There are a few different types of ownership of Vancouver real estate, with the most common being: Freehold, Leasehold, and Co-op.
You may have noticed surprisingly cheap properties in the West End, SE Vancouver and near Granville Island. Well, there’s a reason for it! Many of these properties are either Leasehold or Co-op, which don’t offer owners the same ownership rights as a Freehold unit, hence the discount!
A Freehold unit is where a person owns the unit and the land. This owner is allowed to do what they want with the property as long as those desires follow City regulations. In the case of a Strata (Condo) property, you own your unit and share the common spaces and land with the other owners, pursuant to the official Strata Plan, and are required to follow the Strata Bylaws regarding management, maintenance, use and enjoyment of the strata units and common property.
A Leasehold unit is where a person purchases, from the owner of a building or a lot, the right to occupy a condo, house or lot for a defined period of time (more than 20 years, and usually for 99 years). The lease agreement stipulates the terms and conditions for both the Leaseholder and the Leasehold Land Owner. The Leaseholder is allowed to sell their interest in the property, where the new owner will be accepting the remaining lease terms and conditions and building maintenance. Leases can be “Pre-Paid” or “Not Pre-Paid” and “Strata” or “Non Strata”.
Below is a quick description of Leasehold units:
Leasehold Land in Vancouver
In essence, leasehold land is a plot of land that has been rented out for certain period of time. The length of the original lease is often 100 years, but it can be as short as 20 years. Leaseholds can apply to lots, houses and apartment complexes. The owner of the Leasehold land sells the right to exclusively use a unit and the land it’s sitting on for a certain period of time, with certain requirements of the Land Owner (Leasehold Land Owner) and Purchaser (Leaseholder) that are stipulated in a Lease Agreement.
The Leaseholder who purchases the right to use the property also pays for the property taxes and maintenance/repair of the unit/building. When it comes to multi-unit buildings, these fees are typically paid through monthly fees and special levies when costs over and above standard maintenance.
Leasehold buildings can be classified as “Strata” or “Non Strata”. Strata leaseholds still follow the BC Strata Property Act which stipulates how the building can be managed and gives owners the right to vote for new bylaws, budgets or building maintenance plans. City of Vancouver Leaseholds are typically Strata, as are many of the newer buildings on First Nations Land. Non Strata leaseholds are buildings that are run by a Corporation that makes all the decisions on your behalf, which is common in the West End. You don’t have a say in rules, budgets, building maintenance or costs, but are still required to follow whatever they decide and pay for any required maintenance.
Leasehold properties can have leases that are pre-paid or non pre-paid. Units sitting on pre-paid leasehold land will be more expensive than units in non pre-paid buildings because the person selling you the Leasehold unit will have already paid the remaining lease amount, which the new purchaser will be taking over. Leases on non pre-paid land are often a bit more uncertain. Leases that are not pre-paid (often on First Nations Land though there are some City of Vancouver near Granville Island) means homeowners have a monthly lease payment in addition to strata fees, taxes, maintenance, etc. Depending on what the lease agreement says, the land owner on non pre-paid leasehold land can raise lease payments at different intervals and for varying amounts.
The value of pre-paid leasehold units tends to decline as the lease term approaches its termination date, but will fluctuate over time with market values. What happens at the end of a lease can be quite uncertain, so the closer you are to the end of the lease, the less the property is worth.
Be cautious with leasehold developments if you aren’t familiar with the lease details or the Land Owner. Make sure you understand the type of lease, the lease terms and conditions and any rules and regulations.
Where Can you Find Leasehold Land in Vancouver?
FALSE CREEK: The City of Vancouver owns the leasehold land in False Creek near Granville Island (the end of lease is typically between the years ~2030 and ~2046). These leases are typically Pre-Paid Strata Lease, but some buildings are not pre-paid. The units are typically townhouses and condos built in the 1970’s. Note that the City of Vancouver is in the process of offering the False Creek Leaseholds a 20 year extension – whether or not it is accepted is up to individual owners (as of January 2023). Please see the “RePlan Strata Leaseholders Society Website HERE for current updates.
SE MARINE / CHAMPLAIN HEIGHTS: The City of Vancouver owns the leasehold land in South East Vancouver – typically townhouses in Champlain Heights and townhouses and condos along the Fraser River (the end of lease is typically between the years ~2070 and ~2095). These leases are typically Pre-Paid, Strata leases.
WEST END: Much of the leasehold land in the West End is owned by a few different Corporations, and are Non-Strata leases, and typically Pre-Paid to the end of 2073. The units are typically units in high rise concrete condo buildings built in the 1970’s.
UNIVERSITY LAND: UBC has Pre-Paid (typically to ~2102 though it varies), Strata leasehold land owned by the University. These leaseholds are considered the most “safe” when it comes to leaseholds because of their age (generally quite new) and purpose (housing for students, researchers and faculty). The types of units vary from condos to townhouses.
WESTSIDE: First Nations bands own land on the Westside, not Pre-Paid and Non Strata, which is often in the form of houses, typically built in the 1960’s and 1970’s. Leases and lease payments are expected be reviewed in 2035 and 2055. These units can be hard to finance.
NORTH VANCOUVER: First Nations bands owns land in North Van, typically in Roche Point. These are typically Pre-Paid Strata units in the form of condos and townhouses, and are generally pretty new.
What happens at the end of a Pre-Paid lease on Leasehold land?
Leasehold land is cheaper than freehold land (when comparing similar neighbourhoods and properties), and for good reason. Leaseholders don’t own the land, and thus won’t get a share of any increase in land value (the value of the land is a big reason why Vancouver Real Estate so expensive).
If the lease on your building is nearing its end of term, you won’t be able to say with any certainty whether it will be renewed, and if so, the cost of the new lease payments once rising land values have been factored in, which is why there is a lot of uncertainty!
If the lease is renewed, Leaseholders will have to pay the new lease costs which might be a monthly fee if it’s Non Pre-Paid, or a significant amount of money if it’s Pre-Paid (though if Leaseholders pay for a new Pre-Paid lease, the unit’s market value will immediately jump given the new level of certainty a long lease offers). If the lease is not renewed, leaseholders will have to move at the end of the lease. Some – but certainly not all – lease agreements require the land owner to pay the leaseholders the fair market value of the building (which is typically not worth much since most of the value is in the land). The payout will be low compared to other nearby freehold properties so leaseholders won’t be able to buy a similar unit on freehold land with their payout. Review the Lease Agreement to understand what happens at the end of the Lease.
Think of the land near Granville Island.. That’s fantastic, waterfront land near the burgeoning Olympic Village. If the City takes the land back they could either build new, taller developments or sell the land to Developers for a huge profit to bring in millions for the City’s budget. Though homeowners can fight the decision, it would be well within the City’s right to take the land back and sell it (this is why they leased the land in the first place!). Leaseholders in False Creek were successful in decreasing a significant increase in lease payments in False Creek a few years ago (the City increased lease payments to match the value of the land in Olympic Village, which leasehold owners argued wasn’t fair). Leaseholders in Granville Island have a committee set up to begin pre-negotiations with the City regarding the nearing end of term of the leasehold units in the area (go HERE for current updates).
Financial Implications of Leasehold Land
The advantage is that leasehold units are cheaper to buy than freehold units, but there are disadvantages.
The uncertainties of leasehold properties can make them less than ideal investments. They generally take longer to sell since there are fewer Buyers interested in this type of property, and as the lease moves towards its end of lease years, the property value can decrease and/or be harder for prospective buyers to finance.
Not every lender will lend on a Leasehold property, but some major banks (HSBC is one option) as well as some private lenders will still offer a mortgage. Buyers typically need to have a good financial record and often a larger down payment. Mortgage Lenders will only amortize a Leasehold property based on the number of years left on a lease, which can increase the monthly payments if the lease only has a few years left. Having said that, rules change and individual financial situations differ so speak with your Mortgage Broker about your options. I’m happy to provide a referral if you would like to speak with a Broker who can finance Leasehold properties.
Property Transfer Tax is charged to Buyers of leasehold units, as Owners are typically registered on Title through the Land Title Office. Property Transfer Tax may be exempt depending on how long is left on the lease – contact the provincial PTT office for more information.
At this time, Vancouver’s Empty Homes Tax and BC’s Speculation and Vacancy Tax are NOT charged on the corporately owned West End Leasehold, though this information may be out of date and should not be relied upon. Please contact the City and the Province, or a Tax Lawyer, for current information if you’re thinking of buying a West End Leasehold unit.
Buying a Leasehold Property
If lifestyle factors like being close to work or living in a beautiful area (i.e. near the Vancouver Seawall) are most important, leaseholds could be a great option for you. Ideally you’ll want to buy into leasehold properties that have a long lease remaining though every Buyer’s situation and intention for the property deserves some consideration.
I often suggest Leasehold units for people who are looking to rent the unit since they’re paying less to purchase the unit but can still expect a comparable rental amount to Freehold properties meaning your monthly income will be much higher. I would also suggest Leasehold units for older owners who would like to pay less money upfront to have more money to spend in their older years, who aren’t looking to make a big long term profit from their real estate.
Make sure you’re working with an agent who understands leasehold properties (me!), the lease and the buying process so that you know the in’s and out’s of the purchase.
Prospective purchases are strongly encouraged to consult a knowledgeable Lawyer to thoroughly understand the contract and its obligations, and to work with a Mortgage Broker who is familiar with organizing mortgages on leasehold land.
For more information about Leasehold Units, check out the Province of BC Long term Residential Lease Information Page.
Contact me if you have any questions!