Before purchasing a home in Palm Springs, it is important to know that there are two types of land ownership here – Fee Land and Lease Land. With Fee Land you own it and with Lease Land you lease the land upon which your house sits and you make monthly lease payments directly to the owner of the land or to the management company representing the owner. Let’s explore the important differences in Fee Land and Lease Land before you make a purchase.
For centuries, the Palm Springs area, a natural oasis, had drawn the Agua Caliente Cahuilla Indians here for the natural mineral springs which they believed offered curative powers.
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 members of 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 and Rancho Mirage.
Fee Land vs Lease Land
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. 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. Generally speaking, the cost of a home built on Lease Land will be 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 price for the house. Now however, with the significant reduction in all residential property values over the last several years, this difference in price has narrowed.
It is important to remember that if you are purchasing a condominium on Lease Land, there will be monthly condo 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, 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.