MAHATMA EDUCATION SOCIETY’S

Pillai HOC College of Architecture Rasayani

Valuation
Module – 4
Professional Practice – 2 (B. Arch, Mumbai University)
Dr. Joydeep Dutta – Fall 2020-21
Module 4: Valuation
• Land acquisition
• Land Acquisition Act 1894; Procedure for Acquisition
• Land Acquisition, Rehabilitation & Resettlement Act 2013
• Aims, Scope, Important Provisions
• Standard Rent
• History of Rent Control in Mumbai
• Contractual Rent vs. Standard Rent
• Fixation of Standard Rent
• Dilapidation & Waste
• Permissive waste vs. Voluntary waste
• Tenantable repairs vs. Structural repairs
Land Acquisition
JUSTICE is about:

Truth

Impartiality

Swiftness
Components
of an
ARGUMENT:
Claim
Premise
Assumption
Land Acquisition in India
• Land acquisition is the power of the union or a state government in India to
acquire private land …
• for the purpose of industrialization, development of infrastructural facilities or
urbanization of the private land, and …
• to compensate the affected land owners for their rehabilitation and resettlement
• Until 2013, the Land Acquisition Act of 1894 governed land acquisition in India
• The 44th Amendment of the Constitution (1978) deleted the right to property from
the list of fundamental rights
• The need for a cohesive national law for land acquisition was felt
• Now, the Right to Fair Compensation and Transparency in Land Acquisition,
Rehabilitation and Resettlement Act, 2013 (LARR) has replaced the 1894 Act
• The official mandate was to "meet the twin objectives of farmer welfare; along
with expeditiously meeting the strategic and developmental needs of the country”
The idea of Eminent Domain
• The power to take property from the individual is rooted in the idea
of eminent domain
• The doctrine of eminent domain states, the sovereign can do
anything, if the act of sovereign involves public interest
• The doctrine empowers the sovereign to acquire private land for a
public use, provided the public nature of the usage can be
demonstrated beyond doubt
• In the history of modern India, this doctrine was challenged twice,
once when land reform was initiated and again when Banks were
nationalized
Land Acquisition – historical developments
• The Constitution of India originally provided the right to property (which includes
land) under Articles 19 and 31
• Article 19 guaranteed that all citizens have the right to acquire, hold and dispose of property
• Article 31 stated that "no person shall be deprived of his property save by authority of law"
• It also indicated that compensation would be paid to a person whose property has
been taken for public purposes (often open to various interpretations)
• The 44th Amendment of the Constitution (1978) deleted the right to property from
the list of fundamental rights
• It stated that the right to property ‟is no longer a fundamental right but rather a
constitutional/legal right/as a statutory right and ….
• In the event of breach, the remedy available to an aggrieved person is through the High Court
(not the Supreme Court)
• It also introduced a new provision (Article 300-A), which stated that "no person shall be
deprived of his property save by authority of law”
• State must pay full compensation at the market value of the property acquired (land, building
or structure) at the time of the acquisition
Procedure of Acquisition (LAA 1894)
The procedure for acquisition is made up of the following steps:
1. Preliminary Investigation
• Revenue Authority involved; Notification issued; Prevention from selling
2. Objection and Confirmation
• Public purpose? Land suitable? Most suitable land? Area in excess? Destroy heritage?
3. Enquiry into Measurements, Claim, Value and Award
4. Taking Possession
5. Reference to Court & related procedure
6. Apportionment & appointment of compensation
• Multiple owners? Doubtful ownership?
7. Payment of Compensation (or deposit to court)
LARR 2013: Aims and Objectives
• To ensure a humane, participative, informed and transparent process for
land acquisition for industrialization, development of essential
infrastructural facilities and urbanization with the least disturbance to the
owners of the land and other affected families – in consultation with
institutions of local self-government and Gram Sabhas established under the
Constitution of India
• Provide just and fair compensation to the affected families whose land has
been acquired or proposed to be acquired or are affected by such
acquisition
• Make adequate provisions for such affected persons for their rehabilitation
and resettlement
• Ensure that the cumulative outcome of compulsory acquisition should be
that affected persons become partners in development leading to an
improvement in their post acquisition social and economic status
LARR 2013: Purpose & Scope
• The Act aims to establish the law on land acquisition, as well as the
rehabilitation and resettlement of those directly affected by the land
acquisition in India
• The scope of the Act includes all land acquisition whether it is done by the
Central Government of India, or any State Government of India
• The Act is applicable when:
• Government acquires land for its own use, hold and control, including land for
public sector undertakings
• Government acquires land with the ultimate purpose to transfer it for the use
of private companies for stated public purpose
• The purpose of LARR includes public-private-partnership projects, but excludes
land acquired for state or national highway projects
• The Government acquires land for immediate and declared use by private
companies for public purpose
• The provisions of the Act do not apply to acquisitions under 16 existing
legislations including the Special Economic Zones, Atomic Energy, Railways, etc.
LARR 2013: Important Provisions …
• Compensation in rural areas would be calculated by multiplying market
value by two and adding assets attached to the land or building and adding
a solatium to compensate sentimental value
• In urban areas it would be market value plus assets attached to the land and
solatium
• Developers to get the consent of up to 80% of people whose land is
acquired for private projects
• For PPP projects, the approval of 70% of land owners is mandatory
• Multi-cropped, irrigated land cannot be acquired unless it is for defence or
emergency caused by natural calamity
• Land should be returned to original owner if not used in 5 years for the
purpose for which it is acquired, subject to the refund of one-fourth of the
compensation amount with interest from date of payment
• The government will not acquire land for private companies for private
purpose
LARR 2013: Important Provisions
• The Bill mandates social impact assessment when government proposes
acquisition of land over 40 hectares, which should be conducted in
consultation with the gram-sabha (village council)
• It also provides for the appointment of an administrator for resettlement
and rehabilitation
• In case companies directly acquire land over 40 hectares, they will be
responsible for resettlement and rehabilitation
• The Bill also proposes amenities like schools, health centres and civic
infrastructure in places where project-affected people are resettled
• The urgency clause should be exercised in the rarest of rare cases like
national defence or for resettlement purposes.
• This implies no land acquisition can proceed without public hearing.
Standard Rent
Rent Control Act
• History of Rent Control (Restriction) in Bombay (Mumbai):
• In Bombay Province, the Mumbai Rent Restriction Act 1939 was introduced
• This Act applied to all premises whose rent did not exceed Rs. 80/- p.m. as on 1-1-39
• The Mumbai Rents, Hotel & Lodging House Rates Control Act 1947 was
enacted
• This Act applied to premises whose rent exceeded Rs. 250/- p.m. (04/1942 and 02/1943)
• It is renewed from time to time and applies to all premises let out for residences,
education, business, trade or storage etc.
• The Act is not applicable to the premises belonging to the Govt. and local authorities.
• This act has now been replaced with Maharashtra Rent Control Act 1999
• It is a social legislation whose principal aim is to afford protection against eviction and
exploitation of the tenants
• In the absence of adequate protection it is likely that tenants may be asked to vacate
their premises and also be asked to pay exorbitant rent, as there is always a demand for
housing stock.
What is Rent?
• Rent is defined as the periodic payment made by the tenant to his
landlord for use and occupation of premises as well as its
appurtenances, furnishing and other amenities provided by landlord
• Rent normally includes all outgoings, such as …
• Municipal Taxes, Property tax, Government Taxes, and
• All permitted increases that are recoverable from the tenants, and
• Necessary allowances for repairs and maintenances, depending upon the terms
and condition of the tenancy
Contractual Rent vs. Standard Rent
• Contractual Rent is the rent fixed between landlord and tenant (lease-
holder or lessee) at the inception of the tenancy, either by negotiation
or by bargaining
• This is the actual rent paid by the tenant
• This is sometimes also called Ground Rent
• Standard rent is the rent which would be permissible under the law to
be charged to a tenant (lessee)
• Standard rent is determined from the value of a property – greater the value of a
property, greater is the rent
• This value is sometimes called the Rateable Value
• Often there is a wide gap between contractual rent and standard rent
Standard Rent
• Most rent control acts do not give any specific definition (or meaning) of
standard rent, except that it is the rent fixed by the court
• It is based on 3 considerations, namely:
• The provision of the Act
• The circumstances of the particular case
• Fair and just character of the amount involved
• If a tenant seeks redress from the court seeking to reduce the Contractual
Rent because it is excessively higher than the Standard Rent, most laws may
allow it, but the converse is not true
• If the premises is constructed and let out before Sep 1940, then that contractual rent is
considered as Standard Rent
• If the premises is constructed before Sep 1940, but let out for the first time after that
date, that contractual rent is considered Standard Rent
• This is also referred to as Ad-interim or Presumptive Standard Rent
• If the premises is constructed and let out after Sep 1940, that first contractual rent may
be challenged in court by tenant as excessive
How to determine Standard Rent?
• Standard Rent may be determined by 2 alternative methods:
• Theory of Comparables
• Theory of Investment
• Method of fixation of rent is just the reverse of Rental method of valuation
(Rateable Value)
• Standard Rent for Government building/ purposes is determined differently
• Standard rent (gross rent) = Net Return (net rent) + Outgoings
How to determine Standard Rent?
• Standard rent (gross rent) = Net Return (net rent) + Outgoings
• Annual Net Return is calculated by adding:
• A certain interest on the cost of construction of the building including costs for water
supply and sanitary works, electric installations, etc. (generally ~ 12%)
• Cost of construction also includes expenses due to subsequent additions and alterations
and also any expenditure made on the land
• A certain annual interest on the cost of the land (generally < 12%)
• Outgoings are the expenses to be made by virtue of being in possession of the
property and also the expenses to maintain it. The different components are:
• Taxes (municipal taxes, wealth tax)
• Repairs (~ 10 – 12% of rent)
• Management & Collection charges (agent charges, maintenance; ~ 10% of rent)
• Insurance Premiums
• Loss of rent (for unrented portion)
• Sinking fund
Fixation of Standard Rent: Example
• A person has invested Rs. 8,00,000/- in land and building expecting 6% return.
The plot of land costs Rs. 2,00,000/-. Assuming cost of annual repair to be Rs.
2,000/-, management charges at Rs. 10,000/- per annum, and other outgoings
at 20% of gross rent, calculate the reasonable monthly rent, if annual sinking
fund coefficient is 0.01.
• Solution:
• Net income expected: 8,00,000 x 6% = 48,000/- per annum
• Let gross rent per annum = x
• Outgoings: Repairs = 2,000/- + Mgt. charges = 10,000/- + Other = 0.2 x
• Sinking fund = 0.01 × 600,000 = 6,000/- …….. (Building cost = 600,000/-)
• So, Net Rent: x – (0.2x + 18,000) = 48,000
• 0.8 x = 48000 + 18000 = 66000 ………. x = 82,500/-
• Hence, Monthly Standard Rent = 82500 / 12 = Rs. 6,875/-
Types of Property
• Broadly, there are 2 types of property: Freehold and Leasehold property
• Freehold property:
• It is in absolute possession of its owner for indefinite duration, who has the right to use
the property at his free will, subject only to the laws of the land
• The owner may sell the property, divide it, develop it, donate it or grant it on lease at his
sweet will
• Leasehold property:
• It is in physical possession of the lessee (leaseholder) for a definite period under the
terms and conditions specified by the lease document
• The absolute owner of the property who is granting the lease (lessor) specified the terms
and conditions, such as:
• Duration of lease – short-term lease, long term lease (99 years) or lease in perpetuity (999 years),
at the end of which the owner gets back the possession of the property
• Type of use the property would be subject to
• Annual payment to be made by the lessee
• Whether sub-lease would be permitted, and under what conditions, etc.
Types of Lease
• Broadly, there are 2 types of lease: Building Lease and Occupation Lease
• Building Lease:
• The owner of a freehold open plot of land lets out his land on lease to some person
(lessee) on an agreed amount of premium or ground rent, or a combination of both
• The lessee can erect a building in a specified period, maintain the property, and can
reside or earn income through such property – normally long-term lease (> 30 years)
• The rent paid by the lessee for use & privilege of the land & building is called ground rent
• Occupation Lease:
• Lease is granted against premium or rent (or both) by the owner of a property consisting
of land and building for occupancy to another person for a fixed period
• The lessee doesn’t not require to spend money to construct a building, and hence this is
often a short-term lease
• The lessee may maintain the property according to the conditions of the lease agreement
• The rent paid by the lessee is sometimes called rack rent
Mortgage
• The owner of a property can raise loan or interest against the security of his
property, such advancement of money is called Mortgage
• The transactions, the security and the conditions of loan are entered in a
document known as Mortgage Deed
• The person advancing the money is called Mortgagee and the person
borrowing the money is called Mortgagor
• The mortgagor remains in possession of his property and receives income
therefrom – he can also sell the property
• The mortgager or owner borrows the money putting up his property as
security for the loan
• So, the mortgagee is not a legal owner of the property
• But in case the mortgagor fails to repay the loan with interest or fails to pay
installments within a specified period as agreed in the Mortgage deed, the
Mortgagee can sell the property to recover the loan, interest and other dues
Lease as a Tenancy Contract
• The relationship between landlord and tenant is created by a contract of
tenancy called Lease or a Lease Agreement
• The landlord gives the tenant exclusive possession and quite enjoyment of the
landlord’s premises for a definite period for a periodic payment called rent
• As per an amendment of Rent Act in Maharashtra the Lease Agreement should
be registered and stamp duty paid
• But, sometimes it is an only an oral agreement.
• Since a written agreement is absent here, the rent receipt and delivery of possession of
premises form important ingredients to justify relationship of landlord and tenants
• The liabilities for repairs to a property can be contractual or statutory
depending on the circumstances
• The contractual liabilities are spelt out through the covenants in a lease deed
Covenants
• Covenants are conditions in agreements which spell out rights and
liabilities of parties, as also their successors
• In certain circumstances these are enforceable against the third party
• These take the form of express covenants when given on leases and
implied covenants which arise from relationship of landlord with tenant
• Covenant by Lessor
1. To put lessee in possession of the property.
2. Allow lessee quiet and peaceful possession of the premises on payment regular
rent
3. To carry out heavy or special or structural repairs if so provided
4. To renew the lease if so provided
5. To pay specified outgoings
Covenants
Covenant by lessee:
1. To pay the rent regularly
2. To repair and keep in repair the demised premises.
3. Not to make additions and alterations to the premises
4. Not to cut or maim any part of the fabric of the structure, walls or timber
5. Not to commit waste
6. Not to change user of premises
7. Not to erect permanent structure without prior permission of lessor
8. To insure against fire and bear other outgoings as specified
9. Not to assign, transfer, sublet or part with possession with out prior consent
10. To remove tenants fixture without damaging the property.
11. To surrender the property in the same condition as it was originally leased at
the expiry of lease period
Dilapidation and Waste
Dilapidation and Waste
• Dilapidation is a state a disrepair
• This may arise due to neglect to carry out repairs, whereby the building
becomes dilapidated i.e. reaches a ruinous or wasted condition
• Dilapidation vs. Waste
• Dilapidation indicates injuries to a property on account of neglect by the
owner
• Waste indicates such injuries on account of neglect by the tenant
• Waste can be further divided into two types:
• (1) Permissive Waste
• (2) Voluntary Waste
Dilapidation and Waste
• Permissive Waste indicates allowing a building to pass into a state of
disrepair by neglecting the essential repairs required
• Voluntary Waste indicates wrongful action by a tenant for the beneficial
enjoyment of the building, such as:
• Indiscriminate removal of partition wall between rooms
• Chipping off portions of beams or columns for interior decoration
• However, voluntary waste may sometimes increase the value of property
• e.g. Adding rolling shutters in a shop
• Removal of filler partition wall between rooms (not load-bearing)
Dilapidation and Waste
• In urban areas, where Rent Control Act is prevailing, the landlords are
responsible to take care of permissive waste, and tenants are responsible for
voluntary waste only
• But often landlords are unwilling to spend for permissive waste due to:
• Tenants paying very low rents
• It is not possible for landlords to either evict tenants or increase rents
• Increased occupancy of the property accelerates wear and tear of the property
• Thus many old buildings that don’t get the benefit of permissive waste are
often dragged into dilapidated state, and
• They may either suddenly collapse, or have to be re-built (re-developed)
• The Dilapidation Report needs to be prepared carefully by the valuer
• including a floor-wise schedule of dilapidations with
• approximate cost of repairs (with measurements and description of each such item)
Repairs
• Any labour or material provided to restore, reconstruct or renew any existing
part of a building, its fixtures or appurtenances
• Repairs are classified into:
• (1) Tenantable repairs and
• (2) Structural repairs
• Tenantable repairs are done to put the premises in a tenantable condition, so
as to command the rent and make it fit for human habitation
• Structural repairs pertain to the fabric of structure including walls and floors
supporting members
• e.g. Water proofing will be tenantable repair, while repair of joist will be
structural repair
• If the floor is raised and paved with tiles in place of IPS flooring, it would fall
under improvement
Thank you!