ground lease belgium presentation brenda torpy
TRANSCRIPT
Champlain Housing Trust: Ground Lease
Knowledge Building Across Community Land Trusts In
Europe and the United States
Belgium – July 1, 2nd, 2013Brenda M. Torpy,
CEO
Presentation Overview
• What is a Ground Lease?
• Challenges in using a Ground Lease Model
• Key Components of the Ground Lease
• Best Practices in Drafting a Ground Lease
• Critical Decisions- Resale Formula
• Questions and Answers
Ground Lease ties the improvements & land together
• Community Land Trust owns the land
• Individual owns the home and the leasehold interest in land
Dual Ownership
I. Legal
II.Real Estate Finance & Industry Practice
III.Culture & Social
Challenges to the Ground Lease Model in the US
I. Legal
SolutionContract between
two consenting parties
Term Limit (99 years) and renewable
Community in Community Land Trust –
Legal Documents are not only protection of
mission
Rule Against Perpetuities –
Prohibition against limiting commercial value of land
II. Real Estate Finance & Industry Practice
Challenge: Residential real estate never separates land and home
Challenge: Appraisers resist valuing house separately from land
Very difficult to change an industry that is philosophically wary, if not hostile towards our
mission
Many years to gain acceptance from lenders and realtors to offer mortgages to CLT buyers.
III. Cultural & Social
Property law and industry practice reinforced cultural value of private ownership and freedom to profit.
Solution: Affordability and access to the highly prized ownership of a home.
In Vermont, a rural state, owning the land had even greater significance and these attitudes needed to be overcome.
CHT made CLT ownership as like the market as possible. This has deep and broad support now.
Key Components of Ground Lease
• Owner can use land just as a typical homeowner would
Use of Land
• 99 years, can be renewed once
Term of Lease
• CHT requires at least 6 months
Owner Occupancy
• CHT charges $35/month. Market rates are approx. $300/month
Ground Lease Fee
• To pay property taxes and insurance
Owner Responsibility
• To maintain home
Owner Responsibility
• Including Capital Improvement Credits
Resale Formula
•Signed document stating mutual understanding of unique nature of transaction
•Purpose: to outline the intent of the parties in signing the lease
Stipulation
•Acknowledgement by owner that he/she was represented by legal counsel
•Acknowledgement that legal counsel reviewed all CLT closing documents
Client Declaratio
n
•Defines CLT and Lender’s rights and responsibilities
•Guards against homeowner refinancing without CLT approval
Permitted Mortgages
Best Practices (Exhibits to Lease)
Resale Formula- Critical Decisions Appraisal
Based Index Based
Owner receives a guaranteed return (1% or 2% increase of purchase price when selling)
Goal: To guarantee home stays affordable
Advantages: Simplicity, owner gets increase even when market value decreased
Owner Receives a percentage (25%) of market appreciation
Goal: To try to mirror the open market as much as possible
Advantages: Easier to gain acceptance by lenders, owner benefits when
market value increases
Capital Improvement Credits
Critical Decisions
Made by CLTs to compensate owners who upgrade the home
Appraisal Based Formula: • Owner gets 100% of increase
in value due to the work• Determined by third party
appraisal at time of sale
Index Based Formula: • Owner gets 100% of cost of
improvements (regardless of value)• Many CLT’s add depreciation
from time work was done
Questions?