If you own land in Los Angeles that sits under a hotel, an office tower, a retail pad, or a multifamily building you did not develop yourself, a ground lease is often the strongest tool you have for pulling long-term value out of that dirt without ever selling it. A ground lease in Los Angeles lets you keep fee title to the land, collect rent for decades, and take ownership of the improvements when the term ends. The structure is common across Downtown, Century City, and the Westside, and the terms you negotiate at the outset will govern your returns for the next half-century or more.
Key Takeaway: A ground lease is a long-term lease of land only, typically 50 to 99 years, in which the tenant builds and owns the improvements during the term while you keep fee ownership of the land. At expiration the improvements usually revert to you. For Los Angeles property owners, it turns a static land holding into a durable income stream and an eventual fully improved asset.
The economics are compelling. The document is unforgiving. A ground lease you sign today may outlive you, and one weak clause on subordination, rent reappraisal, or leasehold financing can cost your estate millions. In our experience advising ground lessors across Los Angeles County, the difference between a strong ground lease and a mediocre one is decided in the drafting, not in the negotiation of headline rent.
What is a ground lease, and why do Los Angeles owners use one?
A ground lease is a long-term lease of unimproved or underimproved land in which the tenant agrees to build, finance, and own improvements at its own cost, then surrender those improvements to you when the lease ends. You keep fee title the entire time. The tenant holds a leasehold estate, not ownership of the land.
Owners in Los Angeles use ground leases for a few reasons. You avoid a taxable sale and defer or eliminate the capital gains hit that comes with selling appreciated land. You receive predictable rent, often with escalations, for 50 to 99 years. And you take back a fully built, income-producing asset at the end of the term at no construction cost to you.
For families holding legacy parcels in high-value submarkets, this is generational planning. The land stays in the family, the rent funds the present, and a future generation inherits a developed property. We see this pattern repeatedly with trophy land on the Westside and in Downtown.
How long is a typical ground lease term in California?
Most commercial ground leases run between 50 and 99 years, with 55, 66, and 99 years as common round numbers. Lenders financing the tenant’s improvements generally insist on a term that runs well beyond their loan amortization, which pushes most deals toward the longer end of that range.
The Westlaw Practical Law ground leasing materials note that ground lease terms customarily run from 25 to 99 years and are generally at least 20 years. Shorter terms exist, but they make the tenant’s improvements harder to finance, which depresses the rent a tenant will pay you.
There is a strategic tension here. A longer term locks in a creditworthy tenant and supports financing, but it also delays your reversion and exposes you to more inflation risk if your escalations are weak. We generally counsel owners to think in terms of the reappraisal cadence rather than the headline term length.
| Structure | Typical Term | Rent Mechanism | Owner Consideration |
|---|---|---|---|
| Short ground lease | 20 to 35 years | Fixed with fixed escalations | Harder for tenant to finance; faster reversion |
| Standard commercial ground lease | 50 to 66 years | Base rent plus periodic reappraisal | Balances financeability and inflation protection |
| Long ground lease | 75 to 99 years | Base rent, CPI escalations, and reappraisal | Strong financing support; distant reversion |
Should I agree to a subordinated or unsubordinated ground lease?
Default to an unsubordinated ground lease and treat subordination as a concession you grant only for meaningful additional rent or other consideration. This is the single most important risk decision a ground lessor makes.
In an unsubordinated ground lease, you do not pledge your fee interest in the land as security for the tenant’s construction or permanent loan. If the tenant defaults on its leasehold mortgage, the lender can foreclose on the leasehold, but it cannot take your land. Your fee position sits ahead of the lender.
In a subordinated ground lease, you agree that your fee interest is junior to the leasehold lender’s mortgage. If the tenant defaults and the lender forecloses, your land can be swept into the foreclosure. Tenants and their lenders push hard for subordination because it makes the project far easier to finance, but it converts your safe land position into one that can be wiped out.
| Feature | Unsubordinated Ground Lease | Subordinated Ground Lease |
|---|---|---|
| Fee land pledged to leasehold lender | No | Yes |
| Risk of losing land in tenant default | Low | High |
| Ease of tenant financing | Lower | Higher |
| Typical rent premium to owner | Baseline | Often higher to compensate for risk |
| Owner recommendation | Strongly preferred | Only with full risk pricing |
What leasehold financing protections will the tenant’s lender demand?
The tenant’s lender will demand a package of protections, and you must review each one line by line, because every item shifts risk onto you. The core items are estoppel certificates, notice and cure rights, and new-lease rights for the leasehold mortgagee.
Lenders typically require notice and cure rights, meaning you must give the lender separate notice of any tenant default and a window to cure it before you can terminate the lease. They will also request new-lease rights, which let the lender step into a fresh ground lease on the same terms if the original lease is terminated. You can accept these, but the cure periods and conditions have to be tightly drafted.
In our experience advising ground lessors, the most dangerous concession buried in these provisions is an open-ended cure period that lets an institutional lender control your land for years while a defaulted project sits idle. We negotiate hard caps on cure windows and clear standards for what the lender must do to keep the lease alive. For how these clauses interact with operating terms, our overview of commercial lease structures is a useful companion.
How is ground rent set and adjusted over a 99-year term?
Ground rent is usually a fixed base rent with periodic adjustments, using scheduled escalations, CPI indexing, fair-market reappraisal, or some combination of the three. The reappraisal mechanism is where most of your long-term value is won or lost.
A common structure sets a base rent for an initial period, applies fixed or CPI escalations during that period, then resets the rent to a percentage of the reappraised land value at intervals of every 10, 15, or 20 years. The reappraisal returns the rent to current market and protects you against decades of inflation eroding a fixed number.
The drafting risk lies in the appraisal standard. If the lease values the land “as encumbered by this lease” or “as improved,” your reappraised rent can come in far below true land value. We insist that reappraisal value the land as unimproved and unencumbered, and that the arbitration clause name a clear appraiser-selection process to avoid deadlock. A weak escalation or reappraisal clause is the most common defect we find when we review existing ground leases for owners, a theme that also runs through our work on commercial lease disputes.
What California tax and recording rules apply to ground leases?
The central California rule is that a lease of 35 years or more, including renewal options, counts as a change in ownership that triggers a Proposition 13 reassessment of the land. This is set out in California Revenue and Taxation Code section 61(c), and it catches many owners by surprise because almost every commercial ground lease exceeds 35 years.
Under Revenue and Taxation Code section 61(c), the creation of a leasehold interest in taxable real property for a term of 35 years or more, counting renewal options, is a change in ownership. The practical effect is that signing a long ground lease can reassess the land to current market value and raise the property tax base, so the lease has to allocate that tax burden clearly between you and the tenant. On government-owned land, a separate possessory interest tax can also apply to the tenant’s right to use public property.
Recording is the other essential step. Rather than record the full lease, you and the tenant should record a Memorandum of Lease, which gives constructive notice of the leasehold to the world under California Civil Code sections 1213 and 1214 without exposing your commercial terms. You can review the underlying statutes at the California Legislative Information site. These tax and recording mechanics sit at the center of any well-structured commercial property transaction.
What happens to the improvements when the ground lease ends?
In a standard ground lease, the improvements revert to you, the land owner, at the end of the term, usually at no cost and free of the tenant’s leasehold mortgage. This reversion is one of the main economic reasons owners choose a ground lease over a sale.
The lease should state clearly whether the tenant must surrender the improvements in good condition, demolish and restore the land, or leave the buildings standing for your benefit. Most owners want the buildings to remain, but you should keep the flexibility to require removal of obsolete structures.
End-of-term valuation and condition clauses deserve close attention decades before they matter. We draft reversion provisions that stop a tenant from stripping value, deferring maintenance, or encumbering the improvements in the final years of the term.
Why should Los Angeles ground lessors work with a ground lease attorney?
Work with a ground lease attorney in Los Angeles because the document is long-lived, heavily lender-driven, and full of clauses whose consequences do not surface for decades. The headline rent is the easy part. The subordination, financing, reappraisal, tax allocation, and reversion terms are where your fortune is made or lost.
In our experience advising ground lessors, owners who negotiate these leases without specialized counsel routinely give away subordination for too little, accept reappraisal language that suppresses their rent, and miss the Proposition 13 reassessment trigger entirely. Each of those errors compounds over a term that can span three generations.
Frequently Asked Questions About Ground Leases in Los Angeles
What is the difference between a ground lease and fee simple ownership?
Fee simple ownership means you own the land and everything on it outright. A ground lease splits those rights. You keep fee title to the land while the tenant holds a leasehold estate and owns the improvements during the term. When the ground lease ends, the rights recombine and you hold the fully improved fee simple property.
Who owns the building in a ground lease?
During the term, the tenant owns the building and other improvements it constructs, even though you own the land beneath them. This split ownership is the defining feature of a ground lease. At the end of the term, ownership of the improvements typically reverts to you as the land owner.
What happens at the end of a ground lease in California?
At expiration, the tenant’s leasehold estate ends and the improvements usually revert to the land owner, often free of any leasehold financing. The exact outcome depends on the reversion, surrender, and restoration clauses in your lease, which is why those provisions have to be drafted carefully at the outset.
How is a ground lease valued for an owner?
An owner’s interest, called the leased fee, is valued on the present value of the future ground rent payments plus the reversionary value of the land and improvements at term end. Strong rent escalations and reappraisal clauses raise that value, while weak ones depress it. A leased fee position is a distinct, marketable asset that can be sold or financed on its own.
Does a ground lease trigger property tax reassessment in California?
Yes. Under California Revenue and Taxation Code section 61(c), a lease of 35 years or more, including renewal options, is a change in ownership that can trigger a Proposition 13 reassessment of the land. Because nearly all commercial ground leases exceed 35 years, the lease should expressly allocate any resulting tax increase between owner and tenant.
Can a ground lessor sell the land during the ground lease term?
Yes. You can sell your leased fee interest at any time, subject to the existing ground lease. The buyer takes the land with the ground lease in place and steps into your position as lessor, collecting the remaining rent and holding the future reversion. A well-drafted leased fee interest is a liquid, income-producing asset.
Speak With a Los Angeles Ground Lease Attorney
A ground lease is one of the most consequential documents a Los Angeles property owner will ever sign, and its terms will govern your land for generations. Borna Houman Law advises ground lessors, landlords, and commercial real estate investors on structuring, negotiating, and protecting these long-term leases. Call (888) 42-BORNA to schedule a confidential consultation.
This article is provided for general informational purposes only and does not constitute legal advice. Reading it does not create an attorney-client relationship with Borna Houman Law. Ground lease structures and California tax consequences depend on the specific facts of each transaction, and you should consult a qualified California real estate attorney before entering into or modifying a ground lease. No outcome is guaranteed.
