In a typical ground-lease structure, the landowner leases the site while the tenant may develop or own the building during the term. In a typical NNN building lease, the owner owns land and building while the lease allocates taxes, insurance and maintenance to the tenant. Exact rights are controlled by the executed documents and local law—not the marketing headline.
Question one: what property interest transfers?
Read the deed, survey, lease, memorandum of lease and title commitment together. Determine who owns the improvements now, who finances them, and what happens at expiration or early termination. Some ground leases specify that improvements revert to the landowner; others have different rights or purchase mechanisms.
A fee-simple sale of land subject to a ground lease is not the same thing as buying a leased fee interest in land and an owner-owned restaurant building. Financing, insurance, depreciation and residual value can vary by structure and tax facts. Obtain legal and tax review for a specific deal.
Question two: who actually pays for what?
The NNN shorthand usually points to tenant payment of property taxes, insurance and maintenance, but there is no substitute for reading every expense clause. Roof, structure, parking lot, utilities, HVAC, capital repairs and casualty restoration may not all land in the same column.
Ask for expense reconciliations and invoices when possible. A 'passive' property with an unfunded roof or inaccessible drive-thru may be far less passive after turnover.
- Check tax and insurance reimbursement mechanics and caps.
- Separate routine maintenance from capital replacement obligations.
- Verify the rights to inspect, cure defaults and enforce the guaranty.
Question three: who stands behind the rent?
The tenant may be an operating subsidiary or franchisee even where the brand is nationally recognized. Locate the actual signature blocks and guaranty exhibits. Confirm the guarantor's identity, scope, termination triggers and financial reporting rights.
A parent-company guarantee should be supported by an executed obligation—not inferred from signage or a broker's description. A tenant may have a strong store but a weak lease guarantor, or the reverse. Evaluate both.
What about a 1031 exchange?
The IRS says Section 1031 generally applies to qualifying exchanges of real property held for business or investment, not personal or intangible property. A QSR label does not establish eligibility. The nature of the interest, use, transaction structure and timing must be reviewed with qualified tax counsel and the exchange team.
Do not assume that buying a restaurant operating business, acquiring equipment or exchanging a leasehold interest is equivalent to acquiring eligible fee-simple real estate. Obtain transaction-specific advice before committing exchange proceeds.
Underwriting question: Are you buying land, land plus building, a leasehold, or some combination—and what remains when the lease ends?
Sources & methodology
Published as educational analysis on October 1, 2026. Regulatory and institutional sources support general definitions and risk framing; site-specific conclusions require the signed deal documents, current comparable evidence, a physical inspection and qualified professional review. Hypothetical figures are labeled where used. This page is not a live market-data feed.
- IRS Like-kind exchanges: real estate tax tips Qualifying real-property exchange framework; page updated May 2026.
- OCC Commercial Real Estate Lending handbook Lease, income and collateral-risk context.
This is research and analysis only, not personalized financial advice. Nothing here is legal, tax, appraisal or investment advice for a particular transaction.