan maturity, not thirty years remaining. The financing test fails first.
It may still be real property, but it is no longer treated as like-kind to a fee under that provision. This is a question for your qualified intermediary and CPA on the specific facts.
It falls in two steps as the financeable buyer pool and then the exchange buyer pool disappear. The fall starts long before expiry.
Send the lease term, commencement date and any renewal options. We will tell you which side of each line you are on and what the fee would have to look like to fix it.
Email us the property