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VALUATION |
Rental value of the premises is generally a function of capital value of the premises.
Generally a lessor expects a return of around 6% to 10% of the capital value of
the premises. Thus to ascertain the rental value of premises one needs to find out
the market rate in the locality.
Some of these factors that would affect the valuation
of a property are mentioned below €“
- Age of the building �– As a normal market norm , new buildings would fetch higher
rental values in comparison
older properties at a given location.
- Upkeep & maintenance of building – The upkeep and maintenance of the building
would determine the marketability and the prevailing market value of the premises
in which the building is situated. Needless to say, better and fairly well maintained
buildings would fetch a better rent.
- Upkeep and condition of the premises – The condition and the internal maintenance
of the premises would again play an important role in determining the rentals for
the property.
- Layout of premises – The layout of the premises in terms of optimum space utilisation
in an efficient manner help the premises score points. The number of attached toilets,
availability of servant's room and toilet, vehicle parking spaces available with
the premises would also play an important role in determining the rental value of
the premises.
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IDENTIFICATION OF LESSEE |
- It is important for the lessor to know the background and financial capabilities
of the prospective lessee. This becomes important as the lessor has to get the possession
of the premises back at the end of the lease term. It would always be helpful for
the lessor to meet the lessee and ascertain personally the level of comfort in leasing
the premises to the lessee.
- Financial strength of the lessee would be important as the rent is to be paid
every month and the lessor should assess whether the prospective lessee would be
in a position to make such payments on a regular basis. It would be better for the
lessor to ask for post dated cheques for the rent.
- Real Estate Agents could also be an alternative for identifying a lessee. However,
caution needs to be exercised when it comes to selecting an agent.
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| LEGAL DOCUMENTATION |
Permission to lease from the society : The lessor need to take permission from the
society or the governing authority of the building. Also the lessee has to understand
the terms and conditions under which such permission is granted. Some of the societies
may charge non occupancy charges.
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LEASE AGREEMENT |
On finalisation of the terms the lessee and the lessor enter into a lease agreement.
The agreement would list along with other terms, the term of lease, deposit amount
and monthly rentals. It is also necessary to specify as to who would bear the monthly
outgoings (i.e. society charges). In some of the cases there may be a separate agreement
for the deposit amount.
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TAXATION |
In case of simple rent, the annual rent will be considered as income and the same
will be taxed.
- In case of deposit and rent, in addition to the rent the income generated during
a financial year from the investments made by the deposit amount will be taxed.
- In case the lessor takes rent in advance the entire rent is considered as income
during the year and he same is taxed.
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REPOSSESSION |
The lessor should take the following precautions while taking back the possession
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- The condition of the premises is proper and no damage has been done to the tiling,
plumbing, flooring or electrification
- No major changes have been made in the premises. In case the lessee has made some
changes, which are not acceptable, the lessor may ask him to undo the changes.
- In case of furnished premises, the condition of the furnishings is acceptable.
- The lessor should ensure that all the bills for electricity and telephones if
provided has been paid up to date by the lessee at the time of re possession.
- It is only after having satisfied oneself fully in all
these aspects should the lessor offer to refund the deposit simultaneously upon
the lessee offering vacant and peaceful possession of the premises
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