Have you wondered what it means when a property is Leasehold? More often than not, when people are looking to buy a property here on Kauai they will hear the term “Leasehold” usually for the first time. The terms of the lease will vary from property to property, this blog is general information to give you a basic working knowledge on Leasehold vs Fee Simple.
What Is Fee Simple?
Most of the properties here on Kauai are Fee Simple, which means you own the land. Oftentimes there will often be a “FS” after the price which immediately tells you that it’s Fee Simple. These Fee Simple properties will be more expensive because it’s being sold with the land or, in the case of a condominium, a proportionate share of it.
What Does Leasehold Mean?
These properties will be easy to identify because the price is much lower than a Fee Simple property, there will also be an “LH” next to the price indicating that it’s Leasehold. Recently, our Hawaii Association of Realtors made it mandatory to start a Leasehold listing description with the words “This is a leasehold property” so buyers and their agents will immediately know this property is being sold without the land.
How Long Is the Lease?
The answer to this will vary. When buyers have asked me this question a lot of times they think there is a standard 99 year lease but that is not true. The duration of the lease will fluctuate from property to property.
Look For The “Surrender Clause”
The Lease will “run with the land” which means that the terms of the lease will not change when the property is sold. If in the lease there is a Surrender Clause that means the property goes back the landowner at the expiration of the lease.
Will I Get Paid Back For My Property When The Lease Runs Out?
If so this will be in the leasehold agreement but generally the answer is no. A good comparison is a shopping mall where the tenant occupying the store space pays a monthly rent, if they move out of the store the space stays with the owners of the mall.
Will That Monthly Lease Price Go Up?
Look to see if there is a “Renegotiation Date” on the listing. If so then the landowners and the homeowners will come to an agreement on the valuation of the land sometime after the Renegotiation Date that is stated on the listing. What the new Landlease monthly cost will be adjusted to is not known until both sides come to an agreement.
Can A Leasehold Property Get Changed Over To Fee Simple
That can, and it has, happened. However, you wouldn’t want to buy a property hoping that this might happen. Be prepared to follow the terms of the lease.
Leasehold Disclosure Packet
When you purchase a Leasehold property the Seller will provide the Leasehold Disclosure, normally you will get this after you have opened up escrow. When you get the Leasehold Disclosure you’ll usually have around 10 days to review it.
If you have any additional questions you are welcome to give me a call at 808.346.0056
Lynda Gill RS 63088