Hawaii Leasehold Real Estate


For most Americans and Canadians, there is one type of property ownership: Fee Simple, which is also commonly referred to as Freehold in some States.  When discussing Hawaii real estate, It is critical to keep in mind that properties may have another type of 'Land Tenure' besides being Fee Simple, the other form being Leasehold. The difference between these two types of ownership is wide, so it's important to know the difference and how it can impact viability in reach your Hawaii real estate goals.

So to start, let's define them:

FEE SIMPLE (a.k.a. Freehold or Fee Simple Absolute):  Commonly referred to as the most absolute and complete form of ownership, Fee Simple ownership entitles the owner with title (ownership) in perpetuity, including the land and all improvements thereon.  An owner of a Fee Simple property can feel more secure in ownership rights, he or she can make use of the land, occupy it, and/or dispose in whatever matter is deem appropriate. 

LEASEHOLD:  When the Fee Simple owner (as Lessor) of land leases the land via a ground lease with an individual or entity (Lessee), a leasehold interest is created.  As per terms on the lease, the Lessee can enjoy the land and improvements in the same manner as a Fee Simple owner, BUT there are some stark differences to keep in mind.  First, the Lessee and any Buyer who purchases a property subject to a lease does NOT own the land, but instead have the right to enjoy it as per terms on the lease.  Second, when a leasehold property is sold to a new owner, he/she then is subject to the same terms/conditions in the lease, including remaining time of lease. At the end of the lease period, in a process named 'Reversion', the land reverts back to the land owner and depening on the surrender clause in the lease (if any), the improvements on the land may revert back to the land owner at no cost or as per negotiated terms on lease.  Third, in exchange for use and enjoyment of the land, generally there is a lease payment due to the Lessor from the Lessee and likely there are provisions for periodic adjustments.

Leasehold properties on Maui were up to a large extent developed in the 1970’s and 1980’s. Commonly these are clustered in West Maui (particularly Lahaina to Napili area) and South Maui (Kihei and Maalaea areas). For properties offered for sale throughout the State of Hawaii, prices will include whether the property is Leasehold or Fee Simple, as it plays a significant role in pricing and on-going costs of ownership.  It is worth noting that the lease payment is in addition to the monthly maintenance fees (HOA / Strata), property taxes, and any other costs associated with ownership - such as utilities, insurance policy, property management, etc. The main point to take away is that ownership of the land is separate from ownership of buildings and improvements constructed on the subject land.


Hawaii Luxury Home

When assessing a Leasehold property, take note of the following:

* Lease Term - This is the period of time for which the lease is in full effect. Most original leases were over 50 years, but as the lease term nears the expiration, that has an effect on valuation.

*  Lease Rent – This is the amount to be paid by the Lessee to the Lessor, including the frequency of payment - some are paid quarterly, whereas most are paid monthly.

*  Renegotiation Date – The original lease will detail specific timeframes when the lease payment is to be renegotiated, generally by a specific formula detailed. The purpose of this renegotiation is to ensure that lease payments are en par with fair market value and market conditions.

*  Expiration Date – This is an important date to note, as unless an extension or new lease are negotiated, then the original lease will have been completed and Reversion (more on that below) will come into effect. It's worth noting that for lenders, the expiration date is important as most will only finance mortgages that are 5 years less than the time remaining on the lease - as an example, if 20 years left on the lease, then lender will approve a mortgage for 15 years or less. 

*  Fee Interest – Keep in mind that when a Lessor leases his land, he/she retains an interest in the land, subject to the rights of the Lessee. Some leases will detail the amount of compensation for which the Lessor will accept to the sale of the Fee to the Lessee. 

*  Conversion - The process of converting a Leasehold property to Fee Simple by the Lessor / Land Owner selling the 'Fee' interest to the Lessee. In some properties, only part of the complex has gone through conversion, with the remaining units continuing to be Leasehold. 

*  Reversion – The lease will detail provision for reversion, which is the process of giving the land (and improvements thereon, if agreed) back from the Lessee to the Lessor. 

For any prospective Buyer interested in a leasehold property, note that during escrow, the Seller will furnish a fully copy of the lease and any applicable amendments. Things to be clear on include the amount of the lease rent, when lease rent is due and to whom is it payable, all future renegotiation dates, how the new lease rent will be calculated (typically there is a formula outlined), and what is to happen at the expiration of the lease as detailed on the surrender clause. Review the Hawaii Guide to Residential Leasehold as put out by a State of Hawaii agency and become more familiar with this type of ownership.

For some people, Leasehold is an attractive option that allows them to buy 'more' for a lower sales price. As an example, Kamaole Nalu is sandwiched between Royal Mauian and Hale Pau Hana, yet sales prices at Kamaole Nalu can be less than half per square foot than at the comparable Fee Simple neighbors. In addition, some leasehold properties such as Napili Point have remarkably low lease rent (at the time of this writing, in the $7 per month range). Lastly, when searching, take into account that some properties like Papakea Resort include both Fee Simple and Leasehold, which is then reflected in the price.

Now that armed with all this information, how to use our site to search (or exclude) leasehold properties?

Searching:

We have taken great care to provide our site visitors with the most comprehensive yet easy-to-use user experience available. For Maui and Oahu we offer the ability to search by Land Tenure. On the Maui MLS search page, click on 'More Options' then scroll down to the Land Tenure drop down menu. 

Search Hawaii leasehold real estate


Identifying:

When looking at search results, we add the Land Tenure prominently for each listing. Between the price and the Listing Brokerage, please find the land tenure for quick indexing.

Hawaii leasehold search results


Important Information:

In an effort to provide all pertinent information quickly and easy to find, we are one of the very few sites that displays relevant details regarding leasehold properties, to include the amount of the lease and lease expiration. On a leasehold details page, scroll down to view details. 

Hawaii leasehold information details


Our team is well acquainted with the unique nuances of Hawaii Leasehold real estate throughout the entire State. For more information about a specific property, contact our team of Realtors today.

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Interested in Leasehold properties? Take a look below at some pertinent new listings, added to the market within the past month. For a more comprehensive search, view our Hawaii MLS Search page. 

Hawaii Leasehold Properties For Sale

New Listing
Photo of Listing #652466

Orchid Manor 355 Kalanianaole St 208, South Hilo

$139,000 - 1.00 Baths, 496 Sf

MLS® # 652466

Kohala Coast Properties
Active
Photo of Listing #652362

Kona Kai 74-5618 Palani Rd I8, North Kona

$99,000 - 1 Beds, 1.00 Baths, 515 Sf

MLS® # 652362

Iokua Real Estate, Inc. - Hilo
Active
Photo of Listing #652379

SUN VILLAGE-KAUAI 3-3400 Kuhio Hwy C312, Lihue

$209,900 - 1 Beds, 1.00 Baths, 554 Sf

MLS® # 652379

eXp Realty
Active
Photo of Listing #652400

Kona Kai 74-5618 Palani Rd A7, North Kona

$167,500 - 2 Beds, 1.00 Baths, 616 Sf

MLS® # 652400

Hawaii Real Estate Group LLC
Pending
Photo of Listing #652358

KONA ISLANDER INN 75-5776 Kuakini Hwy 123, North Kona

$149,000 - 1.00 Baths, 372 Sf

MLS® # 652358

Windermere C & H Properties
Pending
Photo of Listing #652366

Kona Kai 74-5618 Palani Rd J3, North Kona

$135,000 - 1 Beds, 1.00 Baths, 535 Sf

MLS® # 652366

Hawaii Coast Realty, LLC
Active
Photo of Listing #652364

Kona Kai 74-5618 Palani Rd B5, North Kona

$95,000 - 1 Beds, 1.00 Baths, 480 Sf

MLS® # 652364

Hawaii Coast Realty, LLC
Active
Photo of Listing #652246

Kona Kai 74-5618 Palani Rd F3, North Kona

$125,000 - 1 Beds, 1.00 Baths, 480 Sf

MLS® # 652246

Kona Real Estate Management
Active
Photo of Listing #652245

Kona Kai 74-5618 Palani Rd B6, North Kona

$125,000 - 1 Beds, 1.00 Baths, 480 Sf

MLS® # 652245

Kona Real Estate Management
Active
Photo of Listing #652275

KIAHUNA PH II 2253 Poipu Rd 52, Koloa

$275,000 - 1 Beds, 1.00 Baths, 640 Sf

MLS® # 652275

RE/MAX Kauai Living - Poipu
Active
Photo of Listing #652195

74-515 Kaniohale Lp, North Kona

$400,000 - 3 Beds, 2.00 Baths, 1,056 Sf

MLS® # 652195

Keller Williams Honolulu
Pending
Photo of Listing #652128

KIAHUNA PH II 2253 Poipu Rd 112, Koloa

$165,900 - 1 Beds, 1.00 Baths, 640 Sf

MLS® # 652128

RE/MAX Kauai Living - Poipu
Pending
Photo of Listing #652014

KIAHUNA PH II 2253 Poipu Rd 54, Koloa

$239,000 - 1 Beds, 1.00 Baths, 640 Sf

MLS® # 652014

RE/MAX Kauai Living - Poipu
Pending
Photo of Listing #650839

KIAHUNA PH II 2253 Poipu Rd 81, Koloa

$399,000 - 2 Beds, 2.00 Baths, 1,184 Sf

MLS® # 650839

RE/MAX Kauai Living - Poipu
Active
Photo of Listing #650840
Virtual Tour

KIAHUNA PH II 2253 Poipu Rd 105, Koloa

$529,000 - 2 Beds, 2.00 Baths, 1,184 Sf

MLS® # 650840

RE/MAX Kauai Living - Poipu
Active
Photo of Listing #651886

KONA ISLANDER INN 75-5776 Kuakini Hwy 120, North Kona

$139,900 - 372 Sf

MLS® # 651886

Hawaii Resort Management, Inc.
Active
Photo of Listing #392172
Vacation Rental

Kaanapali Alii 2-304 50 Nohea Kai Dr 2-304, Kaanapali

$1,050,000 - 1 Beds, 2.00 Baths, 1,313 Sf

MLS® # 392172

Leasehold
Fine Island Properties, LLC

IDX and Information provided herein is deemed reliable but is not guaranteed by the Hawaii Information Service, Inc. Listing Service. © 2021 Hawaii Information Service. All Rights Reserved. This website is for personal, non-commercial use only.

Listing information last updated on August 1st, 2021 at 3:55pm HST.

Listings provided courtesy of the REALTORS® Association of Maui.

IDX information is provided exclusively for consumers' personal, non-commercial use and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing.