When looking at property in the Palm Springs CA area you will often encounter the terms Fee Land or Lease Land. The term Fee always sends up peoples red flags but the reality is that you need to watch for Lease land. Fee Land comes from the term Fee Simple Ownership. Although that sounds like reverse logic it is just real estate lingo for paying for land and owning it outright. You pay your simple fee and assume full ownership rights to the land. Your obligation after that is property tax only.
What Is Fee Land & Lease Land In Palm Springs?
Not so in Lease Land which actually comes from the term Leasehold. In Lease Land scenarios you never own the land. People are sometimes further confused because vacant lease land parcels will sometimes be offered for sale – at what may seem like a fair price for the land. Buyer beware because in a leasehold situation you are only purchasing the right to pay the lease. You become the lessee, bound to the payment structure and terms of the lease. All leases are different. Some are owned by huge groups of people with very small fractional ownership rights and others are owned by a few people sometimes just one person. Leases can also be held by private companies.
STRUCTURES ON LEASE LAND: People frequently ask about the physical structure on the property. Yes, it can be and is “sold” to you. No, you cannot remove it. Technically anything done to the land is considered a “leasehold” improvement and the beneficiary of that improvement is the leaseholder. I have seen leases with clauses that state the leaseholder is allowed to inspect the property and require you to maintain it to certain standards. Even though I have never heard of anyone having a leaseholder inspection that language is in the lease.
PROPERTY TAXES: Another issue is taxation. People often say that they think that they should not be taxed for the value of the leased land that their home sits on. The government sees it differently. The IRS has ruled that in the case of leased land with a structure on it they can tax the person who is enjoying the “benefit” of the leased property. This effectively gets them around the fact that they cannot tax the Indian Tribes who control a large percentage of the leased land in the Coachella Valley.
SHORT SALE OR FORECLOSURE: In the case of Short sales or Foreclosures on a home located on leased land the leaseholder is going to be like any other creditor. They will be in line and must sign off on any agreement for debt forgiveness or transfer of the property. This, of course, adds another step to these complex procedures.
BENEFITS OF LEASE LAND: So what is the benefit of buying on Lease Land? Primarily you are getting more structure for less money. Since you are not paying for the land upfront – basically a lease is paid as you go – the amount of money you are paying is for the structure alone. This affords you a larger home for less money than one on Fee Land where the seller is trying to recoup some of the cost of the land. Then there are also cases where a particular property is very desirable from a location and/or view standpoint and people simply want it. The compromise for living there is that you have to pay the lease.
RENEWAL OF THE LEASE: Other issues with lease land include the lease renewal date(s). When the lease expires can affect the ability for you or a future buyer to encumber the property with a mortgage. Typically the banks want to have a 5-year pad on their loans. So, for example, a 30-year mortgage product would need at least 35 years left on the lease to be approved.
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Michael can be reached at 760-408-5300 and Marcia can be reached at 760-861-5643. or email either one of us at firstname.lastname@example.org.