How does a 99 year lease work?

How does a 99 year lease work? How do you set it up?
In Leasing Property - Asked by Ilan M. - Oct 6, 2009
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Gregory NNN G.
Broker/Agent
San Francisco, CA
Premium Subscriber

They often come with another 99 year option and they can provide many advantages. We have set them up before.
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Gregory Garver
Brokers USA Commercial
1160 Mission Street
Suite 812
San Francisco, CA 94103
Cell (415) 225-9894
Office (310) 714-0689
Fax (415) 520-6589
CA DRE# 01716531

Oct 6, 2009
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Chris G.
Broker/Agent
Forest, VA
Premium Subscriber

I was once told by an accountant that the IRS can treat a lease for a term of this length the same as if the property were sold. I don't know if that is still the case or not. You may want to consult your CPA.

Oct 7, 2009
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Bruce K.
Corporate Investor
Riverside, CA

It's a relatively rare way of "selling" a property. You are actually only selling a portion of the "bundle of rights" that constitute real estate. You are selling the right to use and enjoy the property for the next 99 years only, then full ownership reverts to you.
You may have heard the term "Fee Simple" ownership? That is when you own the full bundle of rights to real estate. If you have leased out your property to others, then you no longer have "Fee Simple" ownership. You now have a "Leased Fee" ownership of the property becaused your rights to use your property for a specified period of time have now been "sold" to someone else. The buyer, or lessee, has what is called a "Leasehold" ownership. They don't truly own the land, or the buildings, they only have the exclusive right to use them for the specified period of time.
In essence, you are selling the improvements (the buildings on the site) and retaining ownership of the underlying land. The benefit of this type of transaction is that the buyer ends up with a "tangible" asset (the buildings) that he can get a loan against.
Technically speaking, the buildings are not really "sold" and the buyer typically is required to maintain the buildings in their current condition, etc. For example, the buyer can't demolish the buildings or add onto them without the seller's written permission. All of those important details need to be spelled out within the lease agreement.
You'll typically need an attorney to draft the agreement and contract. Find a good real estate attorney in your area and ask if they have experience in drafting these types of agreements.
Good luck!

Oct 8, 2009
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