Commercial Ground Leases: Why Banks, Tenants and Landowners All Sign a 60-Year Contract
You own the building. You don’t own the dirt underneath it. That isn’t a technicality — it’s the whole financing structure, and it quietly decides how long your loan can run and who owns your building at the end.
What is a ground lease, and how is it different from a regular commercial lease?
A ground lease is a long-term net lease in which a landowner leases raw land to a tenant, who builds a building at its own cost and owns that building for the duration of the term. Three things separate it from an ordinary commercial lease: you are leasing dirt, not space; the term is extraordinarily long — per DLA Piper REALWORLD (2026), Canadian ground leases typically run 20 to 99 years, with rent in many cases prepaid for the entire term; and at expiry the land and the building you paid for both revert to the landowner. You never buy land under a ground lease. You buy a dated right to use it, plus a building with an expiry date.
Source: DLA Piper REALWORLD — Length of leases in Canada (2026)
I’m Arthur Zhao. Drive past a gas station, a drive-thru pad, a hotel, a self-storage facility, or a downtown office tower, and there’s a good chance the operator owns the building but not one square foot of the land under it. That structure is a ground lease, and it’s one of the most common — and least understood — arrangements in commercial real estate. This isn’t the residential land-lease product I’ve covered elsewhere, where a buyer purchases someone else’s finished house on rented land. This is about putting your own capital into a building you construct on land you will never own — and about the third party who ends up dictating the terms: the lender.
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Start with why the land isn’t for sale
That matters to you, because it tells you what’s actually negotiable. A landowner structurally barred from selling will never grant you a purchase option, however well you ask. One who simply prefers not to sell might. Diagnosing which you’re facing is the first move, not the last.
The financeability test: amortization plus five
Hence the rule that actually sets ground lease terms. According to the Canadian Bar Association’s mortgage instructions toolkit, the remaining term of the lease must exceed the amortization period of the mortgage by a minimum of five years.
Run it backwards and the long terms stop looking like tradition and start looking like arithmetic. Want a 30-year amortization? You need 35 years of lease left on funding day. Want to sell in year 20 to a buyer who also wants 30 years? That buyer needs 35 remaining then — so you needed 55 at the start. Add construction and a margin for error and you land in the 50-to-99-year range the industry treats as normal. Related thresholds: roughly 40 years is the minimum generally needed to amortize major improvements, and leases with under 20 years left are generally not financeable at all.
⚠️When you evaluate a ground-leased property, the number that matters is the remaining term, never the original one. A 99-year lease signed in 1948 has roughly 21 years left — and against the Canadian Bar Association’s standard (remaining term must exceed amortization by at least five years), that supports about a 16-year amortization, if any lender will touch it. Reading the words 99-year ground lease and relaxing is one of the more expensive mistakes in this asset class.
Why the lender needs the landowner’s signature
So no lender funds these deals without the landowner signing on. The core protections:
• Notice: when the landowner sends you a default notice, it must copy the lender at the same time.
• Cure: the landowner can’t pursue remedies without giving the lender its own window — one that ends after your cure period — so the bank can fix the default itself.
• Replacement lease: if the lease terminates anyway (tenant bankruptcy being the classic uncurable default), the lender can demand a new lease directly from the landowner, on the same terms, for the balance of the original term.
Read that list again and see it for what it is: the lender negotiating the right to step into your shoes.
SNDA is a different floor of the same building
• Subordination: the subtenant agrees its lease ranks behind the lender’s security.
• Non-Disturbance: in exchange, a subtenant who isn’t in default doesn’t get evicted if the lender takes over.
• Attornment: the subtenant recognizes the lender or a purchaser as its new landlord and keeps performing.
Without SNDAs, a lender that takes over your building can watch the rent roll evaporate exactly when it needs the cash flow. Without the landowner’s agreement, there’s no building to take over at all. Financeable deals need both.
Ontario trap #1: the Planning Act’s 21-year line
Three details do the damage:
① The 21 years includes renewal rights. A 20-year term with two 10-year options isn’t 20 years. It’s 40.
② The exception everyone reaches for — a grant of the use of part of a building or structure, good for any period — doesn’t help. A ground lease grants land. That exception isn’t available to you.
③ The penalty isn’t a fine. A non-compliant dealing does not create or convey any interest in land. Your lender’s collateral never legally existed.
The cure is a consent from the Committee of Adjustment. This is a pre-signing legal question, not post-closing cleanup.
Ontario trap #2: land transfer tax at 50 years
According to the Ontario Ministry of Finance’s guidance on the Land Transfer Tax Act, subsection 1(6) exempts a lease only where the unexpired term cannot exceed 50 years, including any renewals or extensions provided for in the lease or in a separate option or related document.
Cross that line and the lease is taxed under the value-of-the-consideration definition — and the base is the fair market value of the land to which the lease extends. Not your rent. Not your building. The market value of the dirt.
Now stack the constraints: the lender’s arithmetic pushes the term up, the Planning Act sets a consent gate at 21 years, and LTT sets a toll booth at 50. There’s no version where you agree the term with the landowner first and sort out financing and tax later. It’s one conversation.
ℹ️Ground rent is rarely fixed for the whole term. Long leases typically carry rent reset clauses that re-strike the rent against land value at set intervals. Industry analysis published by the Appraisal Institute of Canada notes there’s no standard interval or method — it’s whatever the lease says — and that lenders resist unpredictable resets, since one sharp jump can push a borrower into default and threaten their security. Before signing, pin down the reset formula, its frequency, whether there’s a cap, and how disputes get resolved.
💡 A ground lease term is never a round number someone liked. It’s the output of four forces: how long the building takes to amortize, how much runway the lender demands beyond that, where Ontario’s Planning Act sets its consent gate, and where land transfer tax sets its toll. Anyone quoting you a term without reference to all four is quoting a number, not a structure.
The endgame: the value you can’t refinance
What catches owners off guard is the shape of the decline. Value doesn’t fall smoothly and hit zero at expiry. It falls off a cliff far earlier — the moment the remaining term stops satisfying the next buyer’s lender. Once nobody can finance a purchase from you, your exit market closes years before your lease actually ends.
So the real calendar isn’t when the roof needs replacing. It’s: sell, renew, or buy the freehold — before the remaining term drops below the financeable line. All three exits have to be in the lease on day one: renewal options a lender can exercise, a right of first refusal, and a purchase formula. Show up with 20 years left and no options, and the only person at the table with leverage is the landowner.
Frequently Asked Questions
Can you get a mortgage on a building sitting on leased land?
Yes — it’s called a leasehold mortgage, and it’s routine, but the bar is higher than freehold. Per the Canadian Bar Association’s mortgage instructions toolkit, the remaining lease term must exceed the mortgage amortization period by at least five years. The lender will also require the landowner to sign on to default notices, cure rights and a replacement lease, and will want ground rent to be predictable. Industry analysis published by the Appraisal Institute of Canada notes that leases with under 20 years remaining are generally unsuitable for mortgage financing.
When the lease ends, do I really hand over the building for free?
Under a standard ground lease, yes. Land, building, improvements and fixtures revert to the landowner at expiry, typically without compensation. That’s not a loophole — it’s the trade that makes ground rent cheaper than financing a land purchase. What you negotiate isn’t whether reversion happens, but your exits before it does: renewal options, a right of first refusal, and a formula to buy the freehold. Those belong in the lease on day one.
Does Ontario’s 21-year Planning Act rule mean I should just sign a 20-year lease?
Not necessarily, and not safely. The 21 years is calculated including renewal rights, so a 20-year term with two 10-year options counts as 40 and blows through the line. The prohibition also only bites where the grantor retains abutting lands and no statutory exception applies — a case-by-case legal call, not something you settle by counting years. The stakes are real: per LAWPRO / practicePRO guidance, a non-compliant dealing does not create or convey any interest in land. The fix is a consent from the Committee of Adjustment.
How is a commercial ground lease different from a residential land lease?
The structure rhymes; the risk doesn’t. In a residential land lease you buy a home someone else built, and your exposure is rising land rent, thin resale demand, and limited mortgage options. In a commercial ground lease you are the one funding the building — you carry construction, leasing and financing risk, and you have to solve Planning Act consent, land transfer tax, the landowner’s agreement and SNDAs on top. Same idea, different business.
Arthur Zhao
Real Estate Broker · FRI · ABR · SRS · PSA · MCNE · E-PRO · CLHMS & GUILD Elite · REAIS
VP & Branch Manager, Bay Street Group Inc.
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