I'm looking at a property but it is a co-tenancy leasehold which is making it difficult for me. Financially I know this is an awful decision so I'd like to start by just declaring that I don't care about that aspect. What I'm hoping to get out of 2P2 is first some insight into what this form of property entails and second some help in determining what a good first offer would be.

Regarding Title.

My understanding of a leasehold is that I really don't own anything. That basically the title is just the right to occupy the property until the lease expires in this case 2063. In 2045 the co-operative enters into a re-negotiation of the lease and if an agreement can't be reached the parties go to arbitration. At that point I'll have to pay another lump sum in exchange for another 67 years.

The issue is further complicated by also being a co-operative. As such I wouldn't hold the lease directly. The lease is owned by a corporation in which I will be given shares. The corporation as a whole has the lease for the entire building. My shares entitle me to exclusive use of my unit.

1) Is my basic understanding is the title structure correct? Is there anything significant that I should be aware of that I have not mentioned?

2) The unit needs to be modernized. Since I don't actually own it am I allowed to renovate? Do I need permission?

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Making an Offer

Like I said this is an awful financial decision but I am going to buy it so my goal is to minimize the damage.

The property was originally listed at $1.5M. It was reduced to $1.1M in October. The property has been on the market for at least a year and probably closer to three (The owner died August 2005). The property is in a market that has only had six condos >$1M sold in the last four years.

The unique title makes financing extremely difficult. None of the major Canadian banks will finance. Most mortgage brokers said no or would be able to do it but required 35-50% down. We don't really have a sub-prime market in Canada but the largest of the few players said they couldn't do it. There are two credit unions that would consider it. So as a cash offer I have a real advantage.

The unit is empty. The cost of keeping it empty is $1900/month + utilities. The property is owned by the children of the owner who died. The owner was a US news anchor so never really lived there except when visiting Canada. As such there is probably no emotional attachment.

The property is 3300sq ft. It is in am amazing location and has a great patio. The inside is dated though. Everything is in immaculate condition as the owner never used it as a primary residence but everything is stuck in the early 90s / late 80s. It needs about $300-400k of upgrades to get it to modern standards. As such it does not show well.

The strange title makes it hard to re-sell. When you try to get a legal opinion / explanation you get directed to a particular lawyer who gives a fairly pessimistic view that will scare off most buyers.

I was thinking of offering $750k in February. Is that too low? Too High?

Peter Jennings Condo > Jon Voights car, IMO

you would own shares in a co-op corporation, said shares entitling you to a 'proprietary lease' which gives you possession of the unit. Usually the co-op corp owns one asset, the building. Here, they have a lease on the building, that is odd, not sure what the implications are, but I don't like it.

hell yes, you will not be able to breath without permission from the co-op board of directors. read the corporate bylaws and the lease very carefully.

Sounds expensive to me, especially since you don't even own the land, you're renting the land. $750k for 3300 SF, plus the $350k for restoration. That adds up to a lot of dollars per SF. Is that just the going rate per square foot or are you just paying a premium for something? (location, view, etc)


What are the payments on the land lease?

Find out if land lease holder will subordinate lease payments to mortgages if you EVER want to get it financed. If you don't, if your condo association(co op) defaults on your land lease obligation then can you LOSE your building to the land lease holder or you have to pick up the slack for the person who is not paying.

In this situation, you should try and agree with your the other condo owners and buy out the land lease owner, which may be expensive. You could also try and dissolve the land lease(probably impossible)-why would he do that for you? He won't. But you can try.

The benefit of getting in a ground lease is it should save you upfront costs which it doesn't sound like this is saving you anything. You only OWN the building, not the ground below it.

I can talk to someone who has more experience with this type of this but that's just what I know.

I'm getting the estoppal certificate in a few days so I'll know then. My original understanding was that there was a lump payment of about $250k in 1996 that covers the building until 2063 when another lump payment will be expected. That seems kind of low and the condo fee at $1200/month is very high given the absence of any real amenities (no security, no gym, no pool, etc) so very likely that includes the land lease.

I'm not too concerned about the other owners. There are only 6 units and the one I'm interested in is twice the size of the others so if anyone defualts I'm sure we can work around it.

The land is owned by the federal government so they have no interest in changing anything with respect to the lease. The building is some kind of historical building.

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I have looked at other properties in the area.

A bunch of ~1200sq ft condos (2BD) across the street are listed at between $540-620k. They own the land but divided over 70 units. No patio which for me is one of the big draws for the one I'm interested in. Two of the penthouses across the street were listed for $1.8M and $2.2M and neither sold so were taken off the market after a year -- they were both ~3500sqft.

About 10 minutes walk away there is a building with a nice 2200sqft condo for $960k. 2400sqft and the location is not even close to the same quality. Again they own the land but with 29 floors and 8 units per floor not much of it per owner.

The advantages of these alternative properties is that the first one is new so modern. The second one the building is dated but the unit has $200k in recent renovations so looks great. The one I'm interested in needs a new kitchen, new bathrooms, and new closets. The kitchen is brand new so a shame to rip it out but it is very much a 90s kitchen.

Henry are you Montgomery Brewster reincarnated?

To be honest, I would stay away from this if there's so many other options. It just sounds like a lot of work and it may be impossible to sell in 10-20 years which is the problem the current owner is having. It also doesn't sound that much cheaper then the other options in the area for the headache/risk your taking.

If you do pursue it though, tell your lender to see if he can get subordinate the land lease with the gov't like I said before. I'm not sure how hard that will be as the gov't may be tough to work with. Also, this won't be a problem for you unless you do a 40 year amortization which I hope you wouldn't, but the lender is safe if he finances this and it fully amortizes before the land lease runs out(the loan is paid off before the negotiations being to renew the lease). Once that runs out, you have to pay again as you know.

You own the building though, so you can make any renovations you want. I would also talk to a title attorney and a competent mortgage broker(if there are any) about this as they may have some insightful information.

I've been a part of transactions as both a lender and developer of properties with a ground lease in place, but it typically is $10-100 for 99 years, or in some cases it can be done away with if the payments aren't being made anymore. I'm not sure why people did that back in the day, I think it was for tax purposes but I forgot the exact reason.