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A building lease refers to a lease contract agreement between landlord and tenant for raw land that includes the provision for the latter to construct improvements on it.
This allows the lessee to secure the land, build on it, and operate profit generating activities on the property.
The landowner would collect a rental that is significantly lower than what would be collected should he be renting out residential real estate that is ready to be inhabited or commercial property ready for business.
Because of the financial commitments that the lessee would have to put up for improvements, such building leases tend to be very long term contracts and tenants would usually demand a right to renew built into the contract.
Building leases are very common in deals between governments who are leasing out land and developers who intend to build on them.
Developers would take on the building lease, contract property on it, and either sell or lease the property to end users at a shorter lease than their lease with the original landowner.
This is to ensure that homeowners would not own the land for a longer period exceeding the date when the land has to be returned to the original landowner.
Crafty developers can sometimes purchase freehold land and lease them as leaseholds. When the lease expires, they restart the process of building and selling all over again on the same piece of land.