Fee simple vs leased fee

Leased Fee — Why does your regulator care? What is a lease fee? Not only should they be differentiate but these two terms are ones that your regulator cares about. For example, let’s say your client owns an office building and is the landlord to several office tenants under standard office leases. A leasehold interest is created when a fee simple land-owner (Lessor) enters into an agreement or contract called a ground lease with a person or entity (Lessee).

Here, we will explore the fee simple absolute estate and the leasehold estate and the distinctions between the two estate interests.

The Fee Simple Absolute Estate. The leased fee interest, which is typically used in the industry, is equivalent to the fee simple interest of a property that is leased to others. This view is based on the premise that a fee simple leased property contains two sets of property rights components, one being the real property interest (the fee simple interest) and the other a personal property interest (the lease contract ). Fee simple includes the “ full bundle” of rights while leases convey partial property rights to tenants for their use and occupancy. In the development and analysis for the Income Approach to Value, an appraiser may find that the lease terms are in line with current market conditions, and therefore, the value of the leased fee estate is equal to the fee simple estate , but the property rights appraised and market value label should be leased fee estate for technical accuracy and consistency with appraisal industry standards and practice. In this instance, the lender would certainly want to know the value of the leased fee estate as this positive leasehold would diminish the property’s value below its value “fee simple”.

Generally as the lease term shortens the difference between a property’s fee simple and leased fee estates converge. If you own the property and you have leased out all or a portion of it, then you have “ leased fee” ownership rights. Once the lease expires, then it reverts back to “fee simple” ownership rights.

If you are a tenant to a property, then you have “ leasehold” ownership rights. In fee simple NNN lease property, the entire risk and the expense stream of taxes , repairs and insurance of operating the property , is shifted to the tenant. It is important to note that a ground lease investment will usually trade at a lower cap rate than fee simple triple net NNN property. A leased fee interest is the amount a lessor will accept to convey the property to the lessee, as fee simple ownership. Which has more value for you?

Leaseholds, typically, have a lower value than a similar property with fee simple ownership. First things first: all properties have a fee simple value. For the purpose of this post, the fee simple estate is the value of the property unencumbered by a tenant’s rights.

In this article, we are going to define and explain some of the most common types of mineral rights ownership such as fee simple vs. Fee Simple Estate and Fee Simple Interests A fee simple estate , which is also known as an “estate in fee simple ” or “ fee - simple title,” is traditionally viewed as the highest form of real estate ownership. To do otherwise would be to value the leased - fee interest in the property rather than the fee simple interest as required by law. Even though Property Tax Advocates pointed this out to the appraiser, he refused to accept the substantially lower market rates and also take into account the fact that the office building was only occupied even though it was 1 leased. The leasehold is the lessee’s interest, whereas the leased fee is the landlord’s interest represented by the value of the remaining rent plus the reversion.

The lessor has a right to receive rental income and a right to possess the property at the end of the lease. As an investor in fee simple NNN lease property, both land and improvements are leased to tenants in exchange for predetermined rent for short or long lease terms – although shorter than years. So, development expense is borne by the investor but this also forms the basis for a tax shelter because of eventual depreciation recovery. The concept of a property being vacant and available to be leased (i.e., “dark”), which is based primarily on the premise of a property being “unencumbere” is the basis for differentiating between “ fee simple ” property transactions and “ leased fee ” property transactions and how and when such transactions can or should be used to obtain the market value of the fee simple estate.

Fee definition is - an estate in land held in feudal law from a lord on condition of homage and service.

How to use fee in a sentence.