Leasehold or  Fee Simple? What's the difference?

Leasehold or Fee Simple? What's the difference?

Martin Howard March 31, 2021 View all blog articles

Maybe once a week I get an inquiry about one condominium or another and I have to explain to the difference between leasehold properties and fee simple properties. Does it matter and what's the difference?

I'm glad you asked.

Let's talk about leasehold first, because a lot of the condos on Guam are built on leased ground. Leasehold interest happens when a landowner enters into a lease agreement with another person or corporation for the purposes of constructing something or another, in our case, a residential building. These leases are very long term, sometimes up to 99 years. The leasee (renter) has full control of the property subject to the terms of the lease for the duration. This is the case for many of the condominium buildings on Guam. When the lease expires, the land goes back to the owner. This is called reversion. So when the owner gets their land back, what happens to the buildings and improvements? Whatever is indicated in the lease. The benefit of a leasehold property to a buyer is that typically the prices are less than fee-simple properties.

Leasehold properties can still be financed in most cases, but each lender has their own rules. I know for a VA loan there must be a minimum of 14 years left on the lease AFTER the loan is paid. So, for example, you have a 20 year loan, the lease must be good for at least 34 years. As the end of a long term lease draws closer and closer, the properties become cheaper and harder to sell.

The most common way to own property is called fee-simple. It's also much easier to explain. With a fee-simple purchase, you own the property (land) and anything on it and can do with it as you please. Sell it, trade it, etc, etc.

So that's the basics of fee-simple vs. leasehold properties. As always, if you have any questions about this topic, or any other, you can feel free to email me at [email protected].