Leasehold vs. Fee Simple Ownership - THE FACTS

Real Estate

FEE SIMPLE

The majority of property that is bought and sold in the United States is sold “Fee Simple”.  This terms means that the buyer is given title to the property, which includes both the land and any improvements (typically structures) made to the property for as long as he holds the title.

This means that the new owner has the legal right to possess, use the land, make further improvements to the land, or dispose of the land as he chooses.

LEASEHOLD

Hawaii and a few other states offer an additional type of property ownership known as “Leasehold”. A leasehold interest occurs when a fee simple land-owner (lessor) enters into an agreement called a ground lease with a person (lessee). The lessee rents the land from the lessor for a set period of time. The lessee is entitled to use and enjoy the land—for that set period of time—in much the same way a fee simple owner would use and enjoy the land.

However, the lessee rights differ in that he does not own the land itself. Additionally, if he transfers his leasehold real estate to a new owner, that new owner’s use/enjoyment of the land is subject to the terms of the original lease (lease term). At the end of the pre-designated lease term, there are a few possible outcomes:

1.      The lessee’s right of use/enjoyment of the property may revert back to the lessor (known as reversion)

2.      The lessor and the lessee may agree to a new lease

3.      The lessor may sell the “leased fee interest” to the lessee

In the case of a condominium depending on the provisions of any surrender clause in the lease, the buildings and other improvements on the land may also revert to the lessor. Finally, the use, maintenance, and alteration of the leased premises are subject to any restrictions contained in the lease.

 

IMPORTANT LEASEHOLD TERMS TO KNOW

Lease Term - The length of the lease period (usually 55 years or more)

Lease Rent - The amount of rent paid to the Lessor for use of the land

Fixed Period - The period in which the lease rent amount is fixed

Renegotiation Date - Date after the fixed period that the lease rent is renegotiated

Expiration Date - The date that the lease ends

Reversion - The act of giving back the property to the Lessor

Surrender - Terms of the reversion

Leased Fee Interest - An amount a Lessor will accept to convey fee simple ownership

Have questions or want a detailed information packet on purchasing leasehold property in the state of Hawaii ? Contact me today!
Nancy, 808-347-4747