Valuation of Leasehold Interests : Their Worth, Exchange Value and Relation to Rent

This note is devoted to conceptual valuation treatment of leasehold interests. A simple model of their appraisal from the standpoint of tenants emphasising owner-occupational rather than insututional investment perspective is proposed. The inverse relation holding between the amount of rent passing and worth of leasehold interests to tenants is highlighted with graphic treatment, together with the attendant income imputation problems. Marketability and exchange value considerations for leasehold interests are subsequently discussed and it is contended that their exchange value on perfect markets, implied in some statutory definitions of Market value within certain jurisdictions, would be zero. However, real-world leasehold markets are far from perfect - which is the cause of exchangeable value for leasehold interests. The use of Fair value - as conceptualized by the International Valuation Standards 2007 - is advocated in conjunction with their formal valuation