Leasehold in Hawaii

There are two ways to hold ownership in the State of Hawaii. One is FEE SIMPLE and the other is LEASEHOLD.

Lets begin with FEE SIMPLE, in which you own your residence, and you own the land and you own it all forever, or until you decide to sell, etc. This is common ownership in most of the states. Next is LEASEHOLD. For most of you "mainland" folks, leasehold is similar to owning a trailer and renting space in a trailer park. You own your home, either a single family residence, or perhaps a condominium or cooperative. You are basically renting or "leasing" the land that the residence occupies from the owner.  The LESSOR is the person, entity or trust that owns the land. (Originally the leases were for long terms of 55 or 60 years which would be most of your life, if you bought your home when you were young.)  When you own LEASEHOLD you have the right to sell your home or convey the deed to your home. At the end of the leasehold term, regardless of who owns the residence, the land belongs to the land owner and the owner of the residence gives up their claim to the residence.  For this reason, leasehold properties tend to sell for less than FEE SIMPLE properties, because the ownership in fee simple properties never ends.  Sometimes the LESSOR, the person, trust or entity will decide to sell their interest in the property and will offer the “leased fee interest” in the property to the existing leaseholders. FINANCING LEASEHOLD PROPERTIES. While Leasehold properties can be had for a much lower price than comparable Fee Simple properties there are some financing challenges. Generally the remaining term on the lease has to be at least 5 years longer than the term of the mortgage.  If there are only 32 years left on a lease, the best you could do would be to find a lender who would give you a 27 year mortgage. Another variable is that most leases have clauses in them for lease rent “renegotiation” or even statements that automatically adjust the lease rents at fixed intervals. Generally the renegotiations are every 10 years. Lease rent increases are governed by Hawaii law and do have established ceilings. However, if someone is considering a leasehold property, its is imperative that they know the current lease rents, the lease expiration and when the rent reviews/renegotiations are scheduled in the lease. MOST IMPORTANT OF ALL, if you are considering purchasing a leasehold property, make sure that you are represented by an experienced reputable broker, who has been through and thoroughly understands all about the leasehold purchase and who can give you the benefit of their experience.