Leased Fee: Meaning, Importance, and How It Works in Real Estate

In real estate, the term “leased fee” refers to the ownership interest in a property that has been leased to a tenant. The landlord, also known as the lessor, retains ownership of the property while granting a tenant the right to use it for a specified period under a lease agreement.

Understanding the concept of a leased fee interest is essential for property owners, investors, and tenants, as it affects property valuation, investment returns, and legal rights.

• In this article, we’ll cover:
  What is a leased fee?
  Leased fee vs. leasehold interest
  How leased fees impact property valuation
  Advantages of leased fee ownership
  Examples of leased fee transactions

What Is a Leased Fee?

A leased fee interest is the ownership interest retained by a landlord when they lease a property to a tenant. The landlord continues to hold title to the property, but the tenant has the right to use it for the lease term.

• Landlord (Lessor) retains ownership.
  Tenant (Lessee) occupies the property and pays rent.
  The lease agreement dictates the terms of use and payments.

Example:
A commercial property owner leases a retail space to a business for 10 years. The landlord holds the leased fee interest, while the tenant holds the leasehold interest.

Leased Fee vs. Leasehold Interest: What’s the Difference?

Feature	Leased Fee Interest (Landlord)	Leasehold Interest (Tenant)
Who Holds It?	Property owner (Lessor)	Tenant (Lessee)
Property Rights	Ownership rights, receives rent	Right to use & occupy the property
Income	Collects lease payments	Pays rent to landlord
Market Value Impact	Affects property valuation & investment potential	Affects tenant’s business operations

Key Takeaway:

• Leased Fee = Ownership Interest
• Leasehold Interest = Tenant’s Right to Use the Property

How Leased Fees Impact Property Valuation

A property’s leased fee value is determined by factors such as:

• Rental Income – Higher rental rates increase leased fee value.
  Lease Term Length – Long-term leases increase stability and value.
  Tenant Creditworthiness – Strong tenants (e.g., national brands) improve investment appeal.
  Market Conditions – Interest rates & property demand affect valuation.

Example:
A shopping mall with high-credit tenants like Starbucks or Apple will have a higher leased fee value than one with short-term or risky tenants.

Advantages of Leased Fee Ownership

• Stable Income from Rent Payments
• Property owners receive consistent rent from tenants, creating passive income.
• Lower Risk Compared to Vacant Properties
• A leased property generates reliable income even during market downturns.
• Strong Investment Potential
• Institutional investors & REITs prefer leased fee properties for steady returns.
• Potential for Property Appreciation
• The underlying property may increase in value over time, providing long-term gains.
• Best For:
  Real estate investors looking for stable, long-term returns.
  Commercial property owners seeking passive income.
  REITs (Real Estate Investment Trusts) focusing on income-generating properties.

Examples of Leased Fee Transactions

Example 1: Commercial Office Lease

• A property owner leases a high-rise office space to a corporation for 15 years.
  The landlord retains the leased fee interest, while the corporation holds the leasehold interest.
  The lease agreement provides consistent income for the property owner.

Example 2: Retail Property Lease (Triple Net Lease)

• A shopping center owner leases space to a national retail chain under a NNN lease.
  The tenant covers property taxes, insurance, and maintenance, reducing the landlord’s expenses.
  The property’s leased fee value increases due to the strong tenant and long-term lease.

Example 3: Ground Lease in a Hotel Investment

• A hotel developer leases land from a property owner to build a new hotel.
  The landowner retains the leased fee interest, while the hotel company pays rent and operates the business.
  The landowner earns stable income without managing the hotel operations.

Fact: Many luxury hotels like Hilton and Marriott operate under leased fee agreements for their prime real estate locations.

Conclusion

Leased fee ownership provides real estate investors with predictable income, reduced risk, and strong asset appreciation. Whether in commercial, retail, or ground leases, understanding leased fee interests is crucial for successful property investments.

• Key Takeaways:
  Leased fee interest = Property ownership with an active lease.
  The landlord collects rent, while the tenant occupies the space.
  Stable, long-term leases increase leased fee value.
  Common in commercial real estate, shopping centers, and ground leases.

Interested in leasing or investing in commercial real estate? Understanding leased fees is essential for maximizing returns!

FAQs 

1. What is a leased fee in real estate?

A leased fee interest is the property owner’s interest in a leased property. The landlord owns the property while the tenant occupies it under a lease.

2. What is the difference between a leased fee and fee simple?

• Fee simple ownership = Complete property ownership with no lease restrictions.
  Leased fee interest = Ownership with an active lease in place.

3. How does a leased fee impact property sales?

When selling a leased property, buyers consider lease terms, rental income, and tenant quality to determine the property’s value.

4. What happens when a leased fee property’s lease expires?

The landlord can renew the lease, lease to a new tenant, or sell the property.

5. Can a leased fee property be refinanced?

Yes! Lenders consider rental income, lease terms, and tenant stability when refinancing.

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