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Section 24: Acquisition of Leasehold Interests (for State)

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During the pre-appraisal contact, the owner of record, or his authorized representative, is contacted by the Department to determine if there are any buildings, structures, or other improvements located upon the parcel to be acquired which are owned by a lessee. A title examination is also made to determine if there is a recorded property lease. When a valid leasehold exists and it is determined there are real property improvements owned by a lessee, the owner of record is advised that TxDOT may negotiate with the fee owner for all interests, fee and leasehold. The fee owner is advised that he may have TxDOT negotiate separately with the leaseholder. To do this, the fee owner must sign a waiver stating that he has no ownership interest in the leasehold improvements and requesting that the interests be appraised separately and that separate offers be made for the fee and leasehold interests. There must be a clearly separate and defined leasehold interest that can be distinctly appraised separate from the fee interest.

The Department will not be expected to attempt separate negotiations when the various interests cannot be clearly defined. If the owner refuses to disclaim the leasehold interest (see Form ROW-N-120, Affidavit and Disclaimer, then the total offer is made to the owner with the burden of satisfying the lessee being left to the owner. When the owner agrees to disclaim, separate contingent offers are made to the owner for the fee and leasehold interests. See examples of Templates of Offer Letters. If the separate offers are acceptable, separate memorandums of agreement are completed. See Memorandum of Agreement (MOA). Additionally, if both offers are accepted, both interests must be closed simultaneously in the total amount of the approved parcel value. If either offer is unacceptable, then both parties are joined in ED proceedings. If a parcel has to be condemned, then a final offer letter is addressed to the fee owner only, with the consideration being the total approved value.

Even though the total property value remains constant, the separate leasehold value may periodically increase or decrease depending on the lease terms. Where release of a lease is handled as curative work, the title company or the Department makes a determination regarding the instrument acceptability, and complete agreement is reached on any temporary right of occupancy by the lessee.

Separate negotiations are conducted for the adjustment of utilities owned by others. Disclaimers are not required for the utility adjustments.

NOTE: Ground leases associated with advertising signs are to be handled in the same manner as other real property leases as set forth above, except that the sign structure is to be treated and considered as personalty.

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