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Draft paper urges adopting consistent definition of "fee simple"
May 16, 2019 - The appraisal, real estate, and legal professions should adopt a consistent definition of "fee simple" in line with the legal interpretation of the term, according to the IAAO Fee Simple Task Force's new paper, “Setting the Record Straight on Fee Simple." 
 
The paper, which was released for exposure and comment, addresses issues surrounding differences in the definition of “fee simple” (or "fee simple absolute") and urged adoption of a consistent definition. The term "fee simple" can play an important role in valuations of big-box stores and also in challenges that use the dark store theory that fully operational stores should be assessed the same as vacant buildings or “dark stores."
 
The paper notes that “the fee simple estate definition is the foundation of what assessors are often asked to examine” and that “misunderstandings about the term fee simple, more appropriately, fee simple absolute, have led to uncertainty in the appraisal of a fee simple absolute estate.”
 
The paper reviews the history of the term “fee simple,” its definitions, and the expansion of the definition by the appraisal industry.
 
“An investigation of the evolution of the term reveals that the appraisal industry definition has diverged from the legal definition, leading to confusion in the appraisal community, particularly in the field of property taxation. Therefore, it is essential to clarify fee simple in order to maintain accuracy, consistency, and uniformity in assessment practices and to retain credibility in the assessment profession,” the paper noted.
 
Under the legal definition, the paper stated that "fee simple absolute estate implies nothing more than an ownership interest in property in which the owner has complete control of the disposition of the property."
 
In the 1980s the appraisal industry added the phrase “unencumbered by any other interest or estate” to its definition, which differentiates it from the legal definition.
 
“One of the main controversies that has emerged as a result of the word unencumbered is the interpretation that a property encumbered by a lease is not fee simple, and that appraising a property in fee simple means one must assume the property is unencumbered by a lease, that is, vacant. Fee simple does not mean the property is vacant. Fee simple defines an estate. It is not synonymous with dark value or liquidation value,” the paper stated.
 
Courts have recognized the discrepancy between the legal and appraisal definitions and as a result the paper stated that “there is no rationale for the appraisal industry to apply its own definition to a term universally understood by the other participants in the real estate industry."
 
IAAO accepting comments on paper
The exposure draft is available to download from the IAAO website and comments on the paper are due by Friday, June 14th. Comments can be sent to Heather Steel at steel@iaao.org.  The Task Force will review the comments and submit a final version to the IAAO Board of Directors for approval.
 
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