Legal Definitions - external obsolescence

Definition: External obsolescence is a type of obsolescence that occurs due to external economic factors, such as decreased demand or changed governmental regulations.

Explanation: Obsolescence refers to the process or state of falling into disuse or becoming obsolete. External obsolescence occurs when external economic factors, such as changes in demand or regulations, make a property less valuable or useful. This is different from physical deterioration, which is the result of wear and tear over time.

Examples: An example of external obsolescence is when a factory located in a small town loses business due to changes in regulations that make it more expensive to operate. Another example is when a shopping mall loses customers due to the opening of a new mall in a nearby area.

Illustration: Imagine a small town that has a factory that produces a specific type of product. The factory has been in operation for many years and has provided jobs for many people in the town. However, due to changes in regulations, the cost of operating the factory has increased significantly. As a result, the factory is no longer profitable and is forced to shut down. This is an example of external obsolescence because the factory has become less valuable and useful due to external economic factors.