Ground Lease Expiration and Renewal: Emerging Issues and Concerns

The coming into being of the 1992 Constitution, which prohibits the grant of freehold estate in stool lands, effectively ended the era where one could purchase such estates in Ghana. Even though the Constitution only prohibits transfer of freehold interest in stool lands, the owners of the other types of lands have taken cue and shown an unwillingness to transfer such interests. Consequently, most of the lands that have been purchased for various purposes over the past three decades have primarily been leasehold estates.

Regardless of the length of the lease, one fact remains; it would expire at a specific time in the future and the lessee would be required to hand over the land to the lessor together with the structures that are permanently attached thereto. Strangely, this fact seems to be lost on a lot of people.

To avoid losing the property, the lessee has to renegotiate a new term by renewing the lease at a substantial cost especially where the land is situated in a prime area. In the situation where the lessee is unable to meet the terms for the renewal, the property must be peaceably handed over to the lesssor. It must be stressed that an option for lease renewal must be included in a ground lease to entitle the lessee to the right of renewal otherwise it becomes available only at the discretion of the lessor.

In recent times, ground leases in older parts of Accra and Kumasi have begun to expire and it is becoming increasingly clear that without a coherent, well thought-out policy and guidelines on ground lease renewals, the nation risks destabilizing the foundation underlying its social and economic interactions.

Incidentally, most of the areas where ground leases have begun to expire are public lands and therefore the Public and Vested Lands Management Division (PVLMD) of the Lands Commission has been negotiating lease renewals with existing lessees. In the past, the practice has been that, even though the lessee is re-leasing the land as well as the permanent structures thereon, the upfront lumpsum payment (premium) and the reserved ground rent typically constituted a small fraction of the market value of the property. This approach was not only fair but also a good public policy.

In the first place, ground leases put the risk of developing the site on lessees and it is through their ingenuity and investments that the lessor can expect to obtain a valuable piece of property upon the expiration of the lease. It would, therefore, be unfair for the lessor to seek to extract all the gains by charging the full market value of the property especially where the lessee is seeking the renewal to remain in possession and use. After all, the lessor leased a vacant parcel of land and should not unduly profit from the collective efforts of the lessee and state actors that may have provided the infrastructure.

In recent times, the PVLMD has been seeking to introduce a new policy on lease renewal that requires lessees of public lands to pay premiums and ground rents at or close to their market values. This change in policy on lease renewals, if allowed to prevail, will have severe unintended consequences. Firstly, most prime lands in the major cities, which support a greater percentage of economic activity, are managed by the PVLMD and will therefore be directly affected by this new policy by increasing cost of doing business. This will reduce the nation’s competitiveness in attracting investments. Secondly, lessees will be disincentivized from redeveloping or undertaking any major refurbishments of their properties as lease expiration dates draw closer, a situation that is likely to lead to urban decay and land underutilization.

Thirdly, this new approach is very likely to be adopted by the owners of stool/skin and family lands since PVLMD’s policies and practices usually provide the benchmark for managing lands in the country even though it manages only about 20% of lands. In essence, a seemingly isolated challenge in renewing ground leases on public lands will quickly become a major issue with economic and national security implications.

From a public policy standpoint, it would be misguided for lessors to seek to make it practically impossible for lessees to renew leases by charging excessively high premiums and ground rents. It would be unimaginable for Government or stools and families who own majority of lands in the country to engage in mass repossessing of lands upon lease expirations due to the serious social and economic repercussions of such an action.

Accordingly, setting premiums and ground rents at unaffordable levels will turn most lessees into “squatters” and create more tenure insecurities. Clearly, this will go against an express government policy to reduce title insecurities. Besides, any further worsening of ownership uncertainty will impede the nation’s efforts at economic transformation as land remains at the heart of all economic activities including access to finance.

In the light of foregoing issues, it is apparent that an informed public debate is urgently needed to discuss the best way to handle ground lease renewals and develop coherent policies that would guide managers of both public and communal lands. It is instructive to note that in the coming decades, lease expirations would occur on a large scale and without proper institutional framework and guidelines, there is bound to be public agitations and conflicts between land owners and lessees. These can create challenges for national cohesion and peaceful co-existence.

The writer is a Senior Lecturer, Department of Land Economy, KNUST.

Email: fgyamfi-yeboah.cabe@knust.edu.gh; redfgyx@gmail.com