An owner leases an office building to a tenant. Which interest does the owner retain?
Correct Answer
A) The leased fee, with the right to regain possession
A lease splits the bundle of rights into the leased fee interest held by the lessor and the leasehold interest held by the lessee. The lessee gets possession and use; the lessor keeps the other rights, including regaining possession at the end of the lease.
Why This Is the Correct Answer
Option A is correct because a lease separates the bundle of rights into the leased fee interest held by the lessor and the leasehold interest held by the lessee. The lessor retains all other ownership rights, including the right to regain possession when the lease ends.
Why the Other Options Are Wrong
Option B: The leasehold, with the right of possession during the lease
Option B, the leasehold with the right of possession during the lease, is the tenant's interest, not the owner's. The owner keeps the leased fee.
Option C: A life estate measured by the tenant’s life
Option C, a life estate measured by the tenant's life, is a different form of ownership that lasts for a person's lifetime. A lease of an office building does not create a life estate.
Option D: An easement in gross over the building
Option D, an easement in gross over the building, is a right to use another's property for a specific purpose. It is not the interest an owner keeps after leasing the building.
Landlord keeps the fee
The landlord collects the rent and keeps the leased fee; the tenant holds the leasehold.
How to use: Use this pairing to sort lessor and lessee interests on property-rights questions.
Exam Tip
Lessor goes with leased fee and lessee goes with leasehold; both words in each pair are linked to the same party.
Common Mistakes to Avoid
- -Assigning the leasehold interest to the landlord
- -Assuming a lease transfers all ownership rights to the tenant
- -Confusing a lease with a life estate
Concept Deep Dive
Analysis
This question tests how a lease divides the bundle of rights. The tenant receives possession and use, while the owner keeps the remaining rights. Identify the name of the owner's retained interest.
Background Knowledge
When a property is leased, the owner holds the leased fee and the tenant holds the leasehold. Appraisers must identify which interest they are valuing, because contract rent and lease terms can make the leased fee value differ from fee simple value.
Real-World Application
A lender orders an appraisal of a fully leased office building. The appraiser identifies the leased fee interest as the property right appraised and analyzes the existing leases' effect on value.
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While working on an appraisal of a new house in a tract subdivision, an appraiser measures new-home supply in the market area on the Census Bureau's definitions. Builders report 150 speculative houses permitted, under construction or completed with no sales contract signed or deposit accepted, 15 houses with signed sales contracts, and 20 platted lots with no permit issued and no work begun. Sales contracts have held steady, with 75 signed over the past 5 months, including those 15 houses. What months' supply is indicated?
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