What does Leasehold and Fee Simple mean?

Posted by Teresa Nelle RS-60797 on Saturday, February 17th, 2018 at 11:26am.

There are 2 types of properties in Hawaii - fee simple and leasehold.  It is very important to know the difference.  You are familiar with fee simple as its probably what you own now. This means you own your home/condo and the land under it.

Leasehold is a bit more complicated.  In a condominium complex that is leasehold you own your unit, others in the complex of course own their units, and collectively you own the building.  However, you don’t own the land under the building.  Someone else owns it and each month you pay that owner a lease payment.

Over the term of the lease your monthly lease payment is usually renegotiated every 10 years.  There will be terms in the lease that describe how and when the lease payment amount is to be renegotiated.

Many of the complexes that are now fee simple,  were once leasehold.  Over time either individual owners or the AOAO were able to negotiate with the land owner to buy the “fee”.  That means they converted it from leasehold to fee simple.

As you can see, there are some potential risks and problems with leasehold properties.  In the past the risk was offset by a much lower purchase price for leasehold properties vs. fee simple.  To a certain extent that is still true today.

The potential problem comes as you near the end of the lease.  If you don’t or can’t buy the fee and if the lease ends and isn’t renewed your building is sitting on some else’s land.  So who owns that building?  The land owner does.  That doesn’t happen often, but it has happened.  The former owners were evicted and they don’t have any right to compensation.

There are some good leases and there are some good values on leasehold properties.  Rely on your realtor to help you through the maze, but you must do your own due diligence, including having the lease reviewed by your attorney. 

Contact me for more information on purchasing Maui Real Estate - I will direct you to leasehold vs fee simple properties to review.

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