Hawaii Pre-Licensing National Practice Exam

A developer who leases real property from the owner with the intent of constructing an office building has which of the following interests in the property?

1. Fee simple

2. Leasehold

3. Life estate

4. Equitable interest

The correct answer is: Leasehold

A developer leasing real property from an owner to construct an office building holds a leasehold interest in the property. This interest is created through the lease agreement, which grants the developer the right to use and develop the property for a specific duration under the terms set forth in the lease. A leasehold interest means that while the developer can possess and utilize the property for the purposes outlined in the lease, they do not own the underlying land; that ownership remains with the property owner. The leasehold interest is a temporary arrangement and typically has a defined term, after which the rights revert to the property owner. Understanding this distinction is crucial because it highlights the nature of the rights the developer possesses—enabling them to use the property while not granting them full ownership or fee simple title, which would entail absolute ownership of the land. In contrast, options like fee simple would indicate complete ownership rights, life estate implies ownership limited to the duration of an individual's life, and equitable interest refers to rights based on fairness and justice rather than formal legal title, none of which apply to the developer in this context.