National Real Estate Exam (PSI)ContractsHard
A developer leases a vacant parcel of land from its owner for 50 years, intending to construct a shopping center on the site at the developer's own expense. What type of lease arrangement is this?
- ASandwich lease
- BGround lease
- CPercentage lease
- DGross lease
Show answer & explanationAnswer & explanation
Correct answer: B. Ground lease
A ground lease involves leasing only the land, typically long-term, with the tenant constructing improvements on the property at their own expense; ownership of the land remains with the landlord.
Why the other options are wrong
- A. A sandwich lease involves a sublessor holding an interest between the original lessor and sublessee, not this scenario.
- C. A percentage lease ties rent to sales revenue, not land development arrangements.
- D. A gross lease is about how rent covers expenses, unrelated to land-only leasing for construction.
Ground Lease
A long-term lease of land only, where the tenant typically constructs improvements at their own expense, with ownership of the land remaining with the landlord.
- Often 50-99 year terms
- Tenant owns improvements during lease term
- At lease end, improvements typically revert to landowner
Memory trick: Ground lease: build big on borrowed dirt.