Ground Leases in Australia: 2026 Guide for Investors & Businesses

A ground lease is a long-term agreement where a tenant (the lessee) leases land from a landowner (the lessor), typically for periods ranging from several decades up to 99 years. Unlike standard property leases, the tenant is usually responsible for constructing, maintaining, and operating any buildings or infrastructure on the land during the lease term. At the end of the lease, ownership of these improvements may revert to the landowner, depending on the terms of the agreement.

Key features of ground leases:

• Long-term control: Leases often run for 30 to 99 years, providing stability for major developments.
• Separation of land and building ownership: The landowner retains the title to the land, while the tenant owns or finances the buildings and improvements for the lease duration.
• Rental payments: Instead of purchasing the land, the tenant pays regular rent, which can free up capital for other business or investment needs.

Ground leases are commonly used for commercial real estate, such as shopping centres, hotels, and logistics facilities. They are also being considered for affordable housing and renewable energy projects, where access to land is crucial but outright purchase may not be feasible.

While ground leases have long been part of the Australian property landscape, recent policy developments and market trends are making them more attractive in 2026, especially in major cities.

Government Initiatives

State and local governments are increasingly using ground leases to unlock underutilised land for development. For example, some government strategies now include ground leases as a way to activate surplus land for housing and commercial use, balancing public ownership with private sector investment.

Institutional Investment

Large institutional investors, including superannuation funds, are showing greater interest in ground lease structures. These arrangements can offer stable, long-term returns and align with the investment horizons of such funds. This is particularly evident in sectors like build-to-rent and mixed-use precincts, where long-term control and predictable income streams are valued.

Tax and Regulatory Changes

Recent adjustments to land tax and stamp duty rules for long-term leases have made ground leases more appealing for both landowners and tenants. Updates to the treatment of GST and other taxes on long-term commercial leases have also provided greater clarity, though it remains important to seek professional advice on the specific tax implications of any ground lease arrangement.

Market Activity

Several major ground lease developments are underway in cities like Sydney and Melbourne, including precinct-scale projects where local councils retain land ownership but invite private sector expertise for development and management. These projects illustrate how ground leases can support urban renewal and infrastructure investment without requiring the sale of public land.

Ground leases can offer significant advantages, but they also come with unique risks and complexities. Understanding these is essential for both landowners and tenants.

Benefits for Landowners

• Retain long-term ownership: Landowners keep the underlying asset and may benefit from future capital growth.
• Stable income: Regular rent payments provide a predictable income stream.
• Transfer of development risk: The tenant typically assumes responsibility for development and ongoing management.

Benefits for Tenants and Developers

• Lower upfront costs: Tenants can access prime sites without the need to purchase land outright.
• Flexibility: Tenants have the opportunity to build, manage, and profit from improvements during the lease term.
• Access to strategic locations: Ground leases can open doors to sites that may not be available for sale.

Key Risks and Considerations

• Complex lease terms: Ground leases often involve detailed negotiations around rent escalations, lease renewals, and end-of-lease provisions.
• Reversion of improvements: Unless otherwise agreed, buildings and infrastructure may revert to the landowner at the end of the lease.
• Financing challenges: Some lenders may have stricter requirements for ground lease arrangements, such as higher deposits or lower loan-to-value ratios. It’s important to check with your lender about their policies regarding ground lease security. More information can be found at Finance.
• Tax implications: While ground rent may be deductible for businesses, other taxes such as GST and land tax can still apply. It is advisable to consult with a qualified accountant to understand the full tax impact. For more on property-related tax considerations, see Home Insurance.
• Planning and zoning: Ground lease deals, especially those involving public land, may require complex planning approvals. Ensuring all necessary permissions are in place before signing is crucial.

To illustrate, consider a scenario where a logistics company enters into a long-term ground lease on government-owned industrial land. Instead of purchasing the land outright, the company pays annual rent and invests in building state-of-the-art warehousing. The government retains ownership of the land, while the company focuses its capital on operations and growth. At the end of the lease, the ownership of the buildings may revert to the government, depending on the agreement.

This structure allows both parties to achieve their goals: the landowner secures ongoing income and retains control, while the tenant gains access to a strategic site without a large upfront investment.

Before entering into a ground lease, it’s important to carefully review and negotiate the following aspects:

Lease Terms and Rent Reviews

• Escalation clauses: Rent increases are often linked to the Consumer Price Index (CPI) or subject to periodic market reviews. Ensure these terms are clear and manageable.
• Lease duration: Longer leases provide more certainty but may come with higher rent or stricter conditions.

End-of-Lease Provisions

• Improvements: Clarify what happens to buildings and infrastructure at the end of the lease. Can the lease be extended? Is there an option to purchase the land or negotiate a buyout?

Financing

• Lender requirements: Some lenders may be cautious about ground lease security. Be prepared for potentially higher deposit requirements or different loan terms. For more details, visit Finance.

Tax and Legal Advice

• Tax treatment: Seek professional advice on GST, land tax, and other obligations. Tax rules can change, and the specifics of your lease may affect your liabilities.
• Legal review: Ground leases are complex contracts. Engage a solicitor experienced in property law to review all terms and ensure your interests are protected.

Planning and Zoning Approvals

• Compliance: Make sure all planning and zoning approvals are secured before committing to a ground lease, particularly for developments on public or mixed-use land.

Ground leases are not suitable for every situation, but in Australia’s competitive property market, they offer a flexible way to access valuable land and drive development. For landowners, they provide a means to generate income and retain long-term control. For businesses and investors, ground leases can unlock opportunities that might otherwise be out of reach.

Before proceeding, carefully assess the lease terms, financial implications, and long-term goals. With the right structure and professional advice, ground leases can deliver security, flexibility, and new opportunities for both parties in 2026 and beyond.