A land lease is a type of financial arrangement in which the ground under a structure is leased, rather than sold to the builder, meaning that the land and the structure are owned independently. There are several reasons to enter such a contract, but it occurs most commonly when a real estate investor wishes to retain a piece of land, but not necessarily put energy into developing it. In this instance, the investor might work with a developer to create a land lease contract, allowing the developer to build a structure and rent or sell it, with the understanding that the land is leased and does not come with the building. This type of arrangement is more common in urban areas, and is often associated with cooperatives or tenant-owned buildings.
Generally, the contract for a land lease runs for at least 50 years. If the lease is near termination, the land owner is usually willing to renew it, providing that the building has been profitable and well maintained, although the amount of rent will likely increase, as the property value will have increased as well. The terms of a land lease usually require that the property be developed in some way, and that rents for the land are paid monthly or quarterly into the accounts of the landlord.
For people renting space in a structure on leased land, the terms of the lease arrangement are usually not very important. It becomes more of an issue when consumers wish to buy a condominium or apartment on this type of property, because it does have an impact on the quality of the investment. If the lease is about to run out, it may be difficult to find a financial institution willing to lend money, for example. However, if the lease does not expire until well into the future, buying a structure on a land lease can be a sound investment, because the building is usually significantly cheaper than neighboring real estate because of the unique situation.
Some national militaries also use land lease arrangements, either leasing former military property to developers or leasing land in other nations to establish base stations. In the instance of a military leasing its own land, the land is commonly leased to a city, rather than a developer, with the understanding that the military may take the land back at a later junction, or sell the land to the city at a low cost if the land is no longer strategically useful. When the military leases land in other areas, it does so to establish temporary bases, although usually a long lease term is negotiated.