Land leases can span over a long period and average anything from 5 years up to 99 years. Sometimes, a lease agreement surpasses the life of the parties who originally agreed on the terms, which may result in a deed transfer or sale of the property. At any time, either one of the parties may want to sell, and property owners must look at the key considerations.
Lease land can be sold if the lease agreement allows it. The lease agreement terms, the lease period, owner transfer conditions, and the remaining time left are key considerations when selling. All parties must adhere to the sale recommendations specified in the lease agreement.
The need to sell a ground lease is common, especially because of the length of some leases, and the specifics regarding a sale must be included in the contract terms. Several factors may prompt a sale, and all parties must protect their interests. Knowing the sales conditions before you buy or sell lease land is vital whether you are the lessor or lessee.
Can Lease Land Be Sold
A land lease is an agreement where the lessor (landowner) allows a lessee (tenant) the right to occupy, use, develop, or improve the land for a specified period. A ground lease can span over 99 years, sometimes resulting in either party wanting to sell their interest. Typically, the sales procedure of lease land is stipulated in the contract and varies depending on the predetermined conditions.
At first glance, the question,” Can lease land be sold?” may seem simple, but unfortunately, it is a little more complicated. Ownership of leased land is divided into two segments. The first is the ownership of the ground (leased fee estate) owned by the landlord (lessor), and the other is the ownership and use of the structure by the lessee (tenant).
There are several factors involving the sale of leased land, including:
- Terms of the lease about a sale
- The remaining period on the lease
- Transfer conditions (specified in the lease)
- Mutual approval by lessee and lessor
Sale Of Lease Land By The Lessor (Ground Owner)
The landlord who owns the title (deed) to the ground, known as the lessor, can sell the ground to another party, but there are considerations before such a transaction. Every lease has terms and conditions, but basic guidelines and procedures exist when lease land is sold. Here is a breakdown involving the sale of a leased fee estate by the landlord:
- The buyer of a leased fee estate generally only purchases the land and the landlord’s interest in the ground lease.
- Generally, the sale does not include improvements and developments owned by the tenant (lessee), and the seller (landlord) must convey that they own.
- The purchaser of the leased fee estate procures the land with the lease agreement in place, and the purchase does not override the original lease between the lessor and the lessee.
- The lease agreement is limited to a deed transfer that may include any pre-existing developments and improvements recorded in the ground lease.
- The landlord (seller) must address the title status once the lease concludes, including the improvements at the end of the ground lease term.
Sale Of Lease Land By The Lessee (tenant)
The lessee (tenant) who owns the ground’s use, improvements, and development can sell it to another party, but there are considerations before such a transaction. Each lease is unique, but some basic rules and processes must be followed when lease land is sold. Here is a breakdown involving the sale of a leased property by the tenant (lessee):
- Terms of the lease agreement – The transfer of sale is subject to the lease agreement between the lessor (landlord) and the lessee (tenant). The purchaser must do their due diligence about any provisions and restrictions because selected leases forbid or limit a sale without the lessor’s approval.
- Land lease value – Buying leased land is risky, and the buyer must consider the development and income possibilities, location, and rental escalations, including the remaining lease term on the land, which can affect the value.
- Expert advice – Buying leased land requires expert advice from professionals with knowledge of land leases, such as real estate brokers, attorneys, or land appraisers. Lease contracts have numerous clauses that require close inspection and may include or exclude the sale or development of the property.
- Lease conditions – Some lease agreements require the lessor’s approval or permission before transferring, and the process and contract specifications must be adhered to. The lessor’s authority to reject or accept the proposed sale may hinder potential buyers.
- Lessee responsibilities – The lessee is subject to the lease agreement signed with the lessor. All lease duties must be re-laid to the buyer, including conditions like rent increases, purchase price, and assigned responsibilities about the lease.
- Lease Documentation – Sometimes, the sale of leased land involves new terms and conditions between the landowner and the lessee (tenant). Your legal team must assist you with the paperwork and transfer of rights. Ownership commences once all parties authorize the terms and conditions.
Most ground lease agreements include the procedure the lessor and the lessee agree to when either party wants to sell. Although both parties can determine and agree to the lease terms and the sales procedure, they must consider that the transaction complies with the law.
The terms and sale of the lease must adhere to the law, and it can vary between different jurisdictions. The jurisdictional regulations must be included in the lease agreement, including the sale and transfer of property. It is best to consult a professional to ensure that the sale runs within the confines of the law and that all parties involved are protected.
Conclusion
Selling a leased ground requires due diligence from the lessor and the lessee to ensure that both parties are protected from damages. A lease agreement must include the terms and conditions when a deed is transferred, or the property is sold to another party. The buyer inherits the terms of the current lease unless the lessor and lessee decide to amend the existing agreement as part of the sale.