Fee Simple (Fee Simple Absolute, Fee)

Fee Simple is what most people are accustomed to. It is the most complete form of ownership where you purchase and acquire ownership of the entire property, both the land and the building. You receive all rights to possess, use, and dispose the land and building as you wish. You or your heirs receive title forever until it is disposed.

Leasehold

With a Leasehold, when the building was being developed, the developer entered into a contract called a ground lease with the land owner instead of buying the land outright. A ground lease separates the land and building ownership. It is usually for a long term of 55 years or more (from the original date of the lease).

When you purchase a Leasehold property, you are only purchasing the condominium unit not including the land it is built on. Therefore, you must enter into a lease agreement with the lessor (land owner).  In doing so, you acquire the right to occupy and use the land but you do not own the land. In exchange for this right of using the land, you agree to make lease rent payments (often a monthly payment) to the lessor and abide by the terms of the lease agreement.

Leasehold is a long term lease and is different from tenant renting.  When a tenant rents, he does not receive any type of ownership over the land or the condominium unit. The tenant only enjoys the right to use the condominium and the land. A leasehold owner, on the other hand, is the owner of the condominium unit. He is able to sell his lease interest to a new buyer if he wishes or he can rent to a tenant.

Once the lease period has expired, depending on the lease agreement the land may revert back to the lessor or you may be able to purchase the land outright.

What happens to your condominium unit depends on the lease agreement: Improvements (which in this case is the building, including your unit) may automatically become the property of the lessor; you may be able to remove your improvements; or the lessor may purchase the improvements from you.

Often in Hawaii, condominiums are sold as Leasehold. This is because the land is extremely expensive to purchase and leasing allows buyers to afford the condominium unit.

It is important to understand what leasehold is because it does affect your buying and selling potential. There are additional factors that must be considered, which are not present when purchasing in Fee Simple: 

What is the length of time remaining on the lease term?
What happens to your unit at the end of the lease term?
How are increases in the rent payments determined?

Keep in Mind

As the lease term approaches its rent negotiation or expiration, you may find that it becomes more difficult to sell. Naturally, buyers are more attracted if the lease has a longer period until rent negotiation or expiration. The value of the unit could decrease as the lease term nears the expiration date.

Leasehold could also affect your ability to obtain a loan. If you want to refinance your leasehold apartment, you may face obstacles as the lease term approaches expiration. It is wise to talk with your mortgage financer regarding this issue. 

Buyers

Before you buy, you should obtain the lease agreement and understand its terms and conditions to insure that it fits your future plans.

When reviewing the lease, look for the following pertinent information:

Lease Term: How long until the lease expires?

Lease Rent: How much is the lease rent and how often is the payment?

Lease Rent Renegotiation Dates: The rent payments may adjust during renegotiation.

Surrender Clause: This tells you what will happen to your unit when the lease expires.

Amendments: Reflects changes in the lease.


Feeling Overwhelmed? Let us help you.

This can be a difficult matter, especially if trying to do it alone. You don’t need to feel overwhelmed by this information., CENTURY 21 Hawaiian Style is here to help you. Contact Us. To find more indebt information on what leasehold means, please contact us or read the complete Leasehold Property Packet. If you have any questions, concerns, or if you would like to obtain lease information on a particular property, Century 21 Hawaiian Style is more than happy to help.