Legal and Regulatory Issues

Lease Land vs. Fee Land

The City of Palm Springs has two types of land—Lease Land and Fee Land. That’s because some of the city is on land deeded to the Agua Caliente Band of Cahuilla Indians.

In real estate, a "section" refers to a 1-mile square of land. These 1-mile squares of land form a grid pattern all over the country. Sections are numbered starting with 1 and going up to the number of sections that are in a particular area.

In Palm Springs, every even-numbered section is Lease Land and every odd-numbered section is Fee Land.

Stacy wants you to be aware of this factor if you are considering buying a home in the City of Palm Springs.

Fee Land
The term "Fee" is of Old English origin. In modern use, it establishes the title of real property in the owner. So when you buy a property that is on Fee Land, you own the land.

Lease Land
Lease Land is somewhat unique to this part of California (and some other parts of the country), where a great deal of settlement has been on land deeded to Native American tribes. Lease Land carries a long-term lease on the land, for which the owner pays an annual lease fee.

Most leases run for many years. Leases are usually renewed and extended for many years into the future while they still have 40 or more years left. Why? Because lenders are reluctant to grant a 30-year mortgage on a property that has much less than 40 years left on the lease.

An easy way to calculate the additional monthly cost of a property on Lease Land is to divide the annual lease fee by 12. For example: Let’s say a condo or home on Lease Land has an annual lease fee of $1,200. Divide that by 12, and the monthly fee is $100.

And remember... for homes or condos in gated communities, a lease fee is in addition to any applicable homeowners’ association fees. Many people find that the additional monthly cost is well worth it for a particular home or location. Others don't want to consider lease land property. You may be able to buy a bit more house on lease land because you would be buying only the structure.

Lease fees can be increased every five years. However, by law, the percentage increase may be no more than the lesser of two national cost-of-living indexes. As a result, lease increases every five years are fair and quite modest.

Another factor regarding lease land... real-estate taxes may be lower. That’s because they are based upon the purchase price of the real estate you buy. When buying a house or condo on Lease Land, the homeowners are buying only the structure. So you pay real-estate taxes on the purchase price of the structure, but not the land.

These are summary descriptions of the two types of property available in the Palm Springs area. They are not legal definitions.

1031 Exchanges

Here's a way to obtain more information about the tax implications of a "1031 exchange:" www.apiexchange.com

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Do You Know the difference between Lease Land and Fee Land?