Champlain Housing Trust: Ground Lease Knowledge Building Across Community Land Trusts In Europe and the United States Champlain Housing Trust: Ground Lease Belgium – July 1, 2nd, 2013 Brenda 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 Dual Ownership Community Land Trust owns the land Individual owns the home and the leasehold interest in land Ground Lease ties the improvements & land together

Challenges to the Ground Lease Model in the US Legal Real Estate Finance & Industry Practice Culture & Social

Rule Against Perpetuities – Legal Solution Contract 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 Many years to gain acceptance from lenders and realtors to offer mortgages to CLT buyers. Challenge: Appraisers resist valuing house separately from land Very difficult to change an industry that is philosophically wary, if not hostile towards our mission

III. Cultural & Social In Vermont, a rural state, owning the land had even greater significance and these attitudes needed to be overcome. 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. 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 Including Capital Improvement Credits Resale Formula

Stipulation Client Declaration Permitted Mortgages Best Practices (Exhibits to Lease) 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 Declaration Defines CLT and Lender’s rights and responsibilities Guards against homeowner refinancing without CLT approval Permitted Mortgages

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 Capital Improvement Credits 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?