Leasehold or Fee simple?

[Mike Boyd]

Yea Steven!

 

[Mark K]

If the person owning the fee simple interest in the property has leased out the right of use and occupancy to another person, then they no longer have the whole "bundle of rights" or Fee Simple Interest. They now have a Leased Fee interest. They have leased the rights to someone else for a SPECIFIED TIME FRAME. Once that lease expires, they will then have the whole bundle of rights again and thus the Fee Simple interest would be reinstated. As long as the property is under a lease, the lessor CANNOT be said to have Fee Simple interest. It is Leased Fee. The lessee (rentor) owns the leasehold interest till the end of the lease.


Josh

Exactly!

A owner that leases a property no longer has a Fee Simple interest; he has conveyed, via lease, a portion of the rights in the real estate. You can appraise the Fee Simple with a Hypothetical Condition that the lease does not exist if that is what the lender wants.

I indicate Leased Fee in many of the reports on properties that are leased for longer than month-to-month. This includes single-family, multi-family and office bldgs. Some lenders have said that they consider leases shorter than one year as fee simple, so if they request I'll mark FS and indicate the value is based on a HC that the owner has FS interest.

If your instructor said "leasehold" he mis-spoke and meant "leased fee". At lease I hope he knows the difference, assuming you're appraising the property owner's interest and not the value of the tenant's lease interest.

 

[Mike Shapiro]

Thanks everyone. I thought I was losing my marbles for a second. Everyone else in the class kind of just looked at him with a strange glare as if he had lost his mind. Thats all I needed. You guys have said what I had originally believed.

 

[Wayne Tomlinson]

A leased fee estate is held by a property owner who owns property (a landlord) who owns property which is rented, leased to conveyed to another. The rights of the lessor (the leased fee owner) and the lessee (leasehold) are specified by contract terms contained within the lease.

A leasehold estate, which is held by the lessee (tenant and renter) conveys the right of use and occupancy for a stated term under certain conditions.

Wayne Tomlinson

 

[jdbiggers]

Sounds like you had the sme instructors I've had throughout the years: painfully sublimely limited ability to read sim ple English.

If you are appraising the OWNERS interest in the property, you are appraising a fee simple interest. If you are appraising the value of the tenants lease, it is a leasehold interest, technically, but not really. No matter what, the rights that convey with the property if it is fee simple is fee simple. PERIOD.

Leashold interest are a reversionary right of ownership, meaning it will without exception return ownership to the grantor unless converted to fee or a new lease is issued, such as people who live in national forest areas that are not excludd or developers who build on Indian reservations, for example cases.

Your instructor is dead wrong. A simple lease in almost every state in the United States is NOT a form of ownership (NOT LEASEHOLD) but has a separate set of rights governed by a completely different set of laws and statutes. Leases are NOT ownership, but a conveyance of agreement for USE. Some of the answers herein are very disheartening. If I rent a property to you, I do NOT have a Leasehold Interest in the property: I have rights under statutes NOT related to those which cover ownership of real property. In Arizona, we have the "Landlord-Tenant Act." Other states have a similar set of statutes that deal with leases. But a lease via conventional RENT of a property is NOT a LEASEHOLD INTEREST.

Leasehold Interests have the entire bundle of rights for the term of the lease minus any exclusions no different from exclusions that can be set forth in CC&Rs in Fee Simple estates. A Tenant does NOT have the entire bundle of rights.

I remember some idiot "expert" appraiser here in Arizona getting woefully educated on the matter by the state board here in Arizona about six or seven years ago by making such an eroneous conclusion. I'll try to see if I can still get the minutes from those meetings because the representative from the Attorney General's office wrote a detailed explanation of the distinction.

Bottom line is that if you are dealing with a property with a simple lease (NO CONVEYANCE OF INTEREST VIA A LEASEHOLD OR LEASED FEE ESATE FILED WITH THE SATE) then it is fee simple. It's simple.

JD

 

[The Warrior Monk]

(NO CONVEYANCE OF INTEREST VIA A LEASEHOLD OR LEASED FEE ESATE FILED WITH THE SATE) then it is fee simple. It's simple.

It is my understanding that such conveyances do not have to be recorded. A property owner has the right to grant a portions of the bundle of rights without notifying the state. Of course it is highly recommended that these transfers be recorded in case disputes arise.

 

[Fred]

If you are appraising the OWNERS interest in the property, you are appraising a fee simple interest. If you are appraising the value of the tenants lease, it is a leasehold interest, technically, but not really.

The rest of your post does not clarify the difference between "technically" and "really."

 

[Alexx]

I recently appraised a property that was leasehold. The land had a 99 year lease on it. Developers came in and built townhomes on the leased land. To say the least, comps are difficult to come by. In order to find comparables I had to expand my search past the 12 month guidline and make adjustments to other leasehold townhomes that exceeded the net & gross adjustment requirements. I submitted the report and waited, because I knew the client would come back and want additional information. Lo and behold, the client came back and said that they wanted to know the fee simple value of the property. Hmmmm, is that possible, without a hypothetical condition? Only a very very smart appraiser could figure that out. The subject's site was a footprint of the building, good luck trying to go to the lessor and asking him to let you purchase the leased site under your townhome! So, I replied and informed the client that I was not able to estimated the fee simple interest. And what about marketability? The leased land shouldn't have much affect on the marketability of the property if there is 70 years left on the lease, but what if there is 60 years left on the lease? I'm sure some buyers would be hesitant to buy.

 

[Christine Marie]

I recently appraised a property that was leasehold. The land had a 99 year lease on it. Developers came in and built townhomes on the leased land. To say the least, comps are difficult to come by. In order to find comparables I had to expand my search past the 12 month guidline and make adjustments to other leasehold townhomes that exceeded the net & gross adjustment requirements. I submitted the report and waited, because I knew the client would come back and want additional information. Lo and behold, the client came back and said that they wanted to know the fee simple value of the property. Hmmmm, is that possible, without a hypothetical condition? Only a very very smart appraiser could figure that out. The subject's site was a footprint of the building, good luck trying to go to the lessor and asking him to let you purchase the leased site under your townhome! So, I replied and informed the client that I was not able to estimated the fee simple interest. And what about marketability? The leased land shouldn't have much affect on the marketability of the property if there is 70 years left on the lease, but what if there is 60 years left on the lease? I'm sure some buyers would be hesitant to buy.

Andrew, i read you.... loud and clear, however, most of the 'ground leases {used loosely here} will have an automatic renewal, the only complication will be in predicting the "new" rental rate at the end of the lease period...

We have 99 year renewable forever's here [in our downtown area] and have survived approximately 4 or 5 court decisions that upheld the validity of the language to imply 'renewable forever at the same terms'..

In the county however, the length of the leases vary upon the classification of the use, with the majority being a 40 year lease...

 

[Zero]

well, lets just make it short, and not confuse him........
he is looking for Fee Simple, just check off "tenant" occupied.

You will probably never in your life get a leasehold assignment.
Yes it's that rare.

Fee simple, Tenant occupied. Abolutely.

However, leasehold is not that rare here in the Baltimore area. A large portion of Bmore City is still leasehold/ground rent on 99 year automatically renewable. They're mostly leftover from decades ago to make it affordable for people to improve land without having to buy it. They range from about $10/year to about $300per year. Anyone who owns the structure on the land can buy it out at cap. rate ( usually yearly rate/.06).

Check out some of the headlines in the Baltimore Sun over the last few weeks for some very interesting ground rent disputes.