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?