Fee Land vs. Lease Land

Before purchasing a home in Palm Springs, it is important to know that there are two types of land here - Fee Land (you own it) and Lease Land (you lease the land upon which your house sits and you make a monthly lease payment directly to the owner of the land, or to the management company representing the owner).

For centuries, the Palm Springs area, a natural oasis, had drawn the ancestors of the Agua Caliente Cahuilla Indians here for the natural mineral springs which they believed offered curative powers. Over the years, they developed complex communities in the surrounding canyons and farmed the area, irrigating with the abundant water supply.

In 1876, the U.S. Federal Government deeded in trust 52,000 acres to the Agua Caliente Band of Cahuilla Indians to be designated as their homeland. The Southern Pacific Railroad was also given land at this same time to encourage them to construct a railroad line through this part of the Sonora Desert. The lands of the reservation were divided in a checkerboard pattern, giving alternate squares of one mile each to the Cahuilla Tribe, and one mile each to the railroad. Today about 6,700 acres of the reservation lie within the Palm Springs city limits and in some parts of Cathedral City.

Some of these one-mile-square parcels which still belong to the Indians are leased for commercial and residential construction. Over 23,000 residential properties are located on Indian Lease Land. Most of the residential properties are owned individually by tribal members, and all Indian owned leases are administered through the Bureau of Indian Affairs. There are a few tracts of land that have been purchased from the Indian owners and are now leased by their non-Indian owners. Most leases are written for long periods of time, typically for 65 years, with some up to 99 years, and sometimes with extensions that may run for 20 years or more. Lease Land carries an annual lease amount and has a "life span" which ends on a specific date, in accordance with contract law.

When purchasing a home on Lease Land, you are purchasing only the structure, and you will be paying a fee to the lease owners for the use of their land. Historically, the cost of a home built on Lease Land was typically 15% to 20% less than a similar home built on Fee Simple Land, i.e., land that you own. Since the builder didn't pay for the

land when he constructed the house, he didn't have to include a cost for land in his selling price for the house. Now, however, with the significant reduction in all residential property values, this difference in price has narrowed.

As you would only be buying a structure and not the land on which it sits, the purchase price should be lower. Therefore the mortgage payments, property taxes, and hazard insurance (included in Condo Homeowner Association Dues) would also be somewhat lower on Lease Land.

It is important to remember that if you are purchasing a property in a PUD (planned unit development) on Lease Land, there will be monthly association fees in addition to the Lease Land fees.

You will find that most leases still have many years to run, because they are usually renewed long before they are due to expire. Lenders are reluctant to grant mortgages to buyers unless the Lease Land on which the property stands has a term of at least five years longer than the term of the mortgage loan. For example, a 35 year lease is required for you to qualify for a 30 year mortgage loan, or a 20 year lease for a 15 year loan.

As to increased costs periodically applied to Indian land leases, the practice which is quite common is to use the CPI Index. As a practical matter, most contracts limit the increase to 15% over a five year period. Usually a lease is adjusted every five years in five year increments, but it could be handled differently. Since the majority of leases are owned by individual members of the tribe, the specific tribal owner of any given piece of land may dictate the specific terms in the lease for his land. Thus every lease has to be evaluated individually.

If you are purchasing a home on Lease Land and require a mortgage loan, it is imperative that you obtain your loan locally with lenders familiar with the terms and conditions of Lease Land contracts. If you must work with lenders outside the desert area, be certain that they fully understand your purchase is a Lease Land purchase. Indian leases are not common in many parts of the country and can be quite confusing to those unfamiliar with their contract terms. Dealing with a lender who does not have experience with Indian Lease Land transactions can cause significant delays and possible additional expenses during the escrow process.