Property problems: Getting to grips with Glasgow lease features

Monday 12 July 2004

Q. I am interested in purchasing property to lease out under a Glasgow lease. I understand this would, if you purchase right, return most of your outlay for the property and give you an income while still retaining the land.

At the moment I have a block of three units in Auckland's Kingsland area and wish to do this. The units are under a 99-year cross lease. Can I do this with

By The Landlord

these or will I need to redefine the land under separate titles?

A. A Glasgow lease is the common form of ground lease used in New Zealand (a ground lease is a specialist form of tenure in which the lessor, that is the fee simple owner of the land, grants occupancy of the underlying land to a lessee).

The main feature that differentiates ground leases from conventional leases is that a lessee will usually have the right to construct or upgrade buildings on, and develop, the land.

Distinguishing or normal features of a Glasgow lease include a fixed term (usually for 21 years), setting fairly long intervals between rent reviews which are usually conducted every five, seven or 21 years, and will often provide perpetual rights of renewal for the lessee to renew the lease at the end of each term.

With such lease tenure, occupation of the land can go on indefinitely, provided rental payments are met and the lease is renewed at the appropriate time.

If the lessee does not renew the lease, the rights of the lessee will revert to the lessor including the right to or ownership of the improvements (including any buildings constructed by the lessee) on the land with no compensation payable to the lessee.

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