Illinois Real Estate Practice Exam

In a lease where you continue to pay the ground lease, what happens if the building on the ground lease burns down?

1. You stop paying the lease

2. Lease terminates automatically

3. You continue to pay the ground lease

4. You pay a fee to terminate the lease

The correct answer is: You continue to pay the ground lease

The correct answer is that you continue to pay the ground lease even if the building on the leased land burns down. In real estate, a ground lease is a long-term rental agreement where the tenant leases land, usually to develop a building. The tenant typically owns the improvements (like the building) but does not own the land itself. In the event of a significant loss, such as the burning down of the building, the obligation to pay rent under the ground lease usually remains. This is because the lease is a contract that requires payment for the use of the land, regardless of the condition of the tenant's improvements. The tenant might have options for insurance to cover the loss of the building, but these do not negate the obligation to continue lease payments on the land. The other options suggest consequences like terminating the lease or stopping payments, which do not reflect the typical terms of a ground lease. Such clauses usually protect the landlord's ownership of the land and ensure that the lease remains in effect, even when the structures on the land might be destroyed.