In a ground lease, what interest does the landowner hold?
Correct Answer
B) The leased fee interest in the land
The landowner as lessor holds the leased-fee interest, including contract rights to rent and reversion as defined by the lease. The tenant holds the leasehold interest. Identify the actual rights and term; do not automatically add separately appraised interests to infer unencumbered market value.
Why This Is the Correct Answer
Option B is correct because the lessor in a ground lease holds the leased fee interest. That interest includes the right to receive the rent stipulated in the lease and the right to get the property back at the end of the term, known as the reversion.
Why the Other Options Are Wrong
Option A: The leasehold interest in the land
Option A, the leasehold interest in the land, is the interest held by the lessee or tenant, not the landowner. The landowner retains the leased fee interest.
Option C: A life estate in the improvements
Option C, a life estate in the improvements, is an interest measured by a person's lifetime. A ground lease is a lease for a stated term, and the landowner's interest is the leased fee, not a life estate.
Option D: An easement across the leased site
Option D, an easement across the leased site, is a limited right to use another's land for a specific purpose. The landowner owns the land subject to the lease and holds the leased fee, not an easement.
Landlord keeps the fee
The landlord keeps the leased fee and gets the property back later; the tenant holds the leasehold and the right to use it now.
How to use: Use this when matching lessor and lessee to their property interests.
Exam Tip
Match lessor with leased fee and lessee with leasehold; distractors often swap them.
Common Mistakes to Avoid
- -Assigning the leasehold interest to the landowner
- -Assuming the leased fee equals unencumbered fee simple value
- -Confusing a lease with an easement
Concept Deep Dive
Analysis
This question tests the property interests created by a ground lease. The landowner who leases the land to a tenant is the lessor and holds the leased fee interest. The tenant holds the leasehold interest.
Background Knowledge
A lease divides ownership rights between the lessor and the lessee. The leased fee is the lessor's interest, including rent and reversion; the leasehold is the lessee's right to use and occupy for the lease term. Appraisers must identify which interest they are valuing.
Real-World Application
A retail chain signs a long-term ground lease and builds a store on land owned by a family trust. An appraiser asked to value the trust's position values the leased fee interest, based on the contract rent and the reversion at the end of the lease.
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Previous Question
An improved property sold for a cash-equivalent $1,120,000. Comparable improved sales indicate that land represents 22% of total property value. Using the allocation method, what is the land (site) contribution?
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A comparable vacant site sold for $860,000. Unlike the comparable, the subject site is near a commercial composting facility, which makes it inferior. Paired land sales show a proximity stigma discount of $150,000. No other adjustments apply. What is the indicated value of the subject site?