Fee Simple v. Leased Fee

[NLCApprMgr]

I apologize in advance if I am asking a question that has been asked 1000 times before. I am looking at a 1004 for a single family residence. The appraiser checks Tenant in the Occupant section, and Fee Simple in the Property Rights Appraised section. If there is a tenant, and they and the owner are not related, one would assume that there is some form of an arrangement (formal or otherwise) that constitutes a lease. If there is a lease, then why would the appraiser not cite the property rights as Leased Fee Interest?

I do not have a Dictionary of Real Estate Appraisal in front of me, so I am going to paraphrase here. Fee Simple Estate states that there are no encumbrances to ownership, limited only by four legal powers. A lease encumbers the property, because occupancy has been transferred to a tenant.

Now here is the tricky part, and I look to anyone to provide better evidence. I do not recall anything in the definition of a leased fee interest that includes the duration of the lease. As far as the definition goes, based on my recollection, if there is a lease for a day or an eon, a lease is a lease no matter how long.

As always, thanks for the help.

 

[Ken B]

Yes, this topic has been discussed ad nauseum, but if I were a betting man, I bet we still get over a hundred posts on this thread.

Some of them will not be very polite.

 

[Doug DeMars]

That's Ken's way of not answering the question.

 

[sail143]

I have researched this. Assuming the most typical house lease is for one year it is reasonable to value as fee simple. Even, for example, a 24 unit multi-family with one year leases, fee simple will be accepted in the review process. Just to confuse the issue leased fee will also be accepted.

 

[Lee Lansford]

I have researched this. Assuming the most typical house lease is for one year it is reasonable to value as fee simple. Even, for example, a 24 unit multi-family with one year leases, fee simple will be accepted in the review process. Just to confuse the issue leased fee will also be accepted.

This is my perspective on it.

 

[Ken B]

That's Ken's way of not answering the question.

I assumed it to be rhetorical.

 

[Carnivore]

Duration is a state law thing. In the State of NC the maximum residential lease is 3 years.

If there is a tenant then I marked it so. Unless its a month to month or less than a year. Anything over that is leased FEE. Thats my rule of thumb for NC. Its not easy to due it by the book when you have to consider a lease. Its an encumbrance, tenants have rights.

couple of years ago the Union county, NC Sheriff refused to evict tenants if they had time remaining on their lease during the eviction process. The Judges in that county supported the sheriff.


There will be some who disagree with me,

 

[Terrel L. Shields]

In our area a lease rarely extends over six months. Most have opt out provisions and at most, the renter would lose the deposit...one month's rent.

Therefore, the accumulated value to the leasehold is nothing. No one would buy a right to sublease an apartment then pay the lease. The Leased Fee = the Fee Simple.

The same folks who worry over than probably are the same ones that don't even consider the impact of the mineral rights being severed.

 

[NEINAPPR]

Almost all of the residential leases I have seen in my market have clauses that the lease can be terminated in 30 days by the landlord if the property rights are sold or transferred. I have never seen anyone around here use leased fee due to a single family residential lease. We do have some lake property in the area where the ground is on a 100 yr lease that comes up in another 50 or so years. You buy the home and you pay no land rent, but at the end of the original lease it all reverts back to the family of the original owners.

 

[Peter LeQuire]

Assuming this is a GSE related appraisal assignment: Assumption/limiting condition 1 pertains.

The fee simple interest can be appraised without regard to any lease: the appraiser's responsibility is to report the property interest appraised and to report the occupancy to the client. It is the client's responsibility to instruct the appraiser whether it (the client) wants an appraisal of an interest other than the fee simple (or other specified) interest; it is also the lender's responsibility to assure the priority of any lien it takes on the property.