CONCEPTS OF RENT
DEFINITIONS OF RENT
Rent is a periodic payment for the use of property. Rent is used mainly for land or land and improvement, but it could be used in respect of other chattels such as plant, machinery and equipment. Rents from property arise not from the considerations of investment which operate on different sets of conditionality and parameters.
In addition to the above definition, the word “rent” was derived from the Latin work “redditus” which means any income or yield from an economic agent. (Field, 1987) However it has been given several definitions depending on the shade of opinion for instance, the lawyer sees rent as “a certain and periodic payment or service made or rendered by the tenant of a corporeal hereditament (Hemingway 1973 to 1974), or more precisely in present day usage” a sum of money paid for the occupation of land.
On the other hand, economists see rent from a different perspective. According to Ricardo (1971), a well-known classical economist sees “rent as that portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible powers of soil”. According to Marshal (1964), another distinguished classical economist sees “rent” as the income derived the portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible power of the soil. Also to senior, Sundharam and Vanish (1978) “rent is the surplus produce arising from the use of an appropriate natural agent”.
A close look at the definition as given above by classical economists shows their attachment to the word “rent” only to free gift of nature with land. However, it has been rejected by modern economists who argue that because there is a “land aspect” in all factors of production, there is no rationale to associate rate with land to the exclusion of other factors of production. This argument is reflected in their definitions of rent. For instance, according to Boulding (1995) “rent is any payment to a unit of a factor of production in an industry in equilibrium which is in excess of the minimum amount necessary to keep that factor in its present occupation”. This concept applies to any factor of production, which does not have a perfectly elastic supply.
FORMS OF RENT
From the definitions of rents given earlier, one can easily note two forms of rent held by different people, via,
i. Contract rent
ii. Economic rent
Contract rent: This refers to the actual payments tenants make for their use of the property for others. The amount of these payments are normally agreed to by the landlord and tenant in advance within the period the property is in use and thus form a mutual contractual arrangements.
Economic rent: In economic theory, economic rent is the payment made to a factor of production which is in excess of that which is needed to keep it employed in its current use or its transfer earning. This situation arises when demand for the factor increases and the supply cannot fully respond to the increased demand. This type of economic rent arises because of scarcity in the supply of factors.
Land economy experts, on the other land have come – up with another concept of rent known as “land rent” or comparative rent”. The concept mainly aims at isolating the component parts of the other two concepts of rent. The concept distinguishes between the bare lands from the improvements on land. According to Chapman (1969) writing on farm rents, “the competitive rent which will be obtained for a particular holding will result from the value (not the cost) for farming, use of the fixed equipment as well as from the advantage in terms of situation and fertility. Again, competitive rent for an urban land will result from the value of use of the improvements for example buildings as well as from the advantages by way of situation and other special reasons”.
According to Richfield (1974) in connection with land rent, enumerated four specific component parts of rent, via
1. Payment for the raw land representing nature’s original gift.
2. Payment by way of return on the capital expenditure on building and works.
3. An allowance for depreciation of the works and buildings.
4. Any continuing expenses incurred in occupying and owning the land and building.
In the words of Barlowe (1978) “this broader concept of land rent appears more meaningful today and is accepted because,
1. Nearly all land sits have been sited from some manmade improvement.
2. It is often difficult to distinguish between the shares, of rent that should go sites or raw land as compared with improvement.
3. The concept is on broad concept of land and real estate resources, which includes both land sites and the improvement legally attached to them.
An estate surveyor and valuer in practice are normally concerned with the contract rent, that is the amount agreed under the tenancy or lease agreement which the tenant must pay the landlord as consideration for the occupation of the landlord’s property.” However in dealing with contract rent, the estate surveyor and valuer will also be very much, concerned with t what the tenant is an open market would pay for the occupation of the same property. In fact, the broad objective of investment property management is centered on the realization of this open market rent. Open market rent is the price at a given date which a property would likely fetch if it were exposed for sale in the open market for a reasonable time, assuming a willing buyer and a willing shelter are not acting under compulsion.
Often there is disparity in the rental value and rent passing on a property. This disparity is referred to the following situation.
1. Where the lessee paid premium under the lease.
2. Where the lessee surrendered and existing lease in order to be granted the new lease,
3. Where the lessee contracted to carryout improvement on the property or to forgo compensation receivable by him from the lessor.
4. Where there is a special relationship between the lessor and the lessee for example where both the lessor and the lessee are members of one extended family (Briton 1980).