This is from the AH502:
Ownership may be defined as the collection of rights to use and enjoy property. According to
section 103, "[p]roperty includes all matters and things, real, personal, and mixed, capable of
private ownership." Ownership of the fee simple estate is the most complete form of real
property ownership under law and is subject only to the limitations imposed by government:
police power, right to taxation, right to eminent domain, and right of escheat.
All appraisals involve the valuation of a set of defined property rights. With few exceptions, an
appraisal for California property tax purposes involves the valuation of the entire fee simple
estate unencumbered by any private interests (e.g., leases, liens, easements, etc.).8 As a general
rule, private parties cannot reduce the taxable value of their property by imposing private
encumbrances upon it; only enforceable government restrictions under section 402.1 are
recognized as limiting the full fee simple interest. Thus, Rule 2(a) provides, in part:
When applied to real property, the words "full value," "full cash value," "cash
value," "actual value," and "fair market value" mean the prices at which the
unencumbered or unrestricted fee simple interest in the real property (subject to
any legally enforceable governmental restrictions) would transfer for cash or its
equivalent….
For example, a property encumbered with a lease containing rental terms that are below or above
the current economic, or market, rent should be valued as if not so encumbered. As stated in Rule
4(b)(2), the appraiser must
convert the sale price of a property encumbered with a lease to which the property
remained subject to its unencumbered-fee price equivalent by deducting from the
sale price of the seller’s equity the amount by which it is estimated that the lease
enhanced that price or adding to the price of the seller’s equity the amount by
which it is estimated that the lease depressed that price.
An easement is the right of use over the property of another for a specific purpose. Most
easements are not separately recognized for property tax purposes. An exception occurs when the
language contained in the grant of the easement effectively transfers an interest "substantially
equivalent to the value of the fee," thus giving rise to a change in ownership under section 60. In
this case, the easement should be appraised and assessed to the grantee, and the property subject
to the easement should be reappraised in a manner that recognizes the effect of the easement.
Private conditions, covenants, and restrictions (CC&R’s) are private restrictions or encumbrances
that are typically recited in deeds or noted in deeds by reference. Often imposed in residential
subdivisions, CC&R’s have an effect similar to zoning (an enforceable government restriction
under section 402.1) in that they place restrictions on use (e.g., minimum house size
requirements and specification of architectural style). In many cases, they are more restrictive
