OWNERSHIP OF PROPERTY IN HAWAII

FEE SIMPLE VS LEASEHOLD

Most residential properties in Kona are fee simple…you own the land.

Some however, are offered as leasehold.  Virtually unknown elsewhere, property offered for sale in leasehold ownership is primarily the result of large parcels of land being entrusted to individuals long ago when Hawaii was a monarchy.  The individuals are often long deceased but the resulting trusts are legally immortal.  Basically bureaucracies, trusts have the power to allow utilization of lands under their control as they see fit.  Leases are granted for periods they determine (usually 20 – 99 years) and rent is charged for the land at a rate they reserve the right to negotiate, generally at the mid-pint of the lease period.

A primary concern in this situation is that you do not own the land and you never will unless the trust decides to allow purchase in fee simple ownership at some future time.  In the worst case scenario, you may have erected a structure on the property and be notified of a substantial increase in rent at the mid-point of the lease.

Options might then be limited to paying the higher rate, attempting to sell your interest, moving your building elsewhere or walking away to leave your improvements as a gift to the lessor.  Ironically, trusts originated in hopes that the entrusted lands would be used to the benefit of native Hawaiians.  However, many would question this philosophy as rent increases as high a 1000% have in the past been observed to threaten some with the loss of their homes.  The entire concept is alien to the thinking of most purchasers, but you must weigh desire with consequence in the event you find your ideal property is leasehold.

If you contemplate buying a leasehold property, be sure to determine the applicable re-negotiation date – it may occur shortly, especially if the price appears to be a bargain.