Fee Simple vs Leased Fee Interest

In Texas, the Supreme Court has ruled on three separate occasions that all leases should be valued using market rate rents in determining the value of the real estate.  To do otherwise would be to value the leased-fee interest in the property rather than the fee simple interest as required by law.  Even though Property Tax Advocates pointed this out to the appraiser, he refused to accept the substantially lower market rates and also take into account the fact that the office building was only 55% occupied even though it was 100% leased.

Recognizing that legal representation was needed at the board hearing, Property Tax Advocates, at its own expense, hired one of the leading property tax attorneys in Texas to summarize the three Supreme Court cases at the board hearing.  The board then accepted Property Tax Advocates’ approach and reduced the value from approximately $17,400,000 to $14,800,000.

Total savings – $54,242.

Two months later, the property sold to a national REIT.  Even though Property Tax Advocates solicited representation of the new owners, the owners declined and continued working with a large national firm which had represented all their properties for the previous several years.  The year following the purchase, this firm accepted a value of $17,950,000 (the purchase price).

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