This is not a post about bashing leasehold properties. It is a post about some of the unique aspects of buying and selling leasehold properties in the Greater Vancouver area. First, I am not an absolute expert on the subject but I have sold a few leasehold properties as a listing agent and have had a few buyers purchase leaseholds. I have even had one client sell her leasehold and purchased into another.

At the heart of leasehold is the relationship to the land on which the house, townhouse or condo is situated. More clearly stated it’s the right to enjoy the equity associated from direct landownership. That said buying a leasehold property is not for everyone. Basically, there is a tenant/landlord relationship. A lease agreement with a fee (rent/lease) is created initially between the two parties (usually landowner and first purchaser/builder) complete with covenants (the responsibilities of both parties), rules, bylaws and budgets in a document generally referred to as a Head Lease usually set to last 99 years from conception. All the units in a development will age out at the same time. In Vancouver and surrounding areas, the landholder maybe the city, a corporation, privately owned or First Nations lands. The properties are typically found in highly desirable areas like waterfront (or within walking distance). In smaller communities, the properties maybe close to shopping and schools.

Are all leasehold apartments and townhouses classified as “stratas”? No. In fact, some leasehold property owners never have any kind of board, representation, meetings, voting privileges, or decision making power. The lessees simply receive a report document once a year with an operating budget, financial statement and possibly assessments or levies. Many function as “true” stratas with elected boards, monthly meetings and AGMs. Some leases are prepaid so no worries of sudden changes in lease payments – but some are not and reviews based on changing market conditions and increasing land values can result in huge lease payment increases. So, does that equate into increases in value in the units as well? Yes, leasehold properties are market driven as well. Not just at the same pace as freehold properties. Some are very slow to show increase in value – sort of like a low interest savings account. Some increase far more rapidly and may seem more attractive to the investor. It’s still about location, condition and price.

So what is attractive about these types of properties? As mentioned, location is a big factor and most purchasers would never be able to buy these homes if they were freehold. As they are not buying the land, these properties are significantly cheaper than their freehold counterparts. In some areas, there may be a price difference of $300K for a 2 bedroom condo. The value of the land being the variable.

A significant challenge to both buyers and sellers is financing. Many lenders tend to shy away from leaseholds. Mortgages are charges created against land ownership. Leasehold properties don’t offer landownership. So, the “security or chattel” is effectively missing. However, lenders do consider the landowner (reputable), the age, the condition/maintenance history, the profile of the buyer and how much time is remaining on the lease. If there is less than 30 years remaining, it’s pretty tough to get financing. A line of credit maybe the best option at this point. Some purchasers view leaseholds as good investments and keep them as rental properties. The most important thing is for buyers to understand what they are purchasing and the relationship and expectations outlined in the Head Lease.

This is not a post about bashing leasehold properties. It is a post about some of the unique aspects of buying and selling leasehold properties in the Greater Vancouver area. First, I am not an absolute expert on the subject but I have sold a few leasehold properties as a listing agent and have had a few buyers purchase leaseholds. I have even had one client sell her leasehold and purchased into another.

At the heart of leasehold is the relationship to the land on which the house, townhouse or condo is situated. More clearly stated it’s the right to enjoy the equity associated from direct landownership. That said buying a leasehold property is not for everyone. Basically, there is a tenant/landlord relationship. A lease agreement with a fee (rent/lease) is created initially between the two parties (usually landowner and first purchaser/builder) complete with covenants (the responsibilities of both parties), rules, bylaws and budgets in a document generally referred to as a Head Lease usually set to last 99 years from conception. All the units in a development will age out at the same time. In Vancouver and surrounding areas, the landholder maybe the city, a corporation, privately owned or First Nations lands. The properties are typically found in highly desirable areas like waterfront (or within walking distance). In smaller communities, the properties maybe close to shopping and schools.

Are all leasehold apartments and townhouses classified as “stratas”? No. In fact, some leasehold property owners never have any kind of board, representation, meetings, voting privileges, or decision making power. The lessees simply receive a report document once a year with an operating budget, financial statement and possibly assessments or levies. Many function as “true” stratas with elected boards, monthly meetings and AGMs. Some leases are prepaid so no worries of sudden changes in lease payments – but some are not and reviews based on changing market conditions and increasing land values can result in huge lease payment increases. So, does that equate into increases in value in the units as well? Yes, leasehold properties are market driven as well. Not just at the same pace as freehold properties. Some are very slow to show increase in value – sort of like a low interest savings account. Some increase far more rapidly and may seem more attractive to the investor. It’s still about location, condition and price.

So what is attractive about these types of properties? As mentioned, location is a big factor and most purchasers would never be able to buy these homes if they were freehold. As they are not buying the land, these properties are significantly cheaper than their freehold counterparts. In some areas, there may be a price difference of $300K for a 2 bedroom condo. The value of the land being the variable.

A significant challenge to both buyers and sellers is financing. Many lenders tend to shy away from leaseholds. Mortgages are charges created against land ownership. Leasehold properties don’t offer landownership. So, the “security or chattel” is effectively missing. However, lenders do consider the landowner (reputable), the age, the condition/maintenance history, the profile of the buyer and how much time is remaining on the lease. If there is less than 30 years remaining, it’s pretty tough to get financing. A line of credit maybe the best option at this point. Some purchasers view leaseholds as good investments and keep them as rental properties. The most important thing is for buyers to understand what they are purchasing and the relationship and expectations outlined in the Head Lease.