Table of Contents

What is a Ground Lease?Â What Is a Ground Lease Agreement? Types of Ground Leases Ground Lease in Real Estate vs Traditional Property Lease How a Ground Lease Works? Stamp Duty and Registration for Ground Lease Key Clauses in a Ground Lease Agreement Advantages and Disadvantages of a Ground Lease When Should You Consider a Ground Lease? How NoBroker Can Help With a Lease Agreement?Frequently Asked Questions?

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What Is a Ground Lease: Types, Registration, Benefits and Risks in India

Published : February 5, 2026, 12:40 PM

Updated : February 5, 2026, 12:40 PM

Author : Ananth

Real Estate Legal Guide & Laws

Lease Agreement

46 views

Summary

A ground lease is a long-term agreement where a tenant leases land from a landowner and develops it, while the landowner keeps ownership of the land. These leases usually last 30 to 99 years and are common for commercial projects like offices, malls, and hotels. The tenant builds and maintains the property and pays periodic ground rent. When the lease ends, the building often transfers to the landowner. Ground leases provide steady income for owners and lower upfront costs for developers, but they involve complex legal and financing terms.

Table of Contents

What is a Ground Lease?

A ground lease is a long-term leasing arrangement, typically ranging from 30 to 99 years, where a tenant (lessee) is given the right to construct buildings and make significant improvements on a plot of land. The defining characteristic of this model is the separation of ownership: during the lease term, the tenant owns the building and improvements they have paid for, while the landlord (lessor) retains ownership of the underlying soil. This is often referred to as leasehold property, distinct from freehold ownership. At the end of the lease, the land and typically all the improvements revert to the landowner.

What Is a Ground Lease Agreement?

A ground lease agreement is a legally binding contract that outlines the specific rights, responsibilities, and financial obligations of both the landowner and the tenant. It details important terms, including the lease duration, rent payment structure, permitted development rights, and the conditions under which the land must be returned. This document serves as the roadmap for the long-term relationship, functioning similarly to a comprehensive lease agreement but with added complexity regarding construction and asset reversion. It ensures both parties are clear on who owns what and who pays for maintenance over the decades.

Types of Ground Leases

There are different structures for these agreements, each carrying unique risks and benefits for the involved parties, depending on their financial goals. [1] [2] [3]

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1. Subordinated Ground Lease

In this arrangement, the landowner agrees to prioritize the lender's claim on the property. This means that if the tenant defaults on their construction loan, the bank can seize the land. It poses a higher risk for the landowner but allows the tenant to secure better financing terms.

2. Unsubordinated Ground Lease

Here, the landowner retains top priority on claims. The lender cannot seize the land if the tenant defaults; they can only take over the tenant's leasehold interest. This is lower risk for the owner, but makes it harder for tenants to get loans.

3. Renewable Ground Lease

This type includes specific clauses that allow the tenant to extend the lease term beyond the original period, providing long-term security for their investment in the building.

4. Government / Institutional Ground Lease

These are commonly used by public sector units or development authorities (like DDA or CIDCO) to lease land for public or commercial infrastructure projects, often governed by specific Article 226 lease deed provisions or statutory rules.

Ground Lease in Real Estate vs Traditional Property Lease

Understanding the difference between a ground lease in real estate and a standard space lease is essential for evaluating investment opportunities and responsibilities. [4] [5] [6]

Aspect	Ground Lease	Traditional Property Lease
Duration	Very long-term (30–99 years).	Short to medium-term (3–9 years).
Ownership of Improvements	Tenant owns the building.	Landlord owns land and building.
Financing Implications	Tenant can mortgage the leasehold.	Limited financing options for tenants.
Long-Term Control	High; tenant manages everything.	Low; landlord manages structure.

This comparison highlights how a ground lease differs from a standard lease deed, where the landlord retains control over the physical structure.

How a Ground Lease Works?

The mechanism of a commercial ground lease agreement is structured to benefit both parties through a clear division of assets, liabilities, and development duties. [7]

Landowner leases the land: The owner provides the raw land for a specific, extended period, ensuring it is free from encumbrances.
Tenant develops and uses the property: The lessee constructs the building, essentially entering a house-construction agreement with contractors to build on the leased land.
Ground rent is paid periodically: The tenant pays a fixed or escalating rent to the landowner for the use of the soil, often annually or quarterly.
Improvements may revert to the landowner after lease expiry: Unless the lease is renewed, the building typically reverts to the landowner at the end of the term, at no extra cost.

Stamp Duty and Registration for Ground Lease

In India, any lease of immovable property exceeding one year, including a ground lease, must be registered under the Registration Act, 1908. Mandatory registration ensures the lease is legally enforceable and admissible in court. An unregistered lease deed for such a long duration poses significant legal risks and is invalid as primary evidence. Stamp duty is generally calculated based on the property's market value or the total rent payable over the lease term, with registration fees typically ranging from 1% to 2% of the value, depending on state-specific laws. [8]

Key Clauses in a Ground Lease Agreement

A well-drafted ground lease agreement must cover several essential terms to prevent future disputes over the movable and immovable property rights involved. [9]

Lease term and habendum: Defines the exact duration (e.g., 99 years) and the tenant's absolute right to use the land.
Rent escalation: Specifies how often and by how much the ground rent will increase to account for inflation over the decades.
Development rights: Grants the tenant permission to construct, modify, and obtain necessary utility connections in their name.
Financing provisions: Details whether the tenant can mortgage their leasehold interest to secure construction loans from banks.
Assignment rights: Clarifies if the tenant can sell or transfer their leasehold interest to a third party.
Reversion clauses: States clearly that the land and improvements return to the landlord upon lease expiry.

Advantages and Disadvantages of a Ground Lease

Like any financial structure, a ground lease has its distinct pros and cons for both the commercial developer and the property owner.

Pros for Landowners: It provides a steady, inflation-protected income stream without losing land ownership. It also eliminates the immediate capital gains tax that would be due upon selling the land.
Cons for Landowners: There is a potential loss of control over the land for decades. In subordinated leases, there is a risk of losing the land if the tenant defaults on their loan.
Pros for Tenants: It drastically reduces upfront capital requirements by eliminating the cost of land purchase. Rent payments are often fully tax-deductible as business expenses.
Cons for Tenants: There is a risk of losing the investment in the building at the end of the lease. Financing a leasehold project can sometimes be more complex than financing land ownership.

When Should You Consider a Ground Lease?

There are specific market conditions and business strategies where entering into a commercial ground lease makes the most financial sense.

Prime land retention: When a landowner wants to keep a legacy asset in the family while generating income from it.
Large-scale commercial development: For shopping malls, hotels, or office parks where the location is important but land prices are prohibitive.
Long-term investment strategies: For institutions such as universities or religious trusts that want to monetize surplus land without selling it.
Business expansion: For franchises (like fast-food chains) or Global Capability Centres (GCCs) that need to build custom facilities in high-traffic urban areas quickly.

How NoBroker Can Help With a Lease Agreement?

NoBroker provides specialized assistance for navigating the complexities of what is a ground lease in the Indian market. We connect property owners with reputable businesses looking for long-term commercial ground lease opportunities. Our team of legal experts supports you in drafting and reviewing comprehensive ground lease agreements, ensuring that key clauses such as reversion rights and rent escalation are fair and legally compliant.

Frequently Asked Questions?

Q1. What is a ground lease in real estate?

Ans: A ground lease is a long-term agreement in which a tenant rents land to build on, owning the building during the lease while the landlord retains the land.

Q2. How long does a ground lease usually last?

Ans: These leases are typically very long-term, ranging from 30 to 99 years, to allow the tenant enough time to recover their construction investment.

Q3. Who owns the building in a ground lease?

Ans: During the lease term, the tenant (lessee) owns the building and improvements. However, ownership usually reverts to the landlord upon lease expiration.

Q4. Is a ground lease common in commercial real estate?

Ans: Yes, commercial ground lease arrangements are very common for retail chains, hotels, and office buildings in prime locations where land is expensive.

Q5. What happens when a ground lease expires?

Ans: Upon expiration, the rights to the land and typically the building constructed upon it revert to the landowner, unless a lease renewal is negotiated.

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Ananth,Author

Who doesn’t love a stylish home? We know Ananth does! From a young age Ananth could never resist reading Architecture Digest, Good House Keeping, and so on. He did it because he was captivated by the beauty of the homes and the way they kept homes feeling like ‘home’ but yet glamorous. He is a wizard at keeping houses looking top-notch and he does it with the least effort. He writes to shares his tips and make loving your home easy.

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