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Eye On Boise

Tue., March 16, 2010, 12:16 p.m.

The premium-rent issue…

The charging of "premium rent" when state-owned cabin sites - on which private renters build and maintain their own cabins and other improvements - change hands is designed to recapture part of the gain in value of the premium lakefront lots for the state, rather than having all the appreciation go to the cabin owner who sells. The idea is that if the state really is charging market-rate rents, there's essentially no value in the leasehold itself, the right to rent the land. That, instead, is paid through yearly rents. However, leasehold values have skyrocketed over the years. In fiscal year 2009, 10 cabins on state endowment leased land sold. The state received $305,901 in premium rent, at a 10 percent rate. That means the sellers collected $2.75 million in gains on their state-owned leaseholds, according to the state Department of Lands.

That's why a state Land Board subcommittee originally proposed to hike premium rents to 50 percent over the next five years. The subcommittee's report says, "Since 2003, cottage site owners have realized in excess of $25 million for the use of state endowment lands while the endowment received only $2.7 million" in premium rents. The problem with that approach was illustrated in a letter to the Land Board from cabin site lessee Karl Klokke, who said he and his wife bought their Payette Lake lakefront cottage site leasehold in 2005 for $750,000, then spent another $100,000 to demolish existing buildings, build retaining walls and make other site improvements to prepare for a new home - which never was built. Now, Klokke says, he'd be lucky to sell his leasehold as-is for $300,000. If the state took 50 percent of that, it'd take $150,000 and, rather than tapping anyone's profits, just compound his losses. Klokke suggested the state charge premium rent only on the increase in value of the leasehold - the net, rather than the gross.

The final proposal from the subcommittee, approved today on a 3-2 vote, offers an either-or: The state would charge either 10 percent of gross leasehold value when the lease changes hands, or 50 percent of net leasehold value - compared to what the seller originally paid for the leasehold - whichever is better for the state. For those who acquired their cabins decades ago or had them passed down through their families, though, that'd be a steep hit.

Chuck Lempesis, attorney for the Priest Lake cabin owners, said that'd be enough to stop anyone from wanting to either sell or buy one of the leases. "The marketplace is already in catastrophic condition," he said. "This is probably its death knell, at least for the short term, because of the instability." Bud Belles, president of the Priest Lake cabin owners' association, said, "I think they've truly taken an action that will reduce the value of the property at Priest Lake." But with rising rents, he said, "We have a lot of lessees that just cannot afford it any more."

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Eye On Boise

Short takes and breaking news from the Idaho Legislature and the state capital.