The mystery of a land lease
Everyone loves a good mystery and one of the most mysterious features in real estate is the concept of a land lease. Since I never had any experience with a property that was in a land lease arrangement, I decided to look into one of real estate's more obscure arrangements after reading a story about homeowners in China.
Homeownership in China is a very new concept, which only started becoming an option for the Chinese within the last 20 years, however, their definition of homeownership is slightly different from ours. In the United States, homeowners hold permanent title to their real estate and the property it sits on with some exceptions. In China, the government owns all of the land and leases it to developers to improve the land and sell to the public.
This is not so different from a land lease arrangement that we have in this country. The only problem is that since the entire concept of home ownership in China is so new, they haven't yet established the appropriate laws to govern these leases. Therefore, some homeowners in areas of China have not been able to sell their properties unless they pay very high fees to local authorities and frequently don't even know how long the lease is for when they purchase.
Fortunately, land leases in this country are regulated and fairly common, especially in urban areas with a lot of condos and co-ops. Basically a land lease is a type of financial arrangement in which the ground under a structure is leased rather sold to the builder, meaning that the land and the structure are owned independently. The most common form of a land lease is for 99 years. More often than not leases are extended rather than being allowed to expire, sometimes at a rate adjusted for inflation and appreciation.
Possibly the largest and most recent land lease was Hong Kong, where the British had a 99 year lease which they lost in 1997, handing the city over to the Chinese government. Closer to home in Clearwater, the Top of the World condo community is mostly 99-year land leases. If you own in one of the buildings which is a land lease you pay a fee for the land in addition to other condo fees. One of the things to be sure of if you're considering a land lease property is to determine when the lease expires, since financial institutions could object to providing financing on a property that may only have a short-term lease in place.
And, is owning a fee simple property better than a land lease property? Probably, but there could be situations where you don't have a choice. Besides do you really own land or does even our government only give you a provisional right to use the land as long as you pay your property taxes? See how fast they take your land if you don't pay those taxes along with other ownership fees. Not to mention zoning limitations and architectural restrictions, as well as homeowner association regulations. Eminent domain also can take the land that you think you own in order to improve the quality of life for everyone. Sort of makes China look not altogether bad.
So the mystery is not that much of a mystery and not even that much of a risk. Land leases in this country are pretty secure, even though they aren't outright ownership, China not so much. God keeps making people, but not land. I guess he's the one who really holds all of the land leases.