LEGAL MEANING AND CLASSIFICATION OF PROPERTY

 

   LEGAL MEANING AND CLASSIFICATION OF PROPERTY

Property is the subject matter of valuation. Like value, it is a word of common usage, but unlike value, property, has a precise legal meaning. Both the exact meaning of property and its nature have strong bearing on valuation. What thesis meant by the word property? In popular imagination and common usage, property suggests possession, or better still, the belongings of a person which he can deal with as he likes. This accord with the Latin derivation of property, “properties”, “proritus”, meaning, one’s own, (Ajayi, 2017).

 

In law property is defined as the highest right a man can have to anything, being that highest right a man can have to anything, being that right while, one has to lands or tenements, goods or chattels which does not depend on anthers courtesy.

Property in law has three different connotations:

a)      The Right of Ownership: Where a man lends his goods to a friend, the property is still the man’s own. While the goods are with the friend, the property and the goods remains in the lender. We thus speak of property in land, which is in the possession of another. This includes right to use, right to alienate, right to assimilation, right to succession, right to claim to title.

b)     The Objective of Ownership: It may be said that certain goods are the property of a certain many or speaking of land, that the property of one man adjoins the property of another, or that the property may consist either of immovable things, such as Lander of movable things as coined money.

c)      Valuable Things: Such as assets or things which can be owned and which can be turned into money or assessed at a money value. In other words, rights and assets, which may be exchange for the ownership of money, are valuable and therefore property. It is the last sense that the word property seems to be used when a man speaks of all his property, or of his real as opposed to his per soured property.

 

        MEANING OF PROPERTY FOR APPRAISAL

Appraisal usage perceives property as importing into itself all these ingredients, both in law and common usage, namely tangible, intangible and Rights, ownership, monetary value and legal assertion.

One can thus define property for valuation purposes as “Corporeal and incorporeal, tangible and intangible things, capable of pecuniary and legal assertion, over which ownership gives control” (Ifediora, 2000).

 

The meaning of the word property, when used in connection with value and valuation, is closely associated with the idea of ownership. In fact, a “valuation” can be defined as the determination of the monetary value at some specific date, of the property right encompassed in the ownership. According to Ifediora (2000) these right are the exclusive rights to possess, to enjoy, and (in some case) to dispose of a thing owned. Property rights devolve on the legal concept of ownership. In general, the rights of ownership are rights which are defined and protected by law. It is the exercise of rights of ownership that animals, property to attain its value potential or usefulness (utility).

Property rights may vary widely depending on various factors. However, under most conditions, the three most significant ones are,

i)                    The use and enjoyment of the income and benefit

ii)                  The use and enjoyment of the property

iii)                The right to alienate, dispose of, transfer and other wise transact with the property.

In practical as well as legal terms, property is the right to the use of an economic good. The light of use and enjoyment of property is one of the fundamental elements of ownership. The valuation of property is indeed, the valuation of the right to the use of the property. This provides one of the value concepts, value in use or value to the owner, the right of use and enjoyment. To gather these two groups of property right from the fundamental underpinning of the income or investment valve concept. The right of alienation enables an owner to transact with the property by way of lease, mortgage, lien or indeed any other means. It is this right which results in the exchange or market value concept. The right of ownership are however not absolute. They may be limited, usually be statues or acts of government or by previous actions and creations of the owner. The scope of property rights and limitation thereto are very pertinent, since valuation is an attempt to put monetary value to these rights (Enamidem & Ogunba 2015).

 

        NATURE OF PROPERTY

What are the scopes of these property rights? For a more detailed consideration of the nature of property, we shall for ease of reference and convenience in consideration, adopt the general legal classification of property under:

a.       Immovable property; lands;

b.      Movable property; chattels;

c.       Intangible property; rights

 

a) IMMOVABLE PROPERTY – LANDS

According to Enamidem and Ogunba (2015), land or landed property is commonly used in Nigeria and most of common wealth in referring to ownership of land as district from ownership of other chattels. Real estate or real property, though known and used is a term for the same thing; they are more commonly used in United State of America, Canada. The use of the term land or real estate appears to refer to the physical land and appurtenances including structures affixed thereto. The chief characteristics of land or real estate are its immobility and tangibility. It comprises land and all things of a permanent and substantial nature affixed thereto, whether by nature or by the hand of man. By nature, is meant trees, natural resources; while by the hand of man refers to those objects – buildings structures, fences and bridge – which the owner erects upon the land.

Real property or landed property may be said to be a composite term because it embraces the tangible (physical) elements of land or real estate plus those intangible attributes which are rights of ownership.

b) MOVEABLE PROPERTY (CHATTELS)

Chattels are goods possession over which the rights for ownership here in discussed apply. The determination of the monetary value of property rights encompassed in ownership brings chattels within the orbit of appraisal. The rights of property in chattels include the three significant rights of ownership.

i)                    The rights to use and enjoyment of the chattels.

ii)                  The rights to use and enjoyment of the income from the chattels.

iii)                The right to sale traffic or dispose of the chattels.

Most chattels are owned for their use and enjoyment consumable goods and possession, because of their very nature, are not generally subject to appraisal functions. Some movable properties are owned for some purpose other than use and enjoyment, for example, investment, that is for the receipt of future income or for capital appreciation (Olujimi and Bello, 2014)

Such chattels are capable of valuation and do feature in appraisal application.

They Include:

i)                    Machinery

ii)                  Equipment and vehicles

iii)                Furniture and furnishing

iv)                Painting, art collection and anti goes

v)                  Stamp collection

Machinery, equipment, furniture and fitting generally constitute fixed assets of undertaking or enterprises. As capital goods, they have income potentials as factors of production. Furthermore, some of them are commonly leased or rented and produce direct income.

c) INCORPOREAL PROPERTIES (INTANGIBLE)

Incorporeal properties are rights of ownership not backed by the physical incident of property. Otherwise, such rights satisfy the other attributes of property, to wit – capable of ownership, valuable and legally enforceable. These intangible rights include: Patent, copyright, license, royalties, debenture stocks and dealers’ franchise.

Ownership of any of the above, like ownership of other properties, conveys rights of enjoyment devolve in the enjoyment of the returns of ownership and the right of sale and enjoyment of the proceeds of the sale.

Real Estate Investment

Real Estate Investment

Real estate has to do with land and buildings which is often referred to simply as property or landed property. Barlowe, 1978) said that the concept of land as property involves real estate and has legal connotations. The legal connotations are concerned with the traditional and/ or modern-day constitutional rights bestowed on individuals, families, communities or the states to own, develop and manage land and its resources without hindering the rights of others. The rights are granted to private or public institutions to utilize land efficiently.Land means different things to different people. It includes all the physical development carried out by man on the earth’s surface.These are man-made improvements onlandused to attain economic goals through the application of capital, labour and technology. It covers all economic crops and trees, buildings, structures and installations, roads, bridges, dams and all sorts of physical development on land. Agricultural resources include the fertile farmlands where economic crops, trees and vegetables are cultivated and arable farmlands used for cattle rearing. Economic trees include cocoa, rubber, cotton, oil palm, cowpea, maize, yam, fruits, vegetables and cassava; while livestock include cattle, goat, sheep, exotic poultry and local fowls.

 

Residential land includes the various houses that are built for the occupation of individuals and members of the family. It may be tenement houses, flats, bungalows, maisonettes and multi-storey apartment blocks. Residential land is classified into high density, medium and low density residential areas within a residential estate, and is usually the largest use of land within the urban areas as well as privately or publicly built as permanent or semi-permanent structures. (Barlowe, 1978)

 

            Forms of Real Estate Investment

These refer to all the options any potential real estate investor has in committing his resources in expectation of future benefits. Before embarking on any type of investment, certain qualities are expected from an investment that is attractive to the investor. Investment decisions are influenced by various motives. Some investors spend huge amount of money to establish a business where they sit as the Chief Executive Officers (CEOs) while others do so for the pecuniary motive of earning returns, both of which invariably represents the reward for undertaking such investment. Whatever the nature of investment, a rational investor seeks to maximize his returns while minimizing the risk undertaken. To earn reasonable returns, a prudent investor has to bear some risks which are determined through various ownership strategies. The various forms of real estate investment are categorized as follows:

 

    1. Construction: These include buildings constructed for various purposes including residential, commercial, industrial, and recreational, among others. The development process involves acquisition of suitable sites, formalization of relevant title documents, construction for occupation or letting, and management of the developed estate. Almost any works to a property or change in management or use of premises can have the effect of modifying its usefulness and hence its income-earning capacity to the investor,Emoh (2004).

    2. Acquisition: This involves acquisition of a freehold or leasehold interest in a developed property. This transaction enables the initial developer to realize the capital invested on an existing development for some other ventures. It has become a common trend by politicians, senior government officials and top business tycoons in major urban centres in Nigeria. Real estate investors, like other investors in stocksand shares, seek the highest rate of returns on their capital. In some transactions, they may accept a low initial yield because of the expectation of future growth of the investment. However, the yield is a reflection of thelevel of risk inherent in the investment.

    3. Mortgage Transaction: This is a transaction where investors relinquish their interests in real estate in order to obtain some credit facilities. The interest held in the property serves as collateral for the borrowed funds. Redemption is at the amortization or full discharge of the principal and accruable interest thereof. Mortgage transaction is the most important single source of funding property development in the developed world. The establishment of mortgage institutions in Nigeria for this purpose is a welcome development. It creates avenue for potential investors to raise funds for physical development purposes.

    4.    Sales and Leaseback Transaction:This arises because an owner-occupier wishes to raise capital for a certain purpose and in the cause of doing this he decides to dispose off his property to somebody (corporate or private) on an arrangement that the lessor immediately leases the entire property or part of it back to him, the lessee. The lessee then occupies the property as an inferior interest holder (tenant) rather than as the owner, and is able to invest the capital in the business.

    5. Shares Acquisition: This involves the acquisition of shares in the companies involved largely in real estate transactions. Purchasing shares in a property company enables the investor to have a share in the returnsarising from any development, expansion and management of property values arising thereof. Property company shares also tend to have high levels of volatility. This is largely because many property companies have high borrowing and gearing capacities thereby making their profits particularly susceptible to economic and market changes. Dubben and Sayce,1991.

Ajayi (1998), Bodie, et al, (1998) agreed that investment is the current commitment of money or other resources in the expectation of earning future benefits. Greer and Farrell (1984) opined that the nature of investment is that you sacrifice something of value now expecting to benefitfrom that sacrifice later. Okafor (1983) defined investment very specially as “economic activities designed to increase, improve or maintain the productive quality of the existing stock of capital”. From the above, it can be discerned that investment is a two way process. One parts with or sacrifices a valuable thing and in return receives a reward or benefit with both the sacrifices and the reward being potentially financial or non-financial. Financially, the sacrifice is money paid out to acquire an asset while the reward is the return receivable as a periodic income flow and/or a capital gain.

 

         The Characteristics of Real Estate Investment

The investment characteristics of real estate which distinguish it from most other investments flow directly from its physical characteristics, which are peculiar to its source, land. Wendth and Paul (1979) identified these as the uniqueness of each parcel of real estate, the immobility of real property, the large size and bulk of typical real properties; and the very long or permanent life of improvement to the land. Stemming from these peculiar real estate characteristics, they identified certain economic, financial and legal characteristics which tend to influence real estate as a medium of investment. Property is infinitely heterogeneous more than other investment media; it is frequently indivisible, and each indivisible unit has a relatively high cost. These and many other features distinguish it from another investment media (Enever, 1981). Lean and Goodal (1977) conception of real estate is that of “rights” rather than the land and building themselves. Consequent upon this, the ownership and right of use can be separated. In this wise, the owner can transfer the right to use to another person in return for a periodic sum (i.e. rental income). He could also convey the ownership in consideration for a capital sum. Traditional property investment was a means to obtain security and regular income; thus, decisions were often made based on intuition and experience (Ajayi, 1998). This argument may be valid and the practice quite acceptable in the past when economy was stable and there was a high rate of success, but not in the present complex, dynamic economic environment. With the huge number of funds being committed to real estate investment, there is the greater need for accountability. The need here is for comparative investment advice. Every unit of real property consists of income and capital elements which should be valued and appraised as investment options in the same way as any stock or bond” (Igboko, 1984).The investment markets are becoming increasingly competitive and, investment in property cannot be considered in isolation from other markets.

 

       Factors Influencing Investment Decisions

The decision to invest or not in any investment opportunity will be influenced by the motives of the investor, (G.A.ESSIEN and J.A.YACIM, 2018). Certain factors are fundamental to investment decisions. In making decisions, investors would consider the following factors:

    1.    Security of Capital: this is the most important factor; because few investors will want to place their money in an investment if the prospect of losing that money is high. Only the gambler, or the person who has so much money that he or she can risk losing some, will be prepared to put their money into a risky venture and, even then, only if there is some possibility of a large gain if all goes well. Most investors will only wish to place their money in an investment if there is a strong probability that they will be able to recoup their capital at any point in time should the need arise. The greater the chance of there being able to get their original money back at any point in time (or the greater the security of their capital), the greater will be their willingness to invest. If the chance of getting their original money is slight, then an investment will be considered insecure and relatively unattractive. 

(a)   Security of Income is another important consideration, and it must be remembered that, in investing money, an investor is giving up the immediate use of that money and is allowing its use to pass to some other party. In return for giving the use of money to someone else, he or she requires payment, and this payment will be the interest the money earns. It is the reward for forgoing the use of money, and before an investor is prepared to give it up he or she will wish to be reasonably certain that they will get adequate payment for such use, and that there is a high degree of certainty that the payment will in fact be made. 

    b. Regularity of income – Coupled with the certainty that adequate interest will be paid, will also be the wish in most instances to receive regular payments of interest.  If regular payments are made the borrower is less likely to get into arrears, while the receipt of interest at regular intervals enable lenders to phase such receipts to meet regular expenditure which they may be incurring, and this will assist their own budgetary control. 

         

        Growth Prospect – Inflation can have a significant effect on a business over the investment period. The effect of inflation on return on investment can be severe over the life of the project. Some investments lose their real value while others may well increase in real value as well as money value. To keep pace with the changing value of the Naira therefore, an investor will prefer to invest where capital and income will appreciate in real value.

        Liquidity – the concept of liquidity describes the ease, speed and cost with which an      investment can be converted into cash. Investors generally prefer investments which are capable of being into cash which may be needed in the event of better alternatives.

         The Implication of Taxation – investment decisions that in other respects might be the right ones may turn out to be unsound when the effects of taxation are considered. In investment appraisals, therefore, the effects of the following taxes must be considered.

 a.       Taxation on income

b.      Capital Gain Tax

c.       Value Added Tax

d.      Capital Transfer Tax.

The size and timing of tax payment is very important to successful operation of an investment.

CONCEPT OF PROPERTY MANAGEMENT

CONCEPT OF PROPERTY MANAGEMENT

The definition of property management depends on the perspective from which the concept is viewed. In effect, landed property management is the management of land and buildings in such a way as to secure the maximum advantage (Odudu, 1987). It can be defined as the direction, nursing, sometimes the overall control of policy of an interest in landed property with a view to obtain a maximum return. The return may be in the form of financial benefit, social benefit, prestige, political power or a combination of these benefits Ajagbe (1993). Narains Corp. (2007) defined property management as  “the range of functions concerned with looking after buildings, including collection of rents, payment of outgoings, maintenance including repair, provision of services, insurance and supervision of staff employed for services, together with negotiations with tenants or prospective tenants”. Smeby (2012) defined property management as “the science of getting maximum value from the investment made in assets by assuring proper utilization, preventing loss and pilferage and all other aspects of security-related issues, scheduling timely maintenance, tracking physical location, maintaining proper insurance coverage, and scheduling depreciation write-offs.”

Banfield (2014) states that “property management is frequently described as a profitable operation and management of owned, leased or subleased real property including land, buildings, assets, equipment and legal commitments for an owner or developer”, while Marie (2013) defines property management as “an activity that ensures that land and buildings are dealt with so that they operate efficiently and effectively.” A landlord is a person or organization that rents out real estate holding the rights to receive the rentals paid by the tenants. Long before the modern technology and the dawn of industrial era, humanity occupied only a fraction of the lands it does today. Then came feudalism where powerful members of the society were granted titles to land by the King and they were referred to as “lords”. Noble landholders considered to be the lords of their subtenants and anyone inhabiting their land. All land owning lords demanded rents and started to buy and sell leases of land and the landed lords were called landlords. Wootloth (1997) indicated that this means self-management of property come from way back and has always been there since these landlords were self-managing their properties and no one managed them on their behalf.

Property management is a wide subject and may not be adequately explained by mere application of a definition. As a discipline, it concerns itself mainly with decisions on planning, control and use of land with the primary aim of securing optimum returns. The management of real properties requires a written management agreement between the property owner and the manager. The management agreement is a comprehensive and detailed agreement outlining the responsibilities of both the owner and the property manager (Nwuba, 1994; Barlowe, 1978; Thorncroft, 1965).

 

Property management is necessary in both private and public properties to keep them in a tenantable condition and good state of health. Internal parts of properties as well as the external parts require proper maintenance to keep their qualities intact and enhance their values. Without programmed property management, decay will set in and property will depreciate in value. Property management can therefore be defined as the process of keeping a property in a good state of health, devoid of decay and in other to enhance the value of the property, yielding optimum returns on investment. A good property manager must be proactive, sincere, unbiased against the tenants and landlord, knowledgeable and ready to live above board (Oyedele, 2013).

 

In general property management industry in Botswana strives for growth. Over the years, estate development has been on the increase in Botswana. This undoubtedly is creating more opportunity to property managers. Jensen (2017) indicated that property management industry has been faced with challenges and opportunities over a period of time. These challenges have an effect on property managers, landlords and tenants. Self-managing landlords are faced with challenges and do not know how to professionally tackle them hence the need for property managers.

2.2.1  SCOPE OF PROPERTY MANAGEMENT

The property manager is concerned chiefly with the interpretation and implementation of the owner’s policies in practice and at times, gives advice on the probable effects of alternative courses of action, which might be proposed. However, the property manager must protect the interest of his client by ensuring financial and legal protection, protection of useful life of the property and against unforeseen events (Hemuka, 1990). Property managers offer a variety of extensive services and shoulder varying degrees of responsibility in the performance of their duties to the owners and tenants. Property management responsibilities relate to the overall operation of property investments. These include (Nwankwo, 1995; Olayonwa, 2000; Ibrahim, 2014):

i.    Determination of rental values, collection of rents, keeping and rendering accounts for rents collected.

ii.   Keeping property records and register that will provide necessary data on the property. This includes details of ownership and tenants, location, address, details of rent reviews, option to renew, long range diary of events, etc. The records should be kept in a manner that the events could be picked up and acted upon in a good time.

iii.  Dealing with selection of tenants, renewals, termination, negotiating and agreeing terms and ensuring that tenancies/ leases/ sub-leases are appropriately documented and where consents are required ensuring that such consents are obtained.

iv. Ensuring that covenants both in a head-lease, in a certificate of occupancy or other forms of conveyance, are observed and performed including payment of ground rent and other development charges.

v.      Dealing with tenement, general, water rates, ensuring collection from those liable to pay and those payments are made promptly to the relevant authorities.

vi. Advising on adequate insurance policy for the property, reviewing the sum insured at required intervals and ensuring that the premiums are paid regularly.

vii. Dealing with maintenance and repairs, which are the responsibility of owners and ensure that whoever has such liabilities undertakes them.

viii. Where services are provided such as in blocks of flats or in other multi-occupied properties, ensuring that such services are run to the satisfaction of both the owners and tenants. This will also involve the determination and collection of maintenance fund otherwise called service charge and sinking fund or provision for future replacement of some services like lift, lights and pumps.

ix. Selection and supervision of staff engaged directly and exclusively for a given property. This will consists mainly of porters, lift operators, cleaners, electrical and mechanical technicians. Where these services are contracted to specialised organizations; the property manager will negotiate, agree terms and enter into service contracts.

x. Periodic inspection is an important part of management control. Their frequency would depend on the length of the lease, value of the reversion to the landlord and finally the class and type of tenants.

xi.Other management functions such as reviewing and advising on redevelopment, refurbishing and re-adaptation, on disposal, acquisition and conservation of properties.

In summary, the effective execution of the activities enumerated above will guarantee that the property is managed in such a way as to ensure security and regularity of adequate returns on the investment, that the property fulfils the purpose, need and requirements of the users, that the property is in good state of repairs and regular maintenance, and that the property has a long economic lifespan.