This section is from the book "Practical Real Estate Methods For Broker, Operator & Owner", by Thirty Experts. Also available from Amazon: Practical Real Estate Methods for Broker, Operator, Owner.
The value of a lease or leasehold very often enters into condemnation proceedings. To fix the value of a lease or leasehold is very difficult and must be governed by the conditions and terms under which the lease is held. There is a rule for appraising leaseholds which I think is fairly well established. This rule is:
Capitalize the value of the leasehold property at the time of the execution of the lease on the basis of the rental at four, five or six per cent, as the case may be. Ascertain the fee value of the property at the present time, the difference between the two signifying the difference in the fee value. Calculate on a four, five or six per cent per annum basis, as the case may be, on the difference in the fee values for the unexpired term of the lease, and the result will be the value of the unexpired term of the lease.