Improvements Stay With Property After Ground Lease Canceled

Question: Your recent comments on ground leases reminded me of my friend’s situation. She and her sister had built a cabin in the White Mountains on land owned by an Indian tribe. The property had a 25-year ground lease, and that 25-year ground lease was subsequently renewed by the Indian tribe for another 25 years. There were many cabins on the land with similar ground leases. Most cabin owners expected that their ground leases would be renewed every 25 years. After 50 years, however, the Indian tribe decided not to renew any of the ground leases. Some folks moved their cabins, others angrily destroyed their cabins, while others simply abandoned their cabins which were then vandalized. Needless to say, not renewing the ground leases engendered a great deal of anger, animosity, and lawsuits on both sides.

Answer: Thank you for your comments. You are talking about the Hawley Lake “debacle.” Hawley Lake is a beautiful 330-acre lake in the White Mountains. Both Hawley Lake and the surrounding land have historically been owned by the White Mountain Apache Tribe (“Tribe”). In the mid-1900s the Tribe granted 25-year ground leases for lots surrounding Hawley Lake to many part-time summer residents, most of whom were from the Valley, who then built cabins on their lots. After the original 25-year Hawley Lake ground leases were renewed almost automatically for another 25 years, there were significant additional improvements to the lots, including barns and corrals. When the Tribe after 50 years refused to renew the ground leases for another 25 years, there was litigation. The Tribe won the litigation, and ultimately evicted all of the “cabin owners.” In addition, the Tribe as the owner of the lots had also become the owner of all improvements on the lots such as the cabins, barns, and corrals. Many of the “cabin owners” had destroyed these improvements and had liability to the Tribe for damages. Bottom line: If a buyer purchases a home or other real property with a ground lease, the terms of the ground lease must be read carefully. For example, many ground leases have an escalation clause that provides for the ground rent to increase, sometimes dramatically, during the term of the ground lease.