Points to be remembered for valuation of leasehold properties

KNOWLEDGE BANK

LET KNOWLEDGE SPREAD

Message from B K Aruna 04.09.2023

Ten points to be remembered while doing valuation of leasehold properties :

1. A lease is the outcome of the rightful separation of ownership and possession.

2. The valuer must ensure whether the lease is a building lease or an occupational lease.

3. A property is said to be under lease only if the lease deed is registered.

4. Lease, licence and rent are not same. Lease is controlled by Transfer of Property Act. Licence is controlled by Easement Act. Rent is controlled by Rent Control Act / Model Tenancy Act.

5. A leaseholder possesses the occupational rights for a specific period of duration and after the expiry of lease, the lessee has no longer any right on the property.

6. A valuer can value only the interest of lessor or lessee in the leasehold property under valuation.

7. Procedure of valuation depends on the covenants of the lease deed.

8. Before proceeding with the valuation, the valuer must ensure whether he is going to value the rights of lessor or lessee.

9. Procedure of valuation for leasehold property and freehold property is different.

10. There is no hard and fast rule about the rate of capitalisation to be applied while valuing the interests of the lessor or lessee. It depends on the prevailing market conditions, supply and demand. The valuer should therefore first find out the real estate market trend, the ruling yield rate for different type of properties.

Only a valuer of practical experience can ascertain the appropriate yield rate.