What is a Leasehold Property, Shares in Coop and Freehold Strata?
In Vancouver we typically find three different types of condos or apartments as far as the kind of ownership or title you have over the land. You will find freehold, leasehold and shares in cooperative.
The most common type we come across is a freehold strata. With this type the owner has all the rights to the property such as you would a house. You own that specific unit that was purchased and it’s yours to sell at anytime you like to whomever you like. The strata or city has no governance over what you can do with your title to the unit. Of course, you still have to adhere to BC Strata Laws as well as the Strata Bylaws.
Another type we come across is a leasehold strata. In Vancouver, these are most common around False Creek. Rather than sell the land, the city has made a decision to keep the title to it and lease out it to a developer. Part of the reasoning behind it is that the city wants control over Vancouver’s valuable land to ensure that the buildings are always updated. The city leases the land to a developer who then builds and passes on the cost of the lease to the buyers. It will either be lump sum upfront which is called prepaid leasehold or it’s paid month to month which is called not prepaid leasehold. The lease usually runs for 99 years and the dollar amount of the lease is based on how much the land is worth. The amount is reassessed every X number of years depending on what the lease agreement says. We haven’t seen leaseholds come up for assessment during the 99 year term and the lease rate has jumped significantly. Just imagine how much land value changes every 25 years in Vancouver so it’s not uncommon for a $400 a month lease to double. We haven’t seen leases expire completely yet so it’s not perfectly clear what will happen at that time. The city will either renew the lease or buy out everyone at fair market value and release to a developer to have a new building in place. Many of the leasehold around False Creek expire close to 2040.
Important Factor to Keep in Mind About Leasehold Strata:
Let’s say you buy a leasehold in 2012 and the lease is up in 2040. If you plan on selling it in 2020, that leaves only 20 years until the lease expires. That being the case some lenders will only give a 20 year mortgage making the payments higher and therefore harder to qualify. The closer you get to the expiry the harder it can be for the buyer to qualify and there’s also more uncertainty for them since we don’t know this far in advance what the city will do.
The third type of condo we come across is a shares in cooperative. In the above two types you own the specific unit you’re in whether it’s directly or thru the lease with the city. A shares in cooperative is quite different because you own a share of a company that owns real estate in this case being a complex. For example, let’s say there are 10 units you own 10% of the place as a whole. You don’t have title to the land; you have shares like you would in a company. You obtain your rights to your suite via a rental agreement. Since you don’t own real estate you can’t get a regular mortgage. What you get from the bank is a loan to purchase shares in a company which ends up looking a lot like a mortgage. The big difference here is that the bank will want a minimum of 35% down.
Important Factor to Keep in Mind Regarding Shares in Cooperative:
A shares in coop can take different structures and sometimes it can limit how much you can sell your share for down the road. The reasoning behind this is that if you sell your unit for a high amount it affects the value of the whole coop which could affect the interest rate the coop is getting. The limit can also be in place to keep the housing more affordable.
What are the Benefits to a Shares in Cooperative Complex?
Since you’re a shareholder in a company you have all the same benefits including tax write offs. For example, any expense you incur running your home including the interest you pay on your loan is tax deductible.
Shares in Cooperative
Most freedom to buy or sell.
Good location at a more affordable price.
More affordable than leasehold and freehold stratas.
More expensive than other forms.
Some uncertainty with outcome after
Hardest to sell and least amount of control.