Help me decipher this condo property description... (sales, real estate)

[rhbj03]

Saw the following in a Oahu condo ad description:

Subject to Sandwich lease. Lease ends December 14, 2023; thereafter fee simple. Current lease rent of $30.31/mo. will continue until renegotiation is completed.

What does all that mean? Do I own the property outright? The rent is for me to pay or receive?

[whtviper1]

You lease the property - not own. You pay the lease rent.

[Dreaming of Hawaii]

Originally Posted by rhbj03

Saw the following in a Oahu condo ad description:

Subject to Sandwich lease. Lease ends December 14, 2023; thereafter fee simple. Current lease rent of $30.31/mo. will continue until renegotiation is completed.

What does all that mean? Do I own the property outright? The rent is for me to pay or receive?

Properties in Hawaii are either fee simple or leasehold. Since you seem really interested in buying in Hawaii, this is a good time to find out the difference.

With fee simple you own the structure and the land. With leasehold you own the structure, but not the land. The entity that owns the land leases it to the owner of the structure. Usually at the end of the lease period, the lease holder can raise the lease amount at his/her discretion. This property says that in 2023 the lease will end and become fee simple. That sounds like a good thing. However, it does mention "renegotiation", so it looks like there may be a rent hike coming up.

[rya96797]

im rather uneducated in this area, but from what I recall, sandwich leases are lease agreements owned by a 3rd party, who usually have 0 ownership in the property, but have rights to purchase the property from the owner that would supersede another 3rd party's rights. It usually comes with a small annual lease fee over 20-30 years or so. After the time of the sandwich lease is up, the property is fully fee simple. If you don't like the sandwich lease, you can negotiate with the 3rd party to buy out the lease (similarly to buying the fee in a leasehold property)


I don't really recall situations where the sandwich lease was invoked, but say if seller x wanted to sell the property to buyer y for $400k. The sandwich lease holder has the right to step in and purchase the property for that 400k. that party is holding the lease, which an option to buy the property, but also are renting out the lease (for 30 a month or whatever), and giving the lessee the option to buy. the lease holder is in the middle, hence the sandwich thing.


I don't think the sandwich thing generally is a big deal as the property owner, which is why the properties subject to sandwich lease seem to be treated as close to fee simple as far as pricing. It doesn't really matter to you if the sandwich lease owner steps in to buy the property from you instead of the other buyer.




if I'm wrong, feel free to correct me. I could be way off base.

[rhbj03]

Originally Posted by Dreaming of Hawaii

Properties in Hawaii are either fee simple or leasehold. Since you seem really interested in buying in Hawaii, this is a good time to find out the difference.

With fee simple you own the structure and the land. With leasehold you own the structure, but not the land. The entity that owns the land leases it to the owner of the structure. Usually at the end of the lease period, the lease holder can raise the lease amount at his/her discretion. This property says that in 2023 the lease will end and become fee simple. That sounds like a good thing. However, it does mention "renegotiation", so it looks like there may be a rent hike coming up.

Hi thank you very much for the explanation. I have kind of gotten my thing in CA organized; now picking up where I left off with regard to Hawaii. Now that I have my land I am kind of exploring other options such as condos.

So with regard to the ad, Dec 2023 is only 6.5 years away. $30 per month is $360 a year which is negligible. Could the land rent jump to say $1000/mo in the negotiation? If that happens condo owners really will be screwed because one cannot move the building, but could that realistically happen?

[whtviper1]

Originally Posted by rhbj03

So with regard to the ad, Dec 2023 is only 6.5 years away. $30 per month is $360 a year which is negligible. Could the land rent jump to say $1000/mo in the negotiation? If that happens condo owners really will be screwed because one cannot move the building, but could that realistically happen?

Nobody is screwed as the people leasing the condo (they aren't owners) knew what they were getting into when they entered into the transaction.

The lease rent won't jump to $1,000/month as it said in your post it's moving to fee simple. That fee will likely hundreds of thousands or above a million - those who can't pay the fee will have to move.

[rya96797]

rhbj03, you need to find out if the property is leasehold with a sandwich lease or fee simple with a sandwich lease. if the property is leasehold with a sandwich lease, the sandwich lease is a second lease on top of the leasehold, and the owner would need to purchase the fee once the leasehold is up. If the owner already owns the fee, but subject to a sandwich lease, then once the sandwich lease expires, no other action is needed on their part

[Mikala43]

Originally Posted by rhbj03

Hi thank you very much for the explanation. I have kind of gotten my thing in CA organized; now picking up where I left off with regard to Hawaii. Now that I have my land I am kind of exploring other options such as condos.

So with regard to the ad, Dec 2023 is only 6.5 years away. $30 per month is $360 a year which is negligible. Could the land rent jump to say $1000/mo in the negotiation? If that happens condo owners really will be screwed because one cannot move the building, but could that realistically happen?

It used to be banks would lend on a lease that was lease than 40 years until expiration (on a 30 year mortgage).

[pj737]

Originally Posted by rhbj03

. Could the land rent jump to say $1000/mo in the negotiation? If that happens condo owners really will be screwed because one cannot move the building, but could that realistically happen?

There are basically two things that "screw" LH owners - 1) not fully understanding the terms of the lease or what LH property is in general before transacting; 2) exploding land values. It is almost never the land owner that rakes owners over the coals out of nowhere.

ALL leases spell out terms including how the lease payment is determined in a renegotiation. If owners are saying it might go up 10X or they may get lucky and it only goes up 2X it just means they have not been privy to any relevant information to the lease - in other words, they are blindly talking out of their behinds. With a little bit of due diligence, you can always determine the worst case lease payment post-renegotiation.

Most leases will require that lessees pay the lessor 6-8% of the land value per year. That means if the value of the land under the building is worth $10,000,000 and there are 200 owners (each with identical sized units), the common interest land ownership (if in fee) per owner would be $50,000. If the lease states that the lessor can charge 8%, the lessee (LH condo owner) will need to pay $4,000/annually or $333.33/mo for the term of the lease. Some condo projects (particularly low rise 2-4 story walk-ups) are very small relative to the land size. These properties may have only 30-40 units with a land value of $5M or more. In that situation with an 8% return to lessor, the LH owner could potentially be paying $1,666/mo post-renegotiation just for the lease fee.

LH property was once a very viable way to transact on properties; it provided a way for the little guy to get into real estate (even if unconventionally) when prices were out of reach to most locals (real estate has always been expensive here). The vast majority of those that purchased LH property in the last 35 years were given an opportunity to buy the fee at some point.

Now, however, LH property is much more rare and those remaining owners that retain ownership of the land have a higher likelihood that they will never give the opportunity for the LH owner to gain ownership of the land their building sits on. In my personal opinion, LH ownership ONLY makes sense if you are given an opportunity to own the land some day.

If you want to pursue LH ownership, I suggest finding a realtor that understands how to read and interpret LH documents. This way you should at least know what you're getting into especially if you're buying close to a renegotiation date.

[rhbj03]

Originally Posted by pj737

There are basically two things that "screw" LH owners - 1) not fully understanding the terms of the lease or what LH property is in general before transacting; 2) exploding land values. It is almost never the land owner that rakes owners over the coals out of nowhere.

ALL leases spell out terms including how the lease payment is determined in a renegotiation. If owners are saying it might go up 10X or they may get lucky and it only goes up 2X it just means they have not been privy to any relevant information to the lease - in other words, they are blindly talking out of their behinds. With a little bit of due diligence, you can always determine the worst case lease payment post-renegotiation.

Most leases will require that lessees pay the lessor 6-8% of the land value per year. That means if the value of the land under the building is worth $10,000,000 and there are 200 owners (each with identical sized units), the common interest land ownership (if in fee) per owner would be $50,000. If the lease states that the lessor can charge 8%, the lessee (LH condo owner) will need to pay $4,000/annually or $333.33/mo for the term of the lease. Some condo projects (particularly low rise 2-4 story walk-ups) are very small relative to the land size. These properties may have only 30-40 units with a land value of $5M or more. In that situation with an 8% return to lessor, the LH owner could potentially be paying $1,666/mo post-renegotiation just for the lease fee.

LH property was once a very viable way to transact on properties; it provided a way for the little guy to get into real estate (even if unconventionally) when prices were out of reach to most locals (real estate has always been expensive here). The vast majority of those that purchased LH property in the last 35 years were given an opportunity to buy the fee at some point.

Now, however, LH property is much more rare and those remaining owners that retain ownership of the land have a higher likelihood that they will never give the opportunity for the LH owner to gain ownership of the land their building sits on. In my personal opinion, LH ownership ONLY makes sense if you are given an opportunity to own the land some day.

If you want to pursue LH ownership, I suggest finding a realtor that understands how to read and interpret LH documents. This way you should at least know what you're getting into especially if you're buying close to a renegotiation date.

Hi thank you for your info and view point.

I typically would not want to bother with Leasehold type of property. But in this case, the sales ad says "Lease ends December 14, 2023; thereafter fee simple". I would think this is referring to ME the buyer of this property owning it FEE SIMPLE after 2023, is that correct? If true, then my only risk ish between now and 2023, the landowner jacks up the $30/month very high. But can I tell if this is true from this language?

I noticed in the same condo building, one unit says "Fee Simple in 2023" but 5 others don't. Is it possible that within the same building there are different treatments?