RENT AS A FACTOR IN DETERMINING FAIR MARKET VALUE

WHEN VALUING RENTED PROPERTY FOR WHICH NO COMPARABLE FACILITIES EXIST ON THE MARKET, A PROBLEM ARISES CONCERNING THE BASIS FOR DETERMINING ITS FAIR MARKET VALUE. THE FIFTH CIRCUIT COURT OF APPEALS FACED THIS PROBLEM IN THE CASE OF UNITED STATES V. MICHOUD INDUSTRIAL FACILITIES. THE COURT HELD THAT WHERE NO COMPARABLE PROPERTY SALES OR RENTAL DATA WERE AVAILABLE FROM THE OPEN MARKET, AND WHERE THE PROPERTY IN QUESTION HAD BEEN LEASED AT LOW RENTALS WHICH HAVE BEEN ESTABLISHED BY THE OWNER AS INCENTIVES FOR OCCUPANCY, THESE RENTALS SHOULD BE THE CONTROLLING BASIS FOR VALUATION. THE COURTS FAILURE TO CONSIDER FACTORS OTHER THAN CURRENT RENTS WHICH MIGHT ENTER INTO THE VALUE OF THE LAND IN QUESTION MAKES THIS DECISION A CONTROVERSIAL ONE. THE COURT MUST BE UNDERSTOOD AS LIMITING ITS DECISION TO THE CIRCUMSTANCES OF A CASE WHERE IT IS CONVINCED THAT THE AMOUNT OF VACANT LAND AND BUILDING SPACE WAS SO GREAT /85 TO 95 PERCENT/ THAT IT NECESSARILY MUST DOMINATE ANY PROSPECT FOR FUTURE RENTALS. SINCE THE CIRCUMSTANCES RELATING TO THESE FACTORS CHANGE FROM CASE TO CASE, THE SCOPE OF THE EVIDENCE ADMITTED SHOULD BE BROAD ENOUGH TO ALLOW THE COURT TO DETERMINE WHETHER AN EXISTING LEASE REFLECTS THE ACTUAL VALUE OF THE PROPERTY BEING CONDEMNED, AND, IF NOT, WHAT OTHER ELEMENTS OF ACTUAL VALUE ARE ASCERTAINABLE.

  • Supplemental Notes:
    • No 41, pp 15-19, 9 REF
  • Authors:
    • Beldner, R S
  • Publication Date: 1966-8

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Filing Info

  • Accession Number: 00200802
  • Record Type: Publication
  • Files: TRIS
  • Created Date: Nov 18 1994 12:00AM