Land Lease Fees: Why Some Homebuyers Choose Homes on Leased Land

by Jamie Gonzalez

A home with a land lease can have a lower asking price than a comparable property that includes ownership of the land. For buyers struggling with upfront housing costs, that difference can be appealing.

But there’s a trade-off. Instead of owning both the home and the land beneath it, a buyer typically purchases the home or a leasehold interest while paying ongoing rent for the land. Those payments, along with the terms of the lease, can affect affordability, financing, and resale value.

A land lease isn’t necessarily a bad deal. Whether it makes financial sense depends on what the buyer owns, how much the lease costs, and what happens when the agreement expires.

Key Takeaways

A land lease allows a homeowner to occupy land owned by someone else, usually in exchange for recurring payments.
Homes on leased land may have lower purchase prices because the buyer isn’t purchasing the land outright.
Land lease fees can increase over time, although some states and local governments regulate increases or require advance notice.
Financing may be more complicated, particularly when the lease has a short remaining term or the property is a manufactured home.
Lease renewal, resale restrictions, maintenance responsibilities, and the rights of the landowner can affect the long-term value of the purchase.

What Is a Land Lease Fee?

A land lease fee is the amount a homeowner pays to use land they don’t own.

In a typical home purchase, the buyer acquires the house and the underlying land. This is generally known as fee-simple ownership.

With a land lease, ownership is divided. One party owns the land, while another has the right to occupy or use it under a lease agreement.

Depending on the arrangement, the buyer may own the physical home, hold a leasehold interest in the property, or own a manufactured home situated on a rented lot.

The payment for using the land may be called ground rent, lot rent, or a land lease fee.

These arrangements can be found in manufactured home communities, some condominium developments, and certain residential neighborhoods where the underlying land is held by a separate owner.

Hawaii is one of the better-known U.S. markets for leasehold condominiums. Some condos there are sold with ownership interests that are subject to long-term ground leases rather than fee-simple ownership of the land.

The important distinction is that buying a home on leased land doesn’t automatically give the buyer ownership of the land.

How Does a Land Lease Work?

A land lease is a contract between the landowner, known as the lessor, and the person or entity leasing the land, known as the lessee.

The agreement establishes the right to use the property for a specified period and sets out the obligations of each party.

A residential land lease may address:

The amount and frequency of ground rent or lot rent payments
How and when rent can increase
The length of the lease and any renewal options
Who maintains the land and shared amenities
Restrictions on improvements, pets, rentals, or property use
Whether the lease can be transferred to a future buyer
What happens if the homeowner defaults or the lease expires

The terms vary substantially.

Some arrangements involve long-term ground leases lasting decades. Others, particularly in manufactured home communities, may involve shorter agreements subject to state and local tenant protections.

A buyer shouldn’t assume that a land lease offers the same rights as owning the land outright.

Land Lease vs. Fee-Simple Ownership

Feature	Fee-simple ownership	Land lease arrangement
Ownership of land	Buyer generally owns the land	Another party owns the land
Ownership of home	Buyer generally owns the home	Depends on the agreement and property type
Ongoing land rent	None	Usually required
Property taxes	Owner generally pays applicable taxes	Responsibilities depend on ownership and lease terms
Financing	Conventional options may be more widely available	Additional lender and lease requirements may apply
Resale	Subject to ordinary property and legal restrictions	May require landlord approval or lease transfer
Long-term rights	Generally indefinite, subject to applicable law	Governed by the lease and applicable law

Neither structure guarantees a particular financial outcome.

The question is whether the lower purchase price, if there is one, compensates for the ongoing costs and limitations of the lease.

Why Are Land Leases Attractive to Some Homebuyers?

1. A Lower Upfront Purchase Price

The primary attraction is often affordability.

When the land isn’t included in the purchase, the asking price may be lower than that of a comparable home sold with its lot.

That can reduce the amount of money needed for a down payment, although actual financing requirements depend on the property and loan program.

For buyers with limited savings, the lower initial cost may make a home worth considering.

But a lower asking price doesn’t necessarily mean a lower total cost.

The land lease fee continues after closing and may rise over time.

2. Access to a Location That Might Otherwise Be Too Expensive

Land values can account for a substantial portion of real estate prices in desirable locations.

Leasing the land may provide access to a neighborhood or community where purchasing both the house and the lot would be more expensive.

For example, leasehold condominiums in Hawaii illustrate how buyers may acquire an interest in a residence without owning the underlying land outright.

The trade-off is that the homeowner’s rights remain subject to the lease.

Buyers should compare similar properties in the same market rather than assuming every leasehold property represents a discount.

3. Less Responsibility for Certain Outdoor Areas

Some land-lease communities maintain shared landscaping, roads, recreational facilities, or other common areas.

That can appeal to buyers who want fewer maintenance responsibilities.

However, maintenance isn’t automatically included just because the land is leased.

The landowner, a homeowners association, a community operator, or the homeowner may be responsible for different tasks.

Buyers should review the lease and any community documents to determine exactly what is included in the recurring fee.

A community that provides extensive services may also charge higher monthly fees.

4. More Flexibility in Certain Manufactured Home Communities

Manufactured homes are a common example of housing located on leased land.

A buyer may own the manufactured home while renting the lot beneath it.

This can reduce the initial cost compared with purchasing a manufactured home and a separate parcel of land.

But flexibility has limits.

Moving a manufactured home can be expensive, technically difficult, and sometimes impractical. The home may need permits, specialized transportation, and a suitable replacement site.

A homeowner who wants to leave the community may find that selling the home in place is easier than moving it.

That means lot rent increases, community rules, and the possibility of a park sale or closure deserve careful consideration.

For more on the differences between purchasing land and purchasing a manufactured home, see Movoto’s guide to land-home packages and the risks buyers should evaluate.

What Are the Biggest Risks of Buying a Home on Leased Land?

Land Lease Fees Can Increase

A low initial land lease fee may not stay low.

Some agreements establish scheduled increases. Others allow adjustments based on inflation, market conditions, or a specified review process.

The lease should explain when increases are permitted and how they are calculated.

Some states and local governments regulate lot rent increases in manufactured home communities, require advance notice of increases, or provide other protections for residents.

Those rules aren’t uniform nationwide. They may depend on the property’s location, the type of community, and whether a particular law applies to the lease.

Buyers should review applicable state and local laws rather than assuming rent increases are either unlimited or automatically capped.

Without reviewing those provisions, it’s difficult to know whether the arrangement will remain affordable.

The Lease Can Expire

Unlike fee-simple ownership, a leasehold interest generally has a defined duration.

A long remaining term can provide more certainty than a lease approaching expiration.

But buyers need to understand whether renewal is guaranteed, optional, or subject to negotiation.

They should also determine what happens to the home and any improvements when the lease ends.

Those consequences depend on the agreement and applicable law. They shouldn’t be assumed.

Selling the Home May Be More Complicated

A lease can restrict how the home is transferred.

For example, a buyer might need approval from the landowner or community operator before completing a sale.

The lease may also impose transfer fees or other conditions.

A shorter remaining lease term can make the property less attractive to prospective buyers and their lenders.

That doesn’t mean every leasehold property loses value. It means resale value depends partly on the terms and marketability of the leasehold interest.

Financing Options May Be Limited

Not every lender finances every type of leasehold property.

The rules also differ depending on whether the buyer is purchasing a conventional leasehold residence, a property financed with an FHA-insured mortgage, or a manufactured home on a rented lot.

Conventional Mortgages: Fannie Mae’s Leasehold Requirements

Fannie Mae permits certain leasehold mortgages in markets where this ownership structure is accepted.

Its requirements include protections related to the lease, the lender’s security interest, and the ability to transfer the leasehold.

Under Fannie Mae’s general leasehold requirements, the unexpired lease term must extend at least five years beyond the mortgage’s maturity date.

A 30-year mortgage would therefore generally require at least 35 years remaining on an eligible lease.

The lease must also satisfy other applicable requirements.

FHA Mortgages: Different Lease-Term Rules

Standard FHA-insured forward mortgages can also finance eligible leasehold properties.

Under HUD Handbook 4000.1, a leasehold property generally must have either a renewable lease with a term of at least 99 years or a lease that extends at least 10 years beyond the mortgage’s maturity date.

For example, under the second option, a 30-year mortgage would generally require at least 40 years remaining on the lease.

That differs from Fannie Mae’s general five-year requirement.

The FHA rule also shouldn’t be confused with the separate Title I program for manufactured homes on leased lots.

Manufactured Homes on Leased Land: Additional Requirements

Manufactured homes on rented land can be more difficult to finance through conventional mortgage programs.

Under Fannie Mae’s manufactured housing rules, a manufactured home on leased land subject to a ground lease is eligible only when the borrower owns the manufactured home and the property is located in a condominium or planned unit development (PUD) project approved through Fannie Mae’s Project Eligibility Review Service (PERS).

For these PERS-approved manufactured housing projects, the homeowners association must be the lessee under the ground lease, without further subleases.

That is a more restrictive arrangement than simply owning a manufactured home and renting an individual lot in a mobile home park.

FHA’s Title I Manufactured Home Loan Program provides another potential financing route.

Under that program, eligible borrowers may finance a manufactured home placed on a leased lot.

HUD requires an initial lease term of at least three years and a provision requiring at least 180 days’ advance written notice if the lease is to be terminated.

Those protections are intended to give homeowners greater security when a landowner sells the property or closes a manufactured home community.

Additional program and lease requirements apply.

The takeaway is that there is no single lease-length rule covering every land-lease purchase.

Buyers should have a lender review the actual lease and property structure before making an offer.

For details, see Fannie Mae’s leasehold mortgage requirements, its manufactured housing eligibility requirements, HUD’s FHA Single Family Housing Policy Handbook, and HUD’s Title I manufactured home financing guidance.

How Much Does a Land Lease Really Cost?

A home on leased land can have a lower purchase price but higher ongoing housing expenses.

Consider a hypothetical comparison:

Monthly expense	Home with owned land	Home on leased land
Mortgage principal and interest	$2,200	$1,500
Land lease fee	$0	$700
Other housing expenses	Not included	Not included
Total shown	$2,200	$2,200

Illustrative figures only, not current market averages or financing quotes.

In this example, the lower mortgage payment is completely offset by the monthly land lease fee.

The comparison doesn’t include property taxes, insurance, HOA dues, utilities, maintenance, or potential increases in ground rent.

It also doesn’t account for the differences in equity, land ownership, or future resale proceeds.

Those factors can change the financial outcome substantially.

What If the Land Lease Fee Increases?

Suppose a buyer pays $700 per month in ground rent.

If the agreement permits a 3% annual increase, the fee would grow to approximately $941 per month after ten increases.

That’s roughly $241 more each month, or nearly $2,900 more per year, than the original payment.

The example is hypothetical. Actual increases depend on the lease and applicable law.

In some jurisdictions, rent increase protections or notice requirements may affect how and when fees change.

The point is that buyers need to evaluate future costs, not just the first year’s payment.

Do Land Leases Offer Property Tax Savings?

Sometimes, but buyers shouldn’t assume they will save on property taxes simply because they don’t own the land.

Property tax obligations depend on state and local law, the ownership structure, the classification of the home, and the lease agreement.

A homeowner may owe taxes on the building or improvements even when the underlying land belongs to someone else.

In other arrangements, the landowner may pay property taxes and recover some or all of that cost through ground rent or other charges.

The buyer may therefore bear part of the land’s tax cost indirectly.

Before purchasing, review the property tax records and ask how taxes are allocated under the lease.

A lower purchase price doesn’t automatically translate into lower total taxes or housing expenses.

What Should Buyers Check Before Signing a Land Lease?

The lease deserves as much scrutiny as the purchase contract.

Before committing to a property, buyers should review the following questions with a qualified real estate attorney and, when financing is involved, their lender.

How much is the land lease fee? Confirm the current payment and any additional charges.
How can the fee increase? Look for scheduled increases, inflation adjustments, advance-notice requirements, and applicable rent protections.
How much time remains on the lease? Compare the remaining term with the intended ownership period and mortgage requirements.
What happens when the lease expires? Determine whether renewal is available and what happens to the home or improvements if it isn’t.
Can the home be sold or transferred freely? Identify approval requirements, transfer fees, and restrictions.
Who pays for maintenance and repairs? Distinguish responsibility for the home, lot, utilities, roads, and common areas.
Who pays property taxes and insurance? Review both direct obligations and expenses included in recurring fees.
What happens if the landowner sells the property? Understand whether the lease remains enforceable and what protections apply.
Is financing available? Ask lenders to review the lease before assuming the property qualifies for a mortgage.
How do comparable properties sell? Compare leasehold homes with similar leasehold properties where possible, rather than relying only on fee-simple sales.

Buyers should also investigate the financial condition and management practices of the community or landowner where relevant.

For those considering a separate land purchase instead, Movoto’s step-by-step guide to buying land covers other due-diligence considerations, including surveys, easements, and zoning.

Is a Land Lease a Good Deal?

It depends on the price difference, lease terms, financing, and how long the buyer expects to own the home.

A land lease may make sense when the upfront savings are meaningful, the recurring payments are manageable, and the agreement provides clear protections for the homeowner.

It may be less attractive when rent increases are unpredictable, the remaining lease term is short, financing is difficult, or resale restrictions are significant.

The right comparison isn’t simply a $200,000 home on leased land versus a $300,000 home with land included.

It’s the total cost of purchasing, occupying, maintaining, financing, and eventually selling each property.

That comparison can reveal whether the lower asking price represents meaningful savings or shifts part of the expense into future payments.

Bottom Line

Land lease arrangements can make certain homes more accessible by separating the cost of the residence from the cost of the underlying land.

That’s the appeal. But the lower upfront price comes with ongoing rent and contractual obligations that fee-simple homeowners generally don’t face.

Before buying, review the lease term, payment increases, financing eligibility, resale restrictions, and responsibilities for taxes and maintenance.

A land lease can be a reasonable choice for some buyers. The key is understanding exactly what they’re purchasing—and what they’ll continue paying for after closing.

FAQ

What Is the Difference Between a Land Lease Fee and an HOA Fee?

A land lease fee pays for the right to use land owned by someone else. An HOA fee generally supports the management and maintenance of shared property or services within a community.

Some properties have both charges.

Can You Get a Mortgage on a Home With a Land Lease?

Yes, in some cases. Mortgage eligibility depends on the property type, lender, loan program, remaining lease term, and legal protections in the agreement.

Fannie Mae and FHA have different leasehold requirements. Manufactured homes on leased land may have fewer conventional financing options.

Do You Own the House If You Lease the Land?

Often, but not always. In some arrangements, the buyer owns the physical home while leasing the land. In others, the buyer holds a leasehold interest governed by a broader ownership structure.

Review the deed, title documents, and lease to determine exactly what is being purchased.

What Happens When a Land Lease Expires?

The outcome depends on the agreement and applicable law. The homeowner may have renewal rights, may need to negotiate a new lease, or may face other consequences concerning occupancy and improvements.

Buyers should understand these terms before purchasing.

Can a Land Lease Fee Go Up?

Yes. Many leases permit increases under specified conditions. The timing and amount depend on the agreement and any applicable state or local protections.

Some jurisdictions limit certain increases or require advance notice, particularly in manufactured home communities.

Are Homes on Leased Land Harder to Sell?

They can be. Financing limitations, lease transfer restrictions, rising ground rent, and a short remaining lease term may reduce the pool of potential buyers.

However, market conditions and the specific lease terms matter.

Is a Land Lease the Same as Rent-to-Own?

No. A land lease generally concerns the right to occupy or use land. A rent-to-own agreement typically concerns renting a property with an option or obligation to purchase it later.

The two arrangements have different legal and financial structures.

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