Land leasing is also known as ground leasing, and for investors, it can be a high-risk investment but comes with even greater rewards. Land can be expensive, especially in prime locations, and this type of leasing is often the solution to develop land when you can’t afford to buy it. Lease agreements are long-term and can be between 50 to 99 years long. So naturally, investors have to consider if leased land can be sold.
Leased land cannot be sold if you are the lessee. The lessee only has the right to lease the land, and build on it, if this is outlined in the lease agreement. Selling the land is the owner’s right. The selling of leased land is also dependent on the property laws in that state.
Selling leased land can be a complicated process, and different states across the U.S. will have unique rules and regulations regarding the sale of it. It’s essential to consult with a professional before looking at this type of investment. Real estate professionals can help navigate this process and offer advice on the rules and regulations of leased land in a specific state.
Can Leased Land Be Sold?
If you are leasing land, you cannot sell it unless you own it. There are many aspects that govern the selling of this, including the lease agreement, property laws, and the rights to the property. When two parties enter this agreement, they determine how long it will last and if the option to sell is applicable (in most cases, it’s not).
It’s also important to note that various rules govern property ownership and leasing, and this varies by state. So, what may apply in one state may not be applicable in another.
Should You Purchase Property On Leased Land?
Purchasing a home on leased land can be a viable option but can also be risky. In this type of situation, the homeowner owns the home but not the ground that it’s built on. This is more common for mobile homes, and while it is a cheaper option for homeowners, there are various things to consider when choosing this route.
If you are considering buying a property on land that isn’t yours, you should consider the monthly fees, how long the current lease is, and the other implications that come with this purchase.
Some of the most notable drawbacks of this decision are mortgage problems, less flexibility to relocate, and rising living costs on that property.
What Happens To The Land At The End Of A Lease?
Ground leases are very long. The initial term can last 20 to 40 years, while others extend to 99 years. During this time, the tenant generally owns the structures they have constructed on the land. But when the lease expires, these structures belong to the landowner.
This does depend on the lease agreement, but in most cases, when the lease expires, everything belongs to the landowner.
If it is terminated due to the tenant being unable to make payments or due to bankruptcy, and if they have a loan with a lending institution, the property can be claimed by the lending institution.
The land will still belong to the landowner, but the lending institution will take everything else.
Is Leased Land An Asset?
Leased land is an asset but only for a lessor. For the lessee, it is considered an intangible asset, as the lessee can use the ground during the lease period. The lessee can use the ground to generate income and create more assets by building more houses, buildings, and other properties.
Should You Invest In Leased Land?
Leasing ground can be a good investment if the agreement between both parties is constructed well and is beneficial to those involved. Down payments aren’t required, so there is more room to invest money into developing the land.
The Risks Of Investing In Leased Land
If you’re looking to invest in leased land, then there are a few risks you should consider. These risks will give you a better understanding of the level of risk involved in this kind of investment and whether it is suitable for you.
Here are the three most significant risks to consider when investing in leased land:
- Tenants are not making payments. With any lease agreement, there is the risk that the lessee defaults and cannot make payments. Due to the length of the lease, the investor should get to know the lessee and understand their plan for the property. This mitigates some risk and reassures the investor that they are getting into a good lease agreement.
- Loans. When investors consider investing in ground to build property, they usually need a loan to develop and carry out construction projects on the land. However, this is a complicated process, and if the investor cannot keep up with loan payments, the lender can take the building or assets and sell them to pay off the loan.
- Lease expiration. The lease terms can be very long, and most people don’t outlive their agreement, so what happens after the lease ends? In most cases, the property then belongs to the land owner and everything else that the investor built on that land.
What Are The Different Types Of Land Leases?
There are two types of ground leases. These are subordinated and unsubordinated.
Subordinated ground leases allow investors to lease ground as collateral so the lessee can develop it or carry out construction projects. This gives the lessor a stake in the developed land, but rental rates on subordinated leases are high to make up for this risky investment.
With unsubordinated ground leases, the property owner has more leverage if the lessee defaults on loans. It leaves the lessor in a less risky position and protects them from losing their property.
Conclusion
Leased land cannot be sold while it’s being leased. The property owner is the only person who can sell the property, and the property isn’t sold during a lease period. However, property laws vary in each state, and most of what is permissible is outlined in the lease agreement. Investors looking to sell or buy leased ground should consult a real estate professional to help them better understand this process.