India Easement Act
AnupamaKrishnan9
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Jun 30, 2021
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About This Presentation
India Easement Act
Slide Content
Indian Easement Act of 1882
According to section 4 of Indian Easement Act, 1882 defines it as follows, “ an easement is a
right which the owner or occupier of certain land possesses, for the beneficial enjoyment of
that land, to do and continue to do something, or to prevent and continue to prevent
something being done, in or upon, or in respect of certain other land not his own ”.
Easement is a non-possessory right of an owner of a property to use and/or enter onto
the property of another without possessing it.
Easements are helpful for providing pathways across two or more pieces of property,
allowing individuals to access other properties or a resource, for example to fish in a privately
owned pond or to have access to a public beach. An easement is considered as a property
right in itself at common law.
For example - right of way, right to light, right to air etc.
When someone is granted an easement, he/she is granted the legal right to use the property,
but the legal title to the land itself remains with the owner of the land.
Proposal to acquire easement can be done in various methods.
1. Grant: In this case there may be a Deed of Grant that states the terms of the easement,
or the grant may take the form of a clause in a conveyance deed or a transfer deed.
2. Necessity: a parcel of land will have a right of way of necessity over a road, track or path
leading to it if that route is the only means of access between the public highway and that
parcel of land.
3. Prescription: This happens when someone carries out an act repeatedly, openly and
without landowner's permission for a period of at least twenty years.
An easement cannot be created as a result of an illegal act. Thus the driving of motor vehicles
across common land does not create a private right of way.
Q) IMPOSE EASEMENT -
- An easement may be imposed by anyone in the circumstances, and to the extent, in
and to which he may transfer his interest in the heritage on which the liability is to be
imposed.
EXAMPLES:
- A is tenant of B’s land under a lease for an unexpired term of twenty years, and has
power to transfer his interest under the lease. A may impose an easement on the land
to continue during the time that the lease exists or for any shorter period.
- A is tenant for his life of certain land with remainder to B absolutely. A cannot, unless
with B 's consent, impose an easement thereon which will continue after the
determination of his life-interest.
- A, B and C are co-owners of certain land. A cannot, without the consent of B and C,
impose an easement on the land or on any part thereof.
According to section 4 of Indian Easement Act, 1882 defines it as follows, “ an easement is a
right which the owner or occupier of certain land possesses, for the beneficial enjoyment of
that land, to do and continue to do something, or to prevent and continue to prevent
something being done, in or upon, or in respect of certain other land not his own ”.
Easement is a non-possessory right of an owner of a property to use and/or enter onto
the property of another without possessing it.
Easements are helpful for providing pathways across two or more pieces of property,
allowing individuals to access other properties or a resource, for example to fish in a privately
owned pond or to have access to a public beach. An easement is considered as a property
right in itself at common law.
For example - right of way, right to light, right to air etc.
When someone is granted an easement, he/she is granted the legal right to use the property,
but the legal title to the land itself remains with the owner of the land.
Proposal to acquire easement can be done in various methods.
1. Grant: In this case there may be a Deed of Grant that states the terms of the easement,
or the grant may take the form of a clause in a conveyance deed or a transfer deed.
2. Necessity: a parcel of land will have a right of way of necessity over a road, track or path
leading to it if that route is the only means of access between the public highway and that
parcel of land.
3. Prescription: This happens when someone carries out an act repeatedly, openly and
without landowner's permission for a period of at least twenty years.
An easement cannot be created as a result of an illegal act. Thus the driving of motor vehicles
across common land does not create a private right of way.
Q) IMPOSE EASEMENT -
- An easement may be imposed by anyone in the circumstances, and to the extent, in
and to which he may transfer his interest in the heritage on which the liability is to be
imposed.
EXAMPLES:
- A is tenant of B’s land under a lease for an unexpired term of twenty years, and has
power to transfer his interest under the lease. A may impose an easement on the land
to continue during the time that the lease exists or for any shorter period.
- A is tenant for his life of certain land with remainder to B absolutely. A cannot, unless
with B 's consent, impose an easement thereon which will continue after the
determination of his life-interest.
- A, B and C are co-owners of certain land. A cannot, without the consent of B and C,
impose an easement on the land or on any part thereof.
Q) ACQUIRE EASEMENT -
- An easement may be acquired by the owner of the immovable property for the
beneficial enjoyment of which the right is created, or on his behalf, by any person in
possession of the same.
- One of two or more co-owners of immovable property may, as such, with or without
the consent of the other or others, acquire an easement for the beneficial enjoyment of
such property.
Q) TYPES OF EASEMENT -
- UTILITY EASEMENT: most common type
It involves giving easement rights to a utility company or the local municipality
(city, county, or state) in general. These easements are typically described in the
property deed and include a map defining the area to which the utility or
municipality is entitled. In the case of a utility easement, the property owner can use
the property however they choose, as long as they do not interfere with the utility
company or municipality’s use.
- PRIVATE EASEMENT: Private easements occur when a property owner sells an
easement to an individual. This may be for a number of reasons, including giving a
neighbour driveway access, or sharing a sewer line or well with a neighbour.
Before granting a private easement, or purchasing a property that has this type of
easement, it is vital that the property owner or potential buyer review the documents
carefully, as a private easement often limits what the property owner can do on or
around the defined area.
- PRESCRIPTIVE EASEMENT: A prescriptive easement occurs when someone acquires
easement over another’s land for a specific purpose. This differs from easement by
necessity as the person acquiring the easement only uses the property for a set
amount of time. Each state has specific statues that determine the length of time a
person can use a prescriptive easement, and whether the person holding the easement
is required to pay a portion of the property taxes on the land being used.
- PUBLIC EASEMENT: A public easement grants a certain defined area of land for
public use. An example would be the granting of public access of a portion of the
landowner’s property for a park or touring.
Q) SUSPENSION OF EASEMENT?
ANS: The act of terminating an easement requires the approval of the court. For a property
owner to terminate an easement, at least one of the following facts must be proven in court:
Both parties have agreed to the termination
The easement has reached its expiration date
The easement holder discontinued use the of property
The need for the easement no longer exists
The easement holder is creating a hostile use of the property
The owner of an easement has died.
- An easement may be acquired by the owner of the immovable property for the
beneficial enjoyment of which the right is created, or on his behalf, by any person in
possession of the same.
- One of two or more co-owners of immovable property may, as such, with or without
the consent of the other or others, acquire an easement for the beneficial enjoyment of
such property.
Q) TYPES OF EASEMENT -
- UTILITY EASEMENT: most common type
It involves giving easement rights to a utility company or the local municipality
(city, county, or state) in general. These easements are typically described in the
property deed and include a map defining the area to which the utility or
municipality is entitled. In the case of a utility easement, the property owner can use
the property however they choose, as long as they do not interfere with the utility
company or municipality’s use.
- PRIVATE EASEMENT: Private easements occur when a property owner sells an
easement to an individual. This may be for a number of reasons, including giving a
neighbour driveway access, or sharing a sewer line or well with a neighbour.
Before granting a private easement, or purchasing a property that has this type of
easement, it is vital that the property owner or potential buyer review the documents
carefully, as a private easement often limits what the property owner can do on or
around the defined area.
- PRESCRIPTIVE EASEMENT: A prescriptive easement occurs when someone acquires
easement over another’s land for a specific purpose. This differs from easement by
necessity as the person acquiring the easement only uses the property for a set
amount of time. Each state has specific statues that determine the length of time a
person can use a prescriptive easement, and whether the person holding the easement
is required to pay a portion of the property taxes on the land being used.
- PUBLIC EASEMENT: A public easement grants a certain defined area of land for
public use. An example would be the granting of public access of a portion of the
landowner’s property for a park or touring.
Q) SUSPENSION OF EASEMENT?
ANS: The act of terminating an easement requires the approval of the court. For a property
owner to terminate an easement, at least one of the following facts must be proven in court:
Both parties have agreed to the termination
The easement has reached its expiration date
The easement holder discontinued use the of property
The need for the easement no longer exists
The easement holder is creating a hostile use of the property
The owner of an easement has died.
Q3) WHAT IS STANDARD RENT?
ANS: Rent is defined as the periodic payment made by tenant to landlord for use and
occupation not only for premises but also of furnishing any other amenities that the
landlord may have agreed to provide. It normally includes all the outgoings like municipal
taxes, property taxes, government taxes, all permitted increases as recoverable from the
tenants and necessary allowance for repairs and maintenance depending upon the terms
and conditions of the tenancy.
- The rent fixed between the landlord and the tenant at the inception of tenancy either by
negotiation or after bargaining is known as The Contractual Act.
- Standard rent is the rent which would be permissible under the law to be charged
to the tenant.
- Very often there is a wide gulf between the Contractual rent and the Standard rent.
- The act does not give any definition for standard rent except that it is the rent which
is fixed by the court after taking into consideration three basics, namely:
- Provisions of the act.
- Circumstances of the case.
- Fair and/or character of the amount involved.
Q4) RENT CONTROL ACT?
- The rent control act is a piece of social legislation whose principal aim is to afford
protection against eviction and exploitation of the tenants.
- Scarcity of any commodity creates serious problems and some elements do take
advantage of it at the cost of others.
- The same is applicable to the problem of housing also.
- In the absence of adequate protection it is likely that the tenants maybe asked to vacant
their premises and also be asked to pay exorbitant rents and hence the necessity of the
rent control act.
- In the province of Mumbai from 1939 there was what was known as the Mumbai Rent
Restriction Act, 1939.
- The act of 1947 has been renewed time to time by legislative applies to premises let out
for residences, education, business, trade or storage. The act does not apply to the
premises belonging to the government to local authority. Now, it is replaced with the
Maharashtra Rent Control Act, 1999.
Q5) TYPES OF GROUND RENT?
- Ground rent: It is the periodic payment made by the lesse to the lessor for the rights
to use and occupy the leased used property.
- Secured ground rent: It is the periodic payment made by the lesse to the lessor under
the building lease which carries an obligation on the lesse to improve the land by putting
up a building thereon at his own cost where by the ground rent becomes well secured
and in case of re-entry the lessor is sure of his ground rent.
- Unsecured ground rent: It is the periodic payment made by the lesse to the lessor for
an open plot of land without any improvements thereon. It is not secured as there is no
improvement on the open land.
ANS: Rent is defined as the periodic payment made by tenant to landlord for use and
occupation not only for premises but also of furnishing any other amenities that the
landlord may have agreed to provide. It normally includes all the outgoings like municipal
taxes, property taxes, government taxes, all permitted increases as recoverable from the
tenants and necessary allowance for repairs and maintenance depending upon the terms
and conditions of the tenancy.
- The rent fixed between the landlord and the tenant at the inception of tenancy either by
negotiation or after bargaining is known as The Contractual Act.
- Standard rent is the rent which would be permissible under the law to be charged
to the tenant.
- Very often there is a wide gulf between the Contractual rent and the Standard rent.
- The act does not give any definition for standard rent except that it is the rent which
is fixed by the court after taking into consideration three basics, namely:
- Provisions of the act.
- Circumstances of the case.
- Fair and/or character of the amount involved.
Q4) RENT CONTROL ACT?
- The rent control act is a piece of social legislation whose principal aim is to afford
protection against eviction and exploitation of the tenants.
- Scarcity of any commodity creates serious problems and some elements do take
advantage of it at the cost of others.
- The same is applicable to the problem of housing also.
- In the absence of adequate protection it is likely that the tenants maybe asked to vacant
their premises and also be asked to pay exorbitant rents and hence the necessity of the
rent control act.
- In the province of Mumbai from 1939 there was what was known as the Mumbai Rent
Restriction Act, 1939.
- The act of 1947 has been renewed time to time by legislative applies to premises let out
for residences, education, business, trade or storage. The act does not apply to the
premises belonging to the government to local authority. Now, it is replaced with the
Maharashtra Rent Control Act, 1999.
Q5) TYPES OF GROUND RENT?
- Ground rent: It is the periodic payment made by the lesse to the lessor for the rights
to use and occupy the leased used property.
- Secured ground rent: It is the periodic payment made by the lesse to the lessor under
the building lease which carries an obligation on the lesse to improve the land by putting
up a building thereon at his own cost where by the ground rent becomes well secured
and in case of re-entry the lessor is sure of his ground rent.
- Unsecured ground rent: It is the periodic payment made by the lesse to the lessor for
an open plot of land without any improvements thereon. It is not secured as there is no
improvement on the open land.
Q6) FACTORS AFFECTING VALUATION OF PROPERTY IN INDIA?
- LOCATION: Buildings, real estate and properties, located in commercial and market
areas, hold higher value than their counterparts in the residential areas. It is common
to find brokers quoting a higher price for buildings in well-developed and approved
colonies and areas as against those in the lesser developed and upcoming areas.
- AMENITIES: The valuation of properties with better infrastructural capabilities and
modern amenities are costlier than those which fail to provide proper electric
connections, telephone lines, water sewerage facilities and all other infrastructure
such as community centers, children parks, swimming pools, gymnasiums,
parking lots or general stores. Valuation of property is clearly based on the
availability of necessities and facilities connected with comfortable housing.
- INFRASTRUCTURE: Infrastructural development is one of the most important factors
which influence real estate prices in India. The presence of roads, airports, flyovers,
malls and bus terminals and other facilities in the vicinity of the property, helps in
value escalation of the same. It is a known fact that connectivity is one of the most
important requirements for investors looking towards purchasing land or property.
- COMMERCIAL REAL ESTATE: Places such as Noida, Gurgaon, Pune, Hyderabad, Navi
Mumbai and Andheri-Borivili in Mumbai, are striking examples of commercial
development which have affected the valuation of property in these areas. The
development of malls, IT offices and Special Economic Zones near residential
areas help in cutting down the time and energy wasted in commuting to workplaces
and increase the price of real estate in the area.
- DISPOSABLE INCOME: Properties which are located in agricultural areas or those
dominated by manufacturing units attract a lower price than those situated near
the IT hubs. The valuation of property is in direct proportion to the quantum of
disposable income in the hands of the purchaser or the majority of population in that
area.
- AVAILABILITY OF LAND: In places where there is ample land available for residential
purposes or development of real estate, the graph reflecting the valuation of property
shows a slower rise than in areas where land is comparatively scarce.
- DEMAND AND SUPPLY: Demand for real estate in a particular area is inversely
proportional to its supply. As the supply or availability of real estate decreases, the
valuation of property increases. Changes in population are the key drivers for demand.
- AFFORDABILITY: Affordability refers to the cost incurred by the owner in the process
of enjoying or retaining a property. In layman’s term, it is the term which establishes a
relationship between interest rates, property prices and wages.
- STRUCTURE: The valuation of property is dependent on the specifications of materials
used, layout, design, durability and life cycle of the building. The quality and cost of
materials during construction, size, current rates of labor, frontage and other physical
attributes such as roof covering, height of the building, type of foundation ,
waterproofing and plinth level, also affect the price of a particular property.
- Demand & Supply
- The factors that have an impact on the market value of a property are demand and supply
forces operating in the market, type of property, quality of construction, the local
infrastructure available and maintenance of the property as well as that of the premises.
- Layout
- Layout of premises and ancillary costs too are given importance in a property valuation. The
layout of the premises in terms of optimum space utilization in an efficient manner helps the
- LOCATION: Buildings, real estate and properties, located in commercial and market
areas, hold higher value than their counterparts in the residential areas. It is common
to find brokers quoting a higher price for buildings in well-developed and approved
colonies and areas as against those in the lesser developed and upcoming areas.
- AMENITIES: The valuation of properties with better infrastructural capabilities and
modern amenities are costlier than those which fail to provide proper electric
connections, telephone lines, water sewerage facilities and all other infrastructure
such as community centers, children parks, swimming pools, gymnasiums,
parking lots or general stores. Valuation of property is clearly based on the
availability of necessities and facilities connected with comfortable housing.
- INFRASTRUCTURE: Infrastructural development is one of the most important factors
which influence real estate prices in India. The presence of roads, airports, flyovers,
malls and bus terminals and other facilities in the vicinity of the property, helps in
value escalation of the same. It is a known fact that connectivity is one of the most
important requirements for investors looking towards purchasing land or property.
- COMMERCIAL REAL ESTATE: Places such as Noida, Gurgaon, Pune, Hyderabad, Navi
Mumbai and Andheri-Borivili in Mumbai, are striking examples of commercial
development which have affected the valuation of property in these areas. The
development of malls, IT offices and Special Economic Zones near residential
areas help in cutting down the time and energy wasted in commuting to workplaces
and increase the price of real estate in the area.
- DISPOSABLE INCOME: Properties which are located in agricultural areas or those
dominated by manufacturing units attract a lower price than those situated near
the IT hubs. The valuation of property is in direct proportion to the quantum of
disposable income in the hands of the purchaser or the majority of population in that
area.
- AVAILABILITY OF LAND: In places where there is ample land available for residential
purposes or development of real estate, the graph reflecting the valuation of property
shows a slower rise than in areas where land is comparatively scarce.
- DEMAND AND SUPPLY: Demand for real estate in a particular area is inversely
proportional to its supply. As the supply or availability of real estate decreases, the
valuation of property increases. Changes in population are the key drivers for demand.
- AFFORDABILITY: Affordability refers to the cost incurred by the owner in the process
of enjoying or retaining a property. In layman’s term, it is the term which establishes a
relationship between interest rates, property prices and wages.
- STRUCTURE: The valuation of property is dependent on the specifications of materials
used, layout, design, durability and life cycle of the building. The quality and cost of
materials during construction, size, current rates of labor, frontage and other physical
attributes such as roof covering, height of the building, type of foundation ,
waterproofing and plinth level, also affect the price of a particular property.
- Demand & Supply
- The factors that have an impact on the market value of a property are demand and supply
forces operating in the market, type of property, quality of construction, the local
infrastructure available and maintenance of the property as well as that of the premises.
- Layout
- Layout of premises and ancillary costs too are given importance in a property valuation. The
layout of the premises in terms of optimum space utilization in an efficient manner helps the
premises notch up valuable points. Ancillary costs of holding the premises like society
outgoing for maintenance of the building, municipal taxes, etc would also determine the
marketability of the premises.
- Location
- Another prime determining factor, when it comes to property valuation, is the location or
setting of the property. The valuation of an apartment or independent house, which is set
near to the bustling market or office area can be quite high than that placed in a remote
area.
- Safety & Security
- Safety and security of the apartment is another factor which is closely looked upon in the
present times. With incidents of robberies, burglary or theft increasing day in and day out,
people are shifting base straight away. Today, a property located in or near the riot prone
area has lower rates, even if it is in the best of location and filled with all the modern
conveniences and amenities.
- Other Factors
- Additional factors, such as plush green surroundings, good quality roads nearby, civic
amenities like safe drinking water and systematic drainage system add to the valuation of
the property. Good connectivity of the property with the bus depot, railway station and
airport is equally important and adds to the face value of the apartment or house.
- The nature of business and its history.
- The economic outlook in general, and especially for the position and outlook for the specific
structure
- Role of management, vision, and strategy.
- The book values of assets and liabilities, and the financial condition of the business
- The earning capacity
- Intangible assets and goodwill
- Dividend paying capacity
- The size of the block to be valued
- Marketability of shares
- Market share, and strategic positioning
- Level of gearing
- Accounting adjustments.
-
-
Q7) EXPLAIN ANY FOUR PURPOSE FOR WHICH VALUATION OF PROPERTY IS
REQUIRED?
Anytime you buy or sell real estate, you need a valuation. The primary purpose is to find
out exactly how much your property is worth. Banks and similar lending companies
often require it, before a buyer can obtain a mortgage.
A valuation is an “educated and trained opinion” on the value of the property. It also, in some
circumstances, may ascertain the best use of the property, garnering the best selling price. By
valuation, the present value of a property is defined. This present value may be decided by its selling
price, or income or rent it may fetch.
outgoing for maintenance of the building, municipal taxes, etc would also determine the
marketability of the premises.
- Location
- Another prime determining factor, when it comes to property valuation, is the location or
setting of the property. The valuation of an apartment or independent house, which is set
near to the bustling market or office area can be quite high than that placed in a remote
area.
- Safety & Security
- Safety and security of the apartment is another factor which is closely looked upon in the
present times. With incidents of robberies, burglary or theft increasing day in and day out,
people are shifting base straight away. Today, a property located in or near the riot prone
area has lower rates, even if it is in the best of location and filled with all the modern
conveniences and amenities.
- Other Factors
- Additional factors, such as plush green surroundings, good quality roads nearby, civic
amenities like safe drinking water and systematic drainage system add to the valuation of
the property. Good connectivity of the property with the bus depot, railway station and
airport is equally important and adds to the face value of the apartment or house.
- The nature of business and its history.
- The economic outlook in general, and especially for the position and outlook for the specific
structure
- Role of management, vision, and strategy.
- The book values of assets and liabilities, and the financial condition of the business
- The earning capacity
- Intangible assets and goodwill
- Dividend paying capacity
- The size of the block to be valued
- Marketability of shares
- Market share, and strategic positioning
- Level of gearing
- Accounting adjustments.
-
-
Q7) EXPLAIN ANY FOUR PURPOSE FOR WHICH VALUATION OF PROPERTY IS
REQUIRED?
Anytime you buy or sell real estate, you need a valuation. The primary purpose is to find
out exactly how much your property is worth. Banks and similar lending companies
often require it, before a buyer can obtain a mortgage.
A valuation is an “educated and trained opinion” on the value of the property. It also, in some
circumstances, may ascertain the best use of the property, garnering the best selling price. By
valuation, the present value of a property is defined. This present value may be decided by its selling
price, or income or rent it may fetch.
A valuer differs from an inspector, who is looking for things that need to be corrected, repaired
or replaced. Though a valuer will look at these same things, he/she is only interested in
developing the value of the property.
A valuation is based on the highest and best use of real property — what use of the property
will produce the highest possible value? The final appraisal must be both profitable and
probable.
Valuation is done for various purposes as for:
(i) Buying/ Selling of property
(ii) Taxation: To assess the tax of a property, its valuation is required. Taxes may be
municipal tax, wealth tax, Property tax etc., and all the taxes are fixed on the
valuation of the property.
(iii) Rent fixation: In order to determine the rent of a property, valuation is required.
Rent is usually fixed on the certain percentage of the amount of valuation which is
6% to 10% of valuation.
(iv) Security of loans or mortgage
(v) Compulsory acquisition
Whenever a property is acquired by law; compensation is paid to the owner. To
determine the amount of compensation, valuation of the property is required.
(vi) Valuation of a property is also required for Insurance, Betterment charges,
speculations etc.
22. Describe the concept of Valuation of Properties and elaborate the different procedures of
valuation and highlight the important considerations in the process of valuation.
Different procedures of valuation:
Rental Method: In this method, the net income by way of rent is found out by deducting all
outgoings from the gross rent. A suitable rate of interest as prevailing in the market is
assumed and year's purchase is calculated. This net income multiplied by Y.P. Year’s
Purchase gives the capitalized value or valuation of the property. This method is applicable
when the rent is known or probable rent is determined by enquiries.
Direct comparison with the capital Value
This method may be adopted when the rental value is not available from the property
concerned, but there are evidences of sale price of properties as a whole. In such cases, the
capitalized value of the property is fixed by direct comparison with capitalized value of
similar property in the locality.
Profit based method: This method of valuation is suitable for buildings like hotels, cinema
theatres etc. for which the capitalized value depends on the profit. In such cases the net
annual income is worked out after deducting from the gross income all possible working
or replaced. Though a valuer will look at these same things, he/she is only interested in
developing the value of the property.
A valuation is based on the highest and best use of real property — what use of the property
will produce the highest possible value? The final appraisal must be both profitable and
probable.
Valuation is done for various purposes as for:
(i) Buying/ Selling of property
(ii) Taxation: To assess the tax of a property, its valuation is required. Taxes may be
municipal tax, wealth tax, Property tax etc., and all the taxes are fixed on the
valuation of the property.
(iii) Rent fixation: In order to determine the rent of a property, valuation is required.
Rent is usually fixed on the certain percentage of the amount of valuation which is
6% to 10% of valuation.
(iv) Security of loans or mortgage
(v) Compulsory acquisition
Whenever a property is acquired by law; compensation is paid to the owner. To
determine the amount of compensation, valuation of the property is required.
(vi) Valuation of a property is also required for Insurance, Betterment charges,
speculations etc.
22. Describe the concept of Valuation of Properties and elaborate the different procedures of
valuation and highlight the important considerations in the process of valuation.
Different procedures of valuation:
Rental Method: In this method, the net income by way of rent is found out by deducting all
outgoings from the gross rent. A suitable rate of interest as prevailing in the market is
assumed and year's purchase is calculated. This net income multiplied by Y.P. Year’s
Purchase gives the capitalized value or valuation of the property. This method is applicable
when the rent is known or probable rent is determined by enquiries.
Direct comparison with the capital Value
This method may be adopted when the rental value is not available from the property
concerned, but there are evidences of sale price of properties as a whole. In such cases, the
capitalized value of the property is fixed by direct comparison with capitalized value of
similar property in the locality.
Profit based method: This method of valuation is suitable for buildings like hotels, cinema
theatres etc. for which the capitalized value depends on the profit. In such cases the net
annual income is worked out after deducting from the gross income all possible working
expressions, outgoings, interest on the capital invested etc. The net profit is multiplied by
Y.P. to get the capitalized value. In such case the valuation may work out to be too high in
comparison with the cost of construction.
Valuation based on cost / Land and Building Method
In this method, the actual cost incurred in constructing the building or in possessing the
property is taken as basis to determine the value of property. In such cases, necessary
depreciation should be allowed and the points of obsolescence should also be considered.
Development Method of Valuation
This method of Valuation is used for the properties which are in the underdeveloped stage
or partly developed and partly underdeveloped stage. If a large place of land is required to
be divided into plots after providing for roads, parks etc., this method of valuation is to be
adopted. In such cases, the probable selling price of the divided plots, the area required for
roads, parks etc and other expenditures for development should be known.
If a building is required to be renovated by making additional changes, alterations or
improvements, the development method of Valuation may be used.
Depreciation Method : In this method, the depreciated value of the property on the present
day rates is calculated by the formula :
D = P[(100-rd)/100]
n
where,
D - depreciated value
P - cost at present market rate
rd - fixed percentage of depreciation (r stands for rate, d stands for depreciation)
n - the number of years since the building has been constructed
To find the total valuation of the property, the present value of land, water supply, electric
and sanitary fittings etc. should be added to the above value.
Depreciation Method of Valuation
According to this method of Valuation, the building should be divided into four parts:
1. Walls
2. Roofs
3. Floors
4. Doors and Windows
And the cost of each part should first be worked out on the present day rates by detailed
measurements.
The present value of land and water supply, electric and sanitary fittings etc. should be added to the
valuation of the building to arrive at total valuation of the property.
Considerations in the process of valuation:
Type of the building. Its structure and durability, on the situation, size, shape, width of
roadway, quality of material used in the construction and present day price of material.
Y.P. to get the capitalized value. In such case the valuation may work out to be too high in
comparison with the cost of construction.
Valuation based on cost / Land and Building Method
In this method, the actual cost incurred in constructing the building or in possessing the
property is taken as basis to determine the value of property. In such cases, necessary
depreciation should be allowed and the points of obsolescence should also be considered.
Development Method of Valuation
This method of Valuation is used for the properties which are in the underdeveloped stage
or partly developed and partly underdeveloped stage. If a large place of land is required to
be divided into plots after providing for roads, parks etc., this method of valuation is to be
adopted. In such cases, the probable selling price of the divided plots, the area required for
roads, parks etc and other expenditures for development should be known.
If a building is required to be renovated by making additional changes, alterations or
improvements, the development method of Valuation may be used.
Depreciation Method : In this method, the depreciated value of the property on the present
day rates is calculated by the formula :
D = P[(100-rd)/100]
n
where,
D - depreciated value
P - cost at present market rate
rd - fixed percentage of depreciation (r stands for rate, d stands for depreciation)
n - the number of years since the building has been constructed
To find the total valuation of the property, the present value of land, water supply, electric
and sanitary fittings etc. should be added to the above value.
Depreciation Method of Valuation
According to this method of Valuation, the building should be divided into four parts:
1. Walls
2. Roofs
3. Floors
4. Doors and Windows
And the cost of each part should first be worked out on the present day rates by detailed
measurements.
The present value of land and water supply, electric and sanitary fittings etc. should be added to the
valuation of the building to arrive at total valuation of the property.
Considerations in the process of valuation:
Type of the building. Its structure and durability, on the situation, size, shape, width of
roadway, quality of material used in the construction and present day price of material.
Locality of the building. Market area has high value than the residential area.
Specialities in the building. Sewer, water supply, electricity etc.
The value of the building is determined on working out its cost of construction at present
day rate and allowing a suitable depreciation.
Present day cost may be determined by methods of :
(i) Cost from record
(ii) Cost by detailed measurements
(iii) Cost by plinth area basis
Age of the building. Generally obtained from records or visual inspection.
2)WHO COULD BE VALUER AND DOES HE REQUIRE REGISTRATION?
ANS:
CRITERIA FOR EMPANELMENT OF VALUERS IN ORDER TO ENSURE THAT THE
VALUERS EMPANELLED WITH THE BANKS AND HOUSING FINANCE
INSTITUTIONS ARE COMPETENT AND CAPABLE OF PROVIDING HIGH QUALITY
OF SERVICE, THE FOLLOWING CRITERIA NEED TO BE ADHERED TO WHILE
EMPANELLING VALUERS. A) EDUCATIONAL QUALIFICATIONS AND PREVIOUS
WORK EXPERIENCE IT IS NECESSARY THAT A VALUER POSSESSES PROPER
EDUCATIONAL QUALIFICATIONS WHICH MAKE HIM COMPETENT TO CARRY OUT
THE TASK OF VALUATION OF IMMOVEABLE PROPERTY. IN ADDITION, RELEVANT
WORK EXPERIENCE IS ALSO IMPORTANT. PERSONS POSSESSING THE
FOLLOWING EDUCATIONAL QUALIFICATIONS 01
Specialities in the building. Sewer, water supply, electricity etc.
The value of the building is determined on working out its cost of construction at present
day rate and allowing a suitable depreciation.
Present day cost may be determined by methods of :
(i) Cost from record
(ii) Cost by detailed measurements
(iii) Cost by plinth area basis
Age of the building. Generally obtained from records or visual inspection.
2)WHO COULD BE VALUER AND DOES HE REQUIRE REGISTRATION?
ANS:
CRITERIA FOR EMPANELMENT OF VALUERS IN ORDER TO ENSURE THAT THE
VALUERS EMPANELLED WITH THE BANKS AND HOUSING FINANCE
INSTITUTIONS ARE COMPETENT AND CAPABLE OF PROVIDING HIGH QUALITY
OF SERVICE, THE FOLLOWING CRITERIA NEED TO BE ADHERED TO WHILE
EMPANELLING VALUERS. A) EDUCATIONAL QUALIFICATIONS AND PREVIOUS
WORK EXPERIENCE IT IS NECESSARY THAT A VALUER POSSESSES PROPER
EDUCATIONAL QUALIFICATIONS WHICH MAKE HIM COMPETENT TO CARRY OUT
THE TASK OF VALUATION OF IMMOVEABLE PROPERTY. IN ADDITION, RELEVANT
WORK EXPERIENCE IS ALSO IMPORTANT. PERSONS POSSESSING THE
FOLLOWING EDUCATIONAL QUALIFICATIONS 01
EDUCATIONAL QUALIFICATION WORK EXPERIENCE REMARKS 1 BACHELOR’S
DEGREE IN CIVIL ENGINEERING / ARCHITECTURE / TOWN PLANNING OR
EQUIVALENT. 5 YEARS WORK EXPERIENCE IN THE FIELD OF VALUATION AFTER
COMPLETION OF THE DEGREE OR EQUIVALENT THEY MUST COMPLETE A 6
MONTHS PRESCRIBED COURSE IN VALUATION WITHIN A PERIOD OF 5 YEARS
FROM THE DATE OF THEIR EMPANELMENT AND THE C UT OFF DATE FOR THE
SAME SHALL BE 1ST APRIL, 2015. ( FOR PRACTICING VALUERS WHO ARE ABOVE
60 YEARS OF AGE, THEY MUST COMPLETE A 2 WEEKS PRESCRIBED COURSE
ON VALUATION WITHIN A PERIOD OF 3 YEARS OF THEIR EMPANELMENT ).
EDUCATIONAL QUALIFICATION WORK EXPERIE NCE REMARKS 2 3 BACHELOR’S
DEGREE IN CIVIL ENGINEERING / ARCHITECTURE / TOWN PLANNING OR
EQUIVALENT WITH PASS IN VALUATION EXAMINATION CONDUCTED BY THE
INSTITUTION OF SURVEYORS, INDIA ( VALUATION BRANCH MASTER’S DEGREE
IN VALUATION AWARDED BY A RECOGNIZED UNIVERSITY IN INDIA 2 YEARS
WORK EXPERIENCE IN THE FIELD OF VALUATION AFTER COMPLETING THE
EXAMINATION MASTER’S DEGREE IN VALUATION AWARDED BY A RECOGNIZED
UNIVERSITY IN INDIA - -
EDUCATIONAL QUALIFICATION WORK EXPERIENC E REMARKS 4 BACHELOR’S
DEGREE IN CIVIL ENGINEERING / ARCHITECTURE / TOWN PLANNING OR
EQUIVALENT WITH PASS IN EXAMINATIONS CONDUCTED BY THE ROYAL
INSTITUTE OF CHARTERED SURVEYORS (RICS) OR AMERICAN SOCIETY OF
APPRAISERS ( ASA ) OR APPRAISAL INSTITUTE ( AI ),USA - SINCE THE PROCESS
OF PROCUREMENT OF MEMBERSHIP WITH THESE ORGANIZATIONS INCLUDES
TRAINING AS AN INTEGRAL COMPONENT, NO FURTHER EXPERIENCE
REQUIREMENT IS BEING PRESCRIBED.NOTE : - DIPLOMA HOLDERS IN CIVIL
ENGINEERING / ARCHITECTURE OR EQUIVALENT WITH 8 YEARS OF
EXPERIENCE ARE ALSO ELIG IBLE FOR EMPANELMENT AND SHALL BE
PERMITTED TO UNDERTAKE VALUATIONS WITH VALUE UPTO RS.50 LAKHS
ONLY. EVIDENCE OF PREVIOUS EXPERIENCE NEEDS TO BE PROVIDED TO THE
BANK / HOUSING FINANCE INSTITUTION. IN CASE OF COMPANIES UNDERTAKING
VALUATIONS, THE QUALIFICATIONS AND EXPERIENCE SHALL APPLY TO THE
LEAD VALUER IN THE COMPANY.
EDUCATIONAL QUALIFICATION WORK EXPERIENC E REMARKS 4 BACHELOR’S
DEGREE IN CIVIL ENGINEERING / ARCHITECTURE / TOWN PLANNING OR
EQUIVALENT WITH PASS IN EXAMINATIONS CONDUCTED BY THE ROYAL
INSTITUTE OF CHARTERED SURVEYORS (RICS) OR AMERICAN SOCIETY OF
APPRAISERS ( ASA ) OR APPRAISAL INSTITUTE ( AI ),USA - SINCE THE PROCESS
OF PROCUREMENT OF MEMBERSHIP WITH THESE ORGANIZATIONS INCLUDES
TRAINING AS AN INTEGRAL COMPONENT, NO FURTHER EXPERIENCE
REQUIREMENT IS BEING PRESCRIBED.NOTE : - DIPLOMA HOLDERS IN CIVIL
ENGINEERING / ARCHITECTURE OR EQUIVALENT WITH 8 YEARS OF
EXPERIENCE ARE ALSO ELIGIBLE FOR EMPANELMENT AND SHALL BE
PERMITTED TO UNDERTAKE VALUATIONS WITH VALUE UPTO RS.50 LAKHS
ONLY. EVIDENCE OF PREVIOUS EXPERIENCE NEEDS TO BE PROVIDED TO THE
BANK / HOUSING FINANCE INSTITUTION. IN CASE OF COMPANIES UNDERTAKING
VALUATIONS, THE QUALIFICATIONS AND EXPERIENCE SHALL APPLY TO THE
LEAD VALUER IN THE COMPANY.
B) MINIMUM AGE REQUIREMENT : - AGE IS AN IMPORTANT CRITERIA WHILE
EMPANELLING VALUERS. THE MINIMUM AGE FOR EMPANELMENT WITH BANKS
AND HOUSING FINANCE INSTITUTIONS SHALL BE 25 YEARS AND THERE IS NO
MAXIMUM AGE LIMIT FOR A VALUER TO REMAIN ON THE PANEL. C)
MEMBERSHIP OF PROFESSIONAL BODIES : - IT IS IMPORTANT THAT A VALUER
ACTIVELY PARTICIPATES IN PROFESSIONAL ACTIVITIES IN VARIOUS
PROFESSIONAL BODIES. IT SHALL BE NECESSARY THAT EVERY VALUER
EMPANELLED BY BANKS / HFIS IN INDIA BE A MEMBER OF ANY ONE OF THE
UNDERMENTIONED ASSOCIATIONS NAMELY : - - INSTITUTION OF VALUERS (
IOV ) - INSTITUTION OF SURVEYORS ( VALUATION BRANCH ) ( IOS ) -
DEGREE IN CIVIL ENGINEERING / ARCHITECTURE / TOWN PLANNING OR
EQUIVALENT. 5 YEARS WORK EXPERIENCE IN THE FIELD OF VALUATION AFTER
COMPLETION OF THE DEGREE OR EQUIVALENT THEY MUST COMPLETE A 6
MONTHS PRESCRIBED COURSE IN VALUATION WITHIN A PERIOD OF 5 YEARS
FROM THE DATE OF THEIR EMPANELMENT AND THE C UT OFF DATE FOR THE
SAME SHALL BE 1ST APRIL, 2015. ( FOR PRACTICING VALUERS WHO ARE ABOVE
60 YEARS OF AGE, THEY MUST COMPLETE A 2 WEEKS PRESCRIBED COURSE
ON VALUATION WITHIN A PERIOD OF 3 YEARS OF THEIR EMPANELMENT ).
EDUCATIONAL QUALIFICATION WORK EXPERIE NCE REMARKS 2 3 BACHELOR’S
DEGREE IN CIVIL ENGINEERING / ARCHITECTURE / TOWN PLANNING OR
EQUIVALENT WITH PASS IN VALUATION EXAMINATION CONDUCTED BY THE
INSTITUTION OF SURVEYORS, INDIA ( VALUATION BRANCH MASTER’S DEGREE
IN VALUATION AWARDED BY A RECOGNIZED UNIVERSITY IN INDIA 2 YEARS
WORK EXPERIENCE IN THE FIELD OF VALUATION AFTER COMPLETING THE
EXAMINATION MASTER’S DEGREE IN VALUATION AWARDED BY A RECOGNIZED
UNIVERSITY IN INDIA - -
EDUCATIONAL QUALIFICATION WORK EXPERIENC E REMARKS 4 BACHELOR’S
DEGREE IN CIVIL ENGINEERING / ARCHITECTURE / TOWN PLANNING OR
EQUIVALENT WITH PASS IN EXAMINATIONS CONDUCTED BY THE ROYAL
INSTITUTE OF CHARTERED SURVEYORS (RICS) OR AMERICAN SOCIETY OF
APPRAISERS ( ASA ) OR APPRAISAL INSTITUTE ( AI ),USA - SINCE THE PROCESS
OF PROCUREMENT OF MEMBERSHIP WITH THESE ORGANIZATIONS INCLUDES
TRAINING AS AN INTEGRAL COMPONENT, NO FURTHER EXPERIENCE
REQUIREMENT IS BEING PRESCRIBED.NOTE : - DIPLOMA HOLDERS IN CIVIL
ENGINEERING / ARCHITECTURE OR EQUIVALENT WITH 8 YEARS OF
EXPERIENCE ARE ALSO ELIG IBLE FOR EMPANELMENT AND SHALL BE
PERMITTED TO UNDERTAKE VALUATIONS WITH VALUE UPTO RS.50 LAKHS
ONLY. EVIDENCE OF PREVIOUS EXPERIENCE NEEDS TO BE PROVIDED TO THE
BANK / HOUSING FINANCE INSTITUTION. IN CASE OF COMPANIES UNDERTAKING
VALUATIONS, THE QUALIFICATIONS AND EXPERIENCE SHALL APPLY TO THE
LEAD VALUER IN THE COMPANY.
EDUCATIONAL QUALIFICATION WORK EXPERIENC E REMARKS 4 BACHELOR’S
DEGREE IN CIVIL ENGINEERING / ARCHITECTURE / TOWN PLANNING OR
EQUIVALENT WITH PASS IN EXAMINATIONS CONDUCTED BY THE ROYAL
INSTITUTE OF CHARTERED SURVEYORS (RICS) OR AMERICAN SOCIETY OF
APPRAISERS ( ASA ) OR APPRAISAL INSTITUTE ( AI ),USA - SINCE THE PROCESS
OF PROCUREMENT OF MEMBERSHIP WITH THESE ORGANIZATIONS INCLUDES
TRAINING AS AN INTEGRAL COMPONENT, NO FURTHER EXPERIENCE
REQUIREMENT IS BEING PRESCRIBED.NOTE : - DIPLOMA HOLDERS IN CIVIL
ENGINEERING / ARCHITECTURE OR EQUIVALENT WITH 8 YEARS OF
EXPERIENCE ARE ALSO ELIGIBLE FOR EMPANELMENT AND SHALL BE
PERMITTED TO UNDERTAKE VALUATIONS WITH VALUE UPTO RS.50 LAKHS
ONLY. EVIDENCE OF PREVIOUS EXPERIENCE NEEDS TO BE PROVIDED TO THE
BANK / HOUSING FINANCE INSTITUTION. IN CASE OF COMPANIES UNDERTAKING
VALUATIONS, THE QUALIFICATIONS AND EXPERIENCE SHALL APPLY TO THE
LEAD VALUER IN THE COMPANY.
B) MINIMUM AGE REQUIREMENT : - AGE IS AN IMPORTANT CRITERIA WHILE
EMPANELLING VALUERS. THE MINIMUM AGE FOR EMPANELMENT WITH BANKS
AND HOUSING FINANCE INSTITUTIONS SHALL BE 25 YEARS AND THERE IS NO
MAXIMUM AGE LIMIT FOR A VALUER TO REMAIN ON THE PANEL. C)
MEMBERSHIP OF PROFESSIONAL BODIES : - IT IS IMPORTANT THAT A VALUER
ACTIVELY PARTICIPATES IN PROFESSIONAL ACTIVITIES IN VARIOUS
PROFESSIONAL BODIES. IT SHALL BE NECESSARY THAT EVERY VALUER
EMPANELLED BY BANKS / HFIS IN INDIA BE A MEMBER OF ANY ONE OF THE
UNDERMENTIONED ASSOCIATIONS NAMELY : - - INSTITUTION OF VALUERS (
IOV ) - INSTITUTION OF SURVEYORS ( VALUATION BRANCH ) ( IOS ) -
INSTITUTION OF GOVERNMENT APPROVED VALUERS ( IGAV ) - PRACTICING
VALUERS ASSOCIATION OF INDIA ( PVAI ) - CENTRE FOR VALUATION STUDIES,
RESEARCH AND TRAINING ( CVS RT ) - ROYAL INSTITUTE OF CHARTERED
SURVEYORS, INDIA CHAPTER ( RICS ) - AMERICAN SOCIETY OF APPRAISERS,
USA ( ASA ) - APPRAISAL INSTITUTE, USA ( AI )
. D) CATEGORIES OF VALUERS THE OBJECTIVE OF CATEGORIZATION OF
VALUERS IS TO ENSURE THAT WHILST LESSER VALUE ASSIGNMENTS ARE
HANDLED BY RELATIVELY JUNIOR VALUERS,THE SENIOR VALUERS CAN
HANDLE HIGHER VALUATIONS. THE EMPANELMENT OF VALUERS THEREFORE
SHALL BE IN THE FOLLOWING CATEGORIES : S.NO. CATEGORY OF VALUER
WORK EXPERIENCE IN UNDERTAKING VALUATIONS VALUE OF PROPERTY FOR
ASSIGNMENT OF VALUATION WORK 1 A MORE THAN 10 YEARS NO LIMIT 2 B
MORE THAN 5 YEARS AND LESS THAN 10 YEARS UPTO RS.25 CRORES 3 C UPTO
5 YEARS UPTO RS. 1 CRORE*
*IN CASE OF METROPOLITAN CITIES, THE LIMIT SHALL BE RS. 3 CRORES. NOTE : - IN
CASE OF DIPLOMA HOLDERS, THE WORK EXPERIENCE SHALL BE 8YEARS AND THE
VALUE OF PROPERTY FOR ASSIGNMENT OF VALUATION WORK SHALL BE RS. 50
LAKHS. VALUERS NEED TO FURNISH PROOF OF EXPERIENCE. E) REGISTRATION
WITH GOVERNMENT : - REGISTRATION WITH THE CENTRAL / STATE GOVERNMENTS
IS DESIRABLE BUT NOT COMPULSORY. HOWEVER, IT MAY BE NO TED THAT FOR
UNDERTAKING VALUATIONS UNDER THE SARFAESI ACT, VALUATION HAS TO BE
OBTAINED FROM REGISTERED VALUER UNDER THE WEALTH TAX ACT ( SECTIONS
34 AA TO 34 AE ). THE IBA HAS MADE A REPRESENTATION TO THE MINISTRY OF
FINANCE THAT VALUATION BY COMPANIES S HOULD BE PERMITTED. THEREFORE,
PENDING THE ABOVE, WHILE ASSIGNING / OUTSOURCING VALUATION WORK TO
VALUERS, IT IS NECESSARY THAT BANKS TAKE
VALUERS ASSOCIATION OF INDIA ( PVAI ) - CENTRE FOR VALUATION STUDIES,
RESEARCH AND TRAINING ( CVS RT ) - ROYAL INSTITUTE OF CHARTERED
SURVEYORS, INDIA CHAPTER ( RICS ) - AMERICAN SOCIETY OF APPRAISERS,
USA ( ASA ) - APPRAISAL INSTITUTE, USA ( AI )
. D) CATEGORIES OF VALUERS THE OBJECTIVE OF CATEGORIZATION OF
VALUERS IS TO ENSURE THAT WHILST LESSER VALUE ASSIGNMENTS ARE
HANDLED BY RELATIVELY JUNIOR VALUERS,THE SENIOR VALUERS CAN
HANDLE HIGHER VALUATIONS. THE EMPANELMENT OF VALUERS THEREFORE
SHALL BE IN THE FOLLOWING CATEGORIES : S.NO. CATEGORY OF VALUER
WORK EXPERIENCE IN UNDERTAKING VALUATIONS VALUE OF PROPERTY FOR
ASSIGNMENT OF VALUATION WORK 1 A MORE THAN 10 YEARS NO LIMIT 2 B
MORE THAN 5 YEARS AND LESS THAN 10 YEARS UPTO RS.25 CRORES 3 C UPTO
5 YEARS UPTO RS. 1 CRORE*
*IN CASE OF METROPOLITAN CITIES, THE LIMIT SHALL BE RS. 3 CRORES. NOTE : - IN
CASE OF DIPLOMA HOLDERS, THE WORK EXPERIENCE SHALL BE 8YEARS AND THE
VALUE OF PROPERTY FOR ASSIGNMENT OF VALUATION WORK SHALL BE RS. 50
LAKHS. VALUERS NEED TO FURNISH PROOF OF EXPERIENCE. E) REGISTRATION
WITH GOVERNMENT : - REGISTRATION WITH THE CENTRAL / STATE GOVERNMENTS
IS DESIRABLE BUT NOT COMPULSORY. HOWEVER, IT MAY BE NO TED THAT FOR
UNDERTAKING VALUATIONS UNDER THE SARFAESI ACT, VALUATION HAS TO BE
OBTAINED FROM REGISTERED VALUER UNDER THE WEALTH TAX ACT ( SECTIONS
34 AA TO 34 AE ). THE IBA HAS MADE A REPRESENTATION TO THE MINISTRY OF
FINANCE THAT VALUATION BY COMPANIES S HOULD BE PERMITTED. THEREFORE,
PENDING THE ABOVE, WHILE ASSIGNING / OUTSOURCING VALUATION WORK TO
VALUERS, IT IS NECESSARY THAT BANKS TAKE
Q1. DEFINE:
a) Fair market value
b) Value
c) Price
d) Depreciation
A1. (a) FAIR MARKET VALUE:
In the simplest expressions/words would be the price a person is willing or reasonable enough in buying a
given asset would pay to a person reasonably interested in selling for the purchase of the asset or asset
would fetch in the marketplace. The buyers of such assets are given a reasonable time period to complete
transaction, and are undue of pressure trade.
(d) DEPRECIATION:
Is an accounting method of allocating the cost of a tangible asset over its useful life, Businesses
depreciate long-term asset for both tax and accounting purposes? For tax purposes, businesses can
deduct the cost of the tangible assets they purchase as business expenses.
FMV: the simplest expressions/words would be the price a person is willing or reasonable enough in
buying a given asset would pay to a person reasonably interested in selling for the purchase of the
asset or asset would fetch in the marketplace. The buyers of such assets are given a reasonable time
period to complete transaction , and are undue of pressure trade.
Distress sale value:
Real property is land and any buildings permanently attached to it, such as home on a lot. All real
property is valued in certain ways, such as a home's market, appraised and assessed values. When
valuing real property, real estate brokers, home appraisers and assessors consider its material
condition as well as the value of comparable nearby properties. A home in very poor condition or in
foreclosure, or both, is typically a distressed property, and its value suffers accordingly.
VALUATION OF MY FLAT:
Value: Rs. 1,00,000
Age: 10 years
Life: 60 years (for RCC structure)
FMV= Value- (value X 90% X Age)/ Life
= 1,00,000- (1,00,000 X 90 X 10)/ 60(100)
FMV= Rs. 85,000
RSV= 80% of value
a) Fair market value
b) Value
c) Price
d) Depreciation
A1. (a) FAIR MARKET VALUE:
In the simplest expressions/words would be the price a person is willing or reasonable enough in buying a
given asset would pay to a person reasonably interested in selling for the purchase of the asset or asset
would fetch in the marketplace. The buyers of such assets are given a reasonable time period to complete
transaction, and are undue of pressure trade.
(d) DEPRECIATION:
Is an accounting method of allocating the cost of a tangible asset over its useful life, Businesses
depreciate long-term asset for both tax and accounting purposes? For tax purposes, businesses can
deduct the cost of the tangible assets they purchase as business expenses.
FMV: the simplest expressions/words would be the price a person is willing or reasonable enough in
buying a given asset would pay to a person reasonably interested in selling for the purchase of the
asset or asset would fetch in the marketplace. The buyers of such assets are given a reasonable time
period to complete transaction , and are undue of pressure trade.
Distress sale value:
Real property is land and any buildings permanently attached to it, such as home on a lot. All real
property is valued in certain ways, such as a home's market, appraised and assessed values. When
valuing real property, real estate brokers, home appraisers and assessors consider its material
condition as well as the value of comparable nearby properties. A home in very poor condition or in
foreclosure, or both, is typically a distressed property, and its value suffers accordingly.
VALUATION OF MY FLAT:
Value: Rs. 1,00,000
Age: 10 years
Life: 60 years (for RCC structure)
FMV= Value- (value X 90% X Age)/ Life
= 1,00,000- (1,00,000 X 90 X 10)/ 60(100)
FMV= Rs. 85,000
RSV= 80% of value
= (0.8)1,00,000
RSV=80,000
DISTRESS VALUE= 90% of value
= (0.9)1,00,000
DISTRESS VALUE= Rs. 90,000
Q1. DEFINITIONS:
A.) FAIR MARKET VALUE
Fair market value (FMV) is an estimate of the market value of a property,
based on what a knowledgeable, willing, and unpressured buyer would
probably pay to a knowledgeable, willing, and unpressured seller in
the market.
An estimate of fair market value may be founded either on precedent or
extrapolation.
Fair market value differs from the intrinsic value that an individual may place
on the same asset based on their own preferences and circumstances.
Since market transactions are often not observable for assets such as privately
held businesses and most personal and real property, FMV must be estimated.
An estimate of fair market value is usually subjective due to the
circumstances of place, time, the existence of comparable precedents, and the
evaluation principles of each involved person.
B.) VALUE AND PRICE?
Price is the amount of money paid by the buyer to the seller in exchange for
any product and service. The amount charged by the seller for a product is
known as its price, which includes cost and the profit margin. For example- If
you buy a product for Rs 250, then it is the price of that product.
Value is the usefulness of any product to a customer. It can never be
determined n terms of money and varies from customer to customer. For
example- If you are going to a gym by spending 1000 bucks a month, the
output seen is worth the expense, then it is the value that you create for a gym,
regarding the service being offered there. Here the worth is its value.
Price is what you pay for goods or services you acquire, and Value is what
goods or services pay you i.e. worth.
Price is calculated in numerical terms, but Value can never be calculated in
numbers.
Price is same for all the customers; while the Value varies from customer to
customer.
Value Vs Price
This can be explained easily with the popular example given by Prof. Adam
Smith about water and diamond. Water is much important for us to survive
still it is of low price, while the diamond is just used for ornamentation and
RSV=80,000
DISTRESS VALUE= 90% of value
= (0.9)1,00,000
DISTRESS VALUE= Rs. 90,000
Q1. DEFINITIONS:
A.) FAIR MARKET VALUE
Fair market value (FMV) is an estimate of the market value of a property,
based on what a knowledgeable, willing, and unpressured buyer would
probably pay to a knowledgeable, willing, and unpressured seller in
the market.
An estimate of fair market value may be founded either on precedent or
extrapolation.
Fair market value differs from the intrinsic value that an individual may place
on the same asset based on their own preferences and circumstances.
Since market transactions are often not observable for assets such as privately
held businesses and most personal and real property, FMV must be estimated.
An estimate of fair market value is usually subjective due to the
circumstances of place, time, the existence of comparable precedents, and the
evaluation principles of each involved person.
B.) VALUE AND PRICE?
Price is the amount of money paid by the buyer to the seller in exchange for
any product and service. The amount charged by the seller for a product is
known as its price, which includes cost and the profit margin. For example- If
you buy a product for Rs 250, then it is the price of that product.
Value is the usefulness of any product to a customer. It can never be
determined n terms of money and varies from customer to customer. For
example- If you are going to a gym by spending 1000 bucks a month, the
output seen is worth the expense, then it is the value that you create for a gym,
regarding the service being offered there. Here the worth is its value.
Price is what you pay for goods or services you acquire, and Value is what
goods or services pay you i.e. worth.
Price is calculated in numerical terms, but Value can never be calculated in
numbers.
Price is same for all the customers; while the Value varies from customer to
customer.
Value Vs Price
This can be explained easily with the popular example given by Prof. Adam
Smith about water and diamond. Water is much important for us to survive
still it is of low price, while the diamond is just used for ornamentation and
nobody dies without it, is priced very high. The reason behind this is its value,
as the value of water is much for us, it is available at a low price, while the
value of a diamond is less for us. Therefore, it is priced very high.
as the value of water is much for us, it is available at a low price, while the
value of a diamond is less for us. Therefore, it is priced very high.
Q10) LAND ACQUISITION ACT?
ANS:
- The Right to Fair Compensation and Transparency in Land Acquisition,
Rehabilitation and Resettlement Act, 2013 (also Land Acquisition Act, 2013) is an
Act of Indian Parliament that regulates land acquisition and lays down the procedure
and rules for granting compensation, rehabilitation and resettlement to the affected
persons in India.
- The Act has provisions to provide fair compensation to those whose land is taken
away, brings transparency to the process of acquisition of land to set up factories or
buildings, infrastructural projects and assures rehabilitation of those affected.
- The Act establishes regulations for land acquisition as a part of India's massive
industrialisation drive driven by public-private partnership.
- The Act replaced the Land Acquisition Act, 1894, a nearly 120-year-old law enacted
during British rule.
- The Act came into force from 1 January 2014
- An amendment bill was then introduced in Parliament to endorse the Ordinance. Lok
Sabha passed the bill but the same is still lying for passage by the Rajya Sabha. On 30
May 2015, President of India promulgated the amendment ordinance for third time.
Q11) PROCEDURE FOR ACQUISITION OF LAND?
ANS:
- The procedure for land acquisition can be divided into following parts-
- Investigation.
- Objection and Confirmation.
- Claim and value
- Award.
- Possession
- Payment.
- Reference to court.
- Appointment.
Q12) PURPOSE OF LAND ACQUISITION?
ANS: As per the Act, the union or state governments can acquire lands for its own use, hold
and control, including for public sector undertakings and for "public purpose", and shall
include the following purposes:
for strategic purposes relating to naval, military, air force, and armed forces of the Union,
including central paramilitary forces or any work vital to national security or defence of
India or State police, safety of the people;
for infrastructure projects as defined under the Act;
ANS:
- The Right to Fair Compensation and Transparency in Land Acquisition,
Rehabilitation and Resettlement Act, 2013 (also Land Acquisition Act, 2013) is an
Act of Indian Parliament that regulates land acquisition and lays down the procedure
and rules for granting compensation, rehabilitation and resettlement to the affected
persons in India.
- The Act has provisions to provide fair compensation to those whose land is taken
away, brings transparency to the process of acquisition of land to set up factories or
buildings, infrastructural projects and assures rehabilitation of those affected.
- The Act establishes regulations for land acquisition as a part of India's massive
industrialisation drive driven by public-private partnership.
- The Act replaced the Land Acquisition Act, 1894, a nearly 120-year-old law enacted
during British rule.
- The Act came into force from 1 January 2014
- An amendment bill was then introduced in Parliament to endorse the Ordinance. Lok
Sabha passed the bill but the same is still lying for passage by the Rajya Sabha. On 30
May 2015, President of India promulgated the amendment ordinance for third time.
Q11) PROCEDURE FOR ACQUISITION OF LAND?
ANS:
- The procedure for land acquisition can be divided into following parts-
- Investigation.
- Objection and Confirmation.
- Claim and value
- Award.
- Possession
- Payment.
- Reference to court.
- Appointment.
Q12) PURPOSE OF LAND ACQUISITION?
ANS: As per the Act, the union or state governments can acquire lands for its own use, hold
and control, including for public sector undertakings and for "public purpose", and shall
include the following purposes:
for strategic purposes relating to naval, military, air force, and armed forces of the Union,
including central paramilitary forces or any work vital to national security or defence of
India or State police, safety of the people;
for infrastructure projects as defined under the Act;
project for project affected families;
project for housing for such income groups, as may be specified from time to time by the
appropriate Government;
project for planned development or the improvement of village sites or any site in the
urban areas or provision of land for residential purposes for the weaker sections in rural
and urban areas;
project for residential purposes to the poor or landless or to persons residing in areas
affected by natural calamities, or to persons displaced or affected by reason of the
implementation of any scheme undertaken by the Government, any local authority or a
corporation owned or controlled by the State.
The land can be acquired for private bodies for certain purposes:
for public private partnership projects, where the ownership of the land continues to vest
with the Government, for public purpose as defined in the Act;
for private companies for public purpose.
Q13) POWER OF COLLECTOR UNDER LAND ACQUISITION ACT?
ANS:
- Every objection shall be made to the Collector in writing, and the Collector shall give
the objector an opportunity of being heard [in person or by any person authorized by
him in this behalf] or by pleader and shall, after hearing all such objections and after
making such further inquiry, if any, as he thinks necessary, [either make a report in
respect of the land or make different reports in respect of different parcels of such
land, to the appropriate Government, containing his recommendations on the
objections, together with the record of the proceedings held by him, for the decision
of that Government].
- The Collector after making enquiry to such objections has to forward a report to the
government whose decision in this respect would be final.
- After considering such report made by the collector the govt, may issue a declaration
within one year of notification to acquire land for public purpose or compay, this
declaration is mandatory requirement of the acquisition.
Q.1. Write a short note on Land acquisition. What is solatium ?
project for housing for such income groups, as may be specified from time to time by the
appropriate Government;
project for planned development or the improvement of village sites or any site in the
urban areas or provision of land for residential purposes for the weaker sections in rural
and urban areas;
project for residential purposes to the poor or landless or to persons residing in areas
affected by natural calamities, or to persons displaced or affected by reason of the
implementation of any scheme undertaken by the Government, any local authority or a
corporation owned or controlled by the State.
The land can be acquired for private bodies for certain purposes:
for public private partnership projects, where the ownership of the land continues to vest
with the Government, for public purpose as defined in the Act;
for private companies for public purpose.
Q13) POWER OF COLLECTOR UNDER LAND ACQUISITION ACT?
ANS:
- Every objection shall be made to the Collector in writing, and the Collector shall give
the objector an opportunity of being heard [in person or by any person authorized by
him in this behalf] or by pleader and shall, after hearing all such objections and after
making such further inquiry, if any, as he thinks necessary, [either make a report in
respect of the land or make different reports in respect of different parcels of such
land, to the appropriate Government, containing his recommendations on the
objections, together with the record of the proceedings held by him, for the decision
of that Government].
- The Collector after making enquiry to such objections has to forward a report to the
government whose decision in this respect would be final.
- After considering such report made by the collector the govt, may issue a declaration
within one year of notification to acquire land for public purpose or compay, this
declaration is mandatory requirement of the acquisition.
Q.1. Write a short note on Land acquisition. What is solatium ?
DILAPIDATION REPORT
Building and demolition work normally requires the use of a lot of heavy machinery
and equipment, and sometimes involves some serious changes to the site it’s being
carried out on. This can include the removal of a lot of soil, existing slabs or footings
and possibly trees. Sometimes it also involves knocking down parts of an existing
structure.
Even if it’s carefully managed, this sort of work has the potential to cause damage to
adjoining or adjacent houses or other nearby infrastructure.
Above and beyond the requirements for the protection of adjoining properties, you
may also need to arrange to have special reports undertaken on the state of nearby
buildings.
WHAT IS A DILAPIDATION REPORT?
A dilapidation report is a report on the condition of a property at a given point in time.
It records any existing damage, and the state of any particular aspects of the property
that are likely to be affected by construction work, excavation or demolition.
These reports are normally carried out on nearby properties both before work begins,
and after it’s finished. Comparing the two reports offers a clear picture of any damage
that might have occurred as a result of building, excavation or demolition work.
WHAT DOES A DILAPIDATION REPORT INCLUDE?
Dilapidation reports are normally carried out by experienced building consultants, who have a
good understanding of the aspects of a house or property that are likely to be affected by
nearby works, and who know exactly what to look for.
Dilapidation reports typically include things like notes, measurements, photographs and
diagrams which give an accurate picture of the state of the buildings being inspected, and are
normally signed by both the owner of the property being inspected, and the party having
construction work done.
SCHEDULE OF DILAPADATIONS
In our country liability for dilapidations due to disrepair has been cast upon the landlords by statutory
provisions for repairs. Hence, the architect or engineer will scarcely come across a report on the
schedule of dilapidations based upon contractual obligations though he may be called upon to report
on the dilapidated conditions of the building. In both these aspects the line or approach is the same
expect for the question of liabilities for repairs and the resultants effects flowing there from like
whether the monthly tenants be permitted to carry out repairs and recover the cost thereof from the
landlords, or landlords be granted permission to demolish the dilapidated building.
REPORT ON SCHEDULE OF DILAPIDATIONS
Building and demolition work normally requires the use of a lot of heavy machinery
and equipment, and sometimes involves some serious changes to the site it’s being
carried out on. This can include the removal of a lot of soil, existing slabs or footings
and possibly trees. Sometimes it also involves knocking down parts of an existing
structure.
Even if it’s carefully managed, this sort of work has the potential to cause damage to
adjoining or adjacent houses or other nearby infrastructure.
Above and beyond the requirements for the protection of adjoining properties, you
may also need to arrange to have special reports undertaken on the state of nearby
buildings.
WHAT IS A DILAPIDATION REPORT?
A dilapidation report is a report on the condition of a property at a given point in time.
It records any existing damage, and the state of any particular aspects of the property
that are likely to be affected by construction work, excavation or demolition.
These reports are normally carried out on nearby properties both before work begins,
and after it’s finished. Comparing the two reports offers a clear picture of any damage
that might have occurred as a result of building, excavation or demolition work.
WHAT DOES A DILAPIDATION REPORT INCLUDE?
Dilapidation reports are normally carried out by experienced building consultants, who have a
good understanding of the aspects of a house or property that are likely to be affected by
nearby works, and who know exactly what to look for.
Dilapidation reports typically include things like notes, measurements, photographs and
diagrams which give an accurate picture of the state of the buildings being inspected, and are
normally signed by both the owner of the property being inspected, and the party having
construction work done.
SCHEDULE OF DILAPADATIONS
In our country liability for dilapidations due to disrepair has been cast upon the landlords by statutory
provisions for repairs. Hence, the architect or engineer will scarcely come across a report on the
schedule of dilapidations based upon contractual obligations though he may be called upon to report
on the dilapidated conditions of the building. In both these aspects the line or approach is the same
expect for the question of liabilities for repairs and the resultants effects flowing there from like
whether the monthly tenants be permitted to carry out repairs and recover the cost thereof from the
landlords, or landlords be granted permission to demolish the dilapidated building.
REPORT ON SCHEDULE OF DILAPIDATIONS
For preparing a report on schedule of dilapidations, it is essential to make a thorough
inspection of the building room by room and necessary notes should be made of all those
portions of the building which are in the state of disrepair, together with a short description
and a detailed measurements of the same.
FIRST FLOOR ROOF:
1. Whether the roof has caved in or not.
2. Leakage from roof and roof gutters.
3. Condition of timber post or walls supporting the truss.
4. General condition of the walls and plaster work.
5. Wood work of doors and windows and whether the plumb line has been maintained or not.
FLOOR:
1. It is sagged or not.
2. Separation at the junction of the wall and floor. If separation is there, find out its cause which
maybe due to the decayed joists, beams and posts or settlement of walls.
STAIRCASE:
1. Condition of woodwork of steps, stringer beams and landings.
2. Condition of wooden handrail and balustrades.
3. Level of steps and landings.
4. Condition of landings.
GROUND FLOOR:
1. Condition of ceiling, timber joists and beams (specially their ends).
2. Level of ceiling.
3. Cracks in walls and plaster works.
4. Conditions of doors and windows.
FOUR SIDE ELEVATIONS:
1. Conditions of walls, cracks, plaster, line, level and plumb, craks in plinth, cracks due to
uneven settlement of foundation.
SANITARY BLOCK:
1. Leakage from baths, W.C’s their structural conditions, missing and broken fixtures
including the conditions of pipe lines.
DRAINAGE ARRANGEMENT:
1. Whether overflows or not, condition of septic tank , soak pit, inspection chambers,
etc.
The dilapidations report is generally prepared keeping in mind all the above facts together
with their present condition. The estimated costs of repairs should also be worked out in order
inspection of the building room by room and necessary notes should be made of all those
portions of the building which are in the state of disrepair, together with a short description
and a detailed measurements of the same.
FIRST FLOOR ROOF:
1. Whether the roof has caved in or not.
2. Leakage from roof and roof gutters.
3. Condition of timber post or walls supporting the truss.
4. General condition of the walls and plaster work.
5. Wood work of doors and windows and whether the plumb line has been maintained or not.
FLOOR:
1. It is sagged or not.
2. Separation at the junction of the wall and floor. If separation is there, find out its cause which
maybe due to the decayed joists, beams and posts or settlement of walls.
STAIRCASE:
1. Condition of woodwork of steps, stringer beams and landings.
2. Condition of wooden handrail and balustrades.
3. Level of steps and landings.
4. Condition of landings.
GROUND FLOOR:
1. Condition of ceiling, timber joists and beams (specially their ends).
2. Level of ceiling.
3. Cracks in walls and plaster works.
4. Conditions of doors and windows.
FOUR SIDE ELEVATIONS:
1. Conditions of walls, cracks, plaster, line, level and plumb, craks in plinth, cracks due to
uneven settlement of foundation.
SANITARY BLOCK:
1. Leakage from baths, W.C’s their structural conditions, missing and broken fixtures
including the conditions of pipe lines.
DRAINAGE ARRANGEMENT:
1. Whether overflows or not, condition of septic tank , soak pit, inspection chambers,
etc.
The dilapidations report is generally prepared keeping in mind all the above facts together
with their present condition. The estimated costs of repairs should also be worked out in order
to ascertain whether repairs to the buildings are economical or not. The following are the few
consideration for the same-
If the cost of repairs exceeds 8 to 10 years of gross rent, the building is uneconomical
for repairs and requires pulling down.
When it has completed its economical life.
If the full potentiality of land is not utilized, the dilapidated building will be
encumbering the land and will result in uneconomic returns.
If the land is not put to beneficial use, which is permissible the building will be pulled
down as the money spent on repairs will be an economic waste.
The demised premises are required to be used in a proper and tenant like manner.
If the house let put is an old one when the lease is granted the tenant has to maintain it
only as an old house.
The tenant or lesse is bound to keep the house in good and substantial repair, repairing
them and reconstructing them when necessary as per its old planning without modern
improvements.
Q14) DILAPIDATION?
ANS:
- Dilapidation is the term used to denote decay/damage or waste, state/condition of a
premises or building. It means decay/waste state of disrepair caused due to continuous
neglect in maintenance and repair willfully or otherwise.
- A building is constructed with a certain purpose and with an estimated life, both
physical and economical.
- The physical and economical lives need not be the same.
- It has been seen in many cases that a building is still physically sound though its
economic life has expired.
- It may not be impossible that a building has been rendered physically unfit for use
though its economic life has not expired.
- Now, dilapidation of a building means that the physical life of a building is tending to
be expired, i.e., the building is approaching a condition which would render it unfit
for use. Such condition of a building may occur due to various reasons.
Q15) FACTORS CAUSING DILAPIDATION?
ANS:
- Natural decay and ageing: This is a natural phenomenon. Materials used in building
have certain lives for them to remain in functional condition, after which the parts will
give way and the building will gradually drift towards dilapidated condition.
- Inadequate or no maintenance: Inadequate or no maintenance including disrepair or
delay in repair is the main cause of dilapidation of a building. Proper maintenance and
prompt repair or replacement of decayed or damaged parts of a structure could defer
early decay and dilapidation.
consideration for the same-
If the cost of repairs exceeds 8 to 10 years of gross rent, the building is uneconomical
for repairs and requires pulling down.
When it has completed its economical life.
If the full potentiality of land is not utilized, the dilapidated building will be
encumbering the land and will result in uneconomic returns.
If the land is not put to beneficial use, which is permissible the building will be pulled
down as the money spent on repairs will be an economic waste.
The demised premises are required to be used in a proper and tenant like manner.
If the house let put is an old one when the lease is granted the tenant has to maintain it
only as an old house.
The tenant or lesse is bound to keep the house in good and substantial repair, repairing
them and reconstructing them when necessary as per its old planning without modern
improvements.
Q14) DILAPIDATION?
ANS:
- Dilapidation is the term used to denote decay/damage or waste, state/condition of a
premises or building. It means decay/waste state of disrepair caused due to continuous
neglect in maintenance and repair willfully or otherwise.
- A building is constructed with a certain purpose and with an estimated life, both
physical and economical.
- The physical and economical lives need not be the same.
- It has been seen in many cases that a building is still physically sound though its
economic life has expired.
- It may not be impossible that a building has been rendered physically unfit for use
though its economic life has not expired.
- Now, dilapidation of a building means that the physical life of a building is tending to
be expired, i.e., the building is approaching a condition which would render it unfit
for use. Such condition of a building may occur due to various reasons.
Q15) FACTORS CAUSING DILAPIDATION?
ANS:
- Natural decay and ageing: This is a natural phenomenon. Materials used in building
have certain lives for them to remain in functional condition, after which the parts will
give way and the building will gradually drift towards dilapidated condition.
- Inadequate or no maintenance: Inadequate or no maintenance including disrepair or
delay in repair is the main cause of dilapidation of a building. Proper maintenance and
prompt repair or replacement of decayed or damaged parts of a structure could defer
early decay and dilapidation.
- Bad use of building: Bad use of building or misuse may aggravate damage of a
building and expedite dilapidation; e.g., using a residential building as godown,
internal alteration for convenience, etc.
- Use of underspecified materials: It is obvious that underspecified or bad materials
will have less life and less strength than required and, in natural course of time, the
building will be dilapidated earlier.
- Bad workmanship: Bad workmanship will cause reduction in life of the structure
and also may cause imbalance in load bearing system and thus cause unforeseen
stresses leading to early decay of the structure.
- Physical influence: Physical influence of any kind would cause injury and aggravate
damage and decay and would expedite dilapidation.
- Q.6. Write a short note on dilapidation. What is the procedure of preparing report and
10
- schedule of dilapidations ?
building and expedite dilapidation; e.g., using a residential building as godown,
internal alteration for convenience, etc.
- Use of underspecified materials: It is obvious that underspecified or bad materials
will have less life and less strength than required and, in natural course of time, the
building will be dilapidated earlier.
- Bad workmanship: Bad workmanship will cause reduction in life of the structure
and also may cause imbalance in load bearing system and thus cause unforeseen
stresses leading to early decay of the structure.
- Physical influence: Physical influence of any kind would cause injury and aggravate
damage and decay and would expedite dilapidation.
- Q.6. Write a short note on dilapidation. What is the procedure of preparing report and
10
- schedule of dilapidations ?
1. LEASE HOLD PROPERTY AND FREE HOLD PROPERTY ?
ANS:
LEASEHOLD PROPERTY:
- Leasehold means that you just have a lease from the freeholder (sometimes called the
landlord) to use the home for a number of years. The leases are usually long term –
often 90 years or 120 years and as high as 999 years – but can be short, such as 40
years.
- A leaseholder has a contract with the freeholder, which sets down the legal rights and
responsibilities of either side
- The freeholder will normally be responsible for maintaining the common parts of the
building, such as the entrance hall and staircase, as well as the exterior walls and roof.
However, other leaseholders might have claimed their “right to manage”, in which
case it is their responsibility
- Leaseholders will have to pay maintenance fees, annual service charges and their
share of the buildings insurance
- Leaseholders normally pay an annual “ground rent” to the freeholder
- Leaseholders will have to obtain permission for any majors works done to the
property
- Leaseholders may face other restrictions, such as not owning pets or subletting
- If leaseholders don’t fulfil the terms of the lease – for example, by not paying the fees
– then the lease can become forfeit
FREEHOLF PROPERTY:
- If you own the freehold, it means that you own the building and the land it stands on
outright, in perpetuity. It is your name in the land registry as “freeholder”, owning the
“title absolute”. Freehold is pretty much always the preferred option: you can’t really
go wrong with it.
- You won’t have to pay annual ground rent
- You don’t have a freeholder either failing to maintain the building, or charging huge
amounts for it
- You have responsibility for maintaining the fabric of the building – the roof and the
outside walls
- Whole houses are normally sold freehold – there is no reason for a standalone house
to be leasehold though there is an increasing trend for leasehold houses, particularly
with new build homes, so check before you buy.
2. LEASE HOLD PROPERTY?
ANS:
ANS:
LEASEHOLD PROPERTY:
- Leasehold means that you just have a lease from the freeholder (sometimes called the
landlord) to use the home for a number of years. The leases are usually long term –
often 90 years or 120 years and as high as 999 years – but can be short, such as 40
years.
- A leaseholder has a contract with the freeholder, which sets down the legal rights and
responsibilities of either side
- The freeholder will normally be responsible for maintaining the common parts of the
building, such as the entrance hall and staircase, as well as the exterior walls and roof.
However, other leaseholders might have claimed their “right to manage”, in which
case it is their responsibility
- Leaseholders will have to pay maintenance fees, annual service charges and their
share of the buildings insurance
- Leaseholders normally pay an annual “ground rent” to the freeholder
- Leaseholders will have to obtain permission for any majors works done to the
property
- Leaseholders may face other restrictions, such as not owning pets or subletting
- If leaseholders don’t fulfil the terms of the lease – for example, by not paying the fees
– then the lease can become forfeit
FREEHOLF PROPERTY:
- If you own the freehold, it means that you own the building and the land it stands on
outright, in perpetuity. It is your name in the land registry as “freeholder”, owning the
“title absolute”. Freehold is pretty much always the preferred option: you can’t really
go wrong with it.
- You won’t have to pay annual ground rent
- You don’t have a freeholder either failing to maintain the building, or charging huge
amounts for it
- You have responsibility for maintaining the fabric of the building – the roof and the
outside walls
- Whole houses are normally sold freehold – there is no reason for a standalone house
to be leasehold though there is an increasing trend for leasehold houses, particularly
with new build homes, so check before you buy.
2. LEASE HOLD PROPERTY?
ANS:
- It is a registered instrument which comtemplates a transfer of rights to enjoy a
property proposed to be leased out for a certain time or in perpetuity in consideration
of a price which may be premium or rent or a combination of both and subject to
other terms and conditions as many have been agreed.
- The lease of property can well be compared to a financing device whereby the lessee
borrows the land from the lessor instead of borrowing the capital from someone to
purchase the land from the freeholder.
- His payment of lease rent will be just like payment of interest on borrowed capital and
his return of capital will correspond to his return of the property to the lessor at the
expiry of the lease period (subject to there being no statutory protection to the lessee).
- However, it is essential that the period of lessee should be long enough so as to enable
the lessee to recover his capital invested in the improvement of the land.
1. Explain the conditions of use of land in leasehold and freehold tenure.
Answer:
Freehold Property
Freehold property can be defined as any estate which is "free from hold" of any entity
besides the owner.
Hence, the owner of such an estate enjoys free ownership for perpetuity and can use the
land for any purposes however in accordance with the local regulations.
Sale of a freehold property does not require consent from the state and hence requires
less paperwork, thus, making it more expensive than leasehold property.
Freehold property is inheritable and there are no restrictions on the right of the property
owner to further transfer the property.
In a free hold property, there is no encumbrance to the absolute title of the property.
A free hold is not akin to a condominium wherein the owner of the individual unit pays a
maintenance charge.
Free hold property can be inherited by a legal guardian.
A freehold property can be transferred by registration of sale deed.
Leasehold property:
Method of owning property (usually a flat) for a fixed term but not the land on which it
stands.
Possession of the property will be subject to the payment of an annual ground rent. When
the lease expires, ownership of the property reverts back to the freeholder.
The leases are usually long term – often 90 years or 120 years but as high as 999 years –
but can be short, such as 40 years.
Leaseholders will have to obtain permission for any majors works done to the property
A leaseholder has a contract with the freeholder, which sets down the legal rights and
responsibilities of either side
property proposed to be leased out for a certain time or in perpetuity in consideration
of a price which may be premium or rent or a combination of both and subject to
other terms and conditions as many have been agreed.
- The lease of property can well be compared to a financing device whereby the lessee
borrows the land from the lessor instead of borrowing the capital from someone to
purchase the land from the freeholder.
- His payment of lease rent will be just like payment of interest on borrowed capital and
his return of capital will correspond to his return of the property to the lessor at the
expiry of the lease period (subject to there being no statutory protection to the lessee).
- However, it is essential that the period of lessee should be long enough so as to enable
the lessee to recover his capital invested in the improvement of the land.
1. Explain the conditions of use of land in leasehold and freehold tenure.
Answer:
Freehold Property
Freehold property can be defined as any estate which is "free from hold" of any entity
besides the owner.
Hence, the owner of such an estate enjoys free ownership for perpetuity and can use the
land for any purposes however in accordance with the local regulations.
Sale of a freehold property does not require consent from the state and hence requires
less paperwork, thus, making it more expensive than leasehold property.
Freehold property is inheritable and there are no restrictions on the right of the property
owner to further transfer the property.
In a free hold property, there is no encumbrance to the absolute title of the property.
A free hold is not akin to a condominium wherein the owner of the individual unit pays a
maintenance charge.
Free hold property can be inherited by a legal guardian.
A freehold property can be transferred by registration of sale deed.
Leasehold property:
Method of owning property (usually a flat) for a fixed term but not the land on which it
stands.
Possession of the property will be subject to the payment of an annual ground rent. When
the lease expires, ownership of the property reverts back to the freeholder.
The leases are usually long term – often 90 years or 120 years but as high as 999 years –
but can be short, such as 40 years.
Leaseholders will have to obtain permission for any majors works done to the property
A leaseholder has a contract with the freeholder, which sets down the legal rights and
responsibilities of either side
The freeholder will normally be responsible for maintaining the common parts of the
building, such as the entrance hall and staircase, as well as the exterior walls and roof.
However, other leaseholders might have claimed their “right to manage”, in which case it
is their responsibility
Leaseholders will have to pay maintenance fees, annual service charges and their share of
the buildings insurance
If leaseholders don’t fulfil the terms of the lease – for example, by not paying the fees –
then the lease can be forfeited.
The lease length may be extended by agreement with the Freeholder at a specified cost.
building, such as the entrance hall and staircase, as well as the exterior walls and roof.
However, other leaseholders might have claimed their “right to manage”, in which case it
is their responsibility
Leaseholders will have to pay maintenance fees, annual service charges and their share of
the buildings insurance
If leaseholders don’t fulfil the terms of the lease – for example, by not paying the fees –
then the lease can be forfeited.
The lease length may be extended by agreement with the Freeholder at a specified cost.
DEPRECIATION
Information Needed to Calculate Depreciation
To calculate depreciation on a fixed asset, the following five factors must be known:
the date the asset was placed in service
the asset’s cost or acquisition value
the asset’s salvage value
the asset’s estimated useful life, and
The depreciation method.
Depreciation
The monetary value of an asset decreases over time due to use, wear and tear or
obsolescence. This decrease is measured as depreciation.
Depreciation may be caused by a number of other factors as well such as unfavourable
market conditions, etc.
Machinery, equipment, currency are some examples of assets that are likely to depreciate
over a specific period of time.
Accounting estimates the decrease in value using the information regarding the useful life
of the asset.
This is useful for estimation of property value for taxation purposes like property tax etc.
For such assets like real estate, market and economic conditions are likely to be crucial
such as in cases of economic downturn.
http://www.accountingdetails.com/depreciation_of_various_assets.htm
Q16) EXPLAIN DEPRECIATION?
ANS:
- Depreciation is the gradual exhaustion of the usefulness of a property.
- This may be defined as the decrease or loss in the value of a property due to structural
deterioration use, life wear and tear, decay and obsolescence.
- The value of a building or structure will be gradually reduced due to its use, life, wear
and tear, etc., and a certain percentage of the total cost may be allowed as depreciation
to determine its present value.
- Usually a percentage on depreciation per annum is allowed.
- The general annual decrease in the value of a property is known as Annual
depreciation.
Q17) STATE THE FACTORS AFFECTING DEPRECIATION?
ANS:
Information Needed to Calculate Depreciation
To calculate depreciation on a fixed asset, the following five factors must be known:
the date the asset was placed in service
the asset’s cost or acquisition value
the asset’s salvage value
the asset’s estimated useful life, and
The depreciation method.
Depreciation
The monetary value of an asset decreases over time due to use, wear and tear or
obsolescence. This decrease is measured as depreciation.
Depreciation may be caused by a number of other factors as well such as unfavourable
market conditions, etc.
Machinery, equipment, currency are some examples of assets that are likely to depreciate
over a specific period of time.
Accounting estimates the decrease in value using the information regarding the useful life
of the asset.
This is useful for estimation of property value for taxation purposes like property tax etc.
For such assets like real estate, market and economic conditions are likely to be crucial
such as in cases of economic downturn.
http://www.accountingdetails.com/depreciation_of_various_assets.htm
Q16) EXPLAIN DEPRECIATION?
ANS:
- Depreciation is the gradual exhaustion of the usefulness of a property.
- This may be defined as the decrease or loss in the value of a property due to structural
deterioration use, life wear and tear, decay and obsolescence.
- The value of a building or structure will be gradually reduced due to its use, life, wear
and tear, etc., and a certain percentage of the total cost may be allowed as depreciation
to determine its present value.
- Usually a percentage on depreciation per annum is allowed.
- The general annual decrease in the value of a property is known as Annual
depreciation.
Q17) STATE THE FACTORS AFFECTING DEPRECIATION?
ANS:
- Wear and tear
- Fall in market value
- Accidents like fall of a tree
- Obsolescence
- Decay
- Changes in demands
- Changes in Arts and fashion
- Calamity like flood, lightning etc.
- Actions of elements of Nature like heat, cold, wind etc.
- Structural deterioration.
Q18) STATE THE METHODS OF CALCULATING DEPRECIATION AND EXPLAIN ANY ONE?
ANS:
The various methods of calculating depreciation are as follows:
(1) Straight line Method (2) Constant percentage method
(3) Sinking fund method and (4) Quantity survey method.
STRAIGHT LINE METHOD:
- In this method it is assumed that the property loses its value by the same amount
every year. A fixed amount of the original cost is deducted every year, so that at the
end of the utility period only the scrap value is left.
- The present value minus salvage value is distributed uniformly for its service life. It is
assumed the property loses its value by the same amount every year.
-
- Example:
Cost of New Building = Rs. 4,00,000
Salvage Value 10% at the end of life = Rs. 40, 000
Life assumed = 60 years
Annual Depreciation 60 ,4 000 = Rs. 6,000,4 00,000
Depreciation value after 10 years = Rs. 60,000
Depreciation value after 60 years = Rs. 3,60,000
Depd. Value after 10 years = 400000 – 60000 = Rs. 3,40,000
- Fall in market value
- Accidents like fall of a tree
- Obsolescence
- Decay
- Changes in demands
- Changes in Arts and fashion
- Calamity like flood, lightning etc.
- Actions of elements of Nature like heat, cold, wind etc.
- Structural deterioration.
Q18) STATE THE METHODS OF CALCULATING DEPRECIATION AND EXPLAIN ANY ONE?
ANS:
The various methods of calculating depreciation are as follows:
(1) Straight line Method (2) Constant percentage method
(3) Sinking fund method and (4) Quantity survey method.
STRAIGHT LINE METHOD:
- In this method it is assumed that the property loses its value by the same amount
every year. A fixed amount of the original cost is deducted every year, so that at the
end of the utility period only the scrap value is left.
- The present value minus salvage value is distributed uniformly for its service life. It is
assumed the property loses its value by the same amount every year.
-
- Example:
Cost of New Building = Rs. 4,00,000
Salvage Value 10% at the end of life = Rs. 40, 000
Life assumed = 60 years
Annual Depreciation 60 ,4 000 = Rs. 6,000,4 00,000
Depreciation value after 10 years = Rs. 60,000
Depreciation value after 60 years = Rs. 3,60,000
Depd. Value after 10 years = 400000 – 60000 = Rs. 3,40,000
Depd. Value after 60 years = 400000 – 360000 (which is the salvage value
assumed) = Rs. 40,000.
SINKING FUND CONCEPT
What is a Sinking Fund?
Sinking fund means a fund constituted under the bye laws of a society for the purpose of
reconstruction of its building/buildings or for carrying out any structural additions or
alterations to the building/buildings, as in the opinion of the Society’s Architect, would be
necessary to strengthen it/ or for carrying out heavy repairs as maybe certified by the
Architect.
In short, sinking fund is a fund constituted for repair or reconstruction in the future,
wherein the members of a society contribute a certain amount on a regular basis to this
fund of the society. In fact, the contribution towards the Sinking fund is a statutory
obligation.
Benefits of sinking fund
In recent years, many old buildings have collapsed due to lack of repairs and negligence. If
repairs are not done on a regular basis, serious risk will be posed to the structure of the
building. In such situations, the sinking fund becomes useful. Instead of shelling out a lump
sum amount of money in case of major repairs, contribution of a small amount on regular
basis to the sinking fund will be a great boon when major repairs or reconstruction is
required. This fund will ensure that the society has sufficient funds to carry out the work in
times of need.
For example – A complex needs to undergo renovation and the estimated expenditure is
around Rupees Fifty lakhs and the sinking fund has already Rupees forty lakhs, then only the
balance amount of Rupees Ten lakhs will be required. Otherwise it will become a huge
burden for the members of the society.
Contribution by each member
The amount to be contributed by each member to the Sinking fund will be decided at the
meeting of the general body, wherein the minimum amount should not be less than 0.25
percent per annum of the construction cost of each flat incurred during the construction
of the building of the society and certified by the Architect. This will not include the cost
of the land. Usually the contribution is done on a monthly basis. If the apartment is on rent, it
will be the landlord’s duty to contribute towards the sinking fund.
Investment of Sinking Fund
The amount in the sinking fund is required to be utilized when the reconstruction or repair of
the building is due. As this is a very long period, the contribution received from members of
assumed) = Rs. 40,000.
SINKING FUND CONCEPT
What is a Sinking Fund?
Sinking fund means a fund constituted under the bye laws of a society for the purpose of
reconstruction of its building/buildings or for carrying out any structural additions or
alterations to the building/buildings, as in the opinion of the Society’s Architect, would be
necessary to strengthen it/ or for carrying out heavy repairs as maybe certified by the
Architect.
In short, sinking fund is a fund constituted for repair or reconstruction in the future,
wherein the members of a society contribute a certain amount on a regular basis to this
fund of the society. In fact, the contribution towards the Sinking fund is a statutory
obligation.
Benefits of sinking fund
In recent years, many old buildings have collapsed due to lack of repairs and negligence. If
repairs are not done on a regular basis, serious risk will be posed to the structure of the
building. In such situations, the sinking fund becomes useful. Instead of shelling out a lump
sum amount of money in case of major repairs, contribution of a small amount on regular
basis to the sinking fund will be a great boon when major repairs or reconstruction is
required. This fund will ensure that the society has sufficient funds to carry out the work in
times of need.
For example – A complex needs to undergo renovation and the estimated expenditure is
around Rupees Fifty lakhs and the sinking fund has already Rupees forty lakhs, then only the
balance amount of Rupees Ten lakhs will be required. Otherwise it will become a huge
burden for the members of the society.
Contribution by each member
The amount to be contributed by each member to the Sinking fund will be decided at the
meeting of the general body, wherein the minimum amount should not be less than 0.25
percent per annum of the construction cost of each flat incurred during the construction
of the building of the society and certified by the Architect. This will not include the cost
of the land. Usually the contribution is done on a monthly basis. If the apartment is on rent, it
will be the landlord’s duty to contribute towards the sinking fund.
Investment of Sinking Fund
The amount in the sinking fund is required to be utilized when the reconstruction or repair of
the building is due. As this is a very long period, the contribution received from members of
the society should be invested on a long term basis so that, the investment can fetch
substantial returns to the society. This is covered under Section 70 of the Maharashtra Co-
operative Societies Act, 1960 and the Bye-laws of the society.
A Co-operative Housing Society can invest its fund in the State Co-operative Bank i.e. the
Maharashtra State Co-operative Bank or The Mumbai District Central Co-operative Bank
Ltd. or the securities specified under Section 20 of the Indian Trust Act. Although the
Registrar cam permit Co-operative housing societies to invest their funds in the Nationalized
banks or other Commercial banks, or the Urban Commercial Banks, this facility is given only
for facilitating day to day banking transactions. Hence, a long term investment should be
made by Co-operative housing societies only with either of the two banks named above.
If the society fails to invest the fund as prescribed above, then it would be considered as an
offence under Section 146(c) of the Maharashtra Co-operative Societies Act, 1960 and the
society, officer or past officer, member or past member, employee or past employee of the
society, or any other person, who commits the offence will be liable to fine that may extend
to five hundred rupees.
Procedure for utilizing the Sinking Fund
As per the model bye-laws, the Sinking fund can be utilized only after obtaining the approval
of the General Body of the society. Before embarking on structural repairs, an Architect
should be appointed at a general body meeting. Upon inspection, the Architect should prepare
plans and estimates with specifications of the structural changed required to be carried out.
Thereafter a contractor should be appointed by the Managing committee of the society on the
terms and conditions set out by the general body.
The amount lying in the Sinking fund can be used for the requisite structural repairs after
obtaining the permission of the General body of the society.
Sinking fund falls short of requirements
If the Sinking fund investment is less than the estimated cost of major repairs/ reconstruction,
in such case each member will have to contribute as per the estimated cost of repair and the
shortfall may be collected on the basis of the area of each flat. But then the repair costs of
common amenities such as compound wall, pump room, society office among others will be
distributed equally among all the flats irrespective of the flat size.
Sinking fund register
A Sinking fund register should be maintained by every society. It should contain the
following details –
Name and address of the society
Number of flats
Details of owners
Amount of contribution received
Details of bank where amount is deposited
substantial returns to the society. This is covered under Section 70 of the Maharashtra Co-
operative Societies Act, 1960 and the Bye-laws of the society.
A Co-operative Housing Society can invest its fund in the State Co-operative Bank i.e. the
Maharashtra State Co-operative Bank or The Mumbai District Central Co-operative Bank
Ltd. or the securities specified under Section 20 of the Indian Trust Act. Although the
Registrar cam permit Co-operative housing societies to invest their funds in the Nationalized
banks or other Commercial banks, or the Urban Commercial Banks, this facility is given only
for facilitating day to day banking transactions. Hence, a long term investment should be
made by Co-operative housing societies only with either of the two banks named above.
If the society fails to invest the fund as prescribed above, then it would be considered as an
offence under Section 146(c) of the Maharashtra Co-operative Societies Act, 1960 and the
society, officer or past officer, member or past member, employee or past employee of the
society, or any other person, who commits the offence will be liable to fine that may extend
to five hundred rupees.
Procedure for utilizing the Sinking Fund
As per the model bye-laws, the Sinking fund can be utilized only after obtaining the approval
of the General Body of the society. Before embarking on structural repairs, an Architect
should be appointed at a general body meeting. Upon inspection, the Architect should prepare
plans and estimates with specifications of the structural changed required to be carried out.
Thereafter a contractor should be appointed by the Managing committee of the society on the
terms and conditions set out by the general body.
The amount lying in the Sinking fund can be used for the requisite structural repairs after
obtaining the permission of the General body of the society.
Sinking fund falls short of requirements
If the Sinking fund investment is less than the estimated cost of major repairs/ reconstruction,
in such case each member will have to contribute as per the estimated cost of repair and the
shortfall may be collected on the basis of the area of each flat. But then the repair costs of
common amenities such as compound wall, pump room, society office among others will be
distributed equally among all the flats irrespective of the flat size.
Sinking fund register
A Sinking fund register should be maintained by every society. It should contain the
following details –
Name and address of the society
Number of flats
Details of owners
Amount of contribution received
Details of bank where amount is deposited
Details of amount withdrawn, if any
Reasons for withdrawal
Any other requisite detaiL
3. SINKING FUND?
ANS:
- The fund which is gradually accumulated by way of periodic on annual deposit for the
replacement of the building or structure at the end of its useful life, is termed as
sinking fund.
- The object of creating sinking fund is to accumulate sufficient money to meet the cost
of construction or replacement of the building or structure after its utility period.
- The sinking fund is created by regular annual or periodic deposits in compound
interest bearing investment, which will form the amount of replacement at the end of
the utility period of the property.
- The calculation of sinking fund depends on the life of the building and scrap value of
the building for the cost of old materials.
- The cost of land is not taken into account in calculating Sinking fund as land remains
intact.
- The sinking fund may also be required for payment of loan.
- The amount of annual instalment of the Sinking fund may be found out by the
formula.
- where S = total amount of Sinking fund to be accumulated,
- N = number of years required to accumulate the sinking fund.
- I = Rate of interest in decimal and I = annual installment required.
Sinking Fund:
A sinking fund is an amount of money which is set aside to cover any major work which is
needed on a property in the future.
Such funds are quite common with leasehold properties.
The fund is usually part of the service charge that is payable by each leaseholder and is
normally calculated as a fixed percentage of the service charge which is reviewed on a
regular basis.
The amount payable is usually then put into an interest bearing account, and the interest
accrued is added to the account.
When calculating the amount to be taken, the potential replacement costs of certain
items and the average length of time that passes before each type of repair should be
taken into account.
Reasons for withdrawal
Any other requisite detaiL
3. SINKING FUND?
ANS:
- The fund which is gradually accumulated by way of periodic on annual deposit for the
replacement of the building or structure at the end of its useful life, is termed as
sinking fund.
- The object of creating sinking fund is to accumulate sufficient money to meet the cost
of construction or replacement of the building or structure after its utility period.
- The sinking fund is created by regular annual or periodic deposits in compound
interest bearing investment, which will form the amount of replacement at the end of
the utility period of the property.
- The calculation of sinking fund depends on the life of the building and scrap value of
the building for the cost of old materials.
- The cost of land is not taken into account in calculating Sinking fund as land remains
intact.
- The sinking fund may also be required for payment of loan.
- The amount of annual instalment of the Sinking fund may be found out by the
formula.
- where S = total amount of Sinking fund to be accumulated,
- N = number of years required to accumulate the sinking fund.
- I = Rate of interest in decimal and I = annual installment required.
Sinking Fund:
A sinking fund is an amount of money which is set aside to cover any major work which is
needed on a property in the future.
Such funds are quite common with leasehold properties.
The fund is usually part of the service charge that is payable by each leaseholder and is
normally calculated as a fixed percentage of the service charge which is reviewed on a
regular basis.
The amount payable is usually then put into an interest bearing account, and the interest
accrued is added to the account.
When calculating the amount to be taken, the potential replacement costs of certain
items and the average length of time that passes before each type of repair should be
taken into account.
A sinking fund can also be set up by private landlords; simply by putting aside a certain
amount of the rent received each month. When calculating the amount to be contributed,
it is common for landlords to put aside anywhere in the region of five to ten percent of
the rental income. The use of a sinking fund by a private landlord is different as it is
managed by the individual and is therefore entirely flexible.
The main advantage of a sinking fund is that the repairs can be pre-planned rather than
calling for a large amount at one go.
The obvious disadvantage is the increase in annual costs. Also, if the property does not
require major repairs then it is not being used properly. There can also be difficulties in
getting the unused money released once it is already paid.
Q. 31. (1). Compare the term depreciation with sinking fund in detail?
Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life.
Businesses depreciate long-term assets for both tax and accounting purposes. For tax purposes,
businesses can deduct the cost of the tangible assets they purchase as business expenses; however,
businesses must depreciate these assets in accordance with IRS rules about how and when the
deduction may be taken.
Under this method, a fixed amount is debited every year to depreciation amount and credited to
depreciation fund account instead of asset account. The asset is shown at its original cost, in the books,
in every year. The amount which is credited in the sinking fund is invested in gilt-edged securities. The
method discussed in the previous posts does not help in accumulating the amount of depreciation which
can be readily available for the replacement of the asset when it is completely unusable. Sinking fund
method is designed in such a way that it incorporates the advantages of depreciating the assets as well
as accumulating the necessary amount for its replacement.
Under this method, a fixed amount is debited every year to depreciation amount and credited to
depreciation fund account instead of asset account. The asset is shown at its original cost, in the books,
in every year. The amount which is credited in the sinking fund is invested in gilt-edged securities. The
interest on such investment is also invested in similar securities. The securities are readily convertible
into cash. Investments are purchased every year. When the assets become useless, the investments are
sold away and thus new assets can be purchased without disturbing the financial position of the firm.
The sinking fund method is adopted especially when it is desired not merely to write off an asset but
also to provide enough funds to replace the asset at the end of its working life. The amount set aside as
depreciation is such that this, with compound interests, will be sufficient to meet the cost of new asset,
less scrap value, if any, for replacement. The depreciation under this method can be calculated with the
help of sinking fund table for a particular period at a given rate of interest.
Advantages of Sinking Fund Method of Depreciation
i. Sinking fund method makes available a sum of money for the replacement of asset by maintaining
separate provision.
ii. Sinking fund method helps to strengthen financial position of a concern.
amount of the rent received each month. When calculating the amount to be contributed,
it is common for landlords to put aside anywhere in the region of five to ten percent of
the rental income. The use of a sinking fund by a private landlord is different as it is
managed by the individual and is therefore entirely flexible.
The main advantage of a sinking fund is that the repairs can be pre-planned rather than
calling for a large amount at one go.
The obvious disadvantage is the increase in annual costs. Also, if the property does not
require major repairs then it is not being used properly. There can also be difficulties in
getting the unused money released once it is already paid.
Q. 31. (1). Compare the term depreciation with sinking fund in detail?
Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life.
Businesses depreciate long-term assets for both tax and accounting purposes. For tax purposes,
businesses can deduct the cost of the tangible assets they purchase as business expenses; however,
businesses must depreciate these assets in accordance with IRS rules about how and when the
deduction may be taken.
Under this method, a fixed amount is debited every year to depreciation amount and credited to
depreciation fund account instead of asset account. The asset is shown at its original cost, in the books,
in every year. The amount which is credited in the sinking fund is invested in gilt-edged securities. The
method discussed in the previous posts does not help in accumulating the amount of depreciation which
can be readily available for the replacement of the asset when it is completely unusable. Sinking fund
method is designed in such a way that it incorporates the advantages of depreciating the assets as well
as accumulating the necessary amount for its replacement.
Under this method, a fixed amount is debited every year to depreciation amount and credited to
depreciation fund account instead of asset account. The asset is shown at its original cost, in the books,
in every year. The amount which is credited in the sinking fund is invested in gilt-edged securities. The
interest on such investment is also invested in similar securities. The securities are readily convertible
into cash. Investments are purchased every year. When the assets become useless, the investments are
sold away and thus new assets can be purchased without disturbing the financial position of the firm.
The sinking fund method is adopted especially when it is desired not merely to write off an asset but
also to provide enough funds to replace the asset at the end of its working life. The amount set aside as
depreciation is such that this, with compound interests, will be sufficient to meet the cost of new asset,
less scrap value, if any, for replacement. The depreciation under this method can be calculated with the
help of sinking fund table for a particular period at a given rate of interest.
Advantages of Sinking Fund Method of Depreciation
i. Sinking fund method makes available a sum of money for the replacement of asset by maintaining
separate provision.
ii. Sinking fund method helps to strengthen financial position of a concern.
Disadvantages of Sinking Fund Method of Depreciation
i. The burden on profit and loss account goes on increasing as years pass by since the amount of
depreciation every year remains same but the amount spent on repairs goes on increasing as the asset
become old.
ii. Sinking fund method creates complication due to frequent investment.
iii. Prices of securities may fall at the time when they are to be realized as a result of which loss may
have to be suffered.
4. UNDERVALUE?
ANS:
- Undervalued is a financial term referring to a security or other type of investment that
is selling for a price presumed to be below the investment's true intrinsic value.
- A undervalued stock can be evaluated by looking at the underlying
company's financial statements and analyzing its fundamentals, such as cash
flow, return on assets, profit retention and capital management, to determine said
stock's intrinsic value.
i. The burden on profit and loss account goes on increasing as years pass by since the amount of
depreciation every year remains same but the amount spent on repairs goes on increasing as the asset
become old.
ii. Sinking fund method creates complication due to frequent investment.
iii. Prices of securities may fall at the time when they are to be realized as a result of which loss may
have to be suffered.
4. UNDERVALUE?
ANS:
- Undervalued is a financial term referring to a security or other type of investment that
is selling for a price presumed to be below the investment's true intrinsic value.
- A undervalued stock can be evaluated by looking at the underlying
company's financial statements and analyzing its fundamentals, such as cash
flow, return on assets, profit retention and capital management, to determine said
stock's intrinsic value.
- .
5. SALVAGE VALUE?
ANS:
- Salvage value is the estimated resale value of an asset at the end of its useful
life. Salvage value is subtracted from the cost of a fixed asset to determine the
amount of the asset cost that will be depreciated.
- Thus, salvage value is used as a component of the depreciation calculation.
6. COVENANTS?
ANS:
- When there is a written lease or agreement, the respective liabilities of the lessor
(landlord) and the lessee (tenant) are usually fixed by the express clauses in the deed
itself.
- Thus, covenants are conditions in agreements which spell out rights and liabilities of
parties to such agreements as also their successors and in certain circumstances these
are enforceable against the third party. These take the form of implied covenants
which arise from relationship of landlord and tenant.
- These are two types of covenants namely personal covenants and covenants which
“Touch and Concern land” also referred as “having reference to the subject matter of
lease”.
7. SOLATIUM?
ANS:
- Solatium is the amount/ other thing given to the land owner as a compensation or
consolation for the land acquisition to be done.
- Solatium of Land acquisition part of the compensation and sections 28 and 34 of the
said act provided payment of interest on the amount of compensation must fetch
statutory interest from the date of dispossession of the land owner till the date of
payment.
8. SERVIENT HERITAGE?
ANS:
- The land on which the liability of beneficial enjoyment of the easements is imposed is
called the Serviant Heritage.
- The owner of the Serviant Heritage has to sacrifice a part of his absolute right of
enjoyment and ownership of his land for the beneficial enjoyment of the land of the
Dominant owner.
5. SALVAGE VALUE?
ANS:
- Salvage value is the estimated resale value of an asset at the end of its useful
life. Salvage value is subtracted from the cost of a fixed asset to determine the
amount of the asset cost that will be depreciated.
- Thus, salvage value is used as a component of the depreciation calculation.
6. COVENANTS?
ANS:
- When there is a written lease or agreement, the respective liabilities of the lessor
(landlord) and the lessee (tenant) are usually fixed by the express clauses in the deed
itself.
- Thus, covenants are conditions in agreements which spell out rights and liabilities of
parties to such agreements as also their successors and in certain circumstances these
are enforceable against the third party. These take the form of implied covenants
which arise from relationship of landlord and tenant.
- These are two types of covenants namely personal covenants and covenants which
“Touch and Concern land” also referred as “having reference to the subject matter of
lease”.
7. SOLATIUM?
ANS:
- Solatium is the amount/ other thing given to the land owner as a compensation or
consolation for the land acquisition to be done.
- Solatium of Land acquisition part of the compensation and sections 28 and 34 of the
said act provided payment of interest on the amount of compensation must fetch
statutory interest from the date of dispossession of the land owner till the date of
payment.
8. SERVIENT HERITAGE?
ANS:
- The land on which the liability of beneficial enjoyment of the easements is imposed is
called the Serviant Heritage.
- The owner of the Serviant Heritage has to sacrifice a part of his absolute right of
enjoyment and ownership of his land for the beneficial enjoyment of the land of the
Dominant owner.
9. DOMINANT HERITAGE?
ANS:
- The land for beneficial enjoyment of which the right of easements exists is called as
the Dominant heritage.
- In other words Dominant heritage is that land whose owner is entitled to claim certain
concessions from the owner of the servient heritage.
- It is the owner of Dominant heritage who is benefied by the provisions of the
Easement Act.
10. GILT EDGED PROPERTI ES?
ANS:
- Gilt-edged securities are bonds issued by some national governments.
- The term is of British origin, and then referred to the debt securities issued by
the Bank of England on behalf of His/Her Majesty’s Treasury, whose paper
certificates had a gilt (or gilded) edge.
- Hence, they are known as gilt-edged securities, or gilts for short.
- The term "gilt-edged" is sometimes used to denote high-grade securities,
consequently carrying low yields, as opposed to relatively riskier, below investment-
grade securities
- The term "gilt account" is also a term used by the Reserve Bank of India to refer to a
constituent account maintained by a custodian bank for maintenance and servicing
of dematerialized government securities owned by a retail customer.
11. FAIR MARKET VALUE?
ANS:
- Fair market value (FMV) is an estimate of the market value of a property, based on
what a knowledgeable, willing, and unpressured buyer would probably pay to a
knowledgeable, willing, and unpressured seller in the market.
- An estimate of fair market value may be founded either on precedent or extrapolation.
Fair market value differs from the intrinsic value that an individual may place on the
same asset based on their own preferences and circumstances.
- Since market transactions are often not observable for assets such as privately held
businesses and most personal and real property, FMV must be estimated.
- An estimate of fair market value is usually subjective due to the circumstances of
place, time, the existence of comparable precedents, and the evaluation principles of
each involved person.
ANS:
- The land for beneficial enjoyment of which the right of easements exists is called as
the Dominant heritage.
- In other words Dominant heritage is that land whose owner is entitled to claim certain
concessions from the owner of the servient heritage.
- It is the owner of Dominant heritage who is benefied by the provisions of the
Easement Act.
10. GILT EDGED PROPERTI ES?
ANS:
- Gilt-edged securities are bonds issued by some national governments.
- The term is of British origin, and then referred to the debt securities issued by
the Bank of England on behalf of His/Her Majesty’s Treasury, whose paper
certificates had a gilt (or gilded) edge.
- Hence, they are known as gilt-edged securities, or gilts for short.
- The term "gilt-edged" is sometimes used to denote high-grade securities,
consequently carrying low yields, as opposed to relatively riskier, below investment-
grade securities
- The term "gilt account" is also a term used by the Reserve Bank of India to refer to a
constituent account maintained by a custodian bank for maintenance and servicing
of dematerialized government securities owned by a retail customer.
11. FAIR MARKET VALUE?
ANS:
- Fair market value (FMV) is an estimate of the market value of a property, based on
what a knowledgeable, willing, and unpressured buyer would probably pay to a
knowledgeable, willing, and unpressured seller in the market.
- An estimate of fair market value may be founded either on precedent or extrapolation.
Fair market value differs from the intrinsic value that an individual may place on the
same asset based on their own preferences and circumstances.
- Since market transactions are often not observable for assets such as privately held
businesses and most personal and real property, FMV must be estimated.
- An estimate of fair market value is usually subjective due to the circumstances of
place, time, the existence of comparable precedents, and the evaluation principles of
each involved person.
Q12) WHAT ARE REPAIRS? PROCEDURE AND TERMS AND CONDITIONS OF SAME FOR
OBTAINING AUTHORITY UNDER SECTION 499?
ANS:
- The main purpose of repairs is to bring back the architectural shape of the building so
that all services start working and the functioning of building is resumed quickly
- The actions will include the following:
- i) Patching up of defects such as cracks and fall of plaster.
- (ii) Repairing doors, windows, replacement of glass panes.
- (iii) Checking and repairing electric wiring
- ) Checking and repairing gas pipes, water pipes and plumbing services.
- (v) Re-building non-structural walls, smoke chimneys, boundary walls, etc.
- (vi) Re-plastering of walls as required.
- (vii) Rearranging disturbed roofing tiles.
- (viii) Relaying cracked flooring at ground level.
- (ix) Redecoration whitewashing, painting, etc.
1. Explain terms- Value, Price, Cost & Compensation and elaborate the terms with
appropriate examples and situations where the terms need to be used.
Value
Value is the usefulness of any product to a customer. It can never be determined in terms of
money and varies from customer to customer. Land value is the value of a piece of property,
including both the value of the land itself as well as any improvements that have been made
to it. Land values increase when demand for land exceeds the supply of available land, or if a
particular piece of land has intrinsic value greater than neighbouring areas.
Owners of land use land value to determine how much to charge other parties for its use.
For example, an individual who is renting out several acres of farmland, for use by ranchers
for grazing cattle, will determine an amount to charge for its use by looking at the market
value of the land compared to land taxes and the capitalization rate.
Price
Price is the amount of money paid by the buyer to the seller in exchange of any product and
service. The amount charged by the seller for a product is known as its price, which includes
cost and the profit margin. It is an accepted mark to compare land values in functional
Market. The Price of land is Decided by its potential and by the present ,Future Services
Conventionally their are two types for valuation of land First group Used in Developed
counties Decide Value of land through Economical Value Comparison with Recent Sales with
similar plots and conditions. Second Group Decides through focusing on Production of
potential with minor developments.
OBTAINING AUTHORITY UNDER SECTION 499?
ANS:
- The main purpose of repairs is to bring back the architectural shape of the building so
that all services start working and the functioning of building is resumed quickly
- The actions will include the following:
- i) Patching up of defects such as cracks and fall of plaster.
- (ii) Repairing doors, windows, replacement of glass panes.
- (iii) Checking and repairing electric wiring
- ) Checking and repairing gas pipes, water pipes and plumbing services.
- (v) Re-building non-structural walls, smoke chimneys, boundary walls, etc.
- (vi) Re-plastering of walls as required.
- (vii) Rearranging disturbed roofing tiles.
- (viii) Relaying cracked flooring at ground level.
- (ix) Redecoration whitewashing, painting, etc.
1. Explain terms- Value, Price, Cost & Compensation and elaborate the terms with
appropriate examples and situations where the terms need to be used.
Value
Value is the usefulness of any product to a customer. It can never be determined in terms of
money and varies from customer to customer. Land value is the value of a piece of property,
including both the value of the land itself as well as any improvements that have been made
to it. Land values increase when demand for land exceeds the supply of available land, or if a
particular piece of land has intrinsic value greater than neighbouring areas.
Owners of land use land value to determine how much to charge other parties for its use.
For example, an individual who is renting out several acres of farmland, for use by ranchers
for grazing cattle, will determine an amount to charge for its use by looking at the market
value of the land compared to land taxes and the capitalization rate.
Price
Price is the amount of money paid by the buyer to the seller in exchange of any product and
service. The amount charged by the seller for a product is known as its price, which includes
cost and the profit margin. It is an accepted mark to compare land values in functional
Market. The Price of land is Decided by its potential and by the present ,Future Services
Conventionally their are two types for valuation of land First group Used in Developed
counties Decide Value of land through Economical Value Comparison with Recent Sales with
similar plots and conditions. Second Group Decides through focusing on Production of
potential with minor developments.
Market value is the most probable price that a property should bring in a competitive and
open market under all conditions requisite to a fair sale, the buyer and seller, each acting
prudently, knowledgeably and assuming the price is not affected by undue stimulus.
Cost
Cost is the amount incurred on the inputs like land, labour, capital, enterprise, etc. for
producing any product. It is the amount of money spent by the company in the manufacturing
of a product
The land cost for any property is the cost asked for or paid for the land belonging to it at a
given time. This is normally determined when the land is undeveloped, or when an existing
structure on the land is worth nothing, but it can theoretically be determined for a developed
parcel of land as well, as if the land were sold without conferring ownership of the
structure(s) on it.
1. COST, PRICE, VALUE?
ANS:
Cost: It is the expenditure to produce a commodity having a value. In our
construction Industry cost means the original cost of the construction including the
cost of materials and labour. Hence the cost is a FACT.
Price: It is the cost of a Commodity plus additional reward to the producer for his
labour and Capital. In our construction industry the original cost of construction
with certain percentage of profit. The profit or additional reward may be varied
from Builder to Builder, and Business to Business because the Price is a POLICY.
Value: Valuation is an opinion or an estimate which will be determined by many
factors like the purpose, supply, demand, depreciation, obsolescence etc. Valuation
is a function of place, date and purpose.
Compensation:
Compensation can be defined as anything given as an equivalent, or to make amends for a
loss, damage, unemployment, etc. recompense, payment for services, wages or remuneration
In the Situation Where Government or governmental agency might acquire land of an
individual owner for some public purpose. In these cases the owner is entitled for
compensation of property and losses incurred or even of lost profit.
Acquisition or usage of private land by government may cause following inconveniences and
lead to the following problems for the land owner and/or his or her neighbours:
loss of private property, home
open market under all conditions requisite to a fair sale, the buyer and seller, each acting
prudently, knowledgeably and assuming the price is not affected by undue stimulus.
Cost
Cost is the amount incurred on the inputs like land, labour, capital, enterprise, etc. for
producing any product. It is the amount of money spent by the company in the manufacturing
of a product
The land cost for any property is the cost asked for or paid for the land belonging to it at a
given time. This is normally determined when the land is undeveloped, or when an existing
structure on the land is worth nothing, but it can theoretically be determined for a developed
parcel of land as well, as if the land were sold without conferring ownership of the
structure(s) on it.
1. COST, PRICE, VALUE?
ANS:
Cost: It is the expenditure to produce a commodity having a value. In our
construction Industry cost means the original cost of the construction including the
cost of materials and labour. Hence the cost is a FACT.
Price: It is the cost of a Commodity plus additional reward to the producer for his
labour and Capital. In our construction industry the original cost of construction
with certain percentage of profit. The profit or additional reward may be varied
from Builder to Builder, and Business to Business because the Price is a POLICY.
Value: Valuation is an opinion or an estimate which will be determined by many
factors like the purpose, supply, demand, depreciation, obsolescence etc. Valuation
is a function of place, date and purpose.
Compensation:
Compensation can be defined as anything given as an equivalent, or to make amends for a
loss, damage, unemployment, etc. recompense, payment for services, wages or remuneration
In the Situation Where Government or governmental agency might acquire land of an
individual owner for some public purpose. In these cases the owner is entitled for
compensation of property and losses incurred or even of lost profit.
Acquisition or usage of private land by government may cause following inconveniences and
lead to the following problems for the land owner and/or his or her neighbours:
loss of private property, home
damages connected with loss of private property, such as business and economic
losses and lost profit
limitation of usage of land
disturbance, such as noise, dust, smell and etc., causing, in turn, reduction of the land
value
A possible solution of these problems may be fair compensation to the land owner such as:
compensation based on the market value of the land
compensation of depreciation of value, if only part of the land was expropriated
disturbance compensation, paid mostly for occupiers for costs and expenses incurred
by moving
providing the owner with equitable accommodation
The total minimum compensation should be:
at least 4 times the market value for land acquired in rural areas
at least 2 times the market value for land acquired in urban areas
6) IS INSURANCE NECESSARY:
ANS: Insurance enables individuals, businesses and organizations to safeguard
themselves from risks such as natural disasters, accidents or unfavorable events.
Insurance is a legal contract that promises a future pre-agreed financial
compensation to the insured party in an event that causes them financial losses.
These are the key reasons why insurance is necessary.
When an insurance policy is agreed upon, the insured party will purchase the insurance
in advance by paying an initial amount – called a ‘premium’ – either as a one-time
transaction or as multiple transactions paid over a period of time. The insurance
contracts offered by an insurance company is called an insurance policy.
Why Insurance is Important
Risk is an unavoidable possibility in the life of an individual or during the operation of
a business. Individuals risk developing a wide range of debilitating physical ailments.
They may also become a victim of an accident. Similarly, businesses always face a
number of risks, from weather-related disruptions to incidents such as theft.
Insurance enables individuals, businesses and organizations to manage risk factors by
paying a small amount of money as an insurance premium. Buying insurance ensures
losses and lost profit
limitation of usage of land
disturbance, such as noise, dust, smell and etc., causing, in turn, reduction of the land
value
A possible solution of these problems may be fair compensation to the land owner such as:
compensation based on the market value of the land
compensation of depreciation of value, if only part of the land was expropriated
disturbance compensation, paid mostly for occupiers for costs and expenses incurred
by moving
providing the owner with equitable accommodation
The total minimum compensation should be:
at least 4 times the market value for land acquired in rural areas
at least 2 times the market value for land acquired in urban areas
6) IS INSURANCE NECESSARY:
ANS: Insurance enables individuals, businesses and organizations to safeguard
themselves from risks such as natural disasters, accidents or unfavorable events.
Insurance is a legal contract that promises a future pre-agreed financial
compensation to the insured party in an event that causes them financial losses.
These are the key reasons why insurance is necessary.
When an insurance policy is agreed upon, the insured party will purchase the insurance
in advance by paying an initial amount – called a ‘premium’ – either as a one-time
transaction or as multiple transactions paid over a period of time. The insurance
contracts offered by an insurance company is called an insurance policy.
Why Insurance is Important
Risk is an unavoidable possibility in the life of an individual or during the operation of
a business. Individuals risk developing a wide range of debilitating physical ailments.
They may also become a victim of an accident. Similarly, businesses always face a
number of risks, from weather-related disruptions to incidents such as theft.
Insurance enables individuals, businesses and organizations to manage risk factors by
paying a small amount of money as an insurance premium. Buying insurance ensures
that if a disruptive event occurs, the insuree will receive compensation for their loss and
will be able to continue their normal life or business operations with minimal disruption.
#Insurance in housing and construction:
The Common Insurance Every Serious Construction Contractor Must Have. More often
than not, construction insurance is necessary for each construction project. This kind of
insurance typically offers coverage for natural disasters, risks, material, employees,
as well as your company.
12. INSURANCE?
ANS:
- Insurance is a means of protection from financial loss. It is a form of risk
management primarily used to hedge against the risk of a contingent, uncertain loss.
- An entity which provides insurance is known as an insurer, insurance company, or
insurance carrier. A person or entity who buys insurance is known as an insured or
policyholder.
- The insurance transaction involves the insured assuming a guaranteed and known
relatively small loss in the form of payment to the insurer in exchange for the insurer's
promise to compensate the insured in the event of a covered loss.
The loss may or may not be financial, but it must be reducible to financial terms, and must
involve something in which the insured has an insurable interest established by ownership,
possession, or preexisting relationship
13. COVERNOTE?
ANS:
- Whenever a proposal is made, by the person wanting to have a fire insurance policy
for his building, he fills up the proposal form along with payment of necessary
premium for it. The company needs time to make enquiries and investigations before
it can either accept or reject the proposal and In case of acceptance time also needed
for issue of fir insurance policy.
- If during the intervening period of payment of premium and issue of fire policy, the
fire takes place, how about the protection of the interest of the proposer. In order to do
that, the company gives a deposit receipt for the premium paid called the “ Cover
note”.
- Its essential characters are:
- If fire breaks in between the date of receipt of cover note and the date of imitation by
the company regarding the acceptance or refusal of the policy, the company will be
responsible.
- It is a protection for an interim period and if that period is specified say 30 days, the
protection will be limited to that period only.
- It is also called as Interim Protection Note.
- It is a contract of insurance but is not a policy of insurance.
14. FIRE INSURANCE?
will be able to continue their normal life or business operations with minimal disruption.
#Insurance in housing and construction:
The Common Insurance Every Serious Construction Contractor Must Have. More often
than not, construction insurance is necessary for each construction project. This kind of
insurance typically offers coverage for natural disasters, risks, material, employees,
as well as your company.
12. INSURANCE?
ANS:
- Insurance is a means of protection from financial loss. It is a form of risk
management primarily used to hedge against the risk of a contingent, uncertain loss.
- An entity which provides insurance is known as an insurer, insurance company, or
insurance carrier. A person or entity who buys insurance is known as an insured or
policyholder.
- The insurance transaction involves the insured assuming a guaranteed and known
relatively small loss in the form of payment to the insurer in exchange for the insurer's
promise to compensate the insured in the event of a covered loss.
The loss may or may not be financial, but it must be reducible to financial terms, and must
involve something in which the insured has an insurable interest established by ownership,
possession, or preexisting relationship
13. COVERNOTE?
ANS:
- Whenever a proposal is made, by the person wanting to have a fire insurance policy
for his building, he fills up the proposal form along with payment of necessary
premium for it. The company needs time to make enquiries and investigations before
it can either accept or reject the proposal and In case of acceptance time also needed
for issue of fir insurance policy.
- If during the intervening period of payment of premium and issue of fire policy, the
fire takes place, how about the protection of the interest of the proposer. In order to do
that, the company gives a deposit receipt for the premium paid called the “ Cover
note”.
- Its essential characters are:
- If fire breaks in between the date of receipt of cover note and the date of imitation by
the company regarding the acceptance or refusal of the policy, the company will be
responsible.
- It is a protection for an interim period and if that period is specified say 30 days, the
protection will be limited to that period only.
- It is also called as Interim Protection Note.
- It is a contract of insurance but is not a policy of insurance.
14. FIRE INSURANCE?
ANS:
- It means a contract whereby one person undertakes in return for agreed consideration
to identify another person against loss or damage occasioned by fire and or incidental
to fire upon the agreed amount.
- From the above one can sieve out the following essential ingrediants:
- It is a contract of insurance.
- There must be consideration (premium).
- Indemnification.
- The object of the contract must be indemnification of the loss caused by damage, in
other words the insurer has been imposed with an obligation to make good at his own
expenses any loss or damages which may have been caused by fire to the property,
indemnification means to put the insured in the very position monetarily or otherwise
as if the fire had not occurred.
- At the same time it is not permissible for the insured as well as for the company to
make profit out of the insurance contract.
15. INDEMNITY?
ANS:
- Indemnities form the basis of many insurance contracts; for example, a car owner may
purchase different kinds of insurance as an indemnity for various kinds of loss arising
from operation of the car, such as damage to the car itself, or medical expenses
following an accident.
- In an agency context, a principal may be obligated to indemnify their agent for
liabilities incurred while carrying out responsibilities under the relationship.
- While the events giving rise to an indemnity may be specified by contract, the actions
that must be taken to compensate the injured party are largely unpredictable, and the
maximum compensation is often expressly limited.
- It means a contract whereby one person undertakes in return for agreed consideration
to identify another person against loss or damage occasioned by fire and or incidental
to fire upon the agreed amount.
- From the above one can sieve out the following essential ingrediants:
- It is a contract of insurance.
- There must be consideration (premium).
- Indemnification.
- The object of the contract must be indemnification of the loss caused by damage, in
other words the insurer has been imposed with an obligation to make good at his own
expenses any loss or damages which may have been caused by fire to the property,
indemnification means to put the insured in the very position monetarily or otherwise
as if the fire had not occurred.
- At the same time it is not permissible for the insured as well as for the company to
make profit out of the insurance contract.
15. INDEMNITY?
ANS:
- Indemnities form the basis of many insurance contracts; for example, a car owner may
purchase different kinds of insurance as an indemnity for various kinds of loss arising
from operation of the car, such as damage to the car itself, or medical expenses
following an accident.
- In an agency context, a principal may be obligated to indemnify their agent for
liabilities incurred while carrying out responsibilities under the relationship.
- While the events giving rise to an indemnity may be specified by contract, the actions
that must be taken to compensate the injured party are largely unpredictable, and the
maximum compensation is often expressly limited.
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