Ground Leases in Pennsylvania

What is a ground lease?

A ground lease is a long-term lease of land — commonly 40 to 99 years — under which the tenant builds and operates improvements on the property. The tenant owns the buildings during the term and pays rent for the land, and in most ground leases the improvements revert to the landowner when the lease ends. The lease itself controls the term length and what happens to the improvements, so those points are negotiated up front.

Why owners and developers use ground leases

A landowner who does not want to sell can generate long-term income and eventually take back an improved property. A developer, in turn, can control and build on a valuable site without the capital cost of buying the land. Ground leases are common for hotels, retail pads, and larger mixed-use projects.

Subordinated vs. unsubordinated ground leases

Financing is the central issue. In a subordinated ground lease, the landowner agrees that its interest sits behind the developer's construction lender, which makes the project financeable but puts the land at risk if the developer defaults. In an unsubordinated ground lease, the land is protected but financing is harder to obtain. Which structure a project uses is usually driven by what the developer's construction lender will require.

Key terms to negotiate

Rent escalation, the developer's financing and lender-protection rights, use and development restrictions, casualty and condemnation, and what happens to the improvements at expiration all need careful drafting. Zoning and entitlement risk should be addressed up front — often alongside a land use and zoning review.

How Nochumson P.C. helps

Nochumson P.C. structures ground leases and development deals for landowners, investors, and developers across Pennsylvania. Contact us to discuss a ground lease.

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