Ground leases have long been a pillar of real estate development and investment, providing lucrative opportunities for landowners, developers, and investors. But as industries evolve, so too does the landscape of ground leases. Whether you're a real estate investor, a property owner, or someone considering a new venture in renewable energy or other sectors, understanding the future of ground leases is key to making informed decisions.
LandGate provides a unique marketplace for property owners and real estate professionals to list property and land for lease for different renewable energy projects. Our LandApp tool provides an in-depth breakdown of property data for potential values for certain opportunities.
What Are Ground Leases in Real Estate?
A ground lease is a long-term agreement where a landowner leases their property to a lessor, who can develop and use the land as agreed. Unlike traditional property arrangements, in ground leases, the landowner retains ownership of the property while enjoying a steady income stream.
Types of Ground Leases
Subordinated Ground Lease – The landowner agrees to let lenders use the land as collateral for the lessor’s loan, increasing financing options for the tenant.
Unsubordinated Ground Lease – The landowner retains a primary claim on the land, reducing risk but making it harder for the tenant to secure financing.
Lease terms often span decades—often up to 99 years, making these agreements particularly suitable for projects like farming, ranching, commercial real estate, or renewable energy developments like solar or wind farms.
Ground leases allow lessors to focus on generating returns from the structures they develop, while landowners benefit from secure, long-term cash flow without relinquishing full control of their property.
The Evolution of Ground Leases
Past
Historically, ground leases were used to foster long-term financial security, allowing families and institutions to generate multi-generational income streams. For example, many iconic developments such as New York's Rockefeller Center started as ground leases.
Present
Over the past decade, ground leases have surged in popularity, driven by investors seeking stable recurring income. Institutional players have entered the leased fee market aggressively, elevating demand for long-term ground lease investments. These agreements now cover diverse industries beyond commercial real estate, like renewable energy, technology hubs, and even residential projects.
Future
The future of ground leases will center on flexibility, sustainability, and technological innovation. Modern leases will increasingly accommodate renewable energy initiatives such as solar and wind farms or multi-use developments catering to evolving urban landscapes.
Why Renewable Energy Leases Resemble Ground Leases
Many landowners and real estate professionals know about the potential revenue generation of renewable energy projects. However not many realize what the lease structure entails for the different opportunities. For example, solar and wind energy leases typically last around 50 years whereas a carbon credit lease might last for a few decades.
Land Lease Structure – Renewable energy companies lease land from a landowner for long-term use (typically 20 to 50 years), similar to a ground lease.
Tenant-Owned Improvements – The energy company builds infrastructure (solar panels, wind turbines, transmission lines), but the land itself remains owned by the lessor.
Fixed Rent with Potential Revenue Sharing – Payments can be structured as fixed rent, revenue-sharing, or a combination.
Reversion at Lease Expiry – At the end of the lease, ownership of the improvements may revert to the landowner or the developer may be required to decommission and restore the land.
Key Differences Between Traditional Ground Leases and Renewable Energy Leases
Feature | Traditional Ground Lease | Renewable Energy Lease |
Tenant Type | Commercial/retail businesses (e.g., offices, hotels, malls) | Energy developers (solar, wind, battery storage) |
Use of Land | Construction of permanent buildings | Installation of energy infrastructure |
Lease Term | 50–99 years | 20–50 years |
Rent Structure | Fixed or escalating payments | Fixed rent, revenue sharing, or production-based payments |
End of Lease Obligations | Buildings may revert to the landowner | Equipment removal (decommissioning) required |
Additional Considerations for Renewable Energy Leases
Regulatory & Permitting Requirements – Renewable projects often require extensive zoning approvals, environmental impact assessments, and grid connection permits.
Decommissioning Clauses – Many leases include requirements for the removal of solar panels or wind turbines at the end of the lease to restore the land.
Easements for Transmission Lines – Developers may negotiate separate easements for access roads, transmission infrastructure, and substations.
If you are interested in listing your property for a renewable energy lease, LandGate is the best marketplace to receive lease offers. Reputable renewable energy developers utilize LandGate’s marketplace to find potential development sites for their solar or wind projects.
Benefits and Challenges of Ground Leases
Benefits for Landowners
Steady Cash Flow: Ground rents provide predictable income over decades, often adjusted for inflation.
Retain Property Ownership: Landowners maintain control of their property while delegating development risks to leaseholders.
Capital Gains Tax Advantages: Leasing land rather than selling it outright helps avoid capital gains taxes, providing a financial edge.
Benefits for Investors
Lower Upfront Costs: Ground leases allow developers to avoid the significant capital expense of buying land, freeing up resources for construction and operations.
Prime Locations: Leasing land in desirable areas is often more cost-effective than purchasing it outright.
Tax Benefits: Rent payments are tax-deductible.
Challenges
Risk of Default: For landowners, a tenant default could disrupt cash flow and create financial instability.
Limited Control (for landowners): While retaining ownership, landlords have limited influence over property use once leased.
Escalation Clauses (for tenants): Rental costs often increase over time, potentially squeezing margins for businesses on the land.
Trends and Innovations Shaping Ground Leases in 2025
Sustainability-Focused Leases
Ground leases are becoming instrumental in advancing sustainable projects, including renewable energy initiatives like solar leases and wind leases. With governments worldwide prioritizing clean energy, developers are leasing land to build infrastructure for green technologies.
Technology Enhancements
Advances in data analytics and AI are transforming how ground leases are negotiated and managed. Predictive analytics help assess a tenant's creditworthiness, minimizing the risk of leaseholder defaults.
Multi-Use Properties
The growing trend of multi-use real estate developments extends to ground leases as well. Land leased for mixed-use developments often combines residential housing, retail spaces, and public green areas, capitalizing on diverse revenue streams.
Land Valuation Models
Dynamic land valuation tools are allowing landowners to reassess and adjust lease terms. This ensures fair compensation based on market trends, inflation, and land appreciation.
Legal and Financial Considerations for Ground Leases
Before entering a ground lease, it's critical to negotiate terms that protect both parties. Consider the following factors:
Lease Duration: Most ground lease terms last decades, commonly spanning 99 years. Establishing renewal terms and exit strategies is essential for flexibility.
Escalation Clauses: These clauses define how and when rent increases occur. Ensure that adjustments align with market dynamics or inflation.
Tenant Obligations: Tenants are typically responsible for construction, maintenance, and taxes. Ensure leases clearly outline these obligations.
Residual Value: Agree on terms for improvements or developments at the end of the lease to avoid disputes. Ownership of assets often reverts to the landowner.
Insurance Requirements: Ensure that leases mandate sufficient insurance coverage to protect the asset from risks like natural disasters or tenant disputes.
Tips for Negotiating and Managing Ground Leases Effectively
Hiring experts is essential when dealing with ground leases. Working with real estate attorneys and financial advisors who specialize in this area helps ensure that crucial clauses are not overlooked. Understanding appraisal metrics is equally important—having the land appraised by professionals familiar with leased fee valuations ensures that the rent is fair and accurately reflects market conditions.
Optimizing the agreement for future buyers can enhance the property's value, even if selling isn’t currently planned. Addressing institutional investor requirements, such as cash flow stability and tenant reporting obligations, makes the lease more attractive to potential buyers. Lastly, clear communication with tenants is key. Transparent agreements and regular engagement help minimize disputes and foster a relationship built on trust.
Maximizing Your Future with Ground Leases
The future of ground leases lies at the intersection of economic opportunity, innovation, and sustainability. Whether you're considering a solar lease for farmland or a traditional ground lease in an urban center, these agreements can generate long-term wealth and stability when structured correctly.
Real estate investors and property owners alike must stay attuned to trends like renewable energy, dynamic lease structures, and technological advancements. With cautious planning and expert negotiation, you’ll be well-equipped to leverage the opportunities ground leases offer in 2025 and beyond.
