A ground lease is a term used to define a legal agreement between a tenant and a property owner. According to that agreement, the tenant has the right to construct whatever they want on the property for a specific period. After the period ends, the property and all the structures developed will be handed back to the property owner. Read about location of the Blue World City.
How does it work?
According to a ground lease agreement, all the tenants’ developments on the property will belong to the property owner after a specific period. Unless there has been an agreement made between the tenant and the property owner stating otherwise, and in this case, all the taxes relate to the property and the development will have to be paid out by the tenant. A ground lease is often reffer as a land lease as it is only the land itself that the property owner gives out to the tenant. However, after the period mention in the contract is over, the property owner gets ownership of all the development carry on the property by the tenant, which allows them to sell or rent out the property at a higher price to another buyer.
Ground leases are mainly done for commercial purposes and not for residential properties. However, even in the commercial sector, ground leases differ widely and are not like typical commercial leases given out to shopping malls or restaurants. Unlike in a commercial lease, the property owner does not provide any construct unit to the tenant. Instead, the tenant pays rent to the property owner in return for the land. Ground leases are also made for a more extend period; they are typically made for 50 to 70 years. The long period allows the tenant to earn a profit that makes the construction cost on the property feasible. Buy property in Park View City.
A ground lease agreement mentions who owns the land and who has ownership over the building or any other development done on it. Many owners prefer going for a ground lease overselling their property as it saves them from giving any capital gains tax. And it also becomes a source of stable income in the form of the rent paid out by the tenants. In a typical ground lease agreement, the tenant is responsible for bearing all the costs involve, and no responsibility belongs to the property owner.
Unsubordinate and subordinate ground leases
A tenant usually pays for a ground lease by taking up a loan. In this case, the property owner may make a lower claim on the property if the tenant fails to pay back the loan. This type of agreement is call a subordinate ground lease. In a subordinate ground lease, the property owner allows the property to act as collateral against the loan taken by the tenant. However, in such a ground lease, the property owner usually charges a higher rent due to the risks involve.
In an unsubordinate ground lease. The property owner continues to maintain full ownership of the property and does not allow it to be used as collateral. This reduces the risk involve for the property owner; however, it makes things harder for the tenant. Most lenders are hesitant and prefer not to give out loans for an unsubordinate ground lease making getting financing harder for the tenant. In such a case, the rent charge by the property owner is lower than that in a subordinate ground lease.
A ground lease is beneficial for both the tenant and the landlord. It allows the tenants to develop property on land that would be too expensive to purchase. It also reduces their cost of production and makes the business more flexible for them. Similarly, a landlord earns a high income but remains the property owner. It also saves the owner from paying multiple taxes, including the capital gains tax. A ground lease agreement should be made with extreme care as it has legal importance. Invest in Nova City.
Ramza Zahra is a Karachi-base freelance content writer who uses her life experiences and curious nature to research and pen it down and make a living. Currently, she is working with Sigma Properties as an Snr. Content Writer.