Big Island

Leasehold vs. Fee Simple in Hawaii Real Estate (Part 2)

I begin my explanation of Leasehold with the first part; Leasehold vs. Fee Simple. This gives a basic explanation of Leasehold. In this blog, I will address the question, “what happens at the end of the lease term?”

In case the reader is reading this, Part 2, prior to Part 1, I want to clarify that this blog refers to Kamehameha School Bishop Estate Agricultural Leasehold property. There are other Lessors, however, regarding Kona and South Kona Ag land, KSBE is the primary Leaseholding land owner.

14+ Acres with 2 private homes

Kona Mango Farm (MLS# 285853)

The Lease document sets forth the expected requirements of the Lessee. Unless the property size is less than 1 acre, of which there are very few, there will be farming requirements. My first question to anyone considering a KSBE Ag LH property is, “are you a farmer or do you intend to be one?” If the answer is no, then this type of property is probably not the right fit.

My following question is, “are you a cash Buyer?” For reasons of which I could expound on further, there is basically no conventional lending available for KSBE Ag LH properties at this time, although sometimes, the Seller will offer financing with substantial to half cash down.

Kona Mango Farm Home 1

Kona Mango farm lower home

So, What Happens at the End of the Lease Term?

The short answer to what happens at the end of the lease term is, if the Lessee is compliant with the various requirements set forth in the Lease document, then they can feel confident KSBE will grant a new Lease.

Some of the requirements of the Lease are:

1) The productive amount of land of Leased property is being farmed. KS uses the benchmark set by the USDA to figure the average number of trees and potential yield per acre. This is also a gauge for the prospective farmer to consider the income they can expect by farming the land.

2) The proof of the farming is in the pudding; which is evident by the amount of General Excise Tax the Farmer Lessee is paying. Thus, filing GETax submissions are a Lease requirement.

3) Annual Lease rent paid to KS.

4) There are property physical requirements such as no dead, junk cars, crazy trash, etc.

5) To get a new Lease, a recent survey needs to happen. If the Lease is being sold/reassigned, the survey can be written into the Purchase Contract (Offer), which is a standard cost to Sellers during any Fee Simple property sale transaction as well.

Ocean facing lanai

Manako Farm home (MLS# 285510)

A Leasehold reassignment/transfer of Lease escrow process is typically 6 months. The Lessor, KSBE, as part of the re-assignment application process will do a credit check on the prospective Lessee. However, if you are paying cash or at least a substantial amount down, this is likely not an issue!!

Lease terms in the past have been 35 years. If an existing Lessor gets a new Lease, they are eligible for a 35 year Lease. However, I am told by my contact at KSBE, that a new compliant Lessee is only eligible for a 20 year lease. This can change again…..

Lionel Ocean view with boat

Manako Farm ocean view from lanai

Contact a Hawaii Leasehold Specialist

The best advice I can offer regarding purchasing a Leasehold property is to hire a Realtor that has experience and is knowledgeable of the KSBE LH transaction process.

I live in South Kona. I do not live on Leasehold land, but I am surrounded by it. I appreciate the privacy of having a 10-acre macadamia farm behind me and two 12-acre coffee farms in front. I enjoy gorgeous South Kona coastline and sunset views.

I’m an ISA Certified Arborist and a UH Master Gardener. I specialize in real estate from Kona to Ka’u, with a focus on GREEN and sustainable property. Let me know how I can help make your dream of living on the Big Island a reality and if I can further explain Leasehold vs. Fee Simple in Hawaii Real Estate.

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Bill Bliss

April 27, 2017

Thank you for your explanation. It was helpful. You live in a beautiful space.
Take care, bill

Linda Hussey

April 28, 2017

Great article !

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