Hawaii Real Estate Condo Gude by HIcondos.com. Condominiums for sale in Honolulu, Oahu  
Honolulu CondominiumsHonolulu NeighborhoodsHonolulu Condo NewsLife in ParadiseCondo BuyersCondo SellersAbout HIcondos.com

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


When you acquire a unit in a cooperative, you receive a proprietary lease. When a leasehold apartment unit in a condominium or a PUD is originally conveyed, this is done by an apartment lease. Upon resale, that lease will be transferred by an Assignment of Lease. The heading on the original apartment lease may have one of several descriptions: Apartment Lease, Apartment Lease and Ground Lease, Condominium Conveyance Document, Apartment Deed and Ground Lease, or Dwelling Lease. Regardless of the type, the consequences of your leasehold ownership will be substantially similar to those described in this article.

What are the typical provisions of an apartment lease?

The written lease spells out all the terms, conditions, and restrictions binding on the lessee, and all subsequent assignees or successor lessees. These terms generally are not negotiable. For example, the lease includes such items as the total number of years in the lease term, the rent (both fixed and renegotiated), termination or renewal dates, conditions of possession and use, and rights regarding the lessee's ability to make, and to later remove, improvements. Some of the more common provisions of residential apartment unit leases are the following:

The length of the term of an apartment unit ground lease may be for whatever the original lessor and lessee agreed upon; however, the typical length is at least 50 years, and usually is within a range of between 55 and 75 years.

How much lease rent must I pay?

Typically, the rent will be fixed for the early years of the lease term and afterward will be renegotiated periodically.

Most leases have a fixed rent period of between 25 and 35 years. During this period the rent is fixed or predetermined. Their may be one or more step up increments during the fixed rent. You know exactly how much your lease rent payments will be.

At the end of the fixed rent period, the lease rent is renegotiated, or adjusted. This is sometimes referred to as reopening. When you purchase your leasehold apartment unit, it is very important to realize that you don't usually know the exact amount of rent you will have to pay over the entire life of the lease. As you can imagine, this is important factor for both you and your lender to consider as your ability to pay monthly mortgage payments may be directly affected by changes to the lease rent payments. This is because the renegotiated rent is generally based on a certain rate of return on the value of the unencumbered fee simple land in the future (at the time of renegotiation).

What are other provisions I should be aware of?

The transfer of a leasehold interest is accomplished by a document called an assignment. When you sell your leasehold apartment unit to a new buyer, you assign the lease to the buyer, (also called the assignee). Your lease may require the consent of the lessor prior to any assignment of the lease. Courts have held, however, that the lessor may not unreasonably withhold consent. Even after an assignment, you may remain responsible under the lease unless the lessor releases you and agrees to allow the buyer to assume all the responsibilities of the lessee.

Occasionally all or a portion of the leased property is taken by a government authority for a public purpose such as road widening or sewer installation. When condemnation occurs, the lease specifics what happens to your apartment unit and how you are compensated for loss of your leasehold interest. Read your lease carefully.

What happens to my unit at the end of the lease?

The surrender clause provides what happens to the apartment unit and other improvements when the lease expires. At the end of the lease term the lessee must surrender or deliver to the lessor possession of the land. What happens to the apartment units and other improvements on the land depends on the language of the surrender clause. Be sure to read the surrender clause carefully. Most surrender clauses can be divided into three types:

The first type of surrender clause gives the apartment units and common elements to the lessor upon expiration of the lease. If the lessor desires to remove the apartment unit, the lessor is responsible for any costs involved in demolition and removal.

The second type of surrender clause gives the apartment unit to the lessee. However, because the lessee must return the land to the lessor in its original condition when the lease ends, the lessee is responsible for the proportionate costs of the demolition and removal of the apartment unit. This could be a disadvantage to lessees if they must pay for the demolition and removal. If the building is still in good condition or can be refurbished, the lessor may be willing to purchase the apartment units and improvements from the lessees.

The third, and least common, type of surrender clause is one where the lessor and lessee have agreed on a price the lessor will pay for the apartment unit and its share of the common elements upon expiration of the lease.

What other obligations do I have?

The lessee incurs many obligations under the lease such as maintaining the building, paying real property taxes and lease rent, and maintaining insurance. Failure to abide by the terms of the lease, including failing to pay real property tax and lease rent and maintenance fees could result in money damages or even termination of your lease.

The lessee is usually held responsible for the maintenance and upkeep of the property, including paying all real property taxes and assessments, insuring the apartment against loss or damages by fire, and for maintaining public liability insurance.

The lease terminates on the expiration date specified in the lease agreement. A lease may also be terminated by mutual agreement of the lessee and lessor, or by eviction because of a breach of a lease provision.

- back to top -

Honolulu Condo Search

Price Range:



Building Name: