CRE 101 · deweyluong.realtor

Ground Lease Explained: How Georgia Landowners and Tenants Split Land and Building

One parcel, two owners: the land belongs to one party, the building to another. By Túy “Dewey” Luong, CCIM — Founding Broker, SERHANT. Atlanta · 318 closed sales / $281.2M career volume · 678-707-2498

Drive Buford Highway or Pleasant Hill Road and many of the restaurants, banks and stores you pass sit on land the operator does not own. The building is the tenant's; the dirt belongs to a landowner who signed a ground lease — sometimes decades ago. The structure lets a landowner keep the land and collect rent on it for a generation, and lets a tenant control a prime corner without buying the land under it. It also creates two separate, saleable interests in the same property, which is where the money and the mistakes both live.

This page explains how ground leases work in Georgia: the mechanics, how rent is set and reset, what subordination really means, and what happens when the term runs out. It pairs with NNN leases, because most ground leases are absolute-net, and with lease vs buy, because a ground lease is the third option between them.

The mechanics: what each side actually owns

• Fee interest (the landowner): ownership of the land, the right to ground rent, and the reversion — the right to get the land back, usually with the improvements, at the end of the term.
• Leasehold interest (the tenant): the right to use the land for the term, plus ownership of the building and improvements the tenant builds. The tenant can often sell or finance the leasehold separately from the land.
• Term: long enough for the tenant to recover construction cost — commonly 20 to 50 years of initial term plus renewal options, and sometimes 75 to 99 years for larger developments. The remaining term is the leasehold's shelf life.
• Net structure: the tenant typically pays taxes, insurance and maintenance on top of ground rent — the landowner's income is close to passive, which is the point.
• Rent resets: fixed escalations, periodic step-ups, or resets tied to reappraised land value. The formula decides who captures the land's appreciation during the term.

Worked example. The numbers below are made up to teach the mechanics. This is not a real property.

• Pad site in Gwinnett: 1.5 acres of commercial land valued at $900,000. The landowner will not sell — the family wants to keep the corner.
• A restaurant operator signs a ground lease: 20-year initial term plus two 5-year options. Ground rent is set at 6.5 percent of land value: $900,000 × 6.5% = $58,500 per year, with 2 percent annual escalations, absolute net — the operator also pays taxes and insurance.
• The operator builds a $1,200,000 building it owns. Its total occupancy cost is ground rent plus operating costs, with no land purchase to finance.
• The landowner's math: $58,500 a year escalating, land retained, and at the end of the exercised term the building reverts — land plus a functioning restaurant building, without the owner ever funding construction.
• The sensitivity: if the lease instead reset rent every 10 years to 6.5 percent of reappraised land value, and the land doubled in value by year 10, rent would reset near $117,000 — good for the owner, a shock the operator should have modeled before signing. Same lease, different reset clause, very different deal.

Subordinated vs unsubordinated: the clause lenders read first

• Unsubordinated: the landowner's interest stays senior. The tenant's lender gets a leasehold mortgage — it can foreclose the lease and the building, never the land. Lenders accept this when the lease gives them notice and cure rights and a right to a new lease if the tenant defaults.
• Subordinated: the landowner puts the land behind the tenant's loan. Financing gets easier for the tenant; the landowner now carries the loan's risk on the land itself. It should always be priced, capped to a specific loan, and reviewed by the landowner's own attorney.
• Financeability basics either way: lenders want the term (with options the tenant controls) to extend well beyond the loan maturity, rent that does not reset unpredictably, and no termination right that can wipe out the leasehold without lender notice.

Where each side gets hurt

• Tenants: a short remaining term quietly kills leasehold value and refinancing long before expiry; an aggressive reappraisal reset can outrun the business; reversion means the building investment has a hard deadline.
• Landowners: below-market rent locked for decades if escalations were set too low; a subordinated position taken without understanding the loan; a use or assignment clause loose enough to change what sits on the land.
• Buyers of either interest: price the interest that actually exists. A leased-fee position is valued off the ground rent and the reversion (see cap rate and NOI); a leasehold is valued off the profit rent and the years left to capture it. Paying fee-simple value for a leasehold is the classic error.

Cho chủ đất và người thuê người Việt

Ground lease là hợp đồng thuê đất dài hạn — người thuê chỉ thuê đất, tự xây và sở hữu tòa nhà trong thời hạn thuê, còn chủ đất giữ đất và nhận tiền thuê đất. Cấu trúc này phổ biến với nhà hàng, ngân hàng và cửa hàng tại các góc đường lớn ở Gwinnett và Metro Atlanta: chủ đất giữ được tài sản qua nhiều thế hệ và có thu nhập thụ động, còn người thuê kiểm soát được vị trí đẹp mà không cần mua đất.

Ba điều khoản quyết định giá trị của hợp đồng: (1) thời hạn thuê và quyền gia hạn — người thuê cần đủ năm để thu hồi chi phí xây dựng; (2) công thức điều chỉnh tiền thuê — tăng cố định theo phần trăm khác hẳn với việc định giá lại đất sau mỗi 10 năm; (3) khi hết hạn, tòa nhà thường chuyển về cho chủ đất. Nếu chủ đất đồng ý đặt đất sau khoản vay của người thuê (subordination), rủi ro tăng lên đáng kể và cần luật sư riêng xem xét. Đây là thông tin giáo dục chung, không phải tư vấn pháp lý.

Frequently asked questions

What is a ground lease in commercial real estate?

A ground lease is a long-term lease of land only. The landowner (lessor) keeps ownership of the land; the tenant (lessee) builds, owns and operates the improvements — the building — during the term, and pays ground rent for the land plus, in a typical absolute-net structure, the taxes, insurance and maintenance. Terms commonly run 20 to 50 years or longer with renewal options, because the tenant must recover the cost of construction inside the term. At the end, the improvements usually revert to the landowner unless the lease says otherwise.

How is ground rent set in Georgia?

Ground rent is usually priced off the land value, not the building: a negotiated percentage of the land's current value (often in the mid-single digits), sometimes expressed as a rate per square foot. The lease then controls how rent moves — fixed annual escalations, step-ups at set years, or resets to a percentage of reappraised land value at intervals. The reset formula is the clause to negotiate hardest: a full reappraisal reset can move rent far more than a fixed 2 percent bump, for either side.

What is the difference between a subordinated and an unsubordinated ground lease?

In an unsubordinated ground lease, the landowner's fee interest stays senior: the tenant's leasehold lender cannot take the land, only the leasehold and the building. In a subordinated ground lease, the landowner places the land itself behind the tenant's construction or leasehold loan, so a foreclosure can reach the land. Subordination makes the tenant's financing easier and is therefore priced — higher rent, fees, or tighter loan limits — and landowners should never subordinate without independent advice on the exact loan being secured.

What happens to the building at the end of a ground lease?

Typically, reversion: when the term and any exercised options expire, ownership of the improvements passes to the landowner, often with no payment, and the tenant's obligation to remove improvements or restore the land is whatever the lease states. That single clause is why tenants push for long terms, renewal options and purchase options, and why the remaining term drives the value of any leasehold interest long before expiry.

Hợp đồng thuê đất dài hạn (ground lease) trong bất động sản thương mại là gì?

Ground lease là hợp đồng thuê chỉ phần đất, thường dài hạn 20 đến 50 năm hoặc hơn. Chủ đất giữ quyền sở hữu đất; người thuê xây dựng, sở hữu và vận hành tòa nhà trong thời hạn thuê, trả tiền thuê đất và thường chịu cả thuế, bảo hiểm và bảo trì theo cấu trúc net. Khi hết hạn, tòa nhà thường chuyển về cho chủ đất nếu hợp đồng không quy định khác. Vì người thuê phải thu hồi chi phí xây dựng trong thời hạn thuê, các điều khoản quan trọng nhất là thời hạn và quyền gia hạn, cách điều chỉnh tiền thuê theo thời gian, và việc chủ đất có chấp nhận đặt đất sau khoản vay của người thuê (subordination) hay không. Hãy xác nhận mọi điều khoản bằng văn bản với luật sư trước khi ký.

This page is general education, not legal, tax, or accounting advice. Ground leases run for decades and bind successors — have your own attorney draft or review the document before you sign. Túy “Dewey” Luong, CCIM is a real estate broker, not an attorney.