In this blog, I will explain the difference between fee simple vs leasehold.

While searching for homes online you have probably come across some properties that say this is a leasehold condo or this is a fee simple condo. In this blog, I will be explaining the difference between fee simple vs leasehold in Hawaii. Since this is where I am licensed to practice real estate.

Their meanings are probably fairly similar worldwide. In other places fee simple is also called freehold. Each place has its own real estate lingo and it can get confusing for someone. Ok, let’s dive into the definitions of fee simple and leasehold in layman’s terms!

Fee Simple vs Leasehold

Fee Simple (Freehold Estates)

Fee simple is full ownership of the property and the greatest form of ownership. The title conveys fully to the buyer when purchasing a fee simple property.

Because someone who owns the property having all rights of ownership. With no underlying lease or ownership from anyone else. With fee simple property there are automatic rights to inheritance. Basically, it will go to your heirs in case anything happens to the owner and the ownership does not end upon death.

In my opinion, this is the best form of ownership.

Fee simple estates are totally controlled by their owner. Meaning someone can sell, refinance, or gift the property as they wish. However, all property is still subject to four government limitations in Hawaii.

1. Taxation– Most people are aware in the USA of having to pay for property taxes. A land tax that is imposed on fee simple and leasehold estates.

2. Eminent Domain– The right for the government to purchase a property at fair market value and have it used for public use. An example of this could be the government using the right of eminent domain to buy a property to put in an alternative road or the rail. Because there are limited options of where this road could go.

3. Escheat- Is the government obtaining a property after 15 years who has no next of kin. This one of the reasons is why writing a will is so important. Especially if you have no obvious next of kin.

4. Police Power- This is the right for the government to regulate the zoning in Hawaii. To control how many buildings or what type of buildings may be built in a certain area. An example of this is how only certain areas in Hawaii are zoned for commercial activity.

Leasehold (Leasehold Estate)

Leasehold is exactly what it sounds like. Purchasing a lease. When purchasing a leasehold property the buyer is called the lessee and the owner of the land / fee is called the lessor.

Important things to consider when purchasing a leasehold property are…

• Length of the lease. How many years are left on the lease?
• The leasehold rent amount. Most leasehold properties have a monthly rent.
• Renegotiation date of the leasehold rent.
• Who is the fee holder?

The most common question I get asked on leasehold properties is “What happens after the lease expiration date?”

One of three things can happen. The first option is that the lessor could extend the lease expiration date. Secondly, the lessor could agree to sell the fee to the lessee at X amount of dollars. Turning the property to a fee simple property is called a fee conversion. Or lastly, the lessor could decide to take back the property at full at no compensation to the lessee.

There are some risks in purchasing a leasehold property and that is why they are usually lower-priced properties compared to fee simple.

An example of leasehold land in Hawaii is Hawaiian Home Lands. Where the lessor is The Department of Hawaiian Homelands (DHHL). Lessees are people who have enough Hawaiian blood to qualify and get awarded to lease from DHHL. In this case, the lessee can occupy the land for X amount of years I think it’s usually around 100 years. The lessee can build a home that they own 100% that sits on leased land. For the duration set forth with DHHL.

Fee Simple vs Leasehold – Commonly Asked Questions

Can you sell a leasehold property? 

Yes! Someone can definitely sell a leasehold property. Selling it means you would be selling the remainder of the lease. The lease term may definitely affect its sale price. For example a condo with a lease of 50 years vs 5 years.

Does fee simple mean no HOA?

No, fee simple has nothing to do if whether there is an HOA or not.

Is a condo fee simple or leasehold?

A condo can be one or the other so be sure to read the MLS listing carefully. It will state if a property is fee simple or leasehold.

Should I buy a leasehold property?

For some purchasing a leasehold property has worked out very well. Many people are very happy with their Sun Village units on Kauai which are leasehold. It all comes down to your goals for owning a property.