Leasehold real estate can provide the home you could never afford, but with big caveats

Shirley Shen and her husband were living in a little studio apartment in Vancouver when they had their first child. It didn’t take long before they decided they needed a larger home.

But the city’s pricey housing market left them few options. Two-bedroom apartments in their Olympic Village neighbourhood were selling for $2.5-million. Rent for similar styles of housing was unattainably expensive.

So Ms. Shen started looking into options for leasehold properties in the area. Eventually, they landed a three-bedroom townhouse in 2019 for below $1-million in False Creek, a central neighbourhood. The caveat: They’d only have the property for 18 years, and would have to negotiate a lease extension that could cost hundreds of thousands of dollars after that point.

Unlike conventional freehold homes where a purchaser buys the land and the home in perpetuity, leaseholds are a form of ownership for a defined period of time from either the government, an Indigenous band or a land trust. Leases are often issued for 99 years, and at the end of the term, the two parties can extend the lease through some form of negotiation.

Terms vary, but Ms. Shen’s family renewed the lease for roughly 20 years for around $200,000 – much lower than their purchase price.

While such arrangements are more common in Europe and Asia, they’re scant in Canada and often only available in some towns or for specific types of real estate, such as vacation homes. The Vancouver area is an exception, where certain neighbourhoods such as False Creek South and Champlain Heights have large communities mostly comprised of leaseholds owned by the City of Vancouver.

Other leaseholds exist on land owned by the University of British Columbia