Purchasing a Home with a Ground Lease

Question: We are buying a retirement home in an east Scottsdale community. After we received the title report, we were shocked to learn that the “owner” of our retirement home was actually a tenant under a 99-year ground lease for all of the homes in the community. Our real estate agent said that we are getting a reduced price for our retirement home because of the ground lease, and that there are only 60 years remaining on the ground lease. We know that a reduced price is an advantage of the ground lease. Is only 60 years remaining on the 99-year ground lease a major disadvantage?

Answer: Probably not. There are other areas of the Valley, for example, the Park Central area and the Biltmore area in central Phoenix, that have ground leases. Interestingly, the Biltmore area ground lease was originally a cattle ranch surrounding the Town & Country shopping center. The ranch house was located where Trader Joe’s is now located. This cattle ranch was owned by the Mars candy bar family and was called the Milky Way Ranch. Your east Scottsdale ground lease should be reviewed carefully. With 60 years remaining on the ground lease, however, there should be no significant diminution in value of the home. Your title company will insure the remaining 60 years of the ground lease.

Note: Many ground leases in Arizona are re-negotiated during the term of the ground lease to continually extend the term of the ground lease.