Los Angeles developers and landowners often face a difficult choice. Developable land is limited, and selling valuable property may not fit your long-term plans. A ground lease may offer another way to put the land to use while keeping ownership.

A ground lease is a long-term agreement in which you keep title to the land while a tenant leases and usually develops it. These leases often run for 50 years or more, so the terms need to address your rights throughout the lease and after it ends.

How should you protect your ownership rights?

A commercial ground lease should explain what happens to the land and buildings when the lease ends. Reversion terms state when the tenant must give up its lease rights and which improvements stay with the property. They may also explain whether the tenant must remove certain structures or repair the site before leaving.

You might also set limits on how the tenant uses the property or transfers its lease rights to someone else. Rent terms deserve close review as well. The agreement could include planned increases or another way to change the rent over time. These terms can help you keep control of the property and avoid disputes during a long lease.

How do financing and default terms affect the lease?

A developer often borrows against its leasehold interest to fund construction. Its lender may ask you to provide notice before you terminate the lease for a tenant default. The lender might also request extra time to correct the default or assume the tenant’s rights.

A different issue arises if you agree to subordinate your ownership interest to the tenant’s financing. A loan default could then put the land at risk of foreclosure. The lease and financing documents should clearly establish which rights take priority.

You should also define what amounts to a tenant default and what happens next. Clear remedies could reduce disputes if the tenant stops paying rent or violates another major lease term.

Review the long-term risks before you sign

In Los Angeles, Orange County and Ventura County, high land costs and pressure to make efficient use of available sites may make ground leases worth considering. Understanding the reversion, financing and default provisions could help you evaluate the deal before you commit.

Consider working with experienced legal counsel to review the agreement and identify provisions that need closer attention. Careful review may help you reach terms that better protect your goals over the life of the lease.