Types of Rent: all you need to know
Economic Rent: Economic rent refers to the payment made for the use of land alone.
- Gross rent is the rent that is paid for the services of land and the capital invested on it.
- Gross rent consists of:
- (1) Economic rent. It refers to payments made for the use of land.
- (2) Interest in capital invested for improvement of land.
- (3) Reward for the risk taken by the landlord in investing his capital.
- For calculation of value on the basis of gross rent, Gross Rent is the total rent a property would produce if 100 percent occupied at market rent.
Ground Rent: It is the rent charged by the landowner (Lessor) to the tenant (Lessee) for use of land under specified and mutually agreed on lease terms and conditions. The ground rent may be fixed for the entire period or maybe increasing at fixed intervals of years or maybe reviewed at the time of renewal.
- Rack Rent: It is the actual full rental value (Gross Rent) receivable from the property in an It may be rent for land or for land and buildings.
- Virtual Rent: It is the virtual gross rental value to the lessor receivable from the lessee for the leased out property. In some cases, lessor receives some fixed lump sum amount called premium from the lessee in advance, at the beginning of the lease. This premium amount is nothing but an advance rental for the property. Thus returns to the lessor is divided into two or more parts. Gross Rent actually received from lessee during the lease period plus notional rental value that is receivable on the lump sum amount (premium) received from the lessee, constitutes total rental or the virtual
Head Rent: The rent reserved under the first document by the lessee to the lessor in the original document is known as head rent. If the lessee is allowed to sublease, the rights and lease period cannot exceed the first lease document. Many times the main Lessee called Head Lessee sub-leases the property to another person called sub-lessee. To distinguish between lease rent paid by sub-lessee to head lessee and rent paid by head Lessee to freeholder Lessor, the term Head Rent is used for lease rent paid by the Head Lessee to Head Lessor, the freeholder.
Profit Rent: When Head Lessee subleases the property, he normally charges higher rent than “head rent”. This increased rental is called Improved Rent: The difference between head rent and improved rent is called Profit Rent.
Contractual Rent: It is the rent mutually agreed between the landlord and the tenant under the tenancy contract, which may be written or verbal.
Standard Rent: The rent is receivable as per prevailing rent Laws and Standard Rent is rent fixed as per the prevalent Rent Control Act. Under Rent Control Acts, the norms for rent payable by the tenant to the landlord were fixed. This was called Standard Rent. Hence “Standard Rent” can be defined as the rent fixed by the Court for land or land with building (premises) in accordance with the provisions of the Rent Control Act.
Market Rent: The amount of rental income that could be expected from a property if available for rent on the open market, as indicated by the prevailing rental rates for comparable properties under similar terms and conditions. May, or may not, be the same as the contract rent. It is the highest rent that is receivable for the property, by the landlord, in the open market, after considering all advantages and disadvantages of the property as well as market conditions, in a prudent manner.
Concessional Rent: When the landlord gives premises on rent to some relatives or friends at token or nominal rent which is much below ruling rent in the locality it is called concessional rent.
Monopoly Rent: Monopoly rent refers to the situation wherein a monopoly property owner lacks competition and thus can rent its property at a price far above the otherwise competitive market rent would be at the expense of consumers. Some property has a unique location in the locality. This locational advantage can be exploited by charging monopoly rent to the occupant. This rent is normally higher than the ruling market rent in the locality.