Land Lease Agreements

By Chuck Ayers
A clustered development of homes

life in community - people choice image by Nellie Vin from Fotolia.com

A land lease is an arrangement in which a landowner agrees to lease property to a person interested in the land but not in buildings on the land. Many times there are no buildings on the land but a developer or farmer may have an interest in striking a lease deal for a host of reasons. Land leases are common in urban settings where title to the property is severed from the buildings above it for cooperative development (co-ops) or tenant-owned buildings. Land is also often leased in agricultural areas for anything from farming to preservation of open space or creation of a recreation area by a municipality.

Advantages

A big advantage to someone leasing property is the avoidance of paying taxes--at least not directly. Likewise, the owner of the property has buildings on the property (assuming there are buildings) on which the taxes will be reduced because the overall land value is now being shared so a proportionate part of the tax value will go with the leased land. A property owner of a sprawling piece of land may also find it advantageous to no longer spend the time necessary to maintain the property.

Home Buyers

Depending on financial circumstances, a family may have an interest in purchasing a home but the tax burden of the overall property may be prohibitive. In such cases, the current homeowner could subdivide the land, where zoning permits, reducing the tax bill for prospective home buyers to simply the value of the home. Conversely, a family may not be able to finance an entire estate and be willing to lease back the land while purchasing the home. Also, the size of the overall property may be too large for a prospective family to realistically maintain.

Homeowners Associations

Developers may be interested in leasing land for home development in order to maintain the lawns, ornamental plantings, streets and other infrastructure to drive up the home prices by marketing the development as an exclusive gated community with amenities such as pools, saunas and community buildings that couldn't otherwise be offered if the parcels of land were individually owned. In many such cases homeowners associations are formed to oversee the upkeep and establish rules to maintain the development.

Open Space

Particularly in the Eastern United States where land is increasingly developed along the Princeton Corridor (Long Island to Northern Virginia), the issue of maintaining open space is becoming increasingly important. It is especially important in cities that are being squeezed by development with less recreation and park facilities. The lease principle is similar but with a twist. Rather than lease the land itself, governments are purchasing or entering into long-term leases---usually in perpetuity---for "development rights" to the land. In essence, it prohibits development on the land but allows municipalities to build parks and recreation facilities. The owner of the land remains the owner but he can't develop anything on it.

Land Leases

Unless there are idiosyncrasies with the property or zoning prohibitions that restrict the land use, lease agreements are pretty much boiler-plate documents that specify the property to be leased, at an agreed upon price and any other caveats the two parties agree upon. One detail, the length of the lease, is particularly important for potential homeowners. No one wants to be surprised their lease expires in 10 years when they had lifetime plans for the property.

About the Author

Chuck Ayers began writing professionally in 1982, breathing life into obituaries, becoming a political and investigative reporter at a major East Coast metropolitan newspaper. He now freelances and is a California communications and political consultant. He graduated from American University, Washington, D.C., with degrees in political science and economics.