What is the difference in Fee Simple vs Land Lease?
Hey, good afternoon. This is Jeb Smith, Coldwell Banker Residential Brokerage. Today, I’m going to do a topic video, and we’re going to discuss the difference between fee simple and land lease.
So let’s start with fee simple. A lot of people buying a house see the word “fee simple” and automatically assume that there’s a fee associated with the land type, if you will, because there’s two different types of land. There’s fee simple and there’s land lease. Fee simple actually means that you own the land underneath the property, so when you’re buying the property the land comes with the property. There’s no fee associated with that. Once you buy the property, the land goes with it, and you’re just paying property taxes based on the land and the home that’s on the land.
The land lease is a little bit different. Land lease means that you don’t own the land underneath the property. So, whatever you’re buying, say it’s a condo or a house or what have you, you’re buying the house, but you don’t own the land. That means that you’re likely paying a lease amount on that land every month. This can come up in manufactured housing, mobile home parks. There are condos that are built on land leases. So what happens is a lot of times somebody owns the land. They sublease that land to say a developer. A developer builds a complex and then the builder sells off that complex, and then if there’s an association or what have you, the association is different from the land lease.
In fact, where there’s a condo complex … In Huntington Beach we have these. They’re not prevalent, but there’s couple of communities in the city that have them, and what happens is there’s a condo complex sitting on lease land. When you buy the condo, you’re buying the condo itself and then you’re paying an HOA fee every month. In addition to that HOA fee, you’re paying a land lease payment. Depending on where it’s located, how long that lease is, can determine the amount on the lease, but it’s in addition to those other things.
With that said, each land lease is a little bit different. A lot of these land leases are big documents, so you almost need an attorney to review them just to make sure you’re not getting into something if the lease expires or something happens to the lease that you’re completely out. But some of them are written where at the end of the lease, you walk away with nothing and that can reflect in the value of the property. Others, there may be a buyout clause or something in the contract at the end.
They’re all a little bit different, but you just need to make sure that whatever you’re getting into you fully understand it and understand the pros and cons of what you’re doing because a lot of land leases, the property, the purchase prices are less than something that would be similar that’s not on lease land. So you might be getting it for less money, but you have to understand that there’s a reason for that and what happens at the end of the lease. And then, in addition to that, sometimes you pay property taxes in addition to the HOA and the mortgage or whatever you have on it even though you’re leasing the land. It’s all depends on how it’s written within that lease agreement.
So each one’s a little bit different, but if you have specific questions about something in Orange County, California, let me know. Would love the opportunity to help, but again, just make sure that you fully understand if you’re buying something that’s on lease land, what that means so that you can make an informed decision, if you will. Anyhow, appreciate you taking the time to watch. Hope that was helpful and look forward to seeing you again soon. Bye-bye.
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