Why do lease fee values tend to be less than fee simple value over time?

The reasoning behind why lease fee values tend to be less than fee simple values over time is centered on the nature of leasing arrangements. When a lease is initially established, the terms are often set to reflect the prevailing market conditions, which means that the lease fee can represent an attractive, competitive rate at the beginning of the lease period. However, as time progresses, market conditions may evolve, and rental rates in the area could increase due to factors like heightened demand or improvements in the neighborhood.

In this context, while the lease remains unchanged at the agreed-upon rate, the market value for similar properties may rise. Consequently, the rental fee specified in the lease may become less competitive relative to the current market rates, leading to a situation where lease fees are perceived as lower than the market values of comparable properties held in fee simple. This dynamic can result in lease fee values being less than fee simple values over time, as the fixed nature of leases contrasts with the fluctuating market dynamics.

The other choices don't accurately capture the relative relationship between lease fee values and fee simple values. For instance, while inflation can impact property values, it does not directly determine the difference over time in the context of a specific lease. Similarly, maintenance costs are a separate consideration that