Definition
A land lease, also known as a ground lease, is a real estate agreement in which a tenant or homeowner leases the land but does not own it, while they may own or build structures on the property. This arrangement is common in mobile home parks, commercial real estate, and certain planned communities.
Explanation
Land leases are typically long-term agreements (ranging from 30 to 99 years) and are commonly used in situations where:
- A developer or homeowner wants to build on leased land rather than buying it.
- A landowner wants to retain ownership of the land while allowing commercial or residential use.
- An individual buys a manufactured or mobile home in a park where they lease the land.
Types of Land Leases:
- Residential Land Lease – Homeowners lease the land but own the home (common in retirement communities and mobile home parks).
- Commercial Ground Lease – Businesses lease land to construct buildings, such as shopping centers or office spaces.
- Agricultural Land Lease – Farmers lease land for farming operations instead of purchasing it.
Pros and Cons of Land Leases:
✅ Advantages:
- Lower upfront costs – Buying only the home (not the land) reduces initial expenses.
- Flexibility – Developers can use valuable land without purchasing it.
- Potential tax benefits – Lease payments may be tax-deductible.
❌ Disadvantages:
- Lease payments – Monthly or annual lease fees add ongoing costs.
- Depreciation concerns – Homes on leased land may not appreciate like traditional real estate.
- Limited financing options – Some lenders do not approve mortgages for homes on leased land.
Example
A homebuyer purchases a manufactured home for $150,000 in a retirement community but leases the land for $800 per month. The land lease agreement allows them to live in the home but not own the land, requiring them to renew the lease periodically.