What happens to the building when a ground lease ends?

It depends on the lease. Often ownership of the improvements passes to the landowner when the lease expires, but some leases require the tenant to remove the building or give the landowner a purchase option.

Can you get a mortgage on a ground lease property?

Yes, but lenders usually want a long remaining term, often well beyond the loan's maturity, and clear rights to step in if the tenant defaults.

What Is a Ground Lease?

A ground lease is an agreement in which a landowner leases land to a tenant for a long period, and the tenant builds on it, operates it and pays rent for the land. The landowner keeps ownership of the land, while the tenant usually owns, or has the rights to, the buildings during the lease term.

Ground leases are common for shopping centers, hotels, office buildings, restaurant pads and some apartment projects. Terms are long, often 50 to 99 years, so the tenant has time to recover its investment in the building.

How it works

The tenant typically pays all costs related to the property, much like a triple net lease: property taxes, insurance, maintenance and construction. Key terms in a ground lease include:

Term and renewal options. The length must support the tenant’s financing and investment.
Ground rent and escalations. Rent may rise on a fixed schedule, with inflation, or through periodic reappraisals of the land.
Subordinated or unsubordinated. In a subordinated ground lease, the landowner agrees that its interest in the land can serve as security for the tenant’s construction loan. Most landowners prefer unsubordinated leases, which keep the land out of the lender’s collateral.
Reversion. What happens to the improvements at the end of the term.

Example

A hypothetical developer leases a vacant parcel for 75 years at $150,000 a year in ground rent, with increases every 10 years. The developer builds a 120-unit apartment building, collects the rent from residents and pays the ground rent to the landowner. When the lease ends, ownership of the building reverts to the landowner unless the parties agree otherwise.

Why it matters for landlords

For landowners, a ground lease creates long-term income without selling, and the land may come back with a valuable building on it. For developers, it lowers upfront costs because they do not buy the land. The tradeoffs are complexity and long-term commitment. As the remaining term shrinks, a leasehold can become harder to finance or sell. Ground leases involve significant legal and tax issues, so work with an attorney and CPA before signing.