What is a Ground Lease?
A ground lease is an agreement between a landowner and a tenant, in which the tenant leases land for a new build. NNN ground leases are usually long-term (sometimes they can last up to 99 years) and if the tenant ever defaults or the term of the lease expires, then the landowner takes over ownership of the building on their land as well.
Advantages of a Ground Lease
Stable Income Stream
Most NNN ground lease agreements also include a Reversionary Clause, so that if a tenant defaults on their lease or the term of their lease ends, ownership of the building then goes to the landowner
Tenants also benefit in a NNN ground lease, because they can often find a desirable location for their business that wouldn’t otherwise be available to them without having to fund a property purchase themselves.
What To Look For When Buying A Ground Lease
While NNN ground leases can be very beneficial for investors, there is an important tax consideration to make when determining if this type of lease and investment is the right one for you.
As a landowner in a NNN ground lease, you’ll typically be responsible for the annual taxes on the land itself. Taxes on land alone do not depreciate over time, and since the land and building are under separate ownership in this type of commercial real estate lease, it means that the investor (and land owner) will not be able to receive tax benefits over time since land does not depreciate.