Leasehold properties are extremely common in Hawai‘i, but what are they?
Although many Hawai‘i leasehold properties have or will eventually be converted from leasehold status to fee simple status, they are basically what they sound like—a land or property lease.
Each leasehold property in Hawai‘i is completely different in terms of length of time of lease, but they are usually 99 years or less, depending on if it’s an original leasehold property or one that has been bought and sold (similar to a timeshare) within a 99-year leasehold. That’s where things can get a little bit confusing to understand…
The History of Hawai‘i’s Leasehold Properties
In the early1800s, all of the land in the Hawaiian Islands was owned by Kamehameha III. In the mid-1800s (approximately 1845), various land ownership legislation was created, and for the first time, Hawai‘i’s lands could be bought and sold to private owners.
This occurred during the Great Mahele of 1848, a land commission that divided all of the king’s land into a joint ownership between the king and the royal government (konohiki).
With new land ownership legislation, the Great Mahele confirmed that buyers had the right of possession to the land, but there was still more work to do to secure title ownership through the Land Commission. It could take many years.
In any event, the great majority of the konohiki land was not sold to Hawaiian owners, but mostly to Western missionary owners and land trusts, including Bishop Estates the Queen Emma Foundation and others.
The main interest of the land trust was to keep the land, not to buy and sell. So, leasehold became a popular way to “temporarily sell” land through a lease, which limits ownership to a predetermined number of years.
A Few Differences Between Fee Simple & Leasehold
Leasehold purchases consist of a buyer purchasing an interest in a property. They have the right to occupy the land and temporarily possess a dwelling. They do not own the land. After the lease is terminated, any structures, homes and buildings on the leasehold land become the sole property of the original property owner. If the lessor (original owner) chooses to sell their leasehold property, the leasehold owner will usually be offered the first opportunity to buy.
Fee simple land/property owners have absolute right of ownership to their property. They can do almost anything with their property, pending property type. They can lease, sell or will the property at any given time. With fee simple rights, an owner can build and make improvements to their land; all of its additions raise the value of a fee simple property.
Benefits of Leasehold Property
Perhaps the biggest benefit to purchasing a leasehold property is that it costs considerably less than fee simple properties in Hawai‘i. If you wish to buy a residential property that will stay in your family line for generations, a Hawai‘i leasehold property is not the best choice.
For those who fall in line with the typical American buyer, who holds onto a property for an average of 6 to 10 years, leasehold properties could be ideal. Leasehold properties are also preferred by investment property buyers who will eventually “flip” the property, and are only interested in the quick buy-and-sell factor.
Mahalo for reading! What are you opinions about leasehold properties in Maui? Do you see them more commonly in condominium communities? Do you think they’re being phased out?
Let us know your thoughts in the comment section below…