mohammed ibrahim (Architect -Valuer -ADR Professional) 02 June 2013

Fair rent fixation

Fair Rent under the Tamil Nadu Buildings (Lease & Rent Control) Act 1960.

Fair Rent to be fixed as per Section (4) for a ground floor residential building; Building class AI Type (Building built with brickworks in Cement mortar in which country wood has been used) in Old Mambalam Road, Chennai -33 as on January 2013.

Comparison of rent per one sqft of built-up area: Market value of land as per prevailing guideline value of registration department is Rupee 6,000 per sqft. Apportionable land rate per one sqft of built-up area: 6,000 / 1.5 = Rs. 4,000 / sqft. 1.5 is FSI permitted / Utilised.. FSI is Floor Space Index, which is total built-up area divided by land area.

Madras PWD estimate rates 2012-13

Madras PWD rental rates 2012-13

Cost of construction per sqft. Rs. 1,095 Say (“A”)

Electrical, sanitary & water supply arrangements, including external connection per sqft. Rs. 130 Say (“B”)

Note: Maximum permissible is Rs. 329, which is 30%

A+B = Rs. 1,225 Say (“C”), Deduct Minimum depreciation of 10% of “C” i.e. Rs. 123 Say “D”

Depreciated Reproduction Cost: (C-D): Rs 1,102 Say “E”

Add 15% for Amenity (Residential): “E” x 15%= Rs. 165 Say “G”

“E” + “G”: Rs. 1,267 Say “H”

Market value of land per sqft Rs. 4,000 Say “J”

Market Value of land plus Present value of building. i.e. “H” + “J” = Rs. 5,267 Say “K”

Fair Rent is @ 9 percent: Rs 474 or

Rs. 40 per month / sqft

Cost of construction per sqft. Rs. 535 Say (“A”)

Electrical, sanitary & water supply arrangements, including external connection per sqft. Rs. 50 Say (“B”)

Note: Maximum permissible is Rs. 161, which is 30%

A+B = Rs. 585 Say (“C”), Deduct Minimum depreciation of 10% of “C” i.e. Rs. 59 Say “D”

Depreciated Reproduction Cost: (C-D): Rs 526 Say “E”

Add 15% for Amenity (Residential): “E” x 15%= Rs. 79 Say “G”

“E” + “G”: Rs. 605 Say “H”

Market value of land per sqft Rs. 4,000 Say “J”

Market Value of land plus Present value of building. i.e. “H” + “J” = Rs. 4,605 Say “K”

Fair Rent is @ 9 percent: Rs 414 or

Rs. 35 per month / sqft

The Public Works Department Rate for Estimation or Rental, which one to be considered.

Market value of land whether Comparison Method or Government Guideline value, which one to be adopted.

Both the cases are more than market rent.

Legal Experts can throw some light.

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mohammed ibrahim (Architect -Valuer -ADR Professional) 06 June 2013

Amenities in the Building (Above valued)

Annexure – II (Section 4 Schedule – I of TN, Rent Act)

Amenities	Availability
1. Air-conditioner
2. Lift
3. Water cooler
4. Electrical heaters
5. Frigidaire
6. Mosaic Flooring
7. Side dados
8. Compound walls
9. Garden
10. Over-head tank for water supply
11. Electrical motor and pump for water supply
12. Playground
13. Badminton & Tennis courts
14. Sun-breakers
15. Amenity referred to in the first proviso to sub-section (4) of Section 4 (Appurtenant land in excess of that allowed)
16. Usufructs, if any enjoyed by the tenant
16. Features of special architectural interest

mohammed ibrahim (Architect -Valuer -ADR Professional) 06 June 2013

Treatment of Excess Land as per Rent Act: Section 4 (4): “Provided that while calculating the market value of the site in which the building is constructed, only that portion of the site on which the building is constructed and of a portion up to fifty percent, thereof the vacant land, if any, appurtenant to such building the excess portion of the vacant land, being treated as amenity”.

Land Extent: 13,500 sqft. Say “A”

Building Foot Print Area or Building Floor Plate area (The area on which ground floor main building is built): 4,050 sqft Say “B”

50 percent of “B” or 0.50B: 2,025 sqft Say “C”

“B”+”C”: 6,075 sqft. Say “D” which is land area permitted for valuation

The un-built area: (A-B): 9,450 sqft. Say “E”

Excess Land: “A” – “D”: 7,425 soft Say “F” (( Amenity referred to in the first proviso to sub-section (4) of Section 4 (Appurtenant land in excess of that allowed))

“F” is treated as amenity. The above case is a site allowed for multi-storey building, which is abutting a 50 feet road and the plot frontage is 85 feet as per current SMP Building Rules in Chennai. Height permitted is G+8 or Stilt+9, Maximum Height allowed is 100 feet, subject to satisfy 1.75 FSI.

Fair Rent Valuation for a Non-Residential Building

Madras PWD Estimate rates 2012-13

Cost of construction per one sqft of built-up area: Rs. 2,000 Say (“A”)

Electrical, sanitary & water supply arrangements, including external connection per sqft. Rs. 350Say (“B”)

A+B = Rs. 2,350 Say (“C”), Deduct Minimum depreciation of 10% of “C” i.e. Rs. 235 Say “D”

Depreciated Reproduction Cost: (C-D): Rs 2,115 Say "E"

Market value of land per sqft Rs. 19,500 / sqft (Guideline Value)

As per Section 4 (4): 6,075/13,500 x 1/1.75 x 19,500: Rs. 5,002 / sqft of built-up area Say “F”

Present value of building & Market Value of site (E+F) = Rs 7,117. Say “G”

Add amenity @ 25 percent of "G": 7,117 x 1.25 = 8,896 "Say "H"

Fair Rent is @ 12 percent of "H": Rs 1,068 or

Rs. 89 per month / sqft

Note: The author has followed the following principle regarding amenities of 15 percent (Residential Building) & 25 percent (Non-residential building):

a. Where there is no excess land, amenity percentage as applicable is added with depreciated reproduction cost , and

b. Where excess land is available, the amenity is added with land plus building.

mohammed ibrahim (Architect -Valuer -ADR Professional) 16 June 2013

Fair Rent is a rent which is fair between landlord and tenant and subject to prevailing rent law of a locality, enacted by a legislative body of the State concerned or Central Government.

Tamil Nadu Rent Act is repeated in ^ https://www.valuersworld.com/newsite/forum/viewtopic.php?t=154

The above valuation is for a multi-storey building (MSB) in Chennai in MSB areas. Land extent, Plot coverage, Floor Space Index (FSI), etc. as per Chennai SMP (Second Master Plan) Building Rules are considered. Prevailing (GLV) guideline value (2013) and construction cost per sq ft is considered. Minimum depreciation of ten percent is allowed. A comparative study has been done to see how the fair rent fares with FSI and plot coverage parameters and market rent.

Like MSB Category I (b) above, the below analysis is worked out and the summary is shown for Category II & Cat III:

Note: Judicial pronouncements have permitted adopting market value of land prevailing in the locality and Madras PWD rates for estimation purpose published by the Chief Engineer General of Madras PWD. The author in the above valuation is used the prevailing guideline value of registration department, which is in the opinion of author is proximate to market value.

BFPA is Building footprint area, that is the plot coverage percentage in the ground floor. That area onwhich building is allowed; the remaining area is for front, rear and side setbacks. Total plot area minus plot coverage area is theoretically vacant land, which is common to all. Under TN Rent formula, 2 x BFPA is applicable where total land area is more than 2BFPA. Land area up to 1.50 BFPA, full land area can be considered for valuation.

(1) Under TN Rent Act, market value of land is that portion covered under BFPA + 50 percent of BFPA (1). The author has support in "Veeman Pillai vs, Jindal 94 LW 21.

Category II MSB: Land value @ INR 20,000 per sq. ft. (psf) Construction Cost @ INR 3,000 psf.

DCR

MSB

Cat II

Land extent sq ft

Land extent

Allowed for valuation

Excess land as Amenity

Fair Rent/sq. ft./month

Fair rent psfpm

Remark

Residential

Non-Residential

FSI: 2.0

17,000

12,750

4,250

128

Height allowed Maximum 60 m subject to satisfy 2.0 FSI

Plot Coverage: 50 percent

FSI: 2.25

17,000

10,200

6,800

100

Height allowed Maximum 60 m subject to satisfy 2.25 FSI

Plot Coverage: 40 percent

FSI: 2.5

17,000

7,650

9,350

Height allowed Maximum 60 m subject to satisfy 2.50 FSI

Plot Coverage: 30 percent

The property owner when opted for 2.50 FSI, she/he can avail premium FSI of 0.5 FSI and Transferable Development Rights (TDR) of 1.0 FSI on payment of such amount and abiding such conditions as prescribed Chennai Metropolitan Development Authority (CMDA); thus, the property owner can avail up to 4.0 FSI/. In such a situation, Residential rent would be Rupee 43 psf and non-residential rent would be Rupee 62 psf.

Category III MSB

DCR

MSB

Cat III

Land extent sq ft

Land extent

Allowed for valuation

Excess land as Amenity

Fair Rent/sq. ft./month

Fair rent psfpm

Remark

Residential

Non-Residential

FSI: 2.0

27,000

20,250

6,750

128

Height allowed is > 60 m subject to satisfy 2.0 FSI

Plot Coverage:

50 percent

FSI: 2.25

27,000

16,200

10,800

100

Height allowed is > 60 m subject to satisfy 2.25 FSI

Plot Coverage: 40 percent

FSI: 2.5

27,000

12,150

14,850

Height allowed is > 60 m subject to satisfy 2.50 FSI

Plot Coverage: 30 percent

The property owner when opted for 2.50 FSI, she/he can avail premium FSI of 0.5 FSI and Transferable Development Rights (TDR) of 1.0 FSI on payment of such amount and abiding such conditions as prescribed by CMDA; thus, the property owner can avail up to 4.0 FSI/ In such a situation, Residential rent would be Rupee 43 psf and non-residential rent would be Rupee 62 psf.

Above valued subject property (MSB Cat II & III) is in Mount Road (Anna Saalai Nandanam Signal to Gemini Flyover Belt), Chennai. The average fair rent of non-residential (Office and retail) works out to INR 102 psfm and corresponding residential rent is INR 70 psfm. Capital value for non-residential building ranges from INR 17,000 psf onwards to facilitate amenities like central air-conditioning, fire-alarm & security systems, visitors parking, service lift, marble/granite flooring, etc. Residential rental market includes features like Balcony, Private terrace, Garbage chute, car parking, Gym, central air-conditioning, fire- alarm & security system, etc. Based upon market enquiry, market office rent varies from INR 110 psfpm and retail @ INR 130 psfpm onwards in that locality.