Leasehold

A leasehold interest is the right of a tenant to occupy and use a property for a defined period under the terms of a lease agreement. Unlike fee simple ownership, the leasehold holder does not own the underlying land or structure — only the contractual right to use them.

In valuation, leasehold interests are appraised when the tenant's rights carry measurable market value, typically when the lease rate is below current market rent, creating a favorable differential known as leasehold value. This scenario is more common in commercial real estate but can arise in residential contexts involving ground leases.

For loan originators and valuation professionals, leasehold properties require careful review of lease terms, expiration dates and renewal options, as these factors directly influence marketability, financing eligibility and the duration of the collateral's value.