Possessory Versus Leasehold Interest

  • June 21, 1978
  • • Written by: Walter R. Kuehnle, CRE 

Summer 1978, Vol 3, No 1

Abstract: A new term, possessory interest, purporting to describe a lessee’s interest in tax exempt real estate for ad valorem tax purposes, has been coined in California. Use of the term and its application in this connection have resulted in confusion and misunderstanding of appraisal terminology and misapplication of appraisal principle. Assessment officials and courts in some other states have erroneously equated possessory interest with leasehold interest and have applied incorrect valuation procedures in appraising the market value of the lessee’s leasehold interests in leases on tax exempt property as required by the constitution and/or statute. The author clarifies the issues and suggests a rationale to deal with the underlying problem.