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All Land is Not Equal In Palm Springs CA |
A leasehold parcel of land means that you do not own the land you are only leasing it from the actual owner. Even if there is a structure on it, that you hold title to, the lease payment only entitles you to the use of the land – subject to the terms of the lease - and not actual ownership. (When you own the land this is called “Fee Simple ownership”)
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In Palm Springs, Cathedral City and parts of Rancho Mirage California up to 50% of land is lease land. This is important when looking at property because land value can’t be factored into the value of the property. Typically this means that the price of a home located on lease land will look more attractive than the same home built on fee land, where you do have to factor in the value of the land.
All leases are different and terms and conditions must be checked carefully during the buying process. One major provision in many leases is that “leasehold improvements” are sometimes made permanent fixtures to the land. You may not remove them at a later date without the express consent of the leaseholder. In some cases this may extend to other improvements such as landscaping, awnings, trellis, and gazebos – anything permanently attached to the “leasehold improvement”.
IMPORTANT: Not all lenders will loan on lease land – some who will, will not loan if the lease is short. If you need
Other Considerations with Lease Land:
-If you are financing the purchase the value will only be figured on the structure and not the land itself.
-What are the terms for lease land payment increases?
-What, if any, are the preset renewal terms and conditions
-Homeowners insurance does not factor in land value so this is unaffected
-You will be paying property tax on the value of the land. The IRS has ruled that the person who enjoys substantial use of the property pays the tax.
Let's say I have a lease with an expiration date of 2040. When can I expect the leaseholder to start the renewal negotiations? Any idea of how much I will pay for the renewal fees? I have talked to the BIA and many realtors about the renewal process and can get no info so anything will be helpful. Thanks
ReplyDeleteHi Pat, Thanks for asking. My experience of being here for 12 years plus owning lease land myself says that it is usually 12-14 years out when the lease renegotiation starts in earnest. I have seen it start 20 years out but not often. Lease renewal rates are as individual as the leases themselves. There are 22,000+ subleases in the valley so the variations are endless. I have heard - but have no proof - that the renewal rates are based loosely on the the aproximate value of the land divided by the numbers of leaseholders. Of course you have to ask when is that value determined? 15 years out or adjusted right up until the end? I am sorry but there is no answer for that. If you are in a development with a homeowners association they ought to have a committee or a contact person who is monitoring the lease and any possible renewal options. If you are an individual home owner not in an association I am sad to say you will most likely just have to wait unitl they contact you. Thanks and feel free to contact me if you have other questions. Michael
ReplyDeleteThank you Michael for your response. We are looking at buying a house on lease land; the home is not part of any association. My big concern is if wanting to sell the house 10 years from now, will there be any buyers interested in a lease that could have only 15 to 20 years left until expiration? It sounds like we would be buying and not knowing what is in store for us done the road until it is too late to do anything about it. Is there not much information out there because no one would buy on lease land if they knew the whole story?
ReplyDeleteThank you,
Pat
HI Pat, Thank you for the reply. My opinion is that buying a property with a short lease that you know you want to sell in 10-15 years is a bad idea. That is the period of time where the lease renewal will be coming up but there will be no sure answers. Buyers will not be able to truly know the results of the lease negotiation and therefore the property would be a much harder sell. Buying and holding through the lease renewal period or buying a lease that is not short would be your better option. Thanks again, Michael Layton
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