Rights question

[Mark K]

This is a hard circumstance! I hope it’s not on the test again tomorrow but I’ve been dying to find out what everyone thinks!!

You'll get various answers on this; its a horse that's not only been beaten, but beaten to death and its carcass left to rot with an occasional buzzard coming by to pick at the bones.

Some appraisers, at the insistence of their client (or the underwriters), often pretend that a lease doesn't matter or doesn't exist. Apparently, it makes it easier to slide reports thru underwriting. After they've done that for many years they convince themselves that a lease has no significance and appraise rental property as Fee Simple.

In my opinion, if the tenant cannot sublease the property, they have zero leasehold value, therefore, fee simple = leased fee value.

The leased fee value MAY = the Fee Simple value, no question, but the lessee has an interest in the property. The owner can't have FS interest if a portion of the rights in the real estate have been conveyed via a lease. What if the lease is below market value? This would certainly affect the leased fee value.

Its pretty straightforward, look up the definition.

Lease Fee Law and Legal Definition | USLegal, Inc.

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

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."

This should not be a difficult concept for experienced appraisers.

 

[Terrel L. Shields]

What if the lease is below market value? This would certainly affect the leased fee value.

I've never seen an unbreakable lease. Maybe that is just me. So what will a buyer do? They will pay for the fee simple and then give the renter notice to vacate within 60 days. Remodel the unit as needed and re-lease at a much higher price. They are doing that to a bunch of "townhouses" where I have been working for some time. I've yet to see my first sale of one where the fee simple didn't transfer and the price was impacted by a renter.

 

[Mark K]

I've yet to see my first sale of one where the fee simple didn't transfer and the price was impacted by a renter.

If it was leased, the fee simple interest did not transfer.

 

[Carnivore]

I've never seen an unbreakable lease. Maybe that is just me. So what will a buyer do? They will pay for the fee simple and then give the renter notice to vacate within 60 days. Remodel the unit as needed and re-lease at a much higher price. They are doing that to a bunch of "townhouses" where I have been working for some time. I've yet to see my first sale of one where the fee simple didn't transfer and the price was impacted by a renter.

They wouldn't get away with this in NC. The big boy banks tried that nonsense during the mtg mkt crash. The Judge let the Banks take the title but they had to leave the tenants in place till the lease expired.

 

[Terrel L. Shields]

The Judge let the Banks take the title but they had to leave the tenants in place till the lease expired.

How many leases exceed six months where you are? I've not seen even a full year lease in years. Six months at a time. I know a lot of managers and owners who won't change the rents so long as you take care of the place. I recently did an estate for a management company and they had monthly leases that hadn't changed in five years. There was a 30% difference in one 8 unit apartment from the longest serving tenant and the newest rents.

So most renters are renting month to month after the first six months and they can be booted upon 60 day notice.

 

[Sadie]

That’s why I’m confused. If owner has fee simple rights on one side and technically leased fee on the other side…… HOW is this a question?! I have no idea! Ugh lol

How many tenants require an appraisal of a property? (residential) Don't over think it.

 

[Carnivore]

How many leases exceed six months where you are? I've not seen even a full year lease in years. Six months at a time. I know a lot of managers and owners who won't change the rents so long as you take care of the place. I recently did an estate for a management company and they had monthly leases that hadn't changed in five years. There was a 30% difference in one 8 unit apartment from the longest serving tenant and the newest rents.

So most renters are renting month to month after the first six months and they can be booted upon 60 day notice.

Leases here are typically 6 or 12 month. Maximum Residential Lease in NC is 36 months. They are very rare because most Judges will not enforce beyond 12 months. Another example of how judges rule on residential is very interesting. They will not enforce the remaining term of a Broke Lease until the Landlord proves to the Judge the efforts they went to to re-lease the property. The Landlord can't just say I did this or that, they have to have written proof in the form of ad's etc. Essentially all the land lord gets is the deposit even when there are damages. The judges in small claims don't want a docket full of Lease claims.

 

[Carnivore]

How many leases exceed six months where you are? I've not seen even a full year lease in years. Six months at a time. I know a lot of managers and owners who won't change the rents so long as you take care of the place. I recently did an estate for a management company and they had monthly leases that hadn't changed in five years. There was a 30% difference in one 8 unit apartment from the longest serving tenant and the newest rents.

So most renters are renting month to month after the first six months and they can be booted upon 60 day notice.

Depends on income status. Most Landlords in my area get a 12 month lease for homes and apartments. Yes to a lessor extent there are six month leases, but they are rare, turnover cost are to high.

 

[Fernando]

What about owner occupied SFR in which some of the rooms are rented?

 

[Taramarietag]

What about owner occupied SFR in which some of the rooms are rented?

Good point. So it would be fee simple still I would think. Ugh I’m so confused lol