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For Buyers: Leasehold vs. Fee Simple

A Guide to Hawaii's Residential Leasehold
Authorized by the Hawaii State Legislature and the State's Housing Finance and Development Corporation

  1. Introduction
  2. Basic Terminology
  3. Purchasing a Leasehold Property
  4. Types of Apartment Unit Leases
  5. Obtaining Financing for Leasehold Property
  6. Renegotiating Lease Rent Payments
  7. Expiration of the Lease Term and Surrender
  8. Purchasing the Leased Fee
  9. Conclusion


This article will help you understand some of the issues involved in buying and owning residential leasehold condominium and cooperative apartments, as well as dwelling units within Planned Developments (PUD). This article uses the term apartment unit to refer to all three forms of ownership. Anyone buying a leasehold residential apartment should be aware of all of the consequences of leasehold ownership.

Why is it so important for me to understand leasehold issues?

If you are contemplating the purchase of a residential leasehold apartment unit, there are additional considerations than their are in the event that you were contemplating the purchase of a comparable fee simple apartment unit. For example, you will be concerned with the length of the remaining lease term, what happens to your unit at the end of the lease term, and how increases in the rent payments are determined. Answers to these questions will enforce your decision to buy.

As an owner of a leasehold apartment unit, you some day may want to refinance your leasehold apartment unit. A short time remaining on the fixed period or term of the lease could create obstacles to obtain the needed financing. This could be a problem if you wear seeking to refinance either an agreement of sale or a mortgage that is soon to become due and payable in full.

If you want to sell your leasehold apartment unit, you could find the apartment unit becomes more difficult to sell as the lease term approaches its rent renegotiation and explicit expiration dates. Naturally, a buyer would be more attracted if the lease had a longer period until rent renegotiation or expiration.

Also, lease provisions regarding such matters as the increase of rent and the expiration date of the lease term may seriously affects the willingness of some lenders to finance the proposed purchase of the apartment unit. If, due to the length of the lease term, buyers have difficulty obtained financing, a seller may need to make concessions in order to sell the apartment unit. The value of a unit could decrease as the lease term nears the expiration date.

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