A Simple Concept – Leasehold vs. Fee Simple

Pictured: a fee simple home recently sold at 19-4242 Wright Rd, Volcano, HI.

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 Hawai`i. Until a few years ago, 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. Because the concept of leasehold ownership is fairly unique, it should be no surprise that people always question the distinction between the two.

Fee Simple vs. Leasehold

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.

Behold the Leasehold

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 Hawai`i are basically limited to Hawaiian Homes, condo units along Banyan Drive, and homes along Oceanview Drive. There may be a few remaining leasehold condos in Hale Moana as well.

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. As relates to ownership, property is always conveyed along with a “bundle of rights” regarded as the ownership “estate.”

Simply Put

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. Fee simple ownership exists indefinitely. Leasehold estates have a definite duration. 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!