Fee Simple vs Leasehold in Honolulu Explained

Have you seen listings in Honolulu labeled fee simple or leasehold and wondered what that actually means for you? You are not alone, especially if you are relocating from the mainland where fee simple is the norm. Understanding these two forms of ownership can impact your financing, resale potential, taxes, and long-term planning. In this guide, you will learn how fee simple and leasehold work in Honolulu, what lenders look for, how values are affected, and the practical steps to take before you buy. Let’s dive in.

Fee simple basics

Fee simple means you own the land and the improvements outright, subject to local laws and recorded encumbrances. Your ownership does not expire and can be sold or inherited at any time. Lenders and title companies treat fee simple as the most straightforward path for financing and resale.

In Honolulu, most single-family homes are fee simple. You will still follow local zoning, HOA rules if applicable, and pay property taxes. For most buyers, fee simple feels familiar and tends to be easier to finance and insure.

Leasehold basics

Leasehold means you own a real property interest for a set term under a ground lease with a landowner who holds the fee interest. You typically own the improvements during the lease, but not the land. When the lease ends, the landowner may retake possession and, depending on the lease terms, can gain title to the improvements.

On Oahu, you often see leaseholds in certain condominium buildings and resort areas and on land long managed by major trusts or institutions. Lease terms can be long, such as 30, 50, 75, or 99 years, but the critical point is that the value depends on how many years are left and what the lease actually says.

Key lease terms to know

• Term and expiration dates
• Any extension or renewal options and how they are triggered
• Ground rent amount and how it increases over time
• Assignment or transfer rules and whether the lessor must consent
• What happens if there is a default, including cure periods and termination rights
• Who pays for taxes, insurance, and maintenance
• Lender protections like subordination or non-disturbance language

How this plays out in Honolulu

Both fee simple and leasehold exist across Honolulu, but fee simple dominates single-family neighborhoods. Leaseholds appear more often in older condo buildings, resort zones, and selected urban developments that were built on leased land. Local title companies and the recording system recognize leaseholds, so recorded ground leases and amendments appear in title reports.

Honolulu’s Real Property Assessment Division assesses property for taxes whether fee simple or leasehold. The exact rules can vary by parcel and situation, and many leasehold owners still pay property taxes as part of ownership costs.

Financing differences

Lenders view leaseholds as a higher-risk asset than fee simple. Your ability to get a loan depends on the remaining lease term, the lease language, and the lender’s program rules.

• Many conventional lenders require a minimum number of years remaining on the lease at closing. Requirements vary, but a common benchmark is 30 years or more remaining, with the lease extending well past the loan maturity.
• If the lease ends before the mortgage does, most lenders will decline or require special protections.
• FHA, VA, and the GSEs have published policies that can allow leaseholds if the lease meets specific conditions. The details matter, so check early.

Practical example: You plan to use a 30-year conventional loan to buy a leasehold condo with 25 years remaining on the lease. Many conventional lenders will not finance this because the lease does not extend beyond the loan term. You might need a different loan product, a shorter amortization, a larger down payment, or cash. The buyer pool shrinks, which affects value and negotiation.

Valuation and resale

Market demand for leaseholds changes as the lease gets shorter. There is no single formula, but you will see common patterns.

• Strong marketability with long terms. Leases with 40 to 60 or more years remaining are more acceptable to buyers and lenders.
• A reduced buyer pool as terms drop to roughly 20 to 40 years. Some lenders restrict or will not finance, so prices often adjust.
• Significant discounts and cash-heavy buyer pools below 20 years remaining. Financing can be difficult and legal complexity rises.

Renewal provisions matter. If renewals are at fair market rent with no cap, future rent could reset sharply, which markets tend to price in today. Appraisers usually analyze fee simple and leasehold sales separately and adjust for lease terms, rent escalations, and renewal uncertainty.

Ownership costs and obligations

Lease language governs many of your obligations. Read it closely and verify it in the title report.

• Title and insurance. Title policies for leaseholds differ from fee simple and may exclude certain lease-related risks unless you add endorsements. Your lender may require specific insurance naming both lender and possibly lessor.
• Taxes and HOA. Leasehold condos often have ground rent in addition to HOA dues. You may also be responsible for real property taxes, insurance, and maintenance. Rules vary by lease and HOA documents.
• Assignment and transfer. Some lessors require consent to sell your leasehold interest and may charge transfer fees. Confirm these costs up front.

Estate planning and long-term view

At lease expiration, improvements often revert to the landowner unless you have a renewal or extension. If you intend to pass property to heirs, think carefully about timing and lease terms.

Practical example: You buy a leasehold single-family home with 15 years left on a 99-year lease. You want your children to inherit the home, but unless the lease has a clear renewal, your heirs may face a reversion or a costly renewal soon after they inherit. That affects your estate plan.

Many owners place leasehold interests in revocable trusts, but the trust should be drafted to handle renewal rights, lessor consent, and lender protections. For long-term care or benefits planning, talk with an experienced local advisor who understands how a leasehold interest may be treated.

Due diligence checklist

Use this checklist before you write an offer or remove contingencies.

1. Get the full recorded lease and all amendments

• Read the entire lease, not just a summary. Confirm start and end dates, renewal mechanics, rent formulas, and consent rules.

2. Confirm the remaining term and extensions

• Calculate years remaining at closing and at the end of your planned mortgage and holding period.

3. Request estoppel and lender protections

• Ask for estoppel certificates and any mortgagee or non-disturbance agreements from the lessor, HOA, and lender if applicable.

4. Review rent escalations and history

• Identify whether rent is indexed to CPI, uses fixed increases, or resets to market. Ask for a history of ground rent changes.

5. Check assignment and transfer clauses

• Confirm what the lessor must approve, timing for consent, and any transfer fees.

6. Identify who pays which costs

• Clarify responsibility for property taxes, insurance premiums, maintenance, and utilities.

7. Talk to lenders early

• Share the lease with prospective lenders to verify program eligibility and underwriting conditions.

8. Get title and insurance quotes for leasehold

• Confirm needed endorsements and any exclusions tied to lease risk.

9. Read HOA and condo documents

• For leasehold condos, review the association documents to see if there is a master lease and any obligations to the landowner.

10. Verify boundaries and legal description

• Order a survey or site plan if boundaries or exclusive-use areas matter.

11. Consult local experts

• Engage a title company, a Hawaii real estate attorney experienced in leaseholds, and a tax professional familiar with Hawaii rules.

12. Consider comps and appraisal

• Ask for an appraisal that separates fee simple and leasehold comps and analyzes lease terms.

Fee simple or leasehold: how to decide

Start with your timeline, financing plan, and goals. If you want long-term stability, easier financing, and straightforward inheritance, fee simple usually fits. If you prioritize location and price, and the lease has many years remaining with clear renewal and predictable rent, a leasehold can still work.

Ask yourself:

• How long do you plan to hold the property?
• Will the lease still have strong remaining life when you plan to sell?
• Does the lease’s rent formula fit your budget as it escalates?
• Will lenders accept the lease term for your preferred loan program?

Work with a local guide

Leaseholds in Honolulu are nuanced, and the right guidance can help you avoid surprises and find the best fit for your goals. If you are relocating, investing, or comparing specific buildings, a local advisor can connect you with lenders who understand leaseholds, coordinate title review, and flag key lease terms early. If you want aligned advice and discreet access to opportunities across Windward Oahu and Honolulu, reach out to schedule a personal consultation with Kalei Wodehouse.

FAQs

What is fee simple ownership in Honolulu?

• Fee simple means you own the land and the improvements with no expiration, subject to local laws and recorded restrictions, and you can sell or inherit the property freely.

How does a leasehold property work in Hawaii?

• You own an interest for a set lease term and typically pay ground rent to the landowner, with rights and obligations controlled by the recorded lease documents.

Can I get a mortgage on a leasehold condo in Honolulu?

• It depends on the remaining lease term and lease language, since many lenders require the lease to extend well beyond the loan maturity and may not finance short terms.

Do leasehold properties usually cost less than fee simple?

• They often sell at a discount that grows as the remaining lease term shrinks, reflecting financing limits, future rent risk, and potential reversion at expiration.

Who pays property taxes on a leasehold home?

• Leasehold owners are typically responsible for real property tax on their interest plus ground rent, but confirm exact obligations in the lease and local rules.

What happens when a ground lease expires in Honolulu?

• Unless renewed or extended by the lease, the landowner may retake possession and can gain title to improvements based on the lease terms and local law.