New State Law May Have Impact on Leasehold Properties

Leasehold condominiums are unique to the Hawaiian Islands. I have gone into the depth on the specifics of the definition of leasehold in another post, but it is worth a quick overview. Leasehold condominium owners own their physical condominium and a share of the common elements of the property. However, they are leasing the land on which the condo is located paying a monthly lease to the owner of the land. The lease is renegotiated periodically with some uncertainty as to what happens when leases expire. Leasehold condominium owners will occasionally have the opportunity to convert their condo to conventional fee simple ownership when the lessor sells the fee on the property. The state of Hawaii has recently passed legislation that would provide incentive to lessors to sell the fee on leasehold condos to Condominium Associations. The State is providing a 100% Income tax deduction on the sale of fees on condominiums. This tax incentive will go into effect on December 31, 2007 and continue until January 1, 2013. It will be interesting to see how many lessors take advantage of this opportunity. As it stands, there are a limited number of leasehold condominiums on the island. That number may very well shrink over the next five years.