Fee Simple Vs Leasehold

Leasehold vs Fee Simple
 

FEE SIMPLE
Fee simple ownership is probably the most familiar form of ownership to buyers of residential
property, especially on the Mainland. Fee simple is sometimes called fee simple absolute
because it is the most complete form of ownership. A fee simple buyer acquires ownership of the
entire property, including both the land and building. The fee simple owner does not pay ground!s
rent, but does pay real property taxes. The fee simple owner has the right to possess, use and
dispose of the land as the fee simple owner wishes--sell it, give it away, trade it for other things, lease it to others, or pass it to others upon death.
 

LEASEHOLD
The leasehold interest is created when a fee simple land-owner enters into an agreement or
contract called a ground lease with a lessee. A lessee buys leasehold rights 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 residential leasehold property does not own the land and
must pay ground rent. Second, the use of the land is limited to the remaining years covered by
the lease. Therefore, the land returns to the fee simple land-owner in a process 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 fee simple land-owner.
Questions to ask before you buy leasehold property
! How long is the lease term? When is the expiration date, and is there an extension clause?
! How much is the lease rent?
! When are the lease rent renegotiation dates?
! How will the new lease rent be determined?
! What are the terms of the surrender clause?
Authorized by the Hawaii State Legislature and the State's Housing Finance and Development Corporation