What is the difference between Leasehold vs. Fee Simple

Real Estate Agent with BERKSHIRE HATHAWAY HomeServices Hawai'i Realty RS-63620

Most people only know of one type of real estate ownership; fee simple, also known as freehold.  There are a handful of states that have another form of ownership known as leasehold.

The difference in these two types of land tenure is very different and affects the value of the real estate.  It is important to know the difference, especially if you're buying real estate in a leasehold state (i.e. Hawaii, New York, Florida).

 What is the difference between leasehold and fee simple?

FEE SIMPLE:  Fee simple ownership is probably the most familiar form of ownership to buyers of residential real estate. Depending on where you are from, you may not know of any other way to own real estate.  Fee simple is sometimes called fee simple absolute because it is the most complete form of ownership.  A fee simple buyer is given title (ownership) of the property, which includes the land and any improvements to the land in perpetuity.  Aside from a few exceptions, no one can legally take that real estate from an owner with fee simple title.  The fee simple owner has the right to possess, use the land and dispose of the land as he wishes--sell it, give it away, trade it for other things, lease it to others, or pass it to others upon death.

LEASEHOLD:  A leasehold interest is created when a fee simple land-owner (Lessor) enters into an agreement or contract called a ground lease with a person or entity (Lessee).  A Lessee gives compensation to the Lessor for the rights of use and enjoyment of the land 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 leasehold real estate does not own the land; they only have a right to use the land for a pre-determined amount of time.  Second, if leasehold real estate is transfered to a new owner, use of the land is limited to the remaining years covered by the original lease.  At the end of the pre-determined period, the land reverts back to the Lessor, and is called reversion.  Depending on the provisions of any surrender clause in the lease, the buildings and other improvements on the land may also revert to the lessor.  Finally, the use, maintenance, and alteration of the leased premises are subject to any restrictions contained in the lease.

Important Leasehold terms to know: 

  • Lease Term - The length of the lease period (usually 55 years or more)
  • Lease Rent - The amount of rent paid to the Lessor for use of the land
  • Fixed Period - The period in which the lease rent amount is fixed
  • Renegotiation Date - Date after the fixed period that the lease rent is renegotiated
  • Expiration Date - The date that the lease ends
  • Reversion - The act of giving back the property to the Lessor
  • Surrender - Terms of the reversion
  • Leased Fee Interest - An amount a Lessor will accept to convey fee simple ownership
This article is also featured on my website:www.KailuaRealEstateOahu.com along with fabulous active Oahu listings for your review.
Posted by


Lila Marino-Camacho (RA)

"International Sterling Society and Top Salesperson-Units, Windward Office 2012, Top 10% Oahu Realtors 2012"

Coldwell Banker Pacific Properties

Cellular: (808) 341-6034

Email: Lilamc315@hawaii.rr.com

Website: www.KailuaRealEstateOahu.com


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Short Sales, Foreclosure & Bank Owned Real Estate

Lila, I am very grateful for all this explanation, very educational and we all need to know such information ... greatly appreciate it! thanks for sharing!!

Dec 04, 2012 02:24 AM #1
Lila Marino-Camacho
BERKSHIRE HATHAWAY HomeServices Hawai'i Realty - Kailua, HI
RA - Windward Oahu (Kailua-Kaneohe) & Relocation S

Most people who are inquiring on Hawaii real estate tend to gravitate towards leasehold listings till they realize that you need to purchase the fee as well or pay a lease rent because they don't understand what they are looking at on the fact sheet. Also if the fee isn't available, you need to pay attention to the lease expiration because you can also lose the property if the land owners don't want to sell the fee. This is the first thing (the article) I send to them in response to their inquiry. 

Feel free to use this! Aloha

Dec 04, 2012 02:32 AM #2
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Lila Marino-Camacho

RA - Windward Oahu (Kailua-Kaneohe) & Relocation S
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