Knowledge Building Across Community Land Trusts In Europe
Knowledge Building Across Community Land Trusts In Europe and the United States Champlain Housing Trust: Ground Lease Belgium – July 1, 2 nd, 2013 Brenda M. Torpy,
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
Dual Ownership • Individual owns • Community the home and Land Trust owns the Lease leasehold the land Ground ties the improvements & land interest in land together
Challenges to the Ground Lease Model in the US I. Legal II. Real Estate Finance & Industry Practice III. Culture & Social
I. Legal Rule Against Perpetuities – Prohibition against limiting commercial value of land Solution Contract between two consenting parties Term Limit (99 years) and renewable Community in Community Land Trust – Legal Documents are not only protection of mission
II. Real Estate Finance & Industry Practice Challenge: Residential real estate never separates land home Many years to gain acceptance from lenders and realtors to offer mortgages to CLT buyers. Challenge: Appraisers resist valuing house separately from land Very difficult to change an industry that is philosophically wary, if not hostile towards our mission
III. Cultural & Social Property law and industry practice reinforced cultural value of private ownership and freedom to profit. In Vermont, a rural state, owning the land had even greater significance and these attitudes needed to be overcome. Solution: Affordability and access to the highly prized ownership of a home. CHT made CLT ownership as like the market as possible. This has deep and broad support now.
Key Components of Ground Lease Use of Land • Owner can use land just as a typical homeowner would Term of Lease • 99 years, can be renewed once Owner Occupancy • CHT requires at least 6 months Ground Lease Fee • CHT charges $35/month. Market rates are approx. $300/month Owner Responsibility • To pay property taxes and insurance Owner Responsibility • To maintain home Resale Formula • Including Capital Improvement Credits
Best Practices (Exhibits to Lease) Stipulation • Signed document stating mutual understanding of unique nature of transaction • Purpose: to outline the intent of the parties in signing the lease Client Declaration • Acknowledgement by owner that he/she was represented by legal counsel • Acknowledgement that legal counsel reviewed all CLT closing documents Permitted Mortgages • Defines CLT and Lender’s rights and responsibilities • Guards against homeowner refinancing without CLT approval
Resale Formula- Critical Decisions Appraisal Based Index Based Advantages: Easier to gain acceptance by lenders, owner benefits when market value increases Advantages: Simplicity, owner gets increase even when market value decreased Goal: To try to mirror the open market as much as possible Goal: To guarantee home stays affordable Owner Receives a percentage (25%) of market appreciation Owner receives a guaranteed return (1% or 2% increase of purchase price when selling)
Critical Decisions Capital Improvement Credits Made by CLTs to compensate owners who upgrade the home Appraisal Based Formula: Index Based Formula: • Owner gets 100% of increase in • Owner gets 100% of cost of value due to the work improvements (regardless of value) • Determined by third party appraisal • Many CLT’s add depreciation from at time of sale time work was done
Questions?
- Slides: 12