A landlord sells ownership expressly subject to an existing enforceable below-market lease. What interest is conveyed subject to that lease?
Correct Answer
C) Leased fee.
The landlord ownership subject to an enforceable lease is leased fee. Its value effect depends on the lease and appraised rights; not all comparison sales are fee simple and a fixed adjustment is not automatic. Verify and align the rights and relevant cash flows.
Why This Is the Correct Answer
Option C is correct because the leased fee is the lessor's interest: an ownership interest held by a landlord, with use and occupancy conveyed to others by lease, plus the right to receive the stipulated rent and the reversion at the end of the term. A sale subject to an enforceable lease conveys that interest, and its price reflects the rent obtainable under the existing lease.
Why the Other Options Are Wrong
Option A: Fee simple.
Option A, fee simple, is ownership free of any other interest or estate. Because the property is sold expressly subject to an enforceable lease, the tenant holds possession rights, so the buyer does not receive an unencumbered fee simple.
Option B: Leasehold.
Option B, leasehold, is the tenant's interest created by the lease. The landlord is selling ownership, not the tenant's right of use and occupancy.
Option D: Sandwich leasehold.
Option D, sandwich leasehold, is the interest of a tenant who subleases to another party, sitting between the fee owner and the subtenant. The seller here is the landlord-owner, so no sandwich position is involved.
Landlord Leased Fee, Tenant Leasehold
The landlord leased the property out but keeps the fee, so the landlord holds the leased fee; the tenant holds the leasehold.
How to use: Use this to quickly sort which party holds which interest in a lease question.
Exam Tip
If the owner sells while a tenant's lease stays in place, the interest conveyed is the leased fee, not fee simple.
Common Mistakes to Avoid
- -Treating a leased comparable sale as a fee simple transaction
- -Confusing the landlord's leased fee with the tenant's leasehold
- -Applying a fixed adjustment without analyzing the lease terms
Concept Deep Dive
Analysis
This question tests identification of the property rights conveyed when a landlord sells a property subject to an existing lease. The buyer steps into the landlord's position, receiving the right to rent under the lease and the reversion at lease end. That interest is the leased fee, and the price reflects the rent under the existing lease.
Background Knowledge
Property rights conveyed is the first element of comparison. A leased fee sale reflects the contract rent and remaining term, so a below-market lease can lower the price compared with fee simple. The appraiser verifies the rights conveyed and aligns them with the rights being appraised rather than applying an automatic fixed adjustment.
Real-World Application
An appraiser verifies that a retail comparable sold with a long-term tenant paying below-market rent. Recognizing a leased fee sale, the appraiser considers how the contract rent affected the price before using it to value a fee simple subject.
More Sales Comparison Questions
Supported adjustments are: non-market financing $10,000, GLA $36/sf, garage $3,500 per car, pool/spa $12,500. A comparable identical to the 2,800 sf subject sold for $267,000 with non-market financing. What is its adjusted price?
Using GLA $36/sf and non-market financing $10,000: a 3,100 sf comparable sold for $277,000 with non-market financing; the subject has 2,800 sf. Bath count differences are not adjusted. What is the adjusted price?
Using garage $3,500 per car and pool/spa $12,500: a comparable with a 2-car garage and a pool/spa sold for $268,000. The subject has a 3-car garage and no pool. What is the adjusted price?
Using GLA $36/sf, garage $3,500 per car and pool/spa $12,500: a 2,600 sf comparable with a 2-car garage and a pool/spa sold for $264,000. The subject is 2,800 sf with a 3-car garage and no pool. What is the adjusted price?
In a neighborhood with declining values and marketing times over six months, what must Fannie Mae lenders confirm about the sales comparison analysis?
A house is a 4,000 square foot home in an area of 2,000 square foot homes. How must the appraiser treat this over-improvement in the sales comparison grid?
According to the Interagency Appraisal and Evaluation Guidelines, which items should an appraisal’s market conditions discussion include?
A comparable listed at $420,000 and sold for $399,000. What sale-to-list price ratio (sale price ÷ list price) does this indicate?
An appraiser wants to describe the neighborhood boundaries in a Fannie Mae report. Which approach is acceptable?
Which of these is listed by Fannie Mae as a sales or financing concession?
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