Fee Simple vs Leasehold

[PropertyEconomics]

Mr Santora and Karl,

The problem really is .. when you get before your State Board in this instance you will be measured against what your PEERS would have done ... as one measurement of what is reasonable ...
I think Mr. Santora has presented his oinion, I have, Edd has, where do you stand Karl?
Im just curious what my peers think in this situation. Its an interesting post and I am very glad the poster had the thought to ask it.

 

[xm72mhd]

All that is taking place in this situation is the merger of the leased fee and the leashold into the fee simple. It is no more a hypothetical than a buyer and seller agreeing to transfer ownership. Under the circumstances of the buy-out there is no reason to speculate whether the merger of the two ownerships effects the market value or not. That is all that is going on. There are currently two owners of the fee simple. The landlord and the tenant. We could get into the discussion as to how the option fits in here, but that is not necessary. Anybody who makes it more difficult than a merger and exdctinguishment of one of the severed ownership is causing themselves grief that isn't at all necessary. On your form, just list the owners as the same as two parties to the transaction if that is all there are and be done with it. It is really just that simple.
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Edd .. with all due respect .. the tenant does not OWN THE FEE ...

Correct, the tenant owns the leasehold.

I must humbly say you are way wrong in this instance.
IF ... the tenant has ownership interst in the FEE .. can he go mortgage it WITHOUT the approval of the OWNER? NO

Nor, without agreement of the leaseholder, can the owner of the leased fee mortgage the leasehold. You are taking yourself where you don't need to go, and unfortunately it may be confusing others. I'd really like to help you, but you are pretty rigid.

You are appraising the property PRIOR to the date of the merger of the interests. If you wish to appraise it as fee simple by all means .. do so .. but you are absolutely wrong in my opinion.

See the emphasis above and you will have answered your own question ... LEASED FEE and LEASE HOLD ... being merged ... you cannot appraise FEE SIMPLE becasue it doesnt exist until it is in the same ownership ... and right now its not .....

It most certainly does exist and the owners of its two parts have agreed to sell it, just as if joint owners of the fee simple had decided to sell their house. Once they both agree to transfer you can do it. If one has not, even if that person is limited to an equitable interest, such as marital they still must join in the transfer.

You are missing some basics with respect to definitions and real estate property law here, and it is certainly not my intention to embarrass you by pointing that out. You wanted this done on the forum, so chill out. I am not in any way belittling you.

We are discussing this where you want it done, but in order to discuss it I must find out what you knew about this.

If you know you are right then I guess your questions are ruse. Just know that it really is not a good thing to mislead the rest who are tuned in.

 

[PropertyEconomics]

It most certainly does exist and the owners of its two parts have agreed to sell it, just as if joint owners of the fee simple had decided to sell their house. Once they both agree to transfer you can do it. If one has not, even if that person is limited to an equitable interest, such as marital they still must join in the transfer.

You are missing some basics with respect to definitions and real estate property law here, and it is certainly not my intention to embarrass you by pointing that out. You wanted this done on the forum, so chill out. I am not in any way belittling you.

We are discussing this where you want it done, but in order to discuss it I must find out what you knew about this.

If you know you are right then I guess your questions are ruse. Just know that it really is not a good thing to mislead the rest who are tuned in.

Edd .. I in no mean intend to mislead anyone .. by your own admission the OWNER has the fee leased ..
The appraisal is as of a SPECIFIED DATE PRIOR TO CLOSING .. thus the interests of the lessee and the lessor have not been joined .. the bundle of rights at the time of your inspection were severed ... you cannot appraise the fee unless :

1) You state a hypothetical condition

2) BY contract the lease is extinguished ....

Please cite the real estate law you KNOW that contradicts this?

I KNOW what is happening, I know the bundle is being placed back together .. and AFTER closing the borrower could refinance the FEE SIMPLE interest since he owns it all AFTER closing ... but prior to that he is retaining his leasehold interest and purchasing the LEASED FEE interest from the owner.
Please specifiy within the above paragraph any mistatements I have made and how it is not correct please.

 

[Michigan CG]

Mr Evans .. I do not disagree with you that the lender will most likely want Fee Simple .. HOWEVER ...
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And FRANKLKY .. In addition, I am FROM the great state of Missouri I knew I liked something about you!! and I know for a fact the ROYALS are a horrible baseball team ......I will agree with you on that.....

I am still in the FEE SIMPLE corner as described in my earlier posts, but this was fun, and educational.

 

[xm72mhd]

Please specifiy within the above paragraph any mistatements I have made and how it is not correct please.

the OWNER has the fee leased ..
The appraisal is as of a SPECIFIED DATE PRIOR TO CLOSING .. thus the interests of the lessee and the lessor have not been joined .. the bundle of rights at the time of your inspection were severed ... you cannot appraise the fee unless :

1) You state a hypothetical condition

2) BY contract the lease is extinguished ....

All of that in red is misleading because of the way it is stated! Rearranged and changed slightly and it might be true and helpful. Begin with the owner has a leased fee instead of the owner has leased the fee. He hasn't leased the fee only some of the "sticks in the bundle" that make up the fee.

We can get to the law when you get the facts straight. A lot of this confusion is in how you characterize the situation and you are making it something it is not. The owner of the fee has leased it and now has leased fee interest. He did not lease everything and he still owns something. He and the leasehold owner have agreed to sell their interests to another person, in this case one of them.

All due respects, but you have this business turned around somewhere and I can't get past your defensive posture to find out where. No hypothetical needed. Sorry I can't get through to you, I tried to help.

 

[Mark K]

Could you please find me a deed that shows a transfer of any property, in any estate other than the fee simple estate? I have looked at several thousand deeds over the years and have never found one that said the seller is selling the leased fee estate on a leased property.

I found your statement interesting, and since I have about 20 deeds on my desk for a project that I'm working on, I decided to look at all of them.

Each and every one states in one form or fashion: ..."John Doe, county of Whatever, convey and warrant to Jane Doe, same county, for the sum of $1.00 and other valuable consideration, the following described real estate in Whatever County, in the State of Indiana: (Legal Description here).

Subject to all taxes, easements, restrictions, zoning, assessments, and encumbrances of record.

Signatures"

No where on any of the deeds is the subject of "Estate" other than real estate, mentioned. No Fee Simple, no Leased Fee, etc. (One was a Quitclaim and one a Life Estate and they were titled as such.) All others are Warranty Deeds.

It appears that the "subject to" section of the instrument conditions the ownership estate being transferred.

From "Definitions.uslegal.com"

"Lease fee is defined as an ownership interest held by a landlord with the right of use and occupancy conveyed by lease to others; usually consists of the right to receive rent and the right to repossession at the termination of lease.

In contrast, fee simple is defined as absolute ownership unencumbered by any other interest or estate. The conveyance of rights to others affects the property's value. For example, a single-family owner-occupied property has fee simple property rights that are absolute and unencumbered, unlike a leasehold estate where property rights are limited to use and occupancy for a stated term. An appraiser often is used to determine to what extent, if any, the transfer of property rights impacts the property's value."

Personally, I will continue the way I've done it in the past and as defined above. If the property is leased as of the effective date, I will continue to call it Leased Fee. I don't understand how or agree that it can be otherwise (without a HC) and my clients agree with the distinction. Have never had a problem calling it what it is.

 

[Michigan CG]

As posted in a PM.

I think the simple solution is to appraise the property as of the date of the sale, when the lease is no longer in place. I see your "theory", and in practice it is "technically" the proper way to do it, although appraising the leased fee interest would most likely produce a higher value than the fee simple value or vice versa. Additionally, what is the value of the leased fee if the lease only has a month left on it?

In the case of the poster, Mr. Banker wants a FEE SIMPLE value, thus my advice to appraise for the assignment or using a HC (or two) solves the problem, and disclosing in the report the lease as should be done.

 

[Michigan CG]

From the original post:

Fee simple ownership by the buyer takes place after closing.

In day one of appraisal class, instructors tell you that we are in the problem solving business. The banker has a problem. His problem is that he needs to know the FEE SIMPLE value of a property he is making a loan on. Therefore the appraiser does whatever is necessary to do that. It might be a prospective date, hypothetical conditions and a lot of disclosure about the current lease.

The problem for the banker is solved with a FEE SIMPLE appraisal. The banker wants a Leased Fee value like he wants another hole in his head.

 

[PropertyEconomics]

All of that in red is misleading because of the way it is stated! Rearranged and changed slightly and it might be true and helpful. Begin with the owner has a leased fee instead of the owner has leased the fee. He hasn't leased the fee only some of the "sticks in the bundle" that make up the fee.

We can get to the law when you get the facts straight. A lot of this confusion is in how you characterize the situation and you are making it something it is not. The owner of the fee has leased it and now has leased fee interest. He did not lease everything and he still owns something. He and the leasehold owner have agreed to sell their interests to another person, in this case one of them.

All due respects, but you have this business turned around somewhere and I can't get past your defensive posture to find out where. No hypothetical needed. Sorry I can't get through to you, I tried to help.

(emphasis added)
I am not being defensive ... look at the facts .. they are very simple and lets see if you can atleast agree with these:

1) .. The owner has leased the property? If the answer to this is YES, then:
2) .. The owner holds the leased fee interest in the property as of the date of your appraisal? If the answer to this quetsion is YES, then:
3) .. The tenant has the lease hold value in the property? If the answer to this question is YES, then;
4) .. The Fee Simple Interest is divided into two parts ... Leased Fee and Lease Hold ....... are we in agreement here?

NOW .. the tenant is desiresous of purchasing the owners interest in the property which above we said was LEASED FEE ... as of the date of your inspection.

YOU CANNOT APPRAISE THE FEE SIMPLE INTEREST .. NIETHER OF THEM OWN IT UNTIL AFTER CLOSING .... how is that misleading anyone?

Edd I think you are being rigid here ... Ive been appraising Leased Fee interests for over 20 years ... and THIS IS HOW THEY ARE APPRAISED ...

Barring some very different situations ... the leased fee together with the leasehold interst will most normally equate to the FEE SIMPLE ESTATE ... but not always. There are exceptions to this statement ... but just using the above ...

YOU cannot appraise something that the owner cannot sell because he does not have it as a result of the lease being in place ... UNLESS ... you issue a Hypothetical Condition that the lease does not exist or affect the property rights in any way including value.

Why is that so difficult to understand?

 

[PropertyEconomics]

From the original post:


In day one of appraisal class, instructors tell you that we are in the problem solving business. The banker has a problem. His problem is that he needs to know the FEE SIMPLE value of a property he is making a loan on. Therefore the appraiser does whatever is necessary to do that. It might be a prospective date, hypothetical conditions and a lot of disclosure about the current lease.

The problem for the banker is solved with a FEE SIMPLE appraisal. The banker wants a Leased Fee value like he wants another hole in his head.

So issue a hypothetical condition and be done with it .. I have said that from the beginning .. BUT .. you HAVE TO STATE WHY YOU ARE DOING IT ... and you have to state Hypothetically the lease is NOT IN PLACE ... because you know for a FACT IT IS ..... You cant choose to simply ignore it like some are leading us to believe.
Without the Hypothetical Condition and Check Box 4 .. YOU MUST APPRAISE THE LEASED FEE INTEREST in this situation.

Use of the Hypothetical Condition is a means to get the banker his answer .. but not the legally correct ownership rights as of the date of your inspection given the lease being in place.

THAT IS ALL I AM SAYING .. please show me where these statements are not true.