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When taking a look at realty here on the island of purchasers pertain to ask the common concern "What is the difference between Leasehold vs. Fee Simple.

These are The two kinds of land ownership that exist in Hawaii and also exist everywhere else. It's simply that on the mainland mostly only business area is leased. The 2 types (collectively called Land Tenure, abbreviated "Tnr" in the listings) are Fee Simple (FS) and Leasehold (LH). "Tnr" is Land Tenure, the method the owner holds title to the residential or commercial property. You either have title to the Fee interest or the Leasehold interest.

This explanation is primarily for leasehold farms. Leasehold condos are various in many respects, although they do have monthly lease rent, renegotiation periods and expiration dates.

Fee Simple is the way you normally hold title on the mainland, only you simply didn't understand the name. When you purchased a house, you also bought the land and you owned your house and land till you offered it. With leasehold, you purchase your home (or, for apartments, the space within the walls) and the right to take over the staying time on an existing land lease. Hawaii simply has more leasehold residential or commercial property than any other state. In fact, 55% of all Hawaiian land is owned by something like 17 major land owners, the biggest of which is Bishop Estate. On the Big Island, Bishop Estate owns countless acres. This land is broken up into various sized farm lots averaging 5 or 6 acres each. All the leases were leased out in the 50's and 60's for farm purposes at an annual cost of around $300 to $400. There was no in advance money. Over the years the lessees developed structures and planted crops (mainly coffee and macadamia nuts) which included worth to the land that did not come from the lessor. Hence, a sell leases began in the 70's. By the 80's you might sell your lease with 30 to 35 years left on it for around $100,000. The leases have regular renegotiation durations where the lease rent increases utilizing the Honolulu Price Index as a bench mark. Today the typical lease rent has to do with $800 to $1500 annually. A normal leasehold residential or commercial property of 6 acres with a three bedroom house and 28 years left on the lease may sell for $250K to $600K. A similar cost easy piece would be around $800K to over a million. When the lease ends you can get a new thirty 5 year lease at a renegotiated rate.

The most significant downside to a (farm) lease is the lease transfer charge (condos, Gentleman Farm rents, and domestic leases do not have the transfer fee). If you have all the productive land defined in your lease planted in a crop then the transfer cost is %10 of the gross prices. If you have ignored your crops severely (let them become thick with weeds and vines, and so on) or failed to plant a crop in the productive area, then the transfer charge is%20. Therefore, it is very important that you farm your land carefully and save a part of your earnings every year to offset the transfer fee when you sell. Leasehold is still a bargain, because if you were going to farm for a living, paying the financial obligation service (interest) on a million dollar loan for cost easy residential or commercial property would eat up all your revenues. Similar leasehold residential or commercial property would normally be under $500,000. Leasehold may be the only method to go for expert farmers or those who desire to own a hobby farm, want acreage, and can just manage the leasehold prices. And lease rent can be a deductible overhead!

If an individual did not desire to farm at all, however could only pay for leasehold, there are

expert farmers who will participate in a contract to farm your land, keep it in compliance with the Lessors requirements, in exchange for the crops. Terms are negotiable. I have heard of people who just wished to clean their hand of the whole farming experience who got absolutely nothing in exchange for the crops however an absolutely rubbed out piece of land. Others get as much as 10% of the gross sales and their lease rent paid. Basically, what ever you can exercise with the farmer.

Leasehold condos are another story. There are a number of different personal and business entities that own condominium projects and lease the condominiums. So you do not in fact purchase the condominium, you buy the lease to the condo from the present lessee. There is no lease transfer fee. When it comes to the genuine estate listings you frequently see, the quantity of the regular monthly lease rent and the date the lease ends appears in the bottom line of the listing under the "remarks" box. You can also inform if a listing is Leasehold or Fee Simple by looking under the heading entitled "Tnr" with is the abbreviation for Land Tenure. FS will be for Fee Simple and LH will be for Leasehold. The cost interest in some residential (not agricultural) and condo leases can be purchased.

COMMONLY ASKED QUESTIONS ABOUT LEASEHOLD:

(Q) What is the extra month-to-month payment I make in addition to my mortgage payment? (A) The extra regular monthly (or annual) payment you make to the Lessor is the lease rent. Only condominiums have regular monthly lease rent. Lease lease on leasehold farms is paid each year. Your mortgage payment is totally different and is between you and your loan provider. It has absolutely nothing to do with the Lessor. If you pay cash you will not have a mortgage payment, however you will still need to pay lease rent. When you acquire leasehold residential or commercial property from the person residing on it (the lessee) you buy the improvements (for a farm, the contents for a condominium) and the right to have the lease moved into your name. The lease is with the Lessor (land owner), not the individual you purchased the lease from (former lessee). At the time you seize the residential or commercial property (called "at closing"), the Lessor transfers the lease to you, and all it's terms then end up being binding on you for the remainder of the lease term or up until you sell it to somebody else. Every lease has lease rent renegotiation durations and an expiration date, to name a few specifications and requirements. When you make a deal on leasehold, but before you are needed to go through with the purchase, you are offered a copy of the lease and a leasehold disclosure to study. You have time to reveal it to an attorney if you prefer. If there are terms or conditions in the lease that you don't like, you can cancel escrow and get your deposit back.

(Q) What takes place if you acquire a lease that is about to expire? (A) It depends on the Lessor. For condos and property leases, it depends upon what is stated in the specific lease. For Bishop Estate leasehold farms, you can wait for the lease to end and renegotiate a brand-new 35 year lease, or you can renegotiate the a new 35 year lease while in escrow.

(Q) What happens at the end of the lease hold time? Say it expires in 2035, does it go back to the state? (A) There are very few leases readily available from the State of Hawaii. The agricultural residential or commercial properties you see on the other side of the highway when you leave the airport heading toward Kailua are State owned ag leases. But the Bulk of the leases offered on the Big Island are owned by Bishop Estate. The Greenwells own some ag leases up behind the Kealakekua Ranch Center in Captain Cook. A couple of other households have some ag leases and a number of own condominium projects. Bishop and/or it's for revenue arm, Kamehameha Investment Corp, also own the land under a number of condo projects in Kona. Most leases specify the approach of renegotiating a new lease when the present one expires. The present lessee usually has "first ideal of refusal". If you can't come to terms you can deal with you don't have to restore, but you generally have very first option. Remember, when you make an offer on a leasehold residential or commercial property, you will be provided with a copy of the present lease to review before you make your last choice to purchase or not. At that time you ought to see what the renewal terms are in addition to lease rent renegotiation terms.

(Q) can the month-to-month payment go up? (A) Rent renegotiation durations usually come every 10 years after the very first 15 years of the lease. Right now Bishop Estate is providing really favorable lease rent at renegotiation time for full-time farmers of leasehold farms, $165 per acre. For some, this is even less than they have actually been paying. If you accumulated all the lease rent you pay over the life of the lease it's still way less than the extra interest you would need to pay on the extra cash you would have to borrow to buy a comparable piece of land in charge simple. Leasehold apartments are more unsure. There are several specific Lessors and each lease stipulates a various technique of renegotiation. If you fall in love with a leasehold apartment you must study the lease thoroughly before you buy it.

(Q) What occurs when the lease expires? (A) Most Bishop Estate leases have a surrender clause. But in practice Bishop usually provides the lessee the option to work out terms on a new 35 year lease. To date, nobody has ever been asked to leave the facilities when their lease expired.

The person who asked this next question had read all of the above, so I am including it here to hopefully clarify this circumstance: (Q) At the end of the lease, what happens if they request for, say, another $50,000 to get a new lease? Do we have any option? (A) When the lease expires, and you wish to renegotiate a new lease so you can continue to survive on the residential or commercial property, just the lease rent amount will alter. They will not specific a charge, like the $50,000 you discussed. The lessor will not be "selling" you a brand-new lease. They might charge a greater lease rent for the brand-new lease due to the fact that of inflation. The quantity is normally figured out as a portion of the evaluated value of the underlying Fee Interest. It's a complex kind of appraisal, and can only be done by an expert. If you disagree with the lessor's appraisal, you can employ your own appraiser. Sometimes the 2 appraisers designate a third, and they balance all three. If you still disagree, and you wish to leave, you can take the house with you.

When you purchase leasehold residential or commercial property you are buying the enhancements and the right to take over the lease from the present lessee (the person who is presently renting the residential or commercial property). You are not buying anything from the lessor (the entity that owns the underlying Fee Interest in the residential or commercial property). The lessor does not get any of the cash the Buyer pays to the Seller. The lessor may exact a transfer charge from the Seller nevertheless, generally 10%. But on domestic leases, it is normally only the administrative expenses that are credited the Seller. At closing, the lease is moved into your name from the Seller's and you begin making the lease payments to the lessor where the Seller ended. The lessor does not partake in the sale other than to consent to move the lease from someone to another.