Leasehold vs Fee Simple property on Maui, Hawaii
Fee simple ownership is plausibly the most familiar form of ownership to buyers of residential property, especially on the Mainland USA. Fee simple is sometimes called fee simple absolute because it is the most complete form of ownership. A fee simple buyer acquires ownership of the entire property, including both the land and building. The fee simple owner does not pay groundʼs rent, but does pay real property taxes. The fee simple owner has the right to possess, use and dispose of the land as the fee simple owner wishes–sell it, give it away, trade it for other things, lease it to others (contingent upon CC&R’S house rules and zoning), or pass it to others upon death.
The leasehold interest is created when a fee simple land-owner enters into an agreement or contract called a ground lease with a lessee. A lessee buys leasehold rights much as one buys fee simple rights; however, the leasehold interest differs from the fee simple interest in several Important respects. First, the buyer of residential leasehold property does not own the land and must pay ground rent. Second, the use of the land is limited to the remaining years covered by the lease. Therefore, the land returns to the fee simple land-owner in a process called reversion.
Authorized by the Hawaii State Legislature and the State’s Housing Finance and Development Corporation
Owners of leasehold condos on Maui pay also property tax on their individual property. The Maui property tax department taxes it as if it was “fee simple” property.
Depending on the provisions of any surrender clause in the lease, the buildings and other improvements on the land may also revert to the fee simple land-owner.
General Questions to ask before you buy leasehold property
➙ How long is the lease term? When is the expiration date, and is there an extension clause?
➙ How much is the lease rent?
➙ When are the lease rent renegotiation dates?
➙ How will the new lease rent be determined?
➙ What are the terms of the surrender clause?
➙May I convert to fee simple? If so – at what cost?
You may want to seek attorney and tax advisor on the details of the leasehold agreement.