Land Tenure is the term use to include the methods by which individuals hold title to real property. The two main forms of Land Tenure (abbreviated Tnr on the listings I send you) are Fee Simple and Leasehold.
Here is an example of a listing that is fee simple (FS). If it were leasehold the abbreviation would be LH. This is what the listings on the UPdate will look like except that here I have highlighted Tnr and FS in red.
|MLS #||Tp||St||DOM||Taxkey||Tnr||Price||Location||Lnd area||Details||Listed by|
|275772||CND||W||364||3-7-8-14-15-7||FS||$525,000||Kahaluu Reef #102||1,008 #102 2/2.00||Harry M. Pritikin R(BIC) / Koa Realty, Inc.|
|This information has been supplied by third parties and has not been independently verified by Hawaii Information Service and is, therefore, not guaranteed.|
WHAT IS FEE SIMPLE?
Fee Simple is the term given for the type of land tenure whereby the individual holds the title in perpetuity, forever, or until he sells it. It’s what you are used to on the mainland; you own it and can do whatever you want with it.
WHAT IS LEASEHOLD?
With leasehold property, someone else owns the fee simple interest and is leasing the condo to another individual. Leasehold tenure has a term limit to ownership. To alleviate any further confusion I need to explain the different types of leases.
The type of lease you are most familiar with is the rental lease, where an individual rents a property for a short period of time, usually a year. Another type of lease you might be familiar with is the business lease, where an individual leases a store front; usually for around five years. Lesser known are the long term condo leases like we have here in Hawaii. These leases can be from 35 to 99 years, most common of which is the 55 year lease. The developers built their condo projects, and instead of selling the units in fee simple, they charged a sale price AND had the buyer agree to a long term lease with monthly lease rent, periodic (usually every 10 years) rent increases and an expiration date (usually 55 years in the future). These leases usually state that upon expiration, the lessee (person leasing) will either 1. Tear down the buildings and bring he property back to its original condition (costs millions), 2. Move the buildings to another location (costs millions) or 3. Peacefully vacate the premises (cost nothing but you lose everything). The lessor (person leased from; the fee owner) may offer to extend the lease for another period of time at a higher lease rent, or he may offer the property to the lessee to purchase the fee simple interest at market value; but there no guaranties. After 55 years it’s usually the greedy spoiled grandkids who have inherited the property and they know they can make millions by letting the leases expire, taking the properties back, and selling them fee simple at market value. So as the lease gets shorter, the value goes down because buyers know (or should know) that in a few years they will have to give up the condo.
SO WHAT ARE YOU BUYING WHEN YOU BUY A LEASEHOLD CONDO?
When you buy a leasehold condo you are only buying the right to have the current lease transferred into your name. It’s the people to whom the units are currently leased (lessees) that are trying to sell the rights to their leases. That is, the buyer will take over the lease, but for a price. The fee owner (lessor) doesn’t get any of the sale’s proceeds; he just continues to collect leaserent from the new lessee. Think of it as extortion. The lessee has a lease for a particular condo. If you want that condo you are going to have to pay his price to get that lease transferred into your name. How much time is left on the lease is all the time you will have to enjoy the ownership of that condo. When the lease expires you will have to turn the unit over to the fee owner. This is why I never recommend that my clients buy a leasehold condo.