In accordance with Article 607 of the Civil Code of the Russian Federation, the owner (or other legal right holder) has the right to lease his property by entering into a lease agreement with the tenant.
The object of rent can be any "non-consumable" things and items. The law refers to "non-consumable" things:
"... land plots and other isolated natural objects, enterprises and other property complexes, buildings, structures, equipment, vehicles and other things that do not lose their natural properties in the process of their use".
It should be noted right away that the "non-consumable" property does not take into account the gradual loss of consumer qualities of the leased object due to physical wear and tear (loss of the object's value as a result of time and environmental factors). Indeed, physical deterioration of buildings and structures occurs over a very long time (sometimes more than 50-100 years) and this process is fundamentally different from the use (consumption) of gasoline, electricity, food, etc.
Renting out real estate is a common practice in the commercial use of real estate. Renting allows you to effectively use the capital invested in real estate and carry out economic activities, satisfying the need of individuals, enterprises and organizations for useful space.
By concluding a lease agreement for a property, the tenant acquires the rights to use and own the object, and sometimes the tenant receives only the right to use (depending on the terms of a particular lease agreement).
The right to lease, or rather the totality of rights received by the tenant under a lease agreement, can be transferred to another person in any legal form of civil circulation. In particular, the right to lease can be sold. But for the sale (or other forms of alienation) of the lease right, it is necessary to establish the value of this right. This is provided for by the "Law on valuation activities in the Russian Federation" 135FZ, which directly allows for the assessment of the value of not only things, but also individual rights.
What is the assessment of the right to lease real estate based on? First of all, such an assessment is based on an analysis of the benefits that the estimated lease agreement gives to the tenant and for the possession of which the buyer is willing to pay money. Indeed, it makes no economic sense to buy from someone the right to lease and pay extra money for it if the totality of rights under this agreement does not provide advantages over an agreement that can be concluded directly with the lessor on general market conditions. Why incur additional costs if it does nothing?
That is, when analyzing a lease, it is necessary to pay attention to the conditions that give advantages to the tenant compared to the general market situation.
To identify these advantages in the analysis of the contract, it is necessary to clearly highlight the following conditions of the contract:
- terms of payment (amount, terms and procedure for payments, the possibility of offsetting other expenses of the tenant in the rent, the procedure for calculating fines and penalties);
- characteristics of the leased object (area, floor and number of storeys, qualitative characteristics of structural elements and finishes, location, ease of access, infrastructure of the area and adjacent territory);
- the term of the lease agreement, the terms of termination and prolongation;
- additional rights of the tenant - for example, the right to buy out the leased object, the right to carry out redevelopment or other changes.
In fact, the valuation of the lease rights is the translation of significant provisions of the lease agreement, described in the language of legal language and interpreted by interested parties as advantages or disadvantages, into quantitative (monetary) indicators that determine the value of this set of rights.
But how to translate the qualitative characteristics of the lease into quantitative ones? Let's look at the main possible advantages of a lease and show how they can be measured in monetary terms.
The most common advantage is the advantage in the rental rate. Indeed, if the lease agreement provides for a rent below the market rate, then this clear advantage can be expressed in terms of value. To do this is quite simple - you need to calculate the amount of savings for the rental period and discount it according to the rules for calculating the present value of future income - this way we get the present value (that is, the value at the valuation date) of this benefit. If this advantage is the only one and the lease agreement does not contain conditions that worsen the position of the tenant compared to ordinary lease agreements, then this value will be equal to the market value of the right to lease this property.
There may be more complex lease terms that can be considered an advantage, such as the right to buy a leased asset. Here it is necessary to analyze the cost of the buyout and the terms when this buyout can be made, the terms of the buyout and the amount of necessary costs to fulfill these conditions. The calculation itself can be carried out under the discounted cash flow method, which is a standard procedure in such cases.
Another advantage of the lease agreement, which increases the value of the lease right, may be the right to set off the lessee's costs incurred for the repair, re-planning or reconstruction of the leased object in the cost of lease payments. Indeed, as a result of a reasonably carried out repair or reconstruction, it is possible to obtain an object with better consumer properties, but the rent for it will be lower, since the lease agreement was concluded when the object was in poor condition. This situation often occurs when renting real estate located in prestigious areas, but in poor technical condition.
Note that not only the right to offset the cost of repairs in the lease payment is an advantage, but the very right to carry out repairs, redevelopment or reconstruction can be a significant advantage, even without offsetting the costs. It all depends on the amount of the rent - if it was initially provided at a low level and even small investments in repairs dramatically increase the quality of the facility, then such costs can be effective even without their offset in the cost of rental payments.
Thus, when calculating the value of the lease right, it is necessary to first identify all the benefits that this lease provides to the tenant, and then calculate the total monetary equivalent of the value of all identified benefits. Of course, only the advantages of leases that are most often encountered in the practice of real estate valuation are considered here, but the general approach to valuation of the right to lease remains the same.
If you need additional advice from an independent appraiser on the assessment of the right to rent, please contact our specialists by phone +7 495 7268674 on weekdays from 10.00 to 18.00.
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Land is an object of great economic importance. Land plots are the basis of any real estate and are in demand on the market as a means of production for business, as an object that satisfies consumer needs of people and as an investment object for all market participants.
But the acquisition of land ownership is not the only legal form of ownership on the basis of which a land plot can be used, land lease is a real and cost-effective alternative to buying it.
When buying a land plot, the buyer acquires the right of ownership in relation to this plot and the value of his rights is equal to the value of the acquired land. And what does the tenant acquire, what is the cost of his rights, how to evaluate these rights, expressing their value in monetary units? Such questions often arise during the preparation of various transactions with land lease rights and the conduct of land valuation procedures.
Definition of the object of assessment
When valuing land as part of the transfer of lease rights to a land plot, it is necessary to correctly determine the object of valuation itself. Law 135-FZ "On Appraisal Activities in the Russian Federation" allows the valuation of not only material objects, but also individual rights in relation to these objects, therefore, in this case, the object of assessment will be the market value of the right to lease a land plot, which the tenant has on the basis of a lease agreement , and the existing lease agreement will be the source of the right and the title document.
The right to lease (on the part of the tenant) is the right of fixed-term, paid possession and use of the land plot on the terms specified in the lease agreement. This right can be sold to another person, contributed to the authorized capital of the enterprise or pledged - provided that these actions do not contradict the provisions of the lease. However, to carry out all these operations, it will first be necessary to assess the value of the lease right, since any of the listed actions requires an indication of the value of the object.
Parameters affecting the cost
The value of the right to lease land (on the part of the tenant) is determined by the economic benefits and obligations that the tenant receives and accepts. The economic benefits that can be obtained from the use of a site depend not only on its physical characteristics (area, shape, location, topography, availability of engineering networks), but also on the legal status of the site (land category, permitted use, encumbrances, permits). for construction). Often, it is the legal features of the legal status of a land plot that determine the cost of the right to lease to a greater extent than its physical characteristics.
In addition to the above pricing factors, in order to assess the value of the right to lease land, it is also necessary to take into account the terms of the lease agreement, which are essential parameters in determining the value of the right to lease.
What provisions of the lease agreement have the greatest impact on the cost of the right to lease a land plot? First of all, these are the lease term, the payment period, the amount of the lease payment, the procedure for changing the rental rate, the presence of special obligations that require additional expenses from the tenant or give him additional benefits, measures for additional financial incentives for the tenant, as well as conditions for early termination of the contract.
Best economic use of the site
After establishing all the pricing parameters of the appraisal object, it is necessary to determine the "best and most efficient use" of the leased land plot.
What is meant by "best and most efficient use" and why is it important? As noted above, the permitted use of a land plot largely determines its value, but even within the permitted use, land can be used in different ways. For example, you can build a covered parking lot, or you can just make a platform for vehicles. In the first case, the costs will be higher, but the subsequent operating income will be higher. In the second case, the costs will be lower and less income. Which way is more efficient? Evaluation theory gives an unambiguous answer to this. The best use is considered to be the one in which the value of the land will be maximum. This implies that the best and most efficient use, in addition to financial efficiency, must be legally feasible, physically and financially feasible. That is, it is not possible to consider uses that are contrary to existing legal regulations or that are not feasible for various reasons of a technical, financial or organizational nature.
It should be remembered that the value of a land plot and the value of its lease rights are always determined solely on the assumption of its best and most efficient use. However, its current use may not coincide with the best use, which was determined according to the above principles.
Assessment Methods
In assessing the value of the right to lease land plots, methods of income and comparative approaches are used.
The most obvious are the methods of a comparative approach to land valuation - for example, the method of comparative analysis of offers for sale or real transactions. This method is based on a direct comparison of the parameters of the object of assessment with analogues on the market - most often these are proposals for the assignment of the right to lease land plots for various purposes. This method works well if the appraiser has access to reliable and up-to-date market information that allows a correct comparison of the object of appraisal and similar objects presented on the market for the sale of leasehold rights.
However, when comparing multi-parametric objects, such as the right to lease a land plot, the selected analogous objects will inevitably differ in some way from the assessed site - in terms of area, lease terms, location, placement relative to the main highways, etc. The impact of these differences on the value of the appraised object must be taken into account by introducing reasonable adjustments to the unit prices of analogous objects.
When selecting analogous objects, it is imperative to take into account the best use of the land, since differences in price arising from different best use are almost impossible to correct. Therefore, one should discard those analogue objects whose best use does not coincide with the best use of the object of evaluation. For example, if the land for which the leasehold is being assessed has as its best use the construction of a building, then it cannot be compared to agricultural land.
When choosing analogues for evaluating the rights to lease a land plot, it is also necessary to distinguish between land plots for sale and land plots for rent. Comparison of the cost of the right to lease a land plot and the cost of a land plot sold for ownership is possible only if the lease agreement contains the right to buy out the land plot for ownership, indicating the conditions for such a buyout.
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The tenant's right to lease can be determined:
If there is data on the market value of such rights - at their market value;
In the absence of data on the sale of lease rights by the difference between the market and actual rental rates, including other costs associated with the use of the land plot, discounted for the lease term;
As the difference between the market value of a land plot and the costs associated with acquiring such a right.
If the land plot is in state or municipal ownership (this is the most typical case for the current conditions of the formation of the land market), the tenant's right to lease can be calculated based on the amount of authority to use the land plot, which is determined by the terms of the contract, the cost of acquiring the land in ownership, risks of reduced income due to higher rental rates.
The cost of the tenant's right to lease a land plot in state or municipal ownership is determined as:
Where: C AR- the value of the tenant's right to lease, with memory- the market value of the land, With Oi- the cost of encumbrances imposed by the landlord (local authorities) on the tenant when using the land plot, M B- purchase price of the land.
If the value of the lease right of the tenant is equal to zero or has a negative value, despite the fact that the object itself has a market value or generates income from operation, then this means that the amount of established payments for land is equal to the rent or exceeds the land rent and forms a negative income stream, withdrawing part income generated by improvements.
Similarly, you can determine the value of land located on other rights. In this case, it is not the market value of the land or the market value of the right to lease, but the value of the right to use the land indefinitely or, if the land is developed, the share of the value of a single property attributable to land with such a division of rights to land and improvements.
Determining the collateral value of a property The collateral value of the property being appraised, as a rule, is determined in 3 stages:
assessment of the current market value of the property;
Adjustment of the value of the market value based on an expert forecast of changes in the value of the property as of the date of the possible sale of the property;
Adjustment of the predicted value of property by the amount of potential costs and expenses, legal and economic risks arising in the process of foreclosure and sale of property.
The calculation of the collateral discounting factor is made as follows:
Where: k– collateral discount factor
C p- the current market value of the property;
W- the ratio of the predicted value of the property to the current market value;
L- the ratio of the liquidation value to the market value is determined by the degree of liquidity of this property, the possible impact on the value of identified legal or economic risks;
G- costs and expenses in the sale of this property.
Respectively:
In order to simplify the calculation of the collateral value and make it more technologically advanced, banks calculate the collateral discount factor that takes into account all of the above adjustments for a particular type of collateral and loan term.
The collateral value of a land plot is calculated on the basis of its salvage value. The liquidation value of the collateral should always be greater than the amount of the loan that can be provided against a specific security.
In accordance with FSO No. 2, when determining salvage value of the appraisal object, a calculated value is determined that reflects the most probable price at which this appraisal object can be alienated for the period of exposition of the appraised object, which is less than the typical exposure period for market conditions, in conditions when the seller is forced to make a transaction for the alienation of property. When determining the liquidation value, in contrast to determining the market value, the impact of extraordinary circumstances is taken into account, forcing the seller to sell the appraisal object on conditions that do not correspond to market ones.
It should be noted that the value of the liquidation value of the object is always less than the value of its market value. Moreover, the faster you need to sell the object, the lower the value of the liquidation value compared to the market value. The reduction of the exposure period and the need to use the salvage value arises when evaluating objects:
- property sold with the participation of bailiffs;
– assets of liquidated enterprises, including during the bankruptcy procedure;
- property that was in a tax lien and subject to sale to pay off tax debts;
- objects of construction in progress;
– any property subject to accelerated sale due to any economic or other reasons.
The same object with a certain market value may have different salvage values for different fixed exposure periods that are shorter than a reasonably long exposure period for that object. In this regard, the liquidation value of objects is determined on the basis of their market value in accordance with the concept of forced and accelerated sale of objects. If the fixed exposure period of an object is not shorter than a reasonably long period of its exposure, the object has a market value, but subject to the presence of other signs of market value.
In the event of a forced sale of the property being appraised within a period less than the usual exposure period for similar objects, the potential mortgagee may be guided by the values of the liquidation value calculated by the direct or indirect comparison method.
direct method Comparison The determination of salvage value is based solely on the comparative approach. The application of the direct method is realized either by direct comparison with analogues, or by statistical modeling (correlation-regression analysis). However, information on transaction prices in the conditions of forced sale of objects is difficult to access, which makes it extremely limited in the possibility of using this method (although if the necessary information is available, it has a high degree of objectivity).
indirect method is based on the calculation of the liquidation value of the object, based on the value of its market value, formalized in the following form:
Salvage Value = Market Value – Forced Sale Discount
The liquidation value of an object is calculated on the basis of its market value using the formula:
Where: C l- the liquidation value of the appraised object, corresponding to a fixed period of its exposure ( tf) that is shorter than a reasonably long exposure period; C p– market value of the appraisal object; k L- ratio of the liquidation and market value of the appraisal object; t d– discount period (years); m- the number of periods of interest accrual during the year; i– the annual discount rate used in the residual value calculation (expressed as a decimal fraction); K e is a coefficient that takes into account the effect of price elasticity of demand on the salvage value of the appraised object.
Determination of the liquidation value by the indirect method is carried out in stages:
1) The market value of this object is determined ( Vm).
2) Based on the available market information or by conducting surveys of operators of the relevant markets, specialists, a reasonably long period of exposure of this object is justified ( r) .
3) Determining the fixed exposure period of this object ( tf), taking into account the forced nature of the implementation of the object, and the discount period is calculated ( t d) according to the formula:
t d = t r – t f, (12.9)
Where r– a reasonably long period of exposure of the object of assessment (years); tf– fixed period of exposure of the object of assessment (years).
4) The annual discount rate used in the calculation of the salvage value is justified. If the object of appraisal is an object of pledge, and the bank is the pledgee, then the annual discount rate ( i) is taken at the level of the annual rate on bank loans, which is determined on the basis of market data. In other cases, the annual discount rate is taken at the level of the annual rate on bank deposits, which is determined based on market data. At the same time, as the annual discount rate used in calculating the liquidation value, the annual rate on deposits / loans, the period of which is as close as possible to the discount period, should be chosen ( t d).
5) A coefficient is determined that takes into account the influence of price elasticity of demand on the liquidation value of the object ( K e). Table 1 is used to solve this problem. 13.
6) The ratio of the liquidation and market value of the object is determined ( k L) according to the formula:
(12.11)
Table 13 Table for determining the coefficient K e
Rent Valuation today is an important component of the economic activity of all Russian business. In accordance with Article 607 of the Civil Code of the Russian Federation, the owner or any right holder has the right to lease his property to other individuals or legal entities. The rented object can be any things and items belonging to the category of "non-consumable", namely real estate, land plots, apartments, enterprises and other property complexes, transport facilities that do not lose their natural properties in the process of their use.
During the conclusion of the lease agreement, the tenant, together with the right to use the object at his own discretion, can also receive the rights of full use and disposal of the property - this depends on the terms of the agreement. Thus, the right to lease, as well as other rights received under the contract, can be transferred to third parties in any legal form of civil circulation, for example, sold. But in order to profitably sell it, you need to know the market price of the right, and this opportunity is exactly what gives leasehold valuation.
What are the features of the leasehold valuation and rent valuation? They consist in a comprehensive analysis by specialists of the benefits and advantages that the contract gives to the tenant. After all, in fact, the very purchase of the right, the assessment of the cost of rent is not small money, and if the totality of benefits under this document does not provide any benefits, in comparison with an agreement that can be concluded directly with the lessor, a legitimate question arises Why are additional costs needed?
When assessing lease rights, the following factors are taken into account:
- terms of rent (terms, amounts and order of payments)
- characteristics of the rental object itself (area, number of storeys, building materials and finishing elements, location, ease of access, availability of communications)
- the infrastructure of the area in which the leased object is located;
- the duration of the lease agreement and the conditions for renewal;
- any additional rights, such as the right to buy, the right to sell, etc.
Advantages that increase the value of the leasehold, which are taken into account in the assessment
- The advantage in the rental rate
- The right to purchase the leased object
- The right to set off the costs of the tenant
Thus, the appraisal of a lease in an appraisal company gives you the opportunity to get real savings on your money if you act as an acquirer of the right to lease a land plot, apartment, or other real estate, or, conversely, increase your profit from the sale of lease rights if you are a lessor.
Land lease valuation
The cost of renting a land plot takes into account many factors and is directly dependent on: the content of the lease agreement and its validity period, the rights of the lessee granted to him by this agreement, permissions to use the land plot for specific purposes, the expected amount of income for the period of time associated with the most theoretically advantageous using it. Also, the cost of the right to lease may be influenced by the place where the site is located, the availability of communications, the permitted and actual use of the land, and the convenience of access.
Usually, the evaluation of the lease of a land plot is carried out on the basis of an analysis of the prices of concluded transactions or the prices of offers (offers) for the sale of rights to use land plots that are identical to it in their characteristics (comparative valuation method).
Evaluation of land lease rights can be carried out when:
- purchase and sale of leasehold rights;
- making the right as a contribution to the authorized capital of the enterprise;
- secured lending;
- purchase, sale, merger, absorption of an enterprise that owns the rights to lease land;
- development and adoption of management and investment decisions related to long-term planning;
- investment of funds;
- other situations that in one way or another intersect with the implementation of the rights to manage land owned.
For more information about the assessment of the rent of land plots, you can find on the pages
