A ground lease is the lease of only land, typically unimproved property, commonly for 99 years and longer. All expenses of the property incurred in a ground lease – taxes, repair and maintenance expenses, insurance costs and financing costs – become the obligation of the tenant.
A leasehold interest is created when a landlord enters into a ground lease with a lessee. With a leasehold interest in real estate, the leasehold owner may erect and own buildings on the property owned by the ground landlord, who is the owner of the land in which a tenant has a leasehold interest.
A ground lease separates ownership of the land from ownership of the building and improvements on the land. It allows the leasehold owner to finance the construction of the project to be constructed on the land either by leasehold financing and/or fee subordination financing.
A leasehold improvement is the physical enhancements that increase the value of real property during the term of the ground lease in which the tenant has a leasehold interest. It is typically paid by the leasehold owner, with the improvement reverting to the lessor at lease termination.
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