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What is a Leasehold Property?

For those who have not heard of this concept, after all it is used only in Hawaii and Utah, to the best of my knowledge, leasehold is a type of ownership.

Maui Eldorado Cabana

View from Maui Eldorado Cabana, available to owners and their guests. All amenities, right on Kaanapali Beach.

In layman’s terms, when one owns a condo, one owns the condo itself (the space between the walls) and also a share of the common elements…pool, tennis court, hallways, elevator, water pipes, etc and land. This is called fee simple ownership. In the case of a leasehold property, one does not own a share of that land that the condo sits on. Thus, one has to “rent” that land from whoever owns it and pay a lease rent.

The lease agreement stipulates when the lease terminates as well as when and how the lease rent is recalculated or renegotiated. For example, the lease rent for a 1 bed unit at Maui Eldorado in Kaanapali is currently $541/month, the lease rent will be renegotiated in 2019 based on a preset algorithm, and the lease expires in 2043.

Many of the resorts on the Lower Honoapiilani Road were developed as leasehold, but in time they have converted to fee simple. Such conversion occurs when the condo owner purchases the interest in the common elements (the land) for a fee. This fee is directly correlated to the value of the land and the number of units in the complex.

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