A Land Lease Agreement allows a person who owns a piece of land to rent that land to another person or company. Depending on the terms of the agreement, the renter can use the land for reasons such as:
- Farming and agriculture
- Land development (building restaurants, hotels, etc.)
- Commercial reasons (like putting up an advertisement next to a freeway)
What Is a Land Lease Agreement?
A land lease is an agreement between the owner of vacant land or property (the “landlord” or “lessor”) and an individual or entity who wants to develop or improve the property (the “tenant” or “lessee”).
The lease is for the right to occupy real estate comprised of only dirt and soil so that the tenant could use the land for multiple uses ranging from agricultural to residential or commercial purposes.
Agricultural land leases – can include using land as a farm for crops and orchard trees, as a ranch for hunting wild game and forest animals on the premises, or as a pasture for grazing animals like cattle, goats, and sheep.
Commercial land leases – may vary from the right to install a billboard, build a telecommunications tower (i.e., used for wireless cell phone reception), open a fast-food chain restaurant, or develop a large multi-story hotel complex.
Residential land leases – can include a spot in a trailer park or the right to construct a small cabin in the woods.
No matter how the tenant will use the land, a land lease allows both parties to clarify and memorialize essential details to avoid future disputes or confusion.
Subordinated Land Lease Agreement
In a subordinated land lease, the property owner agrees to take a lower hierarchy in its claim of ownership and pledges its interest in the land as collateral for the tenant’s loan to build improvements. The landlord will lose land ownership if the tenant defaults on the loan. Often banks do not want to lend tenants the large sums of money needed to construct improvements because they do not receive a security interest underlying the land. Landlords usually agree to subordination in exchange for higher rent payments.
For example, if a business leases land from a property owner and the lease agreement is subordinated to a mortgage on the property, and the property owner defaults on the mortgage, the lender may have the right to terminate the lease, and the leaseholder would have to vacate the property.
Unsubordinated Land Lease Agreement
In an unsubordinated land lease, however, the landlord refuses to take a lower hierarchy and prohibits the tenant from pledging its title to the land as collateral for any loans. If the tenant defaults, the landlord gets to keep their land ownership, while the tenant may lose its leasehold interest. Unsubordinated leases usually come with lower rent payments.
For example, if a business has an unsubordinated land lease and the property owner defaults on a mortgage, the leaseholder’s rights to the land are generally not affected, and they can continue to use the property according to the terms of the lease.
What to Include in a Land Lease Agreement
It’s crucial to have a comprehensive and legally binding document to protect the interests of both parties. Here are the key elements to include in a land lease agreement:
1. Names of Parties: Clearly state the full legal names and contact information of the landowner and the tenant.
2. Property Description: Provide a detailed description of the leased land, including its address, boundaries, and any structures or improvements on the land.
3. Lease Term: Specify the start and end dates of the lease term. Indicate whether the lease is for a fixed term or is renewable.
4. Rent Amount: Clearly define the rent amount, including the frequency of payments (e.g., monthly, annually) and the due date. State the method of payment and where payments should be sent.
5. Rent Escalation: If applicable, outline any rent escalation clauses that specify how and when rent may increase over the lease term. Common methods include fixed increases, percentage increases, or increases tied to the Consumer Price Index (CPI).
6. Security Deposit: Indicate the amount and whether a security deposit is required. Describe the conditions under which the deposit may be withheld or returned.
7. Use of Land: Detail the permitted uses of the land. Be specific about the activities allowed and any restrictions on land use. Specify whether any zoning or regulatory approvals are necessary.
8. Maintenance and Repairs: Specify which party is responsible for maintaining the land and any structures on it. Outline the process for requesting and performing repairs.
9. Improvements and Alterations: Define whether the tenant is allowed to make improvements or alterations to the land and, if so, the process for obtaining the landowner’s approval and any compensation or removal requirements.
10. Insurance: State the insurance requirements for both parties. This may include liability insurance, property insurance, and who is responsible for covering the costs.
11. Taxes and Utilities: Clarify which party is responsible for property taxes, utilities, and any other ongoing expenses related to the land.
12. Default and Remedies: Outline the consequences of a breach of the lease agreement, including the steps for curing a default, penalties, or termination of the lease.
13. Termination: Detail the conditions under which either party can terminate the lease, including notice periods and any penalties or compensation required.
14. Assignment and Subletting: Specify whether the tenant is allowed to assign the lease or sublet the land and the conditions under which this is permissible.
15. Access and Entry: Define the rights of the landowner to access the land for inspection or maintenance and the notice requirements.
16. Dispute Resolution: Include a clause outlining the process for resolving disputes, such as mediation or arbitration, before pursuing legal action.
17. Governing Law: Specify the jurisdiction and state laws that govern the lease agreement.
18. Signatures: Have both parties sign and date the agreement and include a clause stating that the agreement constitutes the entire understanding between the parties.
19. Attachments: Attach any necessary documents, such as surveys, site plans, or exhibits that help clarify the lease terms.
20. Legal Review: Consider reviewing the lease agreement by legal counsel to ensure it complies with local laws and regulations and adequately protects both parties’ interests.
A well-drafted land lease agreement is essential to prevent misunderstandings and disputes between the landowner and the tenant. It’s advisable to consult with legal professionals experienced in real estate law when creating or reviewing such agreements to ensure they meet all legal requirements and provide adequate protection for both parties.
For sharecropping arrangements, consult Form FSA-1940-53 Cash Farm Lease provided by the U.S. Farm Service Agency.
When Do I Need a Land Lease?
The following scenarios require a land lease agreement.
Passive Income
Individuals who purchase or inherit vacant land in an urban or rural setting may benefit from a land lease to generate passive income without personally investing the capital, labor, or time needed to build structures and start an independent business.
In rural communities, tenant farming is common for agricultural or hunting purposes.
In these situations, a tenant may have tools or livestock and enough funds to pay for the right to use the land but lack the capital to purchase their parcel of land.
Ground Lease to Hunt
In addition to raising crops or livestock, landowners with large properties in the countryside may profit from leasing their property to a hunter or association during hunting season.
In addition to earning a seasonal income, a Ground Lease to Hunt on uninhabited land may help prevent crop damage and disease in livestock by managing wildlife in the area, according to The National Agricultural Law Center.
Corporate Expansion
In urban settings, large chain stores often use a land lease to take advantage of a prime location without paying large sums for the underlying real estate.
Corporate expansion plans may leverage land leases to strategically use equity or available cash to improve the land to generate income instead of purchasing a property.
Landowners can generate steady income every year and possibly inherit any structures or improvements built on the ground when the lease ends.
What is Adverse Possession?
Adverse possession allows a trespasser to become the land owner if they treat the property like their own for a certain number of years, ranging from five to twenty, depending on the state.
Learn more about a California adverse possession claim from the California Department of Transportation.
For example, the landowner, Owen, may have allowed Tim, the tenant, to farm the land without an agreement. Fifteen years later, Tim claims he owns the land, while Owen argues that he is the property owner.
Instead, Owen should have confirmed in writing that Tim is a tenant with permission to occupy the land, thereby eliminating the “hostile” requirement for an adverse possession claim.
If you are the landlord, include helpful language that protects you from any financial woes the tenant may incur while using the land by clearly stating that the land lease does not create a partnership between the landlord and tenant.
How to Write a Land Lease Agreement
Follow the steps below to write your land lease agreement.
Step 1 – Fill in Landlord and Tenant Information
Provide the landlord’s full name or company name, depending on whether the landlord is an individual or an entity, and the tenant’s full name or company name, depending on whether the tenant is an individual or an entity. If there is more than one tenant, enter the name of each additional tenant.
Step 2 – Enter Agreement to Lease Details
Provide a legal description of the land being leased, which will be referred to as the “Site” for the rest of the agreement. A legal description is a unique description that identifies the land.
Step 3 – Write Purpose
Provide the purpose and the intended use of the Site.
Step 4 – Describe the Term
Provide the start date and the end date for the lease term. The term is the length of time the tenant will rent the Site.
Step 5 – State Rent Amount
Specify the dollar amount of each rent payment and how often the rent will be paid (i.e., on the effective date, monthly, or annually).
- Monthly Installments. If monthly installments, specify the day of the month the rent is due (e.g., the 1st of the month). Select whether the landlord will assess a fee for late rent. If yes, specify the day of the month the rent will be considered delinquent and if there is a grace period. Specify if the late fee will be calculated as a percentage or a fixed dollar amount.
- Annual Installments. If annual installments, specify the day and the month the rent is due (e.g., 1st day of January). Select whether the landlord will assess a fee for late rent. If yes, specify the day and the month the rent will be considered late and if there is a grace period. Specify if the late fee will be calculated as a percentage or a set dollar amount.
If the rent is to be paid in annual installments, select whether the rent for any portion less than one year will be calculated on a pro-rata basis.
Step 6 – Check the Security Deposit Option
Security Deposit Amount. Specify whether the tenant is required to pay a security deposit. If yes, provide the total dollar amount of the security deposit to be paid by the tenant to the landlord.
Security Deposit Return. Provide the number of days after the end of this agreement that the landlord will return the security deposit (less any amounts under this section) to the tenant.
Interest Bearing Security Deposit. Specify whether the security deposit will be held in an interest-bearing account.
Step 7 – Select the Taxes Option
Provide whether the landlord or the tenant is responsible for paying taxes and assessments.
Step 8 – Mark Utility Option
Provide whether the landlord or the tenant is responsible for payment of utility services such as electricity and gas.
Step 9 – Fill In Conditions Precedent Information
Provide the county where this agreement will be registered with the relevant Land Registry Office. Also, provide the applicable state whose laws will govern this agreement.
Step 10 – Fill in Holdover Tenancy Rate
If there is a holdover (tenant stays on the Site past the end of the lease term), specify the percentage of the rent per month the tenant must pay during the holdover period.
Step 11 – Check Improvements and Alternations Option
- Provide whether the tenant can make improvements or changes to the Site without the landlord’s approval.
- Specify whether the tenant is permitted to erect signs on the Site related to its business.
Step 12 – Note Leasehold Mortgage Option
Provide whether the tenant can mortgage its leasehold interest as security for a loan and whether the landlord agrees to permit a mortgage on its interest in the Site to secure a loan payment to the tenant.
Step 13 – Enter Insurance Information
In addition to property insurance, specify whether the tenant is responsible for maintaining general liability insurance, worker’s compensation insurance, automobile liability insurance, or any other insurance. If yes, also provide the minimum coverage that must be maintained.
Step 14 – Write Default Details
Provide for any other events of default by the tenant not already included.
Step 15 – Fill in Termination by Landlord Days
Specify the number of days after receipt of the landlord’s notice of default that the landlord has to terminate this agreement.
Step 16 – Note Termination by Tenant Days
Specify the number of days after receipt of the tenant’s notice of breach that the tenant has to terminate this agreement.
Step 17 – Write Surrender of the Site Information
Specify the number of days after the end of this agreement the tenant has to remove all equipment, materials, and other property from the Site.
Specify the number of days after the end of this agreement that any property left on the Site can be considered abandoned by the tenant and retained by the landlord.
Step 18 – Fill in the Governing Law State
Choose the state’s laws that will govern this Land Lease Agreement.
Step 19 – Write Dispute Details
If there is a dispute, specify whether the dispute will be resolved through court litigation, binding arbitration, mediation, or mediation then arbitration.
Step 20 – Note Miscellaneous Information
Provide for any other provisions not already included in this agreement.
Land Lease Agreement Sample
Use the sample form below to create a land lease agreement or customize a form with our document builder.
