Lease option on land

My parents own a large block of land which has their PPOR on it. They are happy to subdivide and let us use the land to build our house on.

My question is whether it is possible to lease land? I know this is done quite often in NZ and with Crown land in Australia.

The second question is what would banks think of financing a building on leased land? I would have thought that if the lease was for 99 years and a mortgage was for say 25 years than the bank shouldn't have a problem.

As my parents already own the land we were hoping to do the subdivision and then put the land in a family trust and lease of the family trust. My parents have a number of IP and when Dad found out about family trusts, he decided that the cost of stamp duty to transfer any of them would be too much, so now my wife and I are keen to invest ourselves we are keen to get the right structure in place first.

Any thoughts or suggestions would be appreciated.

Peter & Melanie Timms
Hi Peter and Melanie,

I'm a bit confused about why you are asking about leasing land?:confused: As I understand it, the land, which is owned by your parents will be subdivided and a house built on it. Before this is done you will setup a Family Trust which borrows money from the bank to do the subdivision and construction. Once the house is finished you will lease the house from the Trust and live in it as tenants. It's that simple. Banks will lend to Trusts to purchase or develop property assets and you are allowed to lease properties from Trusts so no problems as far as I know.

Regards, Mike

PS: I've reread your post and I think what you are proposing is that a Family Trust is setup over the subdivided land. Then you want to get a construction loan in your name to build the house and was wondering whether the bank would give you a construction loan without the security of land. Am I right? I'm not a banker but logic says this:

The bank needs some security which they can sell to recover their loan money and interest or they may loan without security but require a large deposit, say, 35% and Loan Mortgage Insurance on the rest if an Insurer will take it on. It's an expensive proposition for you so not recommended. Best course of action is to have the Trust borrow for the land and constuction and secure the loan against the land. However, since the Trust has no income to pay for the loan before the property is rented the interest will probably have to be capitalised till some rental income is available to pay the mortgage payments.
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