Leasing instead of selling
When a government has a parcel it does not need for its own use, it can sell it, keep it, or lease it. A ground lease is a contract in which the landowner grants someone the right to use and build on the land for a long period, often several decades, in exchange for rent. The tenant typically owns or controls the buildings they construct, but the land itself stays with the original owner.
The idea is old and widely used in private real estate as well. Applied to public land, it lets a city or agency influence what happens on a site for a long time without giving up the land permanently.
What the arrangement looks like
Terms vary, but a typical long-term ground lease on public land includes:
- A long term. Terms of several decades are common, and some run longer. Lenders usually want the term to extend well past the loan’s repayment period.
- Rent. This may be a fixed payment, a payment that increases on a schedule, a percentage of revenue, or a one-time upfront payment at the start. Some leases are for nominal rent when the project delivers a clear public benefit.
- Permitted uses. The lease can specify what may be built and how it may be used, such as housing, a market or a community facility.
- Obligations. Maintenance, insurance and taxes are usually the tenant’s responsibility.
- End-of-term rules. The lease states what happens when it expires: the buildings may revert to the landowner, the lease may be renewable, or the tenant may have to remove improvements.
Because a lease is a contract, the government can write public goals directly into it. This differs from a sale, where, once title passes, later control often depends only on zoning codes and any deed restrictions.
Why a government might lease
Keeping the asset. Land does not grow back. Some governments prefer to keep the underlying parcel for future needs, or because they want to avoid one-time sales that fund short-term budgets.
Retaining influence. A lease can include affordability requirements, design standards, job commitments or public access, and can allow the owner to enforce them through the lease rather than only through regulation.
Sharing in later gains. If land values rise, a lease with rent resets or revenue sharing can allow the public to capture part of the gain. This overlaps with the ideas behind land value capture.
Lowering development costs. If the developer does not need to purchase the land, upfront costs fall, which may help projects such as affordable housing that struggle with the financing gap.
Public support. Some communities are uncomfortable with selling public land to private parties. A lease can be an easier compromise, though not everyone accepts it.
What changes for the developer and lender
For the person building on leased land, the ground lease changes several things.
Financing. Lenders can still lend against leasehold interests, but they look closely at the lease. They want a long remaining term, clear rights to cure a default, and predictable rent. Leases that give the landowner broad rights to terminate, or that reset rent unpredictably, can make financing harder or more expensive. Lenders may also want protections allowing them to step into the tenant’s position if the tenant fails.
Value. A leasehold is generally worth less than full ownership because it ends. As the remaining term shortens, the value of the buildings can decline, since a buyer is acquiring a shorter right. This affects resale and can make older leases harder to sell.
Rent obligations. The rent is an ongoing cost. If it escalates faster than the project’s income, the project can become strained.
Control. The tenant is not free to do anything. Changes in use or major alterations may need the landowner’s consent.
Applications to renewal
Ground leases often appear where public land is part of a larger plan:
- Affordable or mixed-income housing on land a city already owns.
- Redevelopment of a transit-adjacent site, where the agency wants to keep long-term influence.
- Waterfront or port-adjacent land, where the public wants to retain access.
- Redevelopment of a former public building, often through a request for proposals.
- Community or nonprofit projects, including those structured by community land trusts, which commonly use ground leases of their own.
These uses link to public-private partnerships, in which a lease is often the legal vehicle for the arrangement.
Trade-offs and cautions
Leasing is not simply better than selling. Points to weigh include:
- Complexity. Leases require careful drafting and long-term administration. A government needs staff able to monitor compliance for decades.
- Foregone sale proceeds. A sale brings a lump sum now; a lease brings income over time, and the stream carries risk.
- Uncertainty at the end. When a lease nears expiration, the future of the buildings and occupants can become contested. A well-written lease addresses this, but surprises are possible.
- Political change. Governments change, and a long lease outlasts any one administration. Terms that look wise today may look poor later.
- Market perception. Some developers avoid leased sites entirely, which may reduce the number of bidders.
- Not always necessary. If a site is truly surplus and no longer needed, selling it with proper conditions may be simpler.
Whether leasing or selling better serves the public depends on the site, the market and the project, and neither guarantees good results. Deciding between them is part of the broader question of how to treat unused public property, and drafting any lease is a task for legal professionals familiar with local rules.