In a land lease arrangement, a land owner will rent, or lease, their land to another person – who, in most cases, then builds a home or other type of building on the rented land. Land leases create a unique circumstance in which a building and the plot of land it is on are owned by two separate people or businesses.
Like other types of rental agreements, the land lease agreement outlines the terms of the rental relationship between the land owner and land renter, including what changes can be made to the land. In this instance, since most land leasers wish to build on the land, the land lease agreement would outline what types of buildings can be built on the land. In some cases, land leases include buildings already that the tenant may use or, per the agreement, change. As with other rental agreements, the land lord has a lot of flexibility to determine how they wish their property to be treated.
Benefits of a Land Lease:
- The lease period is long – usually 50 years. This protects building owners who lease their land from losing money on their investment too quickly.
- Land owners are often willing to renew the lease, so even if the lease term is short, the relationship is most often mutually beneficial and the land lord will be willing to renew.
- Developers can save money because they do not have to invest in both the land and the building – they can focus on maintaining the building.
- Land maintenance issues like drainage or sewage are addressed by the land owner, not the building owner.
Downsides of a Land Lease:
- The renter does not have full control over their property.
- If the building on the leased property is an apartment building or a condominium, the investment for building tenants can feel more tenuous, especially if the land lease will run out soon.
- Developers could have a hard time finding investors willing to subsidize this type of relationship.
- If the land owner does not renew the lease, there could be legal issues involving transferring ownership of the building.
Types of Land Leases:
- Residential: it is rare for a residential home builder to lease land – instead, this type of agreement is most common in mobile home parks, in which a person who owns a mobile home can park it on leased land for a few months to a year, or longer.
- Commercial: this is a more common type of land lease agreement, in which a land owner wants to add value to the property and, rather than investing in building for themselves, offers a rental agreement to a business that then creates apartments, offices, parking structures, or other types of financially-viable buildings.
- Farmland: sometimes, a farmer who has extra land will lease that land long-term to another farmer who wishes to grow specific crops but does not have the land to do so.
- Government: land owned by a local, state, or federal government agency can be leased to other organizations, from private businesses to military branches, to build a beneficial structure, including barracks and training facilities, public parks, nature preserves, schools, or even offices for small businesses.
Why Should I Use a Land Lease Template:
If you are a land owner and you plan to rent the space out to a potential developer, a land lease template can help you get started. The document helps you keep track of all the details involved in a lease agreement, so you don’t leave anything out. The consistent formatting will also help you maintain a professional writing style. Download our free land lease templates today to get started!