A Simple Concept?

Whether online or in print, real estate ads are subject to a couple of sets of regulations. Disclosing the “value” of an estate is fairly unique to Hawaii. Until a few years ago, the designation of an estate quality as either “fee simple” (FS) or “leasehold” (LH) was required on all forms of advertisement. While leasehold ownership must still be specifically noted, properties not so designated are now assumed to be fee simple.

Deciphering Fee Simple and Leasehold

Because the concept of leasehold ownership is fairly unique, it should be no surprise that people always question the distinction between the two. In most basic terms, fee simple means you own the property. As the name implies, leasehold properties include a lease as part of the conveyance (transfer). There are various forms of leases. Every lease is different.

Complexities of Leasehold Conveyances

Conveyance of a leasehold property may include not only a transfer but a possible renegotiation of the ground lease as well. Additionally, leasehold conveyances involve both a lease transfer and a conveyance of the real property interests. Sales of leasehold properties are much more involved than fee simple transfers. Disclosures are much more involved.

Leasehold Properties in East Hawaii

Leasehold properties in East Hawaii are basically limited to Hawaiian Homes, condo units along Banyan Drive, and homes along Oceanview Drive. There may also be a few remaining leasehold condos in Hale Moana. A common belief is that leasehold properties belong to either the State or one of the large estates such as Bishop Estate. In Fact, churches and individual families own many. For this reason, from time to time, a leasehold home will pop up in a residential neighborhood.

Ownership Rights: Fee Simple vs. Leasehold

As relates to ownership, property is always conveyed along with a “bundle of rights” regarded as the ownership “estate”. Fee simple ownership encompasses the largest bundle of rights available. It is generally assumed that fee simple ownership rights include the right to use the property for any legal purpose not otherwise limited by deed or subdivision restrictions and more recently, county or state restrictions. Fee simple ownership exists indefinitely. Leasehold estates have a definite duration.

Understanding the Process

While the ownership concepts are simple, the details of any property transfer are not. Understanding the differences is key to choosing not only the property but also the agent who will help guide you through this not so simple process!