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Leased fee analysis is appropriate when property is encumbered by long-term leases.

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12y ago

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What term is defined by the combination of leased fee and fee simple ownership?

Fee simple ownership describes the absolute ownership of real property.A leased fee interest describes an ownership interest of a property that is under lease.A "combination" of those two concepts would result in the "leased fee" ownership description.


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How does the value of a real estate owned in fee simple and is unencumbered compare to the value of the same parcel subject to a long-term lease?

It depends.... If the value of the lease is greater than the value of the land that is not leased, then the "leased fee" value is greater. This depends on the financial stability of the tenant, rent rate and cap rate in particular. If not, then the value of the "owned fee" is greater. Anything can change over time too. If rents start out advantageously but over time turn to be under-market then the leased fee may be of less value than if the property was unencumbered. There is no absolute predictor of how to keep rent up with the times but CPI clauses are often used. Then again if an area deteriorates or the market does, then the lease may be overmarket. That can be just as much if not more a worry. Because if a tenant comes to an option and doesn't exercise it without demanding a rent reduction, then you have the possibility of both a devaluation of the land and the rent/leased fee. And if the property was mortgaged based on the income stream expected from the tenant, that too could be jeopardized.


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