Hawaii Real Estate Land Tenure - Fee Simple v. Leasehold

By
Real Estate Agent with Valcore Realty Group

One of the most frequent questions that we are asked have to do with the difference between Fee Simple and Leasehold ownership as it pertains to Hawaii Kai real estate. In Hawaii, there are two primary ways to own real estate: Fee Simple and Leasehold.

Fee Simple is the most widely understood form of land ownership. It is also the most common form of real estate ownership in Hawaii Kai Hawaii. This type of ownership is the maximum possible estate one can possess in real property. A fee simple estate is the least limited interest and the most complete and absolute ownership in land; it is of indefinite duration, freely transferable and inheritable. Fee simple title is sometimes referred to as "the fee". All other estates may be created from it, which means that all other estates must be something less than fee simple (such as life estates or leaseholds). Any limitations that exist on the control and use of the Hawaii Kai real estate held in fee do not result from the nature of the estate itself but are founded public or private controls governing the use of the land (such as zoning ordinances, building codes, etc.).

Leasehold was very common in Hawaii fifty or sixty years ago when landowners were willing to give out 100 year leases on their land. People figured at the time that the lease would outlive them and it was also a cheaper way to control land. It is not so common anymore. Leasehold is a lesser form of ownership than fee simple. Under a lease, the tenant possesses a leasehold, and the landlord possesses the reversion estate. That is, when the lease terminates, the property reverts to the landlord. In other words, as a leasehold owner you have the right to use the land in the same manner as if it were fee simple. The primary difference, however, is that time is attached to your ownership. Once that time runs out, the land as well as all improvements thereon, revert back to the person who owns the fee. It is very similar to leasing a car. While you lease the car, it is yours. Once the lease expires, you have to give it back and the car is no longer yours. When deciding whether or not to purchase a leasehold property, one has to take several factors into account such as the length of time on the lease and the return you can get on your investment while he/she controls the property. One of the other major drawbacks to leasehold ownership is the monthly lease rent of the property. Unlike a fee simple property where you purchase the Hawaii real estate and that's it, with leasehold property you have to pay monthly lease rent to the land owner above and beyond your mortgage for the purchase price, taxes, etc.

We hope this article clarifies the difference between fee simple and leasehold as it pertains to Hawaii Kai real estate and if you have any further questions please do not hesitate to contact us at 888.450.4140 or visit our Hawaii Kai real estate website to view Oahu Hawaii listings.

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