Most Texas landowners don’t start out planning to become commercial landlords. They own land, someone approaches them about leasing it for a commercial purpose, and suddenly they’re in a negotiation they weren’t quite prepared for. This guide covers the basics that prepare you before that conversation happens — not after.
The Ground Lease: The Core Commercial Land Product
A ground lease is the specific instrument used when a landowner leases the bare land — not a building, not a developed property — to a tenant who then builds and operates on it. The tenant constructs improvements on land they don’t own, pays rent to the landowner for the ground beneath those improvements, and typically holds the improvements during the lease term. At the end of the lease, the improvements revert to the landowner (the terms of what happens to improvements at expiration are one of the most negotiated elements of any ground lease).
Ground leases are common in commercial real estate contexts where the tenant is a national or regional operator — a fast food chain, a gas station, a bank branch, a retail operator — who wants a specific location but is willing to lease the land rather than purchase it outright. From the landowner’s perspective, the ground lease produces ongoing income without a sale, preserves the underlying ownership of the land, and eventually delivers improvements back to the landowner at lease expiration.
The terms of ground leases are typically long — 25 to 99 years with renewal options — which is what makes them work financially for tenants who are building permanent improvements on leased ground. A tenant building a $2 million restaurant on leased land needs sufficient lease term to amortize that investment and justify the construction cost. The long term of ground leases is one of the elements landowners are sometimes surprised by when they first see the lease form.
“A ground lease is a long-term relationship. The tenant is putting up buildings on your land, and the terms you agree to at the beginning govern that relationship for decades. Getting the terms right at the start matters in a way that a short-term agreement doesn’t.”
Lease Structures: What You’re Agreeing To
The commercial land lease in Texas can take several structural forms depending on what the tenant is doing and what the negotiating parties agree to. Understanding the structure determines which party bears which costs and risks.
The Triple Net (NNN) Ground Lease
The triple net structure — the most common form for national commercial tenants on ground leases — means the tenant pays the base rent plus all operating expenses: property taxes, insurance, and maintenance. For the landowner, this produces a truly passive income stream — the rent check arrives and nothing else is required. The trade-off is that the base rent in a triple net lease is typically lower than it would be in a gross lease because the tenant is already absorbing the operating costs. Understanding what “triple net” actually means (and confirming that the lease form actually achieves net treatment for all three categories — taxes, insurance, and maintenance) is the right starting point for evaluating any NNN ground lease proposal.
The Gross Lease
A gross lease — more common in shorter-term or smaller commercial lease contexts than in ground leases — has the landlord paying operating expenses from the rent received. The rent is higher than in a NNN structure because it’s covering those costs. For land leasing specifically, the gross structure is unusual — most serious commercial tenants want the NNN structure — but it appears in smaller or shorter-term land lease situations where the simplicity of a single rent payment serves both parties.
Percentage Rent
Some commercial leases — particularly in retail contexts — include a percentage rent component that pays the landlord a percentage of the tenant’s gross sales above a certain breakpoint in addition to the base rent. This structure gives the landlord participation in the tenant’s success. It’s more common in shopping center contexts than in standalone ground lease transactions, but it appears in ground leases with retail or hospitality operators where the landowner has negotiating leverage to demand upside participation.
The Provisions That Matter Most for Landowners
Within the ground lease document — which in a commercial transaction is typically prepared by the tenant’s attorney and runs 40 to 80 pages — the provisions that most directly affect the landowner’s position are the ones most worth understanding before signing.
The Subordination, Non-Disturbance, and Attornment (SNDA) Clause
If the tenant seeks financing secured by the leasehold interest — and most commercial ground tenants do — the lender will require a subordination agreement that puts the landowner’s fee interest behind the tenant’s leasehold mortgage in priority. This is standard in commercial ground leases but has real implications: if the tenant defaults on their construction loan, the lender can step into the tenant’s position. The SNDA negotiation is where landowners establish the protections they need in a lender-takeover scenario — specifically, that the lender must assume the lease obligations and honor the lease terms rather than simply terminating the lease and taking the land.
Reversionary Rights and Improvements at Expiration
What happens to the improvements the tenant built on your land when the lease expires? In most ground leases, the improvements revert to the landowner — this is the “reversion” that makes a long-term ground lease interesting from a landowner’s perspective. The lease should specifically address whether the tenant has any obligation to remove improvements (and pay for removal), whether the landowner can require removal, and in what condition the land and improvements must be returned. A 40-year ground lease that delivers a fully constructed and operating commercial facility to the landowner at expiration is a genuinely valuable outcome. A 40-year ground lease that delivers a contaminated site with a half-demolished building is not. The reversion provisions determine which result you get.
Permitted Use and Assignment
What the tenant is allowed to do on the land — the permitted use — and who can take over the lease through assignment are two provisions landowners sometimes skim that they later wish they’d negotiated more carefully. A permitted use that’s broadly drafted (“any lawful purpose”) gives the tenant — or an assignee — flexibility that may not align with the landowner’s interest in what happens on their land. A carefully defined permitted use restricts the operation to something the landowner has specifically approved. Assignment provisions determine whether the tenant can sell the lease interest to a third party without the landowner’s consent — something that matters significantly when the original tenant is the creditworthy national operator you negotiated with and the potential assignee is an unknown third party.
Rent Escalation
On a 25 to 99-year lease, the rent must escalate over time to maintain its real value against inflation. Fixed rent with no escalation produces a payment in year 30 that’s worth a fraction of its year-one value in real terms. Common escalation structures include fixed percentage increases (3% annually, for example), CPI-linked increases tied to the Consumer Price Index, and periodic market rent resets at defined intervals (every 5 or 10 years, the rent is reset to fair market ground rent). Each structure has advantages and disadvantages for the landowner depending on the inflation environment — fixed increases are predictable; CPI-linked increases track inflation; market resets can produce large step-ups but require a rent determination process at each reset date.
Lease structure: NNN puts operating costs on tenant — confirm taxes, insurance, and maintenance are all tenant obligations.
Term: 25–99 years is typical. Confirm renewal options and what the renewal rent resets to.
Subordination: understand what a lender step-in means for your land ownership — negotiate SNDA protections.
Improvements at expiration: specifically negotiate what condition the land comes back in and whether removal is required.
Permitted use: narrow enough to ensure the tenant use aligns with your long-term plans for the land.
Assignment: confirm whether the tenant can assign without your consent, and if so, to what standard of creditworthiness.
Rent escalation: build in escalation that preserves real value over a 25-99 year term.
For Texas landowners evaluating commercial leasing as an alternative to sale on land they own — whether agricultural land with commercial potential, commercial property already positioned for tenant development, or residential land near growth corridors — understanding the ground lease framework is the right starting point. Off-market land opportunities often include properties whose owners are specifically evaluating lease versus sale. The Texas land market covers properties at different stages of this decision. For a specific large Texas holding where commercial lease potential is part of the ownership picture, the 394-acre Tyler, TX property at Highway 20 and 155 is an example of the kind of highway-fronting land where commercial ground lease interest is realistic. And for the full practice, Airstream Realty is the starting point.
Frequently Asked Questions
What is a ground lease and how is it different from selling?
A ground lease is an agreement where a landowner leases bare land to a tenant who builds and operates on it, paying ongoing rent to the landowner. Unlike a sale, the landowner retains ownership of the underlying land throughout the lease term and receives the land back (along with any improvements) at lease expiration. The landowner gives up current-period use and control in exchange for ongoing income — typically over a 25 to 99-year term — without permanently transferring the asset. The lease produces income without the finality of a sale, and the long-term reversion of improvements is a potential financial benefit that accumulated rents alone don’t fully capture.
What is a triple net (NNN) ground lease?
A triple net (NNN) ground lease is one where the tenant pays the base rent plus all three categories of operating expenses: property taxes (the first “net”), insurance (the second “net”), and maintenance and repairs (the third “net”). This structure makes the income essentially passive for the landowner — the rent payment is received without the landowner being responsible for ongoing operating costs. The base rent in an NNN structure is typically lower than in a gross lease because the tenant is absorbing the operating costs, but the passive nature of the income and the elimination of landowner operating cost risk typically makes NNN the preferred structure for landlords who own investment property.
How long do commercial ground leases typically run?
Commercial ground leases typically run 25 to 99 years, with renewal options that can extend the total term further. The long term reflects the economic reality that a tenant building permanent improvements on leased land needs sufficient time to amortize that investment — a tenant constructing a $3 million facility needs a lease term long enough to justify the construction cost and produce a reasonable return on the improvement investment. In practice, many ground leases with national commercial tenants run 40 to 75 years with two or three 10-year renewal options. The initial term length and renewal structure are negotiating points; landowners sometimes prefer shorter initial terms with frequent renewal opportunities; tenants generally prefer the certainty of longer initial terms.
What happens to improvements at the end of a ground lease?
The default rule in a ground lease — and the provision that landowners should confirm is clearly addressed in their specific lease document — is that improvements revert to the landowner at lease expiration. This means the tenant’s buildings, infrastructure, and other improvements become the landowner’s property when the lease term ends. This reversion is one of the long-term financial benefits of a ground lease compared to a permanent sale. The lease should specifically address whether the tenant has the right to remove improvements before the lease ends, whether the landowner can require removal, and what condition the site and improvements must be in at return. The reversion provision is one of the most important terms to negotiate clearly before signing.
Should I have an attorney review a commercial lease before signing?
Yes, without exception. A commercial ground lease is a long-term legal contract governing your land for 25 to 99 years. It affects your rights as an owner, your ability to use or encumber the land, the conditions under which you get the land back, and what happens in dozens of scenarios that will arise over the lease term. The lease document prepared by a commercial tenant’s attorney is specifically drafted to favor the tenant — not because anyone is being dishonest, but because that’s the attorney’s job. A Texas real estate attorney with commercial lease experience reviewing the document on your behalf identifies the provisions that disadvantage you, negotiates modifications that protect your interests, and ensures you understand what you’re agreeing to before you sign. The attorney fee for this review is a very small fraction of the lease’s total value over its term.
What is a fair rent for a commercial ground lease on Texas land?
Ground lease rent is typically calculated as a percentage of the land’s market value — commonly 6% to 10% of appraised land value annually, depending on the location, the commercial use, the tenant’s credit profile, and the lease term structure. A piece of Texas land appraised at $500,000 for commercial use might command $30,000 to $50,000 per year in ground rent at these percentages. Alternatively, ground rent can be calculated by comparable market transactions — what similar ground leases in similar locations are renting for per square foot or per acre. A commercial real estate appraiser familiar with the specific market can provide a ground rent opinion that gives the landowner a negotiating baseline. The fair rent calculation is also affected by the lease structure — an NNN lease producing passive income justifies a lower base rent than a gross lease where the landlord bears operating costs.