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Ground leases are often used by franchises and big box stores, as well as other commercial entities. The corporate headquarters will normally purchase the land, and allow the tenant/developer to construct and use the facility.
A ground lease involves undeveloped commercial land that is leased to tenants, who then have the rights to develop and use the property for the duration of the lease.? Ground Lease in Commercial Real Estate (Janover, Feb. 19, 2023)
Or a business may have to pay a base rent, a percentage of the property's operating expense, AND a percentage of its business profits (in the case of a net-percentage lease). Variable Lease. A variable lease is a leasehold agreement in which the base rent changes.
With a leased-land property, you risk losing all of your equity at lease expiration, depending on the terms of the surrender clause. The resale of the home is likely to be more difficult than the resale of a traditional home, especially because with each passing year, the remaining term on the lease shortens.
Delaware landlords cannot raise rent during the lease term unless the lease agreement allows for it. Additionally, if the rental property is a mobile home, rent increases are limited to once per year. Landlords must provide 60 days' notice before raising rent, and for mobile homes, a 90-day notice is required.
The biggest advantage for property investors using a ground lease is that they don't have to buy the land to operate their business and make a profit.
For example, many Macy's (M -3.28%) department stores are ground-leased. This means that Macy's owns the building itself and any other improvements made to the land -- say, parking structures -- but the company still pays rent on the land beneath the store.