Fee Simple Interest Valuation
According to the Dictionary of Real Estate Appraisal, the definition of fee simple is: “Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the government powers of taxation, eminent domain, police power, and escheat.”
What is Fee Simple vs. Leased Fee?
To simplify a complex discussion, subject properties are most typically appraised to reflect two types of legal estates: fee simple estate and leased fee estate.
Under fee simple the property rights appraised are in fee simple title ownership, assuming no liens or encumbrances other than normal covenants and restrictions of record such as zoning and real estate taxes. As defined in the thirteenth edition of The Appraisal of Real Estate as published by the Appraisal Institute, fee simple title means absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power and escheat. This would typically be the property rights addressed when appraising, for instance, an owner-occupied commercial building.
Under leased fee estate, we are addressing the lessor’s, or landlord’s interest. This would be performed when the subject property is encumbered by the existence of long-term leases. As defined in the thirteenth edition of The Appraisal of Real Estate as published by the Appraisal Institute, leased fee estate means an ownership interest held by a landlord with the rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the lessee are specified by contract terms contained within the lease. This would typically be the property right addressed when appraising, for instance, a multi-unit office building with a series of long-term tenants. This interest may be addressed in addition to, along with, or instead of the fee simple interest – depending on the requirements of our client and the specific facts surrounding the subject property.
