The difference between leased fee value and fee simple value is primarily attributable to:

Correct Answer

B) Lease terms and rents

Why this is correct: The governing concept is that leased fee value reflects the property interest of a landlord subject to an existing lease, while fee simple value represents the unencumbered ownership interest. The primary difference between these values stems from the lease terms, particularly whether the contract rent is above, at, or below market rent, as well as lease duration and other provisions. Below-market rents typically reduce leased fee value relative to fee simple value. Why the other choices are wrong: "The insurance premiums" is incorrect because insurance costs are expenses that affect net income but are not the primary driver of the value difference between these interests. "The property taxes" is incorrect because taxes are also expenses, not the defining factor. "Maintenance costs" is incorrect because maintenance is an operating expense that impacts net income but does not primarily distinguish leased fee from fee simple value. Exam tip: Focus on lease rent versus market rent and lease duration when analyzing the difference between leased fee and fee simple value.