Is Leasehold Ownership For You?

Dated: July 20 2021

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There's an argument about leasehold real estate being inferior to freehold real estate. This blog will introduce you to leasehold ownership and provide information to help understand if it's the right path for you.

What is leasehold ownership?
When most people in British Columbia think about real estate or owning a home, it involves the physical structure (the home itself) and the parcel of land. In contrast, a lessee is leasing the land from the owner, the lessor. A lessee owns the home for the life of the lease, they do not own the land and lessee's follow predetermined guidelines. The land was originally discovered by the First Nations. Over the years, the government, described on paper as "The Crown", acquired the majority of the land. 

Upon first glance, leaseholds seem attractive, as the price is considerably lower than freehold. One caveat is finding eligible financing. Mortgage lending on leaseholds can be complicated, at times requiring a minimum downpayment of 20%. That is not possible for everyone. Most lenders prefer financing on Crown land. It's adviseable to go with your personal lender or the lessor's preferred financier. 

How long is leasehold land good for?
Generally leases last up to 99 years with the option to renew at the end of the lease, which may be at a higher market value. Often, with fixed-term lease land, buyers are concerned with the perceived lack of equity in their home and what happens at the end of the lease. 

Common questions with leaseholds: Which taxes are you required to pay? And will those include Property Transfer Tax (PTT)? This was discussed more in the Thinking About Buying a Presale Condo. In most scenarios PTT is not payable for new home buyers. 

Like any home ownership, lessees can make home improvements and renovate, but what about selling leasehold property? Like freehold, you can sell your leasehold with the distinct registration in the Canadian Federal Registry, and the First Nations Band (if applicable). One major consideration when selling leaseholds,if your lease lifespan is short, it may not be desirable to buyers. 

It is typical for leaseholds to have a Homeowners Association (HOA) fee. Much like a Strata Council, they manage and maintain it. The difference is the HOA fees can be significantly less than monthly strata fees. While HOA fees may be lower, the monthly leasehold fees can be a quarter of your monthly mortgage costs. 

Insuring the leasehold property is similar to insuring any property - offered by several companies.

By now you must be asking yourself, "Well, who are leaseholds good for then?" Many retirees find leaseholds beneficial as they can pay cash, and their life expectancy precedes the lease ending. Leaseholds are attractive to those who don't have heirs to inherit their property as well as long-term renters who wish to pay lower mortgage payments versus the ever-rising rental rates. Moreover, there is a small market of buyers out there where the focus is solely not on building equity. 

There are pros and cons when considering leasehold ownership. I hope this blog helped to clarify and clear up some of the misconceptions about leaseholds. 

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Rob Trinh

Raised in Victoria, Rob has fully embraced island life and culture. He spent some time living in Vancouver and LA before returning to his roots and rediscovering his love for this city. His past clie....

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