Study Material For IBBI Exam

NOT FOR SALE
REGISTERED VALUER EXAMINATION

(LAND & BUILDING)
STUDY MATERIALS
(for Questions 34 to 88)
This book contains 639 pages
Compiled by
B. KANAGA SABAPATHY
Tiruchirappalli - 620 001.
(ii)
(iii)
B. Kanaga sabapathy bkvaluer@gmail.com

Author of 20 books in valuation www.bkanagasabapathy.com
Tiruchirappalli Whatsapp : 97918 - 74829
LET KNOWLEDGE SPREAD

17.10.2018
Dear fellow valuers,
1. As many of you are aware, I am periodically conducting training programmes on

valuation at Tiruchirappalli under various levels mainly for the sake of beginners in
the profession.
2. Level X of such programme is giving coaching for those who appear for Registered
valuer examination. For the purpose of teaching the subjects to my students as per
the prescribed syllabus, I have consolidated certain study materials.
3. Many valuers of other parts of the country have been requesting me whether I can
provide them such study materials so that they can also study and pass the
examination. I have come forward to share these informations of 639 pages to the
fellow valuers and I am sure these materials will help them to prepare for the
examination. I wish them all the best.
4. I request the fellow valuers to study these materials with intentions not only to pass
the examination but also to enrich their knowledge further. Future is going to be
very bright to those who have knowledge, qualification and experience.
5. These materials are not for sale. With a noble intention to share the knowledge, I
forward the soft copy at free of cost. The ultimate aim of sharing is “Let knowledge
spread”.
6 The study materials were mainly taken from the M.Sc. Real estate valuation text
books of Annamalai University. On behalf of everybody, I convey my sincere thanks to
them.
7. For the sake of participants, I have brought out a book Practical valuation Vol. 18
(Indicative multiple choice questions for Regsitered valuer examination), Vol. 18A
(Case study for 12 marks), Vol. 18B (One mark case study), Vol. 18C (One mark
theory questions).
Practical valuation - Vol. 18 - 248 pages

Price : Rs. 800 + 100 (postage)
(iv)
Practical valuation - Vol. 18A - Case study for 12 marks (125 pages)
Soft copy available at free of cost
Practical valuation - Vol. 18B - Case study for 1 mark (22 pages)
Practical valuation - Vol. 18C - One mark theory questions (33 pages)
8. I suggest the participants to procure the following books which will be good study
materials to enhance their knowledge in the field of valuation.
i) Elements of Valuation of Immovable properties - Mr. R.K. Gandhi

kcgandhico@gmail.com
ii) Valuation Principles and Procedures - Dr. Ashok Nain

ashnain2009@gmail.com
iii) Real estate valuation in practice - Mr. Kirit P. Budhbhatti

kirit_budhbhatti@yahoo.com
iv) Valuation of real property - Mr. Syamales Datta

Kolkatta
v) Practical valuation - Vol. 1 to 20 - Mr. B. Kanaga sabapathy

Whatsapp : 97918 - 74829
bkvaluer@gmail.com
www.bkanagasabapathy.com
Wish you all the best.
(B. Kanaga sabapathy)

17.10.2018
(v)
Training Programme Material
- Not for sale

Land & Building
STUDY MATERIALS - Q34 to 88 - 639 Pages
CONTENTS
- Details of syllabus - - 10 pages
Part 1 - g. Law - Real estate Q 34 to 43 - 244 pages
Part 2 - h. Valuation of real estate Q 44 to 56 - 57 pages
Part 8 - i. Principles of insurance and Q 82 to 86 - 29 pages

loss assessment
Part 9 - j. Report writing Q 87 to 88 - 25 pages
Total pages - 639 pages
LET KNOWLEDGE SPREAD
Compiled by
B. KANAGA SABAPATHY
Tiruchirappalli
(vi)
SYLLABUS
Land & Building
DETAILS OF SYLLABUS
SI. no. Topic Marks
I. NON - TECHNICAL SUBJECTS (33 marks)

a. Principles of Economics 10
Micro economics 5
Macro economic 5
b. Book keeping and accountancy 5
c. Laws - general 6
d. Introduction to statistics 4
e. Environmental issue in valuation 4
f. Professional ethics and standards 4
II. VALUATION RELATED SUBJECTS (67 marks)
g. Law - Real estate 10
Land acquisition 4
The transfer of property act 4
laws relating to inheritance / succession 2
h. Valuation of Real estate 38
Cost, price and value, etc. 13
Income approach to value 7
Market approach to value 5
Cost approach to value 5
Various purposes of valuation 5
Important case laws on principles 3
of valuation of Real estate
i. Principles of insurance and loss assessment 5
j. Report writing 2
k. Case study 12
TOTAL MARKS - 33 + 67 100
Compiled by
B. KANAGA SABAPATHY
Tiruchirappalli
2/10
LAND & BUILDING
a Principles of Economics (10 marks)
Micro-Economics (5 marks)
1 Consumption: Indifference Curve, Consumer’s Surplus, Elasticity.
2 Price Mechanism: Determinants of Price Mechanism, Individual and Market Demand

Schedules, Law of Demand & its Conditions, Exceptions and Limitations of Law of
Demand, Individual and Market Supply Schedules, Conditions and Limitations, Highest,
Lowest and Equilibrium Price, Importance of Time Element.
3 Pricing of Products under different market conditions: Perfect and Imperfect Competition,
Monopoly.
4 Factors of Production and their pricing – Land, Labour, Capital, Entrepreneur and other
factors
5 Theory of Rent, Theory of Wages
Capital and Interest - Types of Capital, Gross Interest, Net Interest
Organisation and Profit - Functions of Entrepreneur, Meaning of Profit and Theories of

Profit.
Macro-Economics (5 marks)
6 Functions & Role of Mone
7 Inflation: Types of Inflation, Causes, Effects, Inflationary Gap, Control of Inflation,

Monetary, Fiscal and Direct Measures
Deflation: Causes, Effects, Deflationary Gap, Measures to Control Deflation, Deficit

Financing.
3/10
8 Savings and Investment: Savings and Types of Savings, Determinants of Savings,

Investment, Types of Investment, Determinants of Investment, Relationship between
Savings and Investment.
9 Components of Economy: Primary Sector, Secondary Sector, Tertiary Sector, Informal

Sector in Urban Economy, Parasitic Components in Urban Economy.
10 Concepts of GDP and GNP, Capital Formation

Parallel Economy: Definition of Parallel Economy, Causes and Effects of Parallel
Economy on Use of Land and its Valuation - Its Impact on Real Estate Market -
Construction Industry and Parallel Economy.
b. Book Keeping and Accountancy (5 marks)
11 The meaning and objects of Book Keeping, Double Entry Book Keeping.
12 Books of Prime Entry and Subsidiary Books: Cash Book, Bank Book, Journal, Ledger,
Purchase and Sale Books, Debit and Credit Notes Register, Writing of Books, Posting
and Closing of Accounts.
13 Trading Account, Profit and Loss Account, Income and Expenditure Account,
14 Preparation of Balance Sheet for Individuals and Companies and Disclosure

Requirements.
15 Cost, Costing and Elements of Cost, Fixed Expenses, Variable Expenses, Break-Even
Point.
c. Laws-General (6 marks)
16. Indian Legal System: Salient Features of the Indian Constitution, Fundamental Rights,
Directive Principles of the State Policy.
Government: Executive, Legislature and Judiciary
17,18 Laws of Contract: Formation of a Contract, Parties, Void, Voidable and Unenforceable
Contract, Contingent Contract, Misrepresentation and Fraud and Effect thereof,
Termination of Contract, Remedies for Breach, Performance of Contract, Indemnity
and Guarantee, Law of Agency.
19 Tort: General Principles of Tort, Tort affecting Valuation.
Law of Arbitration and Conciliation: Salient Features
Auction: Authority of Auctioneer, Duties of Vendor, Purchaser and Public, Mis-description

4/10
and Misrepresentation, Advertisements, Particulars and Catalogues, Statements on

the Rostrum, Conduct of Sale, Reservation of Price and Right to Bid, Bidding
Agreements. Memorandum of the Sale. The Deposit, Rights of Auctioneer against
Vendor and Purchaser
Laws of Evidence: Burden of Proof, Presumptions, Conclusive Proof.
20 Salient Features of the Insolvency and Bankruptcy Code, 2016 concerning Valuation.
21 Salient Features of the Companies (Registered Valuers And Valuation) Rules, 2017
Salient Features of the Securitization and Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002 (SARFAESI Act) concerning Valuation
Section 5(n) of the Banking Regulation Act, 1949 on “Secured Loan or Advance”
The Companies Act 2013: Sections 192(2), 230 (1,2,3), 231, 232, 247(1), 281(1)
d. Introduction to Statistics (4 marks)
22 Data Classifications and Processing, Graphical Representation of Data, Frequency

Distributions.
23 Measures of Central Tendency, Dispersion and Skewness.
24 Elementary Theory of Probability and Probability Distributions, Sampling and Sampling

Distributions, Estimation
Simple Test of Significance, Regression and Co-relation, Multiple Correlation Coefficient,
25 Time Series
Index Numbers
e. Environmental Issue in Valuation (4 marks)
26 Environment and Valuation - Differences between the ‘Market Price and the Negative
Value Consequent on Environmental Impact.
27 Environmental Issues of Air Pollution, Water Pollution, Environmental Factors and their
effects, Measures to Restore the Damage, Cost to Cure.
28 Outlines of Environmental Legislations: The Forest Act, 1927, Laws related to Industrial
Health & Safety.
5/10
29 The Water (Prevention and Control of Pollution) Act, 1974, The Air (Prevention and
Control of Pollution) Act,1981, The Environment (Protection) Act,1986
f. Professional Ethics and Standards (4 marks)
30-32 Model Code of Conduct as notified by MCA under the Companies (Registered valuers
and valuation) Rules 2017
33 Other Engagement Considerations
g. Law-Real Estate (10 marks)
34 Land Acquisition (4 marks) - The Right to Fair Compensation and Transparency in the
Land Acquisition, Rehabilitation and Resettlement Act, 2013.
Provisions for Acquisition of Land under the Municipal Laws
35 Building Rules and Regulations of Local Bodies as well as Development Control Rules
& Regulations of different urban development authorities for feasibility of Development
/ Redevelopment on the Land – Rules for Open Space, FSI and Plinth Area Restrictions.
Transferable Development Rights.
36 Rent Control Laws: Sections pertaining to Occupancy Rights of Tenants, Freezing of

Rent and Protection against Eviction of Tenant and its effect on value of property.
37 Right of Way, Section 52 - Licenses under the Indian Easements Act, 1882.
Salient features of the Real Estate (Regulation and Development) Act, 2016 and Real
Estate Regulating Authorities established under the Act.
The Transfer of Property Act, 1882 (4 marks)
38 Transfer of Immovable Property: Sale, Mortgage, Gift, Exchange,
39 Assignment, Charge, Lien, Tenancies / Sub-Tenancies.
40 Lease of Immovable Property, Lease granted by Private and Statutory Bodies - Impact
of each on Valuation.
41 Sections: 3, 5, 6, 7, 25, 53 and 53A
Laws Relating to Inheritance/Succession (2 marks)
42 Mohmedan - Personal Law

6/10
The Hindu Succession Act, 1956, the Hindu Succession (Amendment) Act, 2005 (39 of
2005)
43 The Indian Succession Act, 1925: Law of succession for person other than Hindu and
Mohmedan
Will & Testament; Succession Certificate
h. Valuation of Real Estate (Total marks - 57)

General (13 marks)
44 Cost, Price and Value
45 Types of Value
46 Basic elements of Value - Marketability, Utility, Scarcity, and Transferability
47,48 Factors affecting Valuation-Physical, Economic, Legal and Social
49 Highest and Best Use, Value in Use, Value in Exchange
50 Real Property: Rights and Interests in Real Estate, Types of ownerships and Types of
occupancy in Real Estate
51 Annuities, Capitalization, Rate of Capitalization, Years Purchase, Sinking Fund,

Redemption of Capital, Reversionary Value
52 Construction and use of Valuation Tables

• Simple Interest amount working
• Compound Interest amount working
• Present Value of Rupee working
• Amount of Rs. 1 / year working
53 Construction and use of Valuation Tables

• Annual Sinking fund working
• Present Value of Future Income of Rs. 1 / year. (Single rate basis)
• Present Value of Future Income of Rs. 1 / year ( Duel rate basis)
54 Urban Infrastructure and its influence on Value of Real Estate
55 Real Estate Market and its characteristics, Investment in Real Estate
56 Factors influencing Demand and Supply Schedule in Real Estate
Income Approach to Value (7 marks)

7/10
Remunerative Rate of Interest and Accumulative Rate of Interest
Types of rent: Outgoings, Income, Yield, Years’ Purchase
Determination of Market Rent and Standard Rent
57 Relation between Income and Value
58 Valuation of Property affected by the Rent Control Act, Licensed property under the
Easement Act, 1882 and Leasehold properties under the Transfer of Property Act,
1882
59 Derivation of Yield Rate from Market Derived Data.
60 Lease: lessor and lessee: Types of Lease, Lease provisions and Covenants.
61 Valuation of Lessor’s Interest, Lessee’s Interest including Sub-Lease in Leased Property.

Premature Termination of Lease or Surrender of Lease.
62 Real Estate as an Investment, Yield from Real Estate vis-à-vis other forms of
Investments- Sound Investment Comparison.
Investment Decisions: Discounted Cash Flow Techniques-Internal Rate of Return (IRR)

and Net Present Value (NPV)
63 Profit Method: Valuation of Special Properties: Hotels, Cinema, Mall, Petrol Pump, Hill
resorts
Market Approach to Value (5 marks)
64 Types of Market, Demand and Supply Curve, Bell Curve for Overall Sales Performance
(Probability Distribution),
Market Survey & Data Collection, Sources of Sale Transactions,
65 Comparison of Sale Instances – Factors of comparison and weightages for adjustment

in value
66 Hedonic Model and Adjustment Grid Model under Sales comparison Method.
67 Land characteristics and its effect on Land Values
68 Hypothetical Plotting Scheme for value of large size land
Residue Technique and other development methods

8/10
Valuation for Joint Venture Development of property
Cost Approach to Value (5 marks)
69 Methods of Cost Estimates for Buildings
70 Life of Building: Economic/Physical/Legal
Factors affecting life of the building.
Total Life, Age, Estimating Future Life
71 Various methods of Computation of Depreciation, Functional, Technological and

Economic Obsolescence
72 Reproduction Cost / Replacement cost, Depreciated Replacement Cost (DRC) working,

adopting DRC as Value subject to Demand and Supply aspect
73 Land Value by Market Approach and Building Value by Cost Estimation Method for
Owner Occupied Bungalows, Factories, Public Buildings.
Various purposes of Valuation (5 marks)
74 Valuation of properties for purposes such as:Bank Finance, Auction Reserve, Building
Insurance, Sale, Purchase, Valuation Disputes in Court, Probate, Partition,
75 Rent Fixation, Stamp Duty, Capital Gain Tax, Lease and Mortgage of Property. Any
other purposes not referred above.
76 Asset Valuation under the SARFAESI Act 2002, the LARAR Act 2013, the Companies
Act 2013, the Insolvency and Bankruptcy Code, 2016
77 Concept of Transferable Development Rights (TDR), Concept of Time Share Interest

in Real Property. Valuation of TDR, Time Share Interest and Easement Rights.
78 Study of Indian Accounting Standards (Ind AS) as applicable to Valuation of Real Estate.
Study of International Valuation Standards (IVS) as applicable to Valuation of Real
Estate
Important Case Laws on principles of valuation of Real Estate (3 marks)
79 1. K P Varghese vs ITO (1981) 131 ITR 597(SC)
2. Gold Coast Trust Ltd. vs Humphray (1949) 17 ITR 19

9/10
3. Rustam C Cooper vs Union of India AIR 1970 SC 564
4. Hays Will Trust vs Hays and Others (1971) 1WLR 758
5. V C Ramchandran vs CWT (1979) 126 ITR 157 Karnataka HC
6. Subh Karan Choudhury vs IAC (1979) 118 ITR 777 Kotkatta HC (Special Value/
FMV)
80 7. Wenger & Co. vs DVO (1978) 115 ITR 648 Delhi HC (Combination of Methods)
8. Sorab Talati vs Josheph Michem Appeal 101 0f 1949 - Vol. - 2 of SOC - page 162
(Bombay) (Invest Theory of Rent)
9. CWT vs P N Sikand (1977) 107 ITR 922 SC
10. SLAO (Eluru) vs Jasti Rohini (1995) 1SCC 717 SC
11. Shubh Ram and Others vs State of Haryana (2010) 1SCC 444
12. Jawaji Nagnathan vs REV. DIV. officer(1994) SCC -4 Page 595 SC
13. Chimanlal Hargovinddas vs SLAO- Pune, AIR 1988 SC 1652
81 Valuer as an Expert witness in Court.
Valuers’ functions & responsibilities, Error of judgement and Professional negligence
Code of conduct for valuers and Professional Ethics for valuers.
i Principles of Insurance and Loss Assessment (5 marks)
82 Principles and legal concepts in relation to Insurance of buildings. The Contract of

Insurance. Insurable Interests and Liability to Insure. Duties of the Insurer and the
Insured.
83 The types of Fire Policies, Reinstatement Cost Policy and policies for other perils,
Terms and Conditions, Perils, Beneficial and Restrictive Clauses.
84 Value at Risk, Sum Insured and Condition of Average, Over and Under Insurance,
Inflation Provisions, other contents, Depreciation, Obsolescence and Betterment.
85 Preparation of Claim for Damages due to Insured Perils.
86 Obligations and Rights of Insurer and Insured.

10/10
j Report writing (2 marks)
87 Reports - Quality, Structure and Style
Report writing for various purposes of valuation-Sale, Purchase, Purchase, Mortgage,

Taxation, Insurance, Liquidation
88 Contents of the report: Instruction of Clients, Valuation Date, Site Inspection, Location,
Ownership History, Data Collection and Analysis, Type of Construction, Valuation Method,
Value Estimation, Conclusion
k Case Study (12 marks)
This section will have case study for application of valuation techniques. There will be
comprehension(s) narrating the transaction based on which questions will be asked
from the case.
89 Case study (2)

90 Case study (2)
91 Case study (2)
92 Case study (2)
93 Case study (2)
94 Case study (2)
PART - 1
PART - 1
g. Law - Real Estate
STUDY MATERIALS FOR QUESTION NOS. 34 to 43 - 244 Pages
34. Land Acquisition - The Right to Fair Compensation and Transparency in the - 1 mark
Land Acquisition, Rehabilitation and Resettlement Act, 2013.
Provisions for Acquisition of Land under the Municipal Laws
35. Building Rules and Regulations of Local Bodies as well as Development - 1 mark
Control Rules & Regulations of different urban development authorities
for feasibility of Development / Redevelopment on the Land – Rules for Open
Space, FSI and Plinth Area Restrictions. Transferable Development Rights.
36. Rent Control Laws: Sections pertaining to Occupancy Rights of Tenants, - 1 mark
Freezing of Rent and Protection against Eviction of Tenant and its effect on
value of property.
37. Right of Way, Section 52 - Licenses under the Indian Easements Act, 1882. - 1 mark
Salient features of the Real Estate (Regulation and Development) Act, 2016
and Real Estate Regulating Authorities established under the Act.
38. Transfer of Immovable Property: Sale, Mortgage, Gift, Exchange - 1 mark
39. Assignment, Charge, Lien, Tenancies / Sub-Tenancies. - 1 mark
40. Lease of Immovable Property, Lease granted by Private and Statutory - 1 mark
Bodies - Impact of each on Valuation.
41. Sections: 3, 5, 6, 7, 25, 53 and 53A - 1 mark
42. Mohmedan - Personal Law - 1 mark
The Hindu Succession Act, 1956, the Hindu Succession (Amendment) Act,
2005 (39 of 2005)
43. The Indian Succession Act, 1925: Law of succession for person other than - 1 mark
Hindu and Mohmedan
Will & Testament; Succession Certificate
Compiled by
B. KANAGA SABAPATHY
Tiruchirappalli NOT FOR SALE
0 . LAW - REAL ESTATE
C ourtesy: Annamalai University

Q 3"7- 4-3
SYLLABUS
I. LAWS RELATING TO IMMOVABLE PROPERTY AND EASEMENT

Immovable; property : meaning; ownership and possession ; join t tenancy and
tenancy in common; Life interest, remainder and reversion
Co ownership and concurrent ownership - Co-Operatives an.d condominiums

II TRANSFER OF PROPERTY ACT,1882
Transfer of immovable property: sale, mortgage, gift, exchange; assignment,
charge, lien , tenancies/ sub-tenancies
Leases: Lessor and lessee; sublease, period o f lease, ground rent, covenants of
leases, terms and conditions ; Termination, expiration and renewal of leases
Lease granted by private and statutory bodies, im pact o f each on valuation

III. INDIAN EASEMENT ACT,1882
Easement: Air, light, water way and support .
Natural rights: profits renders, Customary rights and public rights
Leave and license
IV. EMERGING PROPERTY CONCEPTS ' -

Development rights, time shared property
V. LAW OF EVIDENCE
Burden of proof, Presumptions, Conclusive proof
VI. EFFECTS OF LAWS RELATING TO INHERITANCE AND SUCCESSION ON VALUE
Personal Laws affecting inheritance of property
VII. INDIAN SUCCESSION ACT:

Will, Testament; Succession Certificate. 1
References
1. S. M Shah & N.M .Tripathi, principles o f the Law of Transfer, Mulla
Publishing House(1995) ,Bom bay,40002
2. Sarathi.V.P,sLaw of Transfer of property, Eastern Book Co(1996), Lucknow-
1
3. V.G.Ramachandra, Land Acquistion & Compensation volume I and II
4. M.N.Das , Laws Relating to Partition, Jawhar Publishers (P) Ltd,(2001)
5. Bockrath, Joseph, Plotnick& Fredric, contracts and the Legal environm ent
for Engineers and Architects Me Graw Hill Education (Asia)?1*1 edition(2010)
New Delhi(ISBN-13:978-0-07-339784-9)
□
II
CONTENTS
Lesson Page
Title
No. No.
' 1. Law o f Transfer 1
2. Ownership and possession 11
' 3. Transfer o f movable and immovable Property 20
4. Conditional Transfer 37
5. Transfer o f immovable property 49
6. Sale 69
7. Mortgage 83
8. Rights and liabilities o f mortgagor 96
9. Rights and liabilities o f mortgagee 107
' 10. Charge 123
- 11. Lease 127
- 12. Exchange 141
, 13. Gifts 144
• 14. The Indian Easements Act, 1882 150
15. License 171
16. Emerging property concepts 180
17 Law o f Evidence . 185
18 Laws Relating to inheritance and succession 200
19. Indian Succession Act 228

i*.
/20
i
LESSON-1
_______________________________________________ LAW OF TRANSFER

STRUCTURE
1.1. Introduction
1.2. Objectives
1.3. History
1.4. Transfer o f Property Act, 1882
1.5. Definitions
1.6. Summary
1.7. Suggested Questions

1.8. Suggested readings
1.9. Keywords
1.1. INTRODUCTION
We own agricultural lands, houses, house sites, gardens, forest, radio,
television set etc. How do we become the owners of these properties? The ownership
to immovable properties can be acquired in four ways known to law. They are (i)
grant, (ii) succession, (iii) Law of prescription (iv)conveyance. Firstly, the
government owning the poramboke properties can assign the land to a person by
issuing patta and thus making the person as owner. It is called the acquisition of
ownership by grant. It is governed by the Governm ent Grants Act, 1895. Secondly,
if ‘A ’ is the original owner of the immovable property and if he dies intestate his
heirs will become the owner o f his properties or if he dies leaving the will the
legatees will become the owners of properties. It is called the acquisition of
ownership under the law of succession. The law o f this subject is governed by law
of succession and Testamentary Succession namely Indian Succession Act and
Personal laws like Hindu Succession Act. and Mohanmmedan law of Succession etc
Thirdly if ‘A ’ is the owner of land but ‘B ’ trespassed into the land and was in
adverse possession for more than 12 years. T3’ will become the owner of the land on
the expiry of 12th year and ‘A ’s title will be extinguished. It is called the acquisition
of ownership by prescription. This subject is covered by the law of limitation that is
Indian Limitation Act, 1963. Fourthly if ‘A ’ is the owner of a property, he can
execute a docum ent called conveyance in favour of ‘B ’ transferring his title to ‘B
then <B ’ will become the owner of the property. It is called acquisition of ownershi]
by conveyance. The law on the subject is governed by Transfer of Property Act and
it is called transfer intervivos.
Among the above said various modes of acquisition of title of the property we-
have to study about the transfer of ownership by conveyance in our lessons, that is
we have to study law of transfer covered by Transfer of Property Act.
2
Equally title to m ovable property also can be acquired by transfer intervivos or

by succession. Transfer o f Property Act covers the transfer o f property in movable
also in some cases. We can see them in detail in the coming lessons.
1.2.0BJECTIVES
In this lesson we are going to
• know about history of Transfer of property

• know about the application o f Act
• know the im portant definitions in Transfer o f property Act
1.3. HISTORY
In India, the law o f transfer inter vivos is covered by Transfer of Property Act
1882. This Act came into force on 1-7-1882 and it applies to India.... Under
M ohammedan law a Mohammedan may settle property in perpetuity for the benefit
o f his descendants provided there is an ultimate gift in favour o f Charity. As per
Section 13 and 14 o f Transfer o f Property Act are against those provisions of
Mohammedan law, there Transfer o f Property Act will not apply for such a
settlement and Mohammedan law will govern. The Mohammedan law o f gift is
expressly saved by Section 129 o f Transfer of Property Act. Hence for a
Mohammedan gift no writing is necessary, but delivery of possession is essential.
1.4. TRANSFER OF PROPERTY ACT, 1882
This Act applies both to immovable and movable and also to tangible and
intangible properties. But all Sections of the Act do not apply to all of them.
Sections 5 to 37 and 118 to 137 apply for both movable and immovable
properties. Sections 38 to 117 apply to immovable properties alone.This Act deals
with General principles o f tran sfer in Sections 5 to 53-A, sale of immovable
properties in Sections 54 to 57, Mortgage of immovable properties and charges in
Sections 58 to 104, lease o f immovable properties in Sections 105 to 117, Exchange
of movables and immovable in Sections 118 to 121, gift of movable and immovable
properties in Sections 122 to 129 and transfer of actionable claim in Sections 130
to 137. Hence sale o f movable properties is not governed by this Act, but by the
Sale o f goods Act and Pledge of movable is governed by Contract Act.
3
SCHEME OF TRANSFER OF PROPERTY

TRANSFER OF PROPERTY
By act of parties By operation o f Law
I
Testamentary Intervivo8
(Succession Act) (T.P Act)
I I
Transfer of property Transfer of immovable
Movable and property Sec 38 -53-A
Immovable And Sec 54-137)

(Secs 5-37 and
S e e l18-137)
Sale Mortgages Leases Exchanges Gift Transfer
(Sec 54-57) (Sec 58-104) (Secl05-117) (Sec 118-121) (Sec 122-129) ofactionablc
Claim
(Sec 130-137)
APPLICATION OF THE ACT TO THE NATURE OF TRANSFER
This Act applies only to transfer invervivos. Section 5 declares that transfer of
property means an act by which a living person conveys properties in present or
future to one or more other living persons or to him self and one or more other living
persons and to transfer property means to perform such act.
Thus the person transferring (transferor) and the person to whom the property
was transferred (transferee) should be living person. It is called a transfer intervivos
(between two living persons). But the transferor and transferee may be the same
person or different persons. Thus if ‘A ’ transfers to ‘B ’ there are two persons. But if
‘A ’ executes a trust deed making him as the trustee there is a transfer intervivos
though both transferor and transferee are one and the same person. Similarly, ‘A ’
can transfer by executing a trust deed making ‘A ’ and ‘B’ as trustees. In this case
the transfer is in favour of transferor and some other person. It is to be noted that
in this Section living person includes a company or association or a body of
4
individuals, whether incorporated or not. The transfer may be in present or future

but, the property transferred should be in existence on the date of transfer. If ‘A ’
transfers a house to be constructed later it is not a transfer of property, but an
agreem ent to sell covered by Contract Act and Specific Relief Act.
Therefore the Transfer o f Property A ct does not apply to the following transfers.
1 .A Transfer by Government
It is governed by the Governm ent Grants Act, 1895 Section 2 o f Government
Grants Act excludes the application o f Transfer of Property Act to Government
grants.
2. A Transfer by Individual to an Idol

As the transferee is not a living person the Transfer of Property Act does not
govern such a transfer.
3. A Transfer by Will
As the w ill takes effect only after the death of the testator (transferor) a
transfer by a w ill is not governed by Transfer o f Property Act. But it is governed by
Indian Succession Act.
4. A Transfer by Operation of Law

A' transfer by operation o f law or by or in execution of a decree or an order of a
court of com petent jurisdiction is not governed by Transfer of Property Act. Such a
transfer is saved from the Application by this Act under Section 2 of the Transfer of
Property Act itself. Transfer by operation o f law occurs in cases of testam entaiy and
intestate succession, forfeiture, insolvency and court sale. Hence the heir gets title
from the propositus without registered document of transfer. Similarly in a Court
sale there is no warranty of title which is available to a private sale intervivos,
under Section 55 o f Transfer of Property Act. But this is subject to an exception
provided in Section 57 which deals with provision by court, for encumbrances and
sale free of encumbrance.
Transactions which are not Transfers

As the word to transfer means ‘to convey’ the following transactions are not
transfers for the purpose of-Transfer „of ‘Property Act and so the Transfer o f Property
A ct does not apply to them. They are surrender of life estate-by a Hindu, widow or
life tenant, relinquishment, a release, family arrangement and parti don. In a family
settlement there is no transfer o f property or any right there to. It merely embodies
a settlement between the parties in which the title o f the one is acknowledged and
recognized by other. The im portant idea involved in a transfer is that under the
transfer a person who got title or right conveys that right or title to the transferee
which right the transferee acquires only in pursuance of the transfer. In the case of
a surrender by life tenant in favour of the remainder men there is no transfer of
property from the life tenant and there is merely an effacement or extinguishments
of the rights o f the life tenant, with the result the rights of the remainder men get
accelerated. The rights of the remainder men are derived only under the docum ent
5
executed by the full owner and when a surrender deed is executed rights accrue to
the rem ainder men only in pursuance o f the title derived under the settlement and 1
the rem ainder men do not derive any title from or through the life tenant who
makes the surrender. In other words there is merely a self-effacement on the part of
the surrenderer life tenant who goes out o f the picture” .
Subject matter of Transfer

Next we have to see what kind o f property may be transferred, that is what
property can be the subject matter of transfer, The general rule is that all kind of
properties may be transferred. Bu^ it has one exception, that is, properties which
are prohibited from being trar'.sicirred under Transfer of property Act or any other
law for the time being in force cannot be transferred, The properties which could
not be transferred are given in Section 6 as follows:
(1) Succeeding to an estate, the chance of a relation obtaining a legacy on the

death of a kinsman, or any other mere possibility of a like nature, cannot be
transferred.
(2) A mere right of re entry for breach o f a condition subsequent cannot be

transferred to any one except the owner o f the property affected thereby.
(3) An easem ent cannot be transferred apart from the dominate heritage.
(4) An interest in property restricted in its enjoym ent to the owner personally
cannot be transferred by him.
(5) A right to future maintenance in whatsoever manner arising, secured or

determined, cannot be transferred.
(6) A mere right to sue cannot be transferred.
(7) A public office cannot be transferred, nor can the salary o f a public officer,
whether before or after it has become payable.
(8) Stipends allowed to military, naval, air force and civil pensioners o f the
Governm ent and political pensions cannot be transferred.
(9) No transfer can be made (a) in so far as it is opposed to the nature o f the
interest affected there by, or (b) for an unlawful object or consideration within the
m eaning o f Section 23 of the Indian Contract Act, 1872 or (c) to a person legally
disqualified to be a transferee.
(10) Nothing in this section shall be deemed to authorize a tenant having an

un transferable right of occupancy, the farmer o f an estate in respect o f default has
been made in paying revenue, or the lessee o f an estate under the m anagement of a
Court o f Wards, to assign his interest as such tenant, farmer or lessee.
6
1.5. DEFINITIONS
Immovable Properties
This Act covers transfer o f immovable property in respect o f sale, mortgage
charge, lease, gift, exchange and so. It is necessary to find out the definition of
immovable property. Section 3 defines immovable property as follows: “Im movable
property does not include standing timber, growing crops, or grftss. The Transfer of
Property Act does not define immovable property as to what it includes or what it
means, but it simply says w hat are not included in it. As there is no special
definition o f immovable property in Transfer of Property Act we are to take the
definition o f immovable property from the General Clauses Act, the Act which
defines as follows: “Immovable property shall include land, benefits arise out of
lan d and things attached to earth*. It is an inclusive definition and so we have to
find out the above said three inclusion o f îmmovable property and exclude the three
exclusions as found in the definition o f Transfer of Property Act.
1) Includes lands.
2) Includes benefits to arise out o f land.
„ ' -3) Includes things attached to earth.
4) Excludes standing timber.
5) Exclu4es growing crops.
6) Excludes grass.
Attested
This word comes in the chapters of mortgage, gift, etc., Attested simply means
signing a docum ent as a witness. Some transfers like mortgage and gift m ust be
attested atleast by two witnesses in order to become a valid transfer. The person
signing the docum ent as witness is called attestor. In other words attestor certifies
the execution, of docum ent by the executant. In order to constitute a valid
attestation any. one of the following things should be satisfied.
1. Each o f the two witnesses m ust have seen the executant sign the docum ent
or affix his m ark in the document, or.
2. Each o f the two witnesses m ust have seen some other person sign the
instrum ent in the presence and by the direction of the executant or
3. Each o f the two witnesses m ust have received from the executant a personal
acknowledgement o f his signature or mark or o f the signature of such other person.
Besides satisfying any one o f the above said three things, further thing to be
satisfied is that each of the attestors must have signed to the instrum ent in the
presence of the executant. It is not necessary that both the attestors should sign at
the same time and it is also not necessary that any particular form of attestation
should be used.
7
An attestor should be a third party and not a party to the document of

transfer. That is he should not be the transferor or transferee. An illiterate person
can be the attestor and he can put his thumb impression, or mark. Generally the
writer of the document (scribe) or the Sub-Registrar, who registered it, is not a
attestor. In Abdul Jabbar Sahab Vs. Venkatasatsri and Sons (1969 II M.L.J. (S. C.)
107), the Supreme Court observed as follows” to attest is to bear a witness a fact
briefly put the essential conditions of a valid attestation under Section 3 are (i) Two
or more witnesses have seen the executant sign the instrument or have received
from him a personal acknowledgement of his signature (ii) with a view to attest or to
bear witness to this fact each of them signed instrum ent in the presence of the
executant. It is essential that the witness should have put his signature animo
attestandi, that is for the purpose of attesting that he has seen the executant sign
or has received from him a personal acknowledgement o f his signature. If a person
puts his signature on the document for some other purpose, e.g., to certify that he
is a scribe or an identifier or a registering officer, he is not an attesting witness” .
It is also important to note that if the execution o f the document which is

compulsorily required to be attested is specifically denied, the person relying upon
the docum ent must prove the execution and valid attestation by examining atleast
one of the attestors as required in Section 68 Evidence Act.
Notic*
In the, law of transfer, transfer by one person may affect the right of another.
For an example, a wife may have right o f maintenance against her husband and
may be entitled to a charge on his land. If the husband wants to defeat her right of
maintenance and sells the land to a third party, then the right of wife is affected. In
such a case, can wife enforce her right of maintenance against the land purchased
by the 3rd party? If the 3rd party purchases the property without knowledge of w ife’s
right of maintenance it is inequitable to burden the land with, that obligation to pay
maintenance to the wife, but if the 3rd party purchased the property with the
knowledge of w ife’s maintenance then it is equitable to ask him to pay maintenance
out of the land as he ought not to have purchased the land joining hand with her
husband in order to defeat the maintenance right o f wife. It is so under Section 39
of Transfer of Property Act. Hence a person’s knowledge o f the fact namely i.e.,
maintenance right o f wife becomes relevant. Hence it will become im portant to
know in which cases a 3rd party is said to have had th e'n otice-efa fact.
Similarly if ‘A ’ agrees to sell a land to ‘B ’ but sells to ‘C’, sale by ‘A ’ to ‘C ’ affects

the right of ‘B’ to purchase. Can 13’ compel ‘C ’ to resell the property to him? It
depends upon the knowledge o f ‘C ’. If ‘C ’ had taken the sale deed with notice of
agreem ent to sell in favour of ‘B* he should resell the land to ‘B ’ as ‘C ’ ought not to
have purchased the land to defeat the right o f *B\ If ‘C ’ purchased without the
notice o f agreement to sell, he is not at fault and so he need not resell the property
to 13’. It is so under Section 40 of Transfer of Property Act. Hence we have to know
8
in which cases a person can be said to have notice o f a fact, The answer is given in
the Transfer o f property A ct itself as follows:
Section 3 says that a person is said to have notice of a fact when he actually
knows the fact or when but for willful abstention from an enquiry or search which
he ought to have made, or gross negligence he would have known. The Section
contains 3 explanations also.
According to the above definition notice may be o f two kinds as follows:
NOTICE
Actual Constructive
Actual Notice
When a person acquires actual knowledge of a fact he is said to have actual
notice. It may also be called express notice.. If his attention was drawn to any
particular fact specifically he can have actual notice. For example, in a case of
transfer to defeat maintenance of wife if wife issues a notice to the intended
purchaser asking him not to purchase so as to defeat her right of maintenance, he
is said to have actual notice. Similarly, in the case of agreement to sell if the 3rd
party negotiated for the agreement or was present at the time of execution of
agreem ent to sell, he is said to have actual notice.
Constructive Notice
Though a person may not have actual notice o f a fact, in the eye of law he will
be deemed to have known a fact. Such a notice is called constructive notice.
Constructive notice is the equity which treats a man who ought to have known a
fact as if he actually does know it. In other words law presumes that he knows a
fact. It is a legal presumption of knowledge.
Constructive notice arises in the following cases:
1. Wilful abstention from an enquiry or. search,

2. Gross negligence
3. Registration
4. Actual Possession
5. Notice to an agent
Willful abstention from an Enquiry or Search

E veiy man is expected to enquire or search for certain information before
entering into any transaction. If he omits to do such enquires or search he may
miss that information. He may not have actual knowledge of those facts, but he will
be deemed to have known those facts as he him self is responsible for not knowing
those facts. His willful abstention from an enquiry or search which ought to have
been made is the reason for his absence of notice of those facts. In those cases he is
lacking bonafides. Thus a person refusing a registered letter cannot afterwards
9
plead ignorance of its contents, when a deed of sale referred to a partition deed
under which the house had fallen to the vendor’s share, the purchaser was affected
with notice o f a right of preemption reserved in the deed of the partition.
Gross Negligence
A prudent and reasonable man who fails to inquire in to the contents of a
docum ent is said to be guilty of gross of negligence in such case there is no notice.
But in extreme cases the law assumes that the negligent person had willfully shut
his eyes to circumstances which called for an enquiry. On this assumption gross
negligence has been defined as a degree of negligence so gross that the court of
justice may treat it as evidence of fraud impute a fraudulent motive to it and visit it
with the consequence of fiaud although (morally speaking) the party charged may
be perfectly innocent” . Hence if a person due to his culpable or gross negligence
fails to know a fact the law inputs constructive notice of that fact to him. If a
purchaser was informed that the title deeds are in possession of a bank for safe
custody, but the purchaser omitted to make further enquiry in bank, he is guilty of
gross negligence and he will be deemed to have constructive notice of the fact that
the deeds are pledged with bank.
Registration
Registration is a notice of a registered instrument. Registration of document
amount to notice from the date of registration. It is a notice to subsequent
transferees only. . For example, if a person purchases a property thinking that
there was no prior encumbrance over it, he is expected to obtain encumbrance
certificate from the Registrar Office. If he obtains it, it will disclose the prior
documents, registered in respect of the same property. If he omits to obtain
encumbrance certificate it is his fault and so a law will impute him with notice of all
documents registered earlier in respect of that property. Thus registration is an
instance of constructive notice.
Actual Possession
Any person acquiring any immovable property shall be deemed to have notice
of the title if any o f any person who is in actual possession .A person acquiring
interest in immovable property will be deemed to have known the interest of a
person who is in actual possession of the same on the date of transfer.
Notice to Agent
Notice to an agent shall be treated as notice to his principle .Such notice must
be given in the course of agency between them .
1.6.SUMMARY
Transfer property Act applies both to immovable and movable and also to
tangible and intangible properties. This Act applies only to transfer intervivos.
Section 5 declares that transfer of property means an act by which a living person
conveys properties in present or future to one or more other living persons or to
himself and one or more other living persons and to transfer property means to
10
perform such act. Further in this lesson we have seen for whom this Act is not
applicable. We have also seen Im portant definitions under the Transfer of property
Act .
1.7. SUGGESTED QUESTIONS
1. Define immovable property and distinguish it from movable property
2. W hat property can’t be transferred under the transfer o f property Act?
3. Write a note on the following
i Notice
ii Registration
1.8. FURTHER READINGS
1. H.P. Vepa Sarathi - Law o f Transfer of Property 4th Edition, 2000.
2. Venkata Subba Rao - Law of Transfer o f Property.
3. M ulla - The Transfer of Property Act.
1.9. KEYWORDS
Intervivos - between living persons
Constructive notice - Inferred acknowledgement
Exhaustive - Completly
□
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LESSON-2
OWNERSHIP AND POSSESSION

STRUCTURE
2.1. Introduction
2.2. Objectives
2.3. Definitions
2.4. Characterstic of ownership
2.5. Kinds o f ownership
2.6. Possession
2.7. Modes of Acquiring possession
2.8. Possessory Remedies >
2.9. Summary
2.11. Suggested Readings
2.12. Keyowords
2.1. INTRODUCTION
Ownership denotes the relation between a person and an object forming the
subject matter o f ownership. It consists a com plex of rights all of which are rights
in rem being good against all the world and not merely against specific persons.
Analytically the idea of ownership consists of an innumerable number of claims,
privileges, powers and immunities with regard to the thing owned. Jurists have
tried to define ownership with exactitude, but failed, because it is not so easy to
define it. In this lesson we are going to study about ownership and possession in
detail.
2.2. OBJECTIVES
• know about characteristics and kinds o f ownership

• know about concept o f possession and modes of acquiring possession
• know about possessory remedies
2.3. DEFINITIONS
Salmond : He defined ownership as follows “ownership in a material thing is
in general, permanent and inheritable right to the uses o f that thing. According to
Salmond the right of ownership is not a single right, it is being a bundle of rights,
liberties, powers and immunities.
Austin He defines ownership is a right indefinite in point of user,

unrestricted in point of disposition and unlimited in point of duration over a
determinate thing. V
For the following reasons Austinian definition of ownership are not applicable
to the modern idea of ownership. In the first, place there have been increasing
restrictions both in common law and statutes are on the abuse o f privileges
contained in ownership. Secondly there has been curtailm ent o f the profit element.
Legislative control now exists as to profits, interests and rents. Thirdly several
methods have been devised for controlling the power of ownership.
2.4. CHARACTERISTICS OF OWNERSHIP:
1. Ownership is incorporeal.
2. Ownership can only vest in a person (person in the eye of law). It denotes
the relation between a person and a thing when all the rights in relation
to that thing are vested in him. ,
3. It is not a mere relation between a person and a thing. It is a relation
between a person, a thing and another person or other persons. The concept
of ownership can hardly arise if a man were to live by him self on a desert or
Island. It is only in relation to others the idea become necessary to
distinguish between things that are his, and those that are not his. It is only
then a person can say this is mine, that is yours.
4. This right of ownership is a comprehensive right and so when we say a
person is the owner of a thing we think o f him as having a comprehensive
right over it, though that right is made up o f a large number o f particular
rights. Supposing I am the owner of an estate, the particular rights I have,
as owner are too many to be enumerated here. I mention a few here, the
right to possess, the right to enjoy the fruits, flowers etc, the right to walk
across it, the right to dispose, it, the right to misuse it etc. So we think o f an
owner as having a single comprehensive right over it and not in terms of the
particular rights he has over it. All the various rights are conceived m erged
in one general right o f ownership.
5. Although an owner can separate all the particular rights from his general
right o f ownership and grant them to others by way o f encumbrances, and
even to such an extent that he derives no immediate benefits retaining for
himself, but the shell of ownership or the nude properties or the nudism jus
it is still ownership for, it is a right which outlives all the other rights, which
are lim ited rights o f use and enjoym ent granted temporarily to others by w ay
o f encumbrances. His right o f ownership even when it is only the nudum ju s
is a magnetic core attracting to itself the rights convey to other and when
they are surrendered they merge once more to become the comprehensive
right o f ownership. So Salmond says, he is the owner of m aterial object who
has a right to the general and residuary uses of it, after the deduction of all
special and limited rights o f use vested by way of encumbrances in other
persons.
2.5. KINDS OF OWNERSHIP
1. Corporeal and Incorporeal ownership
2. Trust and Beneficial ownership
3. Legal and Equitable ownership
13 - sfA'—
4. Vested and contingent ownership
5. Sole and Co ownership
6. Absolute and limited ownership
Corporeal and Incorporeal ownership: The ownership over a tangible or
m aterial object is called corporeal ownership. Ownership over a intangible object is
called incorporeal ownership e.g Copy rights, patent rights ; A. s ownership is only a
relationship between a person and the thing, ownership is only a right. It exists de
ju re but not de facto: so ownership is always incorporeal. The prime subject matter
of ownership consists of material objects such as land and chattels. But ownership
is by no means limited to things of this category. I may own land or it may be a
leasehold right, or the goodwill o f a firm for convenience the first is called corporeal
ownership and the second and third incorporeal ownership. The only purpose this
distinction serves is to show whether the right exists in respect o f a corporeal thing or
incoiporeal thing. But remember, the right o f ownership is only a right and therefore only
incorporeal.
Ownership is either Sole Ownership or Concurrent i.e., duplicate ownership.

In the former one person owns the thing, in the latter two or more persons own the
thing at the same time.
English law recognizes four chief kinds of duplicate or concurrent ownership,

they are i) Co-ownership ii) trust and beneficial ownership; iii) Legal and equitable
ownership; and iv) Vested and contingent ownership.
Trust and Beneficial Ownership:

The ownership of the trustee is a bare legal ownership; it is nominal rather
than real as the trustee has no right to the beneficial enjoyment of the trust
property, which he holds solely for the benefit o f the beneficiary. The beneficial
ownership is always enforceable against the trustee, and all those deriving their
title through him, and all those who had or ought to have notice of the trust.
Under Indian law trust is not an instance o f duplicate ownership. There is only
one owner where trust property is concerned and he is the trustee, the legal owner.
So the Trust Act does not use the term beneficial owner, but in idea is the same.
Trust ownership is ownership coupled with an obligation. It is his obligation to own
the property for the sole benefit of the beneficiary, that safeguards the right of the
beneficiary.
Legal and Equitable Ownership

Again it is English law that recognizes two kinds of ownership, legal ownership
recognized by common law and equitable ownership by equity. The ownership
which originated from the rules of common law is called legal ownership. Equitable
ownership always implied legal ownership, while the converse need not be always
true. Common law recognizes only one kind of ownership viz., legal ownership, but
equity which is based o faith and good conscience looked into the intention
14
of the parties concerned and gives to certain persons what is called equitable
ownership. While equitable ownership is that which proceeds from the rules of
equity divergent from the common law.
If A has entered into an agreem ent with B for the purchase of B’s land, and
has paid a sum o f Rs. 1000/ as advance promising to pay the balance of the
purchase price on a stipulated day and B promises that, when A had done all he
ought to do to execute a deed of conveyance conveying the legal ownership of the
land in favour o f A, then under English law though B is still the legal owner, equity
gives to A the legal ownership o f the land. In case B commits a breach of the
contact, in law the only rem edy for A is a money decree and damages for breach of
the contract For law the agreement for sale is nothing more than a contract. But
in equity which considers that to have been done which ought to have been done
would grant to A as against B the specific performance of the contract. Equity does
not deny the existence o f the legal owner, only treats him as a trustee for the
equitable owner, hence the remedy of specific performance.
Vested and Contingent Ownership: In earlier lessons it has been pointed out
that every right must have a title, because the title is the source of the right. So
when the title it perfect, that is to say all the events necessary have occurred
then the right is also perfect. Such a right vests in its owner absolutely. This is
vested ownership. But when there are certain facts to occur v ’hich may or may
not happen then the title is imperfect or incomplete, in which case the rights is
imperfect. The right is vested in its owner merely conditional. This is contingent
ownership. But contingent ownership is capable o f becoming vested or being
absolutely destroyed on the happening or non happening of certain facts or events.
illustrations: i) A gives property to L for life, thereafter to C if he is then alive, if

then dead to D. ii) A gives property to B provided he marries C.
In the first illustration B gets a life estate which is vested in him absolutely, so
it is vested ownership. So far as C and D are concerned the property is vested in
them merely conditionally, as vesting of the property in each of them depends upon
uncertain condition which may or may not be fulfilled. Where C is concerned, he
m ust survive B where D is concerned, C should die during B ’s life time. In this
illustration both C and D survive B, then on B ’s death C ;’s contingent ownership
becomes vested ownership and D ’s contingent ownership is absolutely destroyed.
But On the other hand if C does not survive B then on B ’s death it is D’s contingent
ownership that become vested. The property w ill not pass on C’s heirs. So during
B’s life time neither C nor D can alienate the remainder, for a contingent ownership
is neither an inheritable nor a transferable right.
In the second illustration, B’s ownership is contingent, the vesting will depend
on a condition which may or may not be fulfilled. If he marries C well and good.
15
then vesting of the property takes place in him. If he does not marry C but marries,
D then his contingent ownership is absolutely destroyed.
Sole and Co-Ownership: An exclusive ownership of an individual as against

the whole world is called sole ownership e.g single owner. The ownership of two or
more persons having interest in the same property or thing is called co-ownership
Co-ownership: Before explaining the different kinds o f co-ownership let me

explain the principle underlying this type o f duplicate ownership and how it arises.
Supposing A and B together buy a house. No fraction of the house belongs to

either, but both together own the whole. 'A’ has a right, to the entire house and at
the same time T3’ has a right f-., the entire house. The right of ownership over the
entire house as an undivided unity is vested in both A & B at the same time. This is
co-ownership. Once they begin to own a definite share in the house, their claim
become adverse, then co-ownership is dissolved into sole ownership by the
operation o f w hat is known as partition.
The law recognize two kind of co-ownership. Whether it is the one or the other
form will depend upon the legal incidents attached to it by the law this is usually
the effects of death of one of the co-owner has devolve upon the title of the other.
The two instances of co ownership are join t ownership or join t tenancy and
ownership in common or tenancy in common.
Illustrations: Supposing a grant of land say ten acres is made to AB, B, & C
without indicating that how they are to take separate interests in the ten acres. In a
grant of this nature each has an identical right in the ten acres. A right is identical
to the rights of B and C to put it in a nutshell each has a right not only to the land.
This is an instance of joint ownership. None of them can claim ownership over any
distinct share. The effect of this is when one co owner dies, his interest accrues to
the survivor by the right of survivorship of ju s acresscendi.
But if the grant specified the definite shares o f the co-owners, then it is joint
ownership in common. Each is interested only in a part and not in the whole.. So
when one co-owner dies his right to definite share descends to his successors like
any other inheritable right.
Absolute and limited ownership : the ownership, which vests all the rights
over a thing to the exclusion o f all is called absolute ownership. Ownership which
imposes limitations on user, duration or disposal of rights of ownership is called
limited ownership
Spes Successionis: A spes successionis is not a property both in English and

Indian law. It is nothing but an expectancy o f succession. A person may have
every hope of succeeding to this property of a relation on his or her death, but this
does not amount to a right o f property. Suppose I have an uncle or an aunt wealthy
and I am a favoured niece I cherish a fond o f hope that they will rem ember me in
their w ill and leave me a little something o f their worldly goods. This is an
16
expectation. This is spes successionis and not being a property can neither be
transferred nor inherited.
2.6. POSSESSION
Possession brings about im portant legal relation and so every system o f law,
even primitive ones had rules to protect possession. We need material things, such
as food, clothing and shelter for living. All these we have to get hold or must
possess them. So possession of these material things is very essential to life itself
and from this we conclude that possession is the most important relationship
between men and things.
In one sense possession began as a fact o f physical control.. Therefore before

there was law there was possession. This possession which started as a mere fact
has enormous legal significance, a fact to which legal rights are attached and the
legal consequences which flow from the acquisition of possession are so many,
so varied and so serious that today it has in its treatment become pure technicality
of the law.
When a person has the physical control of the thing, certain legal
consequences and advantages comes to be attached to the possessor for instance
both in Roman and English law possession was treated as evidence of ownership
until the contrary was proved and the contrary had to be proved by rival claimant.
Even today this fundamental principle of jurisprudence holds good. Then again
possession was the basis of certain remedies called possessory remedies by which
sometimes possession was protected even against the true owner him self
possession becomes very important when we realize that it is one of the modes of
acquiring ownership.
Kinds of possession.
Possession in fact: the actual or physical possession of a thing is called
possession in fact. It is also known as defacto possession. It indicates physical
control of a person over a thing. There must be a physical relation with the object
and the person. Such physical relation or control need not be continuous.
Possession in Law: The possession, which is recognized and protected by a
law, is called possession in Law. It is also known as de jure possession. It is a
possession in the eye of law.
Legal consequences of possession.
1.- It is a prima-facie evidence of ownership
2. Long possession confers title of ownership
3. Transfer o f ownership is made by transfer of possession
4. Only true owner can interfere in wrongful possession
5. Possessor may in some cases confer good title even though he is not a
owner.
6. Possession of thing which belong to nobody gives rise to good title or right.
Corporeal and incorporeal possession
The possession of a material object is called corporeal possession. Actual use
or control over such material object is not necessary. E.g possession of car. The
17
possession of other than material object is called incorporeal possession. Actual use
and enjoym ent of right is necessary. E.g Possession of copy right.
Immediate and mediate possession.
The direct and primary possession o f a m aterial object is called mediate
possession. The possessor holds the thing on behalf of another e.g possession of car
by driver.
Representative possession: The possession of a thing through an agent or a
servant is called representative possessing The representative is not the real
possessor. E.g Master's money in the servants pocket.
Concurrent possession : Two more persons may jointly possess a thing at the
same tim e. This is known as concurrent possession . e .g B may have right o f way
on the A* land. ~
Derivative possession. The possession of the holder of a thiny is called
derivative possession. He derives title from the person who entrust the thing e.^ A
watch repairer . He need not return the watch until the repair charges are paid.
Constructive possessions The possession in law is called constructive
possession . It is not actual possession in law antT not a possession in fact..
Possession of keys of a car implies the possession of c a r .. /
Adverse possession.
The possession against ever-/ other persop having or claiming to have a right to
the possession of that property is called adverse possession It is a possp-ssion of a
thing without the permission of its real owner. It may create title in the adverse
possessor against the real owner . e.g Lessee’ possession after expiry of lease
period-
Duplicate possession! The possession of a thing by two persons is called
duplicate possession. The possession of the one person is compatible with the
possession of another person. It is possible only when two claims are not mutuly
adverse. E.g possession of co owners
Possession is the union of two elements the physical element or the corpus
possessionis and the mental element or the animus possessendi.
The nature of physical control and intention will vary according to
circumstances. When at a railway station the porter is in charge of the luggage,
although he has the actual physical control over the luggage, yet the law gives its
owner the possession, because he has not lost the physical control viz. the corpus
possessions. The same principle, applies where the servant or the agent is in
possession of the goods of the master or principal as the case may be. So the
question is when a person does not have the things within his grasp, can he have
the corpus possessions of possession? the answer to this question is to be found in
the elements that constitute the corpus of possession.
/
The elements of corpus possession: In this illustration given above the corpus
element of possession is not lost, so there is no loss of possession when a domestic
animal strays, possession is not lost but it would be otherwise if a wild animal
escape from captivity then the corpus is lost and consequently possession too is
lost.
f'
J
18
You w ill note that in the first three cases corpus is not lost and therefore,
possession is not lost, whereas in the fourth case, that o f the wild animal corpus is
lost and therefore, possession is lost. Therefore to constitute physicrJ element o f
possession or the corpus or corpus possession (i) There m ust be a guarantee of
control between the person in possession and the thing possessed ii) so long as
there, is a guarantee o f control physical control is not necessary iii) the physical
control may be exercised by a servant or agent.
So in the above first three cases although the possessor does not have actual
physical control in the sense he does not have the things withir. his grasp, but in
so far as he can exercise control that alone is sufficient to give him the corpus
element o f possession. In the case o f a domestic an im *1. even if the animal has
strayed, so long as the animal has the animus revertendi (to return) it can be easily
retrieved; but not in the case o f a wild animal, it is fear nature (wild animal,
dangerous animal), which does not have the animus revertendi, and hence, there
cannot be any question o f a guarantee o f control. So corpus is lost.
2.7. MODES OF ACQUIRING POSSESSION:
Possession is made up of the elements of corpus and animus as already seen.
So when these two elements coincide in a person possession is acquired. So there
are three ways in which possession can be acquired. They are the following.
1. Taking: To acquire possession by this mode, the person must take the thing
^ w ith the necessary anim us. In case there is an owner or possessor, he m ust take
the thing without his consent. Taking may be rightful as when the possessor
catches a fish from the sea or the unpaid innkeeper right o f distrait o f goods
belonging to the lodger which he exercises when a lodger fails to pay the bill. Then
again the taking may be wrongful as when a thief steals thing. As the two elem ent
of possession coincide in him he gets legal possession of the thing.
2. Delivery: Here possession is acquired when the original possessor
voluntarily relinquishes his possession in favour of another. It may be actual when
for the first time" the two elements o f possession comcide in the transferee, as in an
outright gift or in a loan o f a chattel. In the former case the transferor does not
retain the mediate possession whereas in the latter case the transferor retains the
mediate possession.
Delivery may also be constructive, where there is no physical dealings with the
thing but by mere change in animus possession is secured. The various ways in
which it may arise are a) In uic case o f loan of a chattel, the lender has mediate
possession and the borrower immediate possession. Supposing the lender asks the
borrower to retain the chattel for him self as a gift then the mediate possession is
also transferred to the immediate possessor by mere change o f animus b) W here the
mediate possession, as in the case where I buy a horse and allow the seller to
retain possession o f the horse for his own use for a month c) W here the mediate
possession remaining in a third person, as in the case where A has leased out his
farm to B, and subsequently A sells the farm to c. B still continuing as the lessee.
Here B atom s to C i.e. recognizes the title o f the new owner C. This is constructive
delivery by attornment.
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3. Operation o f law: On death or insolvency of a person the law removes

property from the control of one person and gives it to be controlled by another:
either the heirs of the deceased person or the official assignee as the case m av ba.
2.8. POSSESSORY REMEDIES:
Every system o f law recognizes that possession is a very valuable right and
thus protects it, sometimes even against the true owner himself.
Indian law also protects Possession. Section 6 o f the Specific Relief Act, 1973,
provides for these possessory remedies, but in order to avoid duplication of suits it
has made provision for a compromise, which is, if the dispossessor brings his suit
within 6 months from the date, o f eviction, he will be allowed to succeed merely on
the ground that on the day of dispossion, he was in actual possession of the
property. But if he is not vigilant and so brings his suit after six months even the
defendant will be allowed to succeed on grounds of a superior title.
Section 145 of the Criminal procedure code provides that a magistrate on
information fearing a breach o f the peace, puts the dispossessed possessor back in
possession or if not dispossessed then restrains the disturber from causing
disturbance. He does not go into the merits o f the case, he is interested in the law
and order situation so prevents the parties from taking the law into their own
hands.
2.9. SUMMARY
Ownership denotes the relation between a person and an object forming the
subject matter of ownership. It consists in a complex of rights all o f which are
rights in rem being good against the entire world and not merely against specific
persons. To Salmond the right of ownership is not a single right, it being a bundle
of rights, liberties, powers and immunities. .The next is Possession it brings about
important legal relation and so every system o f law, even primitive ones had rules to
protect possession. Further we have seen Possessory remedies in this lesson.
1. W hat are the three ways of acquiring possession?
2. W hat are possessory remedies? Explain the material basis for such
remedies?
3. Write a note on Adverse possesion
2.11. SUGGESTED READINGS
1. Jurisprudence, P.S.A. Pillai, reprint 2006, Eastern Book Company, Lucknow
2. Jurisprudence and Legal Theory, G.C.Subbarao 9th edition, Eastern Book
Company, Lucknow
2.12. KEYWORDS
Vested - Conferring
Contingent - Uncertain to occur
Spessuccessinis - Chance o f becoming heir
□
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LESSON-3
■ ‘___________TRANSFER OF MOVABLE AND IMMOVABLE PROPERTY

STRUCTURE
3.1. Introduction
3.2. Objectives
3.3. Parties to transfer
3.4. Oral Transfer
3.5. Condition restraining alienation
3.6. Transfer to unborn person
3.7. Rule against perpetuity
3.8. Vested interest
3.9. Contingent interest
3.10. Summary
3.13. Keywords
3.1. INTRODUCTION
In this lesson\we have to see what kind of property may be transferred, that is
what property can b \ th e subject matter of transfer. The general rule is that all kind
of properties may be transferred. But it has one exception, that is, properties which
are prohibited from being transferred under Transfer of property Act or any other
law for the time being iri force cannot be transferred, Section 5 to 37 Transfer of
Property Act apply for the Transfer of both movables and immovable properties. In
the previous lesson we have seen Sec 5 and 6 in detail. Now we have to see from
Section 7-24 in this lesson
3.2.OBJECTIVES
• know about Conditions restraining Transfer

• know about Vested interest and contingent interest
• know about Doctrine of election
3.3. PARTIES TO A TRANSFER
According to Section 7, a transferor must be (1) competent to contract (2)
having title to the property or authority to transfer it if not his own. The
competency is to be decided according to the Section 11 of Contract Act. Hence
every person is competent to contract who is a major, of sound mind and is not
disqualified from contracting by any law to which he is subject. Hence a minor can
not be transferor. A transfer by a minor is void and so it cannot be ratified by minor
after attaining majority. But a minor can be a transferee in respect of sale
mortgage,, gift but he cannot be a lessor. A-lunatic cannot be a transferor and he
21
can be equated to a minor with a difference that a lunatic can transfer during lucid
interval. The authority to transfer must be there. If the transferor is owner, he can
transfer. If he is not the owner he should have authority to transfer. He may be an
agent having authority from the principal. A natural guardian can alienate m inor’s
property after getting court permission.. A manager o f Hindu undivided family can
alienate for legal necessity or binding purpose. The executor or administrator o f an
estate can alienate under Indian Succession Act. An Official Receiver or Official
Assignee can alienate under law of insolvency.
3.4. ORAL TRANSFER
According to Section 9, a transfer o f property can be made without writing in
eveiy case in which a writing is not expressly required by law. That is oral transfer
is valid in certain cases under Transfer of Property Act.
The following transfers can be made only by a registered document.
1. A sale of a tangible immovable property of the value Rs. 100/- or upwards.

(Section 54)
2. A sale of reversion or other intangible property (Section 44).
3. A simple mortgage irrespective of the amount and all other mortgages
(except a mortgage by deposit of title deeds) when the principal sum secured
is Rs. 100/- or upwards. (Section 59).
4. A lease from year to year or for any term exceeding one year or reserving a
yearly rent. (Section 107).
. 5. A gift of an immovable property (Section 123).
6. An exchange, subject-to the same rule as a sale. (Section 118). In all the
above said cases registration is compulsory.
7. All transfers o f actionable claim should be in writing, but registration is not
necessary (Section 130).
Further a mortgage deed and gift deed must be attested by at least two
witnesses.
In cases other than cited above transfer can be made orally. For example a
sale of immovable property worth less than Rs. 100/- can be made orally
accompanied by delivery. Mortgage by deposit o f title deeds is done orally.
It may be noted that the transfer is one within the meaning o f Transfer of
Property Act. Transfers like transfer to deity, partition, release, relinquishment etc.,
are transfers not covered by Transfer o f Property Act
The Effect of Transfer

We have to see what are the interests that are passed in a transfer, for
example, If ‘A ’ sells a house to "B’, the question is whether ‘A ’ can claim any right
over the house such as easement right, etc. o f the house. The answer is given in
Section 9 which speaks of operation of transfer. The following points are relevant.
22 .
1) The general rule is that the Transfer of Property passes forthwith to the
transferee all the interest which the transferor is than capable of passing in the
property and in the legal incidents thereof. It will not be so only when a different
intention is expressed or necessarily implied.
The above said rule has two aspects, firstly the nature and extent of interest
transferred and secondly legal incidents transferred.
Though all the interest o f transferor will be transferred to transferee such a

transfer can be restricted by express or implied intention to the contrary. For
example a gift by an absolute owner may recite that to ‘A ’ for life then ‘A* will get
only life-estate and not absolute estate. The nature of interest transferred may
imply such intention. For an example if ‘A ’ executed a simple mortgage of his land
to ‘B ’ he is transferring not all his rights, but only a security for payment of the
debt. If he executes a usufructury mortgage he is transferring security and
possession for a certain period.
Supposing he executes a lease deed he is transferring right to possession alone

retaining title with him. Because ownership is a bundle of rights and interests and
so any one or more of them can be transferred.
The' second aspect is the transfer o f legal incidents. An incident is a thing

necessarily depending upon pertaining to or following another that is more worthy-
as dent is incident to a reversion. The following are the legal incidents, which pass
on a transfer o f property to which they relate. They are benefit of a covenant which
runs with a land as under Section 55(2), Section 65 and Section 108(c) a right to
possession of title deeds, under Section 55(3) a right of preemption.
Apart from them Section 9 itself gives certain legal incidents which w ill pass
on a transfer. They are as follow:
(1) In the case of land the legal incidents include easements, annexed thereto
the rents and profits thereby accruing after the transfer and all. Things attached to
the earth and so all of them will pass.
As an easement, a purchaser o f a land acquires a right of way which the

vendor had. Similarly, a lease .of land will also transfer easement of right o f way.
Secondly, a purchaser is entitled to rent and profit accrued after his purchase. Rent
and profit accrued before the transfer is not legal incident of the property
transferred. Thirdly, all things attached to earth will also be transferred. In the case
of a lease'th e right to enjoy the trees and shrubs passes to the lessee. A house
being imbedded in earth passes on the transfer of land to the purchaser. All things
which are annexed to the properly mortgaged are part of the m ortgagee’s security
and w-ill pass on creation of mortgage and the mortgagee need not make mention of
all structures and fixtures. Minerals are imbedded in the earth and passes on the
sale o f land.
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In the case of money or other property yielding income the legal incident is the
interest or income thereof accruing after the transfer and it will pass to the
transferee.
Thus it will be seen that the operation o f a transfer is to transfer all the
interests of the transferor and all the legal incidents to che transferee unless
different intention is expressed or implied.
3.5. CONDITION RESTRAINING ALIENATION
If a person wants to transfer his property to another person he can give him an
absolute right or a limited right. In other words the nature of interest transferred
can be described by certain words or his interest created can be defeated by putting
a condition. In both the cases the transferee takes a limited interest and not an
absolute interest. But the transferor cannot put any condition or limitation and he
is bound by some of the rules of Transfer of Property Act. Section 10 gives one of
such rules, namely condition restraining alienation.
Section 10 read as follows; where property is transferred subject to a condition

or limitation absolutely restraining the transferee or any person claiming under him
from parting with or disposing of his interest in the property, the condition or
limitation is void, except in the case of a lease where the condition is for the benefit
of the lessor or those claiming under him provided the property may be transferred
to or for the benefit of a woman (not being a Hindu, Mohammedan, or Buddhist) so
that she shall not have the power during her marriage to transfer or charge the
same or her beneficial interest therein.
Under this rule, the power of alienation o f the transferee cannot be restrained
absolutely. The transferee should be able to alienate as he likes by effecting
mortgage, gift, sale, exchange, lease etc. If the transferor prohibits him from
alienation by putting a condition or limitation such a condition or limitation is void.
The principle contained in this Section is of universal application and is

applied both in Hindu and Muslim laws. Not only the provisions o f Section 10, but
also o f Section 12 are applicable o f all transfers by gift, sale or otherwise. But it
must be noted that the Section says that an absolute restraint alone is bad, so it
follows that as condition imposing a partial restraint is not void.
Therefore there cannot be an absolute restriction o f power o f alienation. In

Venkattarammanne Vs. Brammanna (4 Madras H.C. 345) A,B,C and D effected a
par tition o f joint family property and agreed that if any one o f them should have no
issue, he would have no power to sell his share, but should leave it for others. ‘A ’
sold his share and dies without issue. <B ’ ‘C’ and ‘D’ sued to recover the share. The
court held that the condition was void as it restricts the power of alienation
absolutely.
Hence we have to see w hat is m eant by condition and limitation, an absolute

restraint on transfer. It m sy **£■ noted partial restraint on transfer is valid.
24
Meaning of Condition and Limitation J

The condition in the Section 10 refers to a condition subsequent. That is on a
transfer property an interest therein may be created with the condition added that
it should cease to exist in case a specified uncertain event shall happen or in a case
a specified uncertain event shall not happen. Then condition is called condition
subsequent and so there should not be a condition subsequent which restricts
alienation absolutely.
Absolute Restraint on Transfer

In order to find out w hat is an absolute restraint on transfer and what is a
partial restraint on transfer, we have to look into ju d ic ia l‘decisions. Rosher Vs.
Rosher (26 Ch. D 801) is the leading case. In this case, the testator gave an absolute
estate to his son with a provision that if he sold during the life time o f his wife, she
should have an option o f purchasing the estate at a price which was one fifth of the
m arket value. -It was held to be an absolute restraint and so void. Here the restraint
was limited to the particular time namely, the life of the wife and yet it was held to
be an absolute restraint as it compelled the son to sell for an under value. When a
husband settled property on his wives, but subject to a condition that they could
not sell without his consent, the condition is void as it is an absolute restraint.
Partial Restraint on Transfer

If the restriction in only partial, that is prevents him only in certain
circumstances from alienation such a condition or limitation is valid. There was a
view that if the restraint relates to a particular period, it is only a partial restriction.
The judicial committee approved Mohammed Raza Vs. Abbas Bandi case , where it
was held that a condition restraining the transferee from transferring to a stranger,
that is outside the family was not an absolute restraint, but only a partial restraint
and so was valid.. Hence it is made out that condition against alienation to a
stranger is only a partial restraint and valid.
It is to be noted that the transfer should not contain any restraint on the part
of transferee. But there can be some restraint of alienation on the part of transferor
and such a clause is not void. In the case o f mortgage, the mortgagor may recite in
the mortgage deed that he will not alienate and such a condition is not hit by
Section 10. Further the transferor cannot impose a condition or lim itation
restraining absolute alienation, but it is open to the transferee to execute a separate
agreement restraining his right o f alienation. Such an agreement is not hit by
Section 10.
Exceptions to Section 10
There are two exceptions to the rule
Lease
A lease is an exception to the rule against an absolute restraint on alienation.
This exception becomes necessary from tlê very nature o f a lease which is transfer
of property for a time or the perpetuity, but in which the lessor necessarily retains
25
an interest. Hence a condition in the lease that the lessee should not sublet or
assign is valid, as such a conditions is made for the benefit of the lessor.
Married Woman
When a transfer is made for the benefit o f a woman (other than a wom an of
Hindu, Mohammedan and Buddhist) a restriction on alienation during her
covertures can be imposed. That is it is applicable mainly to Christians. In order to
enable a wife not to sell the property to give m oney to her husband, this exception
was made restraining her power of transfer
REPUGNANT CONDITIONS (SECTION 11)
Under Section 10, we saw that if any interest is created in favour of a person
he should not be absolutely prohibited from selling the property or encumbering
the property Equally if an absolute interest is created in favour o f a person he
should not be directed to enjoy the property in a particular manner as absolute
interest gives him a right to enjoy the property as he likes and he cannot be
directed to enjoy in a particular manner. If the transfer deed contains any such
conditions requiring him to enjoy the property in a particular manner the
conditions is repugnant to absolute interest already created in the document and so
void. This principal is embodied in Section 11 which reads as follows.
W here on a transfer of property, an interest therein is created absolutely in

favour of any person, but the terms of the transfer direct that such interest shall be
applied or enjoyed by him in a particular manner, he shall be entitled to receive and
dispose of such interest as if there were no such direction.
Where any such direction has been made in respect of one piece o f immovable
property for the purpose of securing the beneficial enjoyment of another piece of
such property nothing in this Section shall be deemed to affect any right which the
transferor may have to enforce such direction or any remedy which he may have in
respect o f a breach thereof.
Section 11 prohibits the restriction on the enjoym ent o f property. Section 10

Prohibits a restriction on the transfer o f property. Both Sections rest on the same
principle that a conditions repugnant to the interest created is void. Section 11
refers to absolute interest only. A restraint on transfer is repugnant of any interest
in property whether absolute or limited, as the right of transfer is an incident of
ownership. A restriction on enjoym ent is repugnant to an absolute, but may not be
repugnant to a limited interest such as lease hold or a life estate. Thus Section 11
applies only to case where absolute estate is created in favour o f a transferee.
The Effect of Repugnant Condition
When there is a repugnant condition, the condition is void and can be having
ignored but the transfer is valid.
26
Exception to this rule

Section 11 contains an exception if the transferor is the owner o f another piece
o f immovable property also, he m ay for the benefit o f that property impose a
restriction on the enjoym ent o f the property transferred by him. Thus if ‘A ’ owns a
vacant site ‘X ’ as well as to house nearby and sells <X ’ to ‘E ’ he may, for the
preservation o f the amenities enjoyed by his house/ Such as an unobstructed
passage of light and air to it over 9C require that *6’ shall not build upon X such a
condition is valid. If T3’ buys the ‘X ’ with that conditions, he is bound to observe the
condition and not to build thereon. Though it is a repugnant condition restricting
his power o f enjoyment. Such a restriction is valid as an exception to Section 11.
Determination o f interest on the insolvency or Attempted alienation (Section 12)

Where property is transferred subject to a condition or limitation making any
interest therein, reserved or given to or for the benefit o f any person, in case on
becoming insolvent or endeavoring to transfer or dispose o f the same, such
condition or limitation is void.
Nothing in this Section applies to a condition in a lease for the benefit o f the
lessor or those claiming under him ”.
If ‘A ’ settles property to and *3’ becomes the owner of the same, so that the
creditors o f T3’ can proceed against the property. But if ‘A ’ had inserted a condition
in the settlement deed that if ‘B ’ becomes insolvent, the transfer w ill become
ineffective and the creditors cannot proceed against the property at all. Similarly, if
the condition in the settlement is to the effect that if the transferee attempts to sell
the property, the transfer w ill com e to an end, it will deprive the transferee or his
creditors o f the benefit o f the property. In order to avoid these situations the
Transfer of Property A ct does not allow forfeiture on insolvency and forfeiture on
attempted alienation.
Exception to this Rule

A lease is an exception to this rule. A covenant determining a lease in the
event o f the insolvency o f the lessee is valid. But there should be a power o f re-entry
provided in the lease deed, for the determination o f lease under Section 111 (g) of
Transfer o f Property Act and on occurrence o f forfeiture the lessor m ust give a
notice in writing to the lessee o f his intention to determine the lease. Such a
condition o f forfeiture is necessary to be imposed for the benefit o f the lessor or any
person claiming under him.
3.6. TRANSFER TO UNBORN PERSON (SECTION 13)
The Transfer of Property A ct covers only transfer in favour o f living persons. It
means a transfer cannot be made in favour o f a person yet to be b o m (unborn
person). But a transferor may intend to give the property to his grand children etc.,
who m ay be b o m later. Hence Transfer o f Property Act says that though a transfer
cannot be made directly to an unborn person, interest can be created for the benefit
27
of such person on fulfilling certain conditions. Those conditions are given in Section
13. It reads as follows.
‘Where on a transfer o f property an interest therein is created for the benefit of

a person not in existence at the date o f transfer subject to a prior interest created
by the transferor the interest created for the benefit of such person shall not take
effect unless it extends to the whole of remaining interest of the transferor in the
property.
ILLUSTRATION
‘A ’ transfers property of which he is the owner to T3’ in trust for ‘A ’ and his
intended wife successively for their lives and after the death of the survivor, for the
eldest son of the intended marriage for life and after his death for ‘A ’s. second son.
The interest so created for the benefit of the eldest son does not take effect because
it does not extend to the whole o f ‘A ’ s remaining interest in the property.
Hence the estate must vest in some person between the date of the transfer
and the coming into existence o f the unborn person. The interest of the unborn
person m ust be in every case preceded by a prior interest and this Section in effect
says that the interests of the unborn person m ust be the whole remainder and so it
is not possible to confer an estate for life on an unborn person. In the illustration of
this section, the interest created for the benefit o f the unborn eldest son is only a
life interest and so fails.
3.7. RULE AGAINST PERPETUITY (SECTION 14)

A transferor may create limited estate such as life estate, but he should see
that the property is given to some person absolutely at some point of time. Because,
absolute estate, alone will enable alienation. How long can he postpone the vesting
of property absolutely? The period during which vesting can be postponed is called
the period of perpetuity and vesting thereafter is void in law. Section 14 deals with
rule against perpetuity.
The rule against perpetuity gives the m axim um period by which vesting of
property can be postponed.
According to Section 13 Transfer of Property Act, so long as the transferees are

living persons any number of successive estates can be created. A transfer may be
made to ‘A ’ for life and then to T3’ for life and then to ‘C ’ for life and so on provided.
A, B, C are all living persons at the date of the transfer. But if the ultimate
beneficiary is some one not in existence at the date of the transfer, Section 13
requires that the whole residue o f the estate should be transferred to him. That is
he (unborn person) should be given absolute estate. If he is not bom before the
termination o f the last prior estate, the transfer to him fails under Section 14. If he
is born before the termination o f the last prior estate, he takes a vested interest at
birth and possession immediately on the termination of the last prior estate.
28
It is to be noted that the rule against perpetuities does not require that vesting
should take place at the birth o f the ultim ate beneficiary. W hat is requires is that
the vesting cannot be delayed in any case beyond his minority. Thus if after the life
estate to ‘A ’, ‘B ’ and ‘C’ the ultim ate gift is given to unborn son. He will take vested
interest at his birth before the death o f ‘C’ and it is not necessary that he should be
in existence on the date o f transfer. I f ultim ate gift is given to unborn son on his
attaining age of 18 the son on his birth before the death of ‘C’ will get a contingent
interest which becomes vested when he attains the age of 18. If the ultimate gift is
given to unborn son on his attaining the age o f 22 the unborn son’s interest fails as
the vesting is delayed beyond the minority o f unborn persons. The result o f the rule
against perpetuity is that the m inority of the ultimate beneficiary is the latest
period at which an estate can be made to vest.
Section 13 and 14 lay down the rules to be observed to create a transfer in

favour o f unborn person. They are as follows.
(1) The transfer cannot be made directly in favour o f unborn persons. A

transfer to ‘A ’s son to be b om is not valid.
(2) Till the unborn person comes into existence, there should be a transfer in
favour o f a living person. A transfer to ‘A ’ (living person) for life and then to ‘A ’ s son
to be born is valid.
(3) The entire rem aining interest of the transferor after the creation o f the prior
interest in favour o f a living person should be given to the unborn person. A
transfer to ‘A ’ for life and then to ‘A ’s son to be born absolutely is valid, but a
transfer to ‘A ’ for life and then to ‘A ’ s son to be born for life is invalid.
(4) The transfer should not postpone vesting o f the property in the unborn
persons beyond the attainm ent o f the majority. (Vide Section 14).
Hence in India personal contract is not subject to Section 14 Transfer o f

Property Act.
Contract for Pre-emption

A contract of pre-emption gives first option to purchase In India such contract
does not create interest in land and so is not subject to the rule against perpetuity.
Mortgage
The rule against perpetuity does not apply to mortgage and any number o f
years may be fixed as time for redemption. A very long period may am ount to a clog
on redemption. This rule does not apply for charge also. Because in these cases
there are no new interest is created after the expiry o f perpetuity period.
Class gift
A transfer may be made in favour o f one person and if the transfer is void
either under Section 13 or 14 the transferee cannot get the property. But if a
transfer is made to two or more persons forming a class and if the transfer is void
either under Section 13 or 14 only in respect of_some of them alone and is not
29
affectcd by those rules in respect o f others, the question is whether all the persons
cannot get the property or it will prevent only those persons whose transfer is void
under Section 13 and 14. The answer is given in Section 15.
Transfer in favour of Class of persons

Section 15 reads as follow: If on a transfer of property an interest therein is
created for the benefit of class of persons with regard to some of whom such
interest fails by reason of any of the rule contained in Section 13 and 14, such
interest fails in regard to those persons only and n et in regard to the whole class.
I f gift is made to all who come within some general description and the share in the
property w ill vary according to th~ uumber o f persons in the class, it is called a class gift.
A gift, to all the children o f ‘ A ’ (bom or to be bom ) is a class g i l l But i f the donees are
specifically named it is not a class g i f t , even though there may be two or more donees.
For example a gift to 4 sons o f ‘ A ’ is not a class gift.
Under the present Section 15 of Transfer of Property Act in the case o f class
gift even if some of donees cannot take under the rules of Section 13 and 14 the
whole gift will not become void and those donees who are not affected by the rule of
Section 13 or 14 can take the estate.
Example: (1) The transfer is to ‘A ’ for life and to all children of ‘A ’ (born or to be
born) for life. In this illustration if ‘A ’ had son T3’ and £C ’ on the date transfer and D,
E and F were born later, it becomes a class gift to B, C, D, E and F, Among them B,
C were living persons at the time of transfer and so life estate can be created in
their favour. That is life estate in favour o f T3' and ‘C ’ is not hit by Section 13
i
Transfer of Property Act. But as far as T>\ ‘E ’ and ‘F’ are concerned, they are
unborn persons at the time of transfer and so under Section 13 they cannot be
given life estate but only absolute estate. Hence this transfer in favour of D, E, F
will fail under Section 13. Hence in this class gift the transfer in favour of B and C
does not fail under Section 13 (transfer to unborn person) but the transfer in favour
of D, E, F fails under Section 13. Under Section 15, B and C can take the property,
but not D, E and F and the gift will fail only in regard to D, E and F.
If Failure of Prior Interest (Section 16)

If a transfer is made to ‘A ’ and then to ‘B ’ and if the transfer to ‘A ’ fails under
Sections 13 and 14 can 13’ take the property? The answer is given in Section 16 in
the negative.
Section 16 reads as follows. “Where by reason of any o f the rules contained in

Sections 13 and 14 an interest created for the benefit of a person or of a class
persons fails in regard to such person the whole of such class any interest created
in the same transaction and intended to take effect after or upon failure of such
prior interest also fails”.
30
Illustrations
1) Property is transferred to ‘A ’ for life, then ‘B’ (unborn son ) for life and then
to ‘C’ . Here *B’s interest fails under Section 13 as unborn person was not given
absolute interest and so ‘C’s interest also fails as it is intended to take effect after
the interest o f <B ’.
2) Property is transferred to ‘A ’ for life and then to TB’ (unborn son) on his
attaining 25 years and in default of such a son tB ’ to ‘C’ . Here 13’s interest fails
under Section 14 as vesting was postponed beyond minority o f 13’ and so ‘C ’s
interest also w ill fail as it is intended to take effect upon the failure o f TB’s interest.
The above illustrations deal with a transfer in favour of a person. The following
illustrations deal with a transfer in favour of a class (class gift).
1. Property is transferred to ‘A ’ for life, then to all sons (unborn) o f ‘A ’ for life
and then to ‘C\
Here son’s interest fails under Section 13 and so there is a failure o f group gift
and so ‘C ’s interest also will fail.
2. Property is transferred to ‘A ’ for life and then to ‘A ’s sons on attaining 25

years and in default to ‘C\ If ‘A ’ has no sons on the date of transfer, the class gift in
favour o f all sons will fail under Section 14 and so ‘C’ s interest also will fail. In the
above illustration if ‘A ’ had a son T )’ living on the date of transfer, ‘D ’ s interest will
not fail under Section 14 but others interest will fail under Section 14 and so ‘C’s
interest will not fail. The reason is in the case of class gift only if there is a failure of
class gift in to the ulterior interest also will fail but if there is only a partial failure
as per Section 15 the ulterior interest will not fail.
Accumulation
If a person transfers a property to another person and directs him that he
should not spend the income of the property, but should accumulate it for some
period for spending to some purpose, the question will whether such a direction for
accumulation is valid or not. A transferor cannot direct accumulation o f income for
any period as he likes because the effect o f accumulation is to prevent the
transferee from enjoying the benefit of owing the property. Hence we have to know
the period for which a transferee can be directed to save income. The answer is
given in Section 17 Transfer of Property Act.
Direction for Accumulation

The following points are relevant.
(1) The accumulation can be directed only till the life o f the transferor or a
period of 18 years from the date o f the transfer.
(2) If a longer period is prescribed the entire direction is not void, but the
direction for the period beyond the life of the transferor or 18 years from the date of
transfer alone w ill become void and the transferee can ignore the direction beyond
the above said period.
31
(3) The direction for tine accumulation can be given in a limited transfer or an
absolute transfer.
(4) The entire income can be directed to be accumulated or a part of the
income can be accumulated.
The transferor may prescribe any longer period of accumulation in the
following cases which are exceptions to the direction for accumulation.
Exceptions
(1) Any period can be prescribed for the payment of debts of the transferor or
any other person taking any other interest under the transfer.
If ‘A’ owes a debt to TB’ and transfers his property to *C’ with direction to
accumulate income of the property transferred and to discharge the debt due to ‘B’
then the period of accumulation need not be confined to life of transferor or 18
years from the date of transfer. It is an exception and the reason for this exception
is that such a provision does not tie up property absolutely so as to prevent its
being transferred absolutely, because the creditor may at any time insist on
payment or the person indebted can at any time discharge the debt. The debt may
be existing debts or contingent liabilities to arise in future. But a provision to
accumulate income against a liability that is not likely to become a debt or to retain
and set apart income to create a reserve fund against future liabilities in business
is subjected to the statutory period. The exception can be invoked only, when the
direction requires the transferee that he must apply the income in discharge of debt
and not when an option is given to the transferee to discharge the debt out of
accumulated income. The scope is very limited as direction can be made to
discharge the debt of the transferor to transferee, and not of a stranger. But it is to
be noted that in English Law the exception includes the debts of the grantor or any
other person including a stranger.
(2) Any period can be prescribed for making the provision of portions for
children or remoter issue of the transferor or of any other person taking any
interest under the transfer.
The word portion means a share and points to raising of something out of
something else for the benefit of some children or class of children. The exception
does not include making of additions of income to capital in order to increase the
capital of children, etc., The exception applies only to provisions which must be
applied at the discretion of some third person.
(3) Any period can be prescribed for the preservation or maintenance of the
property transferred.
A fund may be provided for to meet the dilapidation at the end of the lease for
repairing the house or to keep it in good condition, a direction can be made even for
a longer period.
J
32
Transfer fo r the Benefit Of Public (Section 18)

Section 14 makes the vesting of property void, if it is to take effect after
perpetuity period. Section 16 invalidates the ulterior transfer on a failure of a prior
transfer. Section 17 does not allow accumulation of income after a certain periods.
These rules prevent fetters being put uoon the free circulation ard enjoyment of
property. But when the property is given for an object beneficial to the public it is
withdrawn from commerce and it is generally necessary that it should be kept in
tact and it is used to the object for an indefinite period. Hence is it not necessaiy to
give exception for the transfer which are for the benefit of public? The answer is
given in Section 18 in the affirmative.
Section 18 reads as follows the restrictions in Sections 14, 16 and 17 shall not
apply in the case of a transfer of property for the benefit of the public in the
advancement of religion knowledge, commerce, health, safety or .any other object
beneficial to mankind”.
Hence a charitable Trust is not subject to rule contained in the Sections 14,16
and 17 because the transfer is made for the benefit of the public.
Charitable trust is a gift for the relief of poverty, for the advancement, religion
and other purposes beneficial to community. A gift merely for the encouragement of
a sport is not a charity. But a gift for playing fields, parks, to promote the health
and welfare of the working class is a charity. A gift to maintain a library, public
hall, for relief of infirm and sick persons is a charity. A gift in perpetuity for
performance of religious ceremonies is valid. A gift to hospital is valid and not
subject to Section 14. similarly gift for advancement of religion or knowledge,
commerce, health, safety or any other object beneficial to mankind is not subject to
rules contained in Sections 14, 16 and 17 Transfer of Property Act.
Illustration
1) A transfer to ‘A’ for life and to a charitable trust after 30 years of the death
of ‘A’. Here vesting is postponed beyond perpetuity period and yet the gift is valid
and charitable trust will take effect. That is Section 14 does not apply.
2) A transfer to ‘A’ for life and to his son (unborn) on his attaining 30 years for
life and then to charitable trust. Thus trust is valid. Here under Section 16, trust
will fail as prior interest in favour of unborn son fails; but it being a charitable gift
Section 16 will not apply and so the gift over takes place.
3) A direction to accumulate for 100 years in a transfer to charitable trust is
valid, Section 17 does not apply.
3.8. VESTED INTEREST (SECTION 19)
The interest creating title immediately is called vested interest and the interest
which is given only a chance to derive title later is called contingent interest. Vested
interest is dealt with in the Section 19 and Contingent interest in Section 21, if ‘A’
transfers a property to T3’ he can make tB>the owner of the property immediatplv-or
33
after some time, he can make him eniov the, pmpprty imrnpHiatelv nr after
sometime. In some case he can certainly make him the owner or the chance of his
becoming owner may not be certain in some cases. Thus nature of interest
transferred can create title immediately on the transferee and it may give him only
a chance to derive title later.
Effect o f Vested Interest
In the case of vested interest the transfer is complete. When an interest is
vested it becomes the property of the transferee and so he can transfer the same
immediately on vesting. It is a transferable right, under Section 6 of Transfer of
Property Act. It is also a heritable right and so even if he dies, his legal
representatives will become entitled to the property. He need not obtain possesion
and yet his vested interest is transferable and heritable. If he takes possession^
during his life time his interest will vest in possession, also. If he does not take"
possession his interest will vest in title. Hence in both cases his vested ifiterest will
not be defeated by reason of his death before obtaining possession. F#r example if
property is transferred to ‘A’ immediately, ‘A* gets vested interest vested both in title
and possession and it is transferable and heritable. If property is transferred to ‘A’
on the death of ‘B’, ‘A’ gets vested interest in title and enjoyment and possession is
postponed till the death of . Even- then ‘A’ can transfer his vested interest. The
transferee can derive title on transfer, but he can take possession only on the death
of fB\
Vested Interest o f Unborn Person (Section 20)
If an interest is created in favour of an unborn person he will get a vested
interest as soon as he is born. For example if ‘A’ transfers property to T3’ and then
to ‘C’ (unborn) absolutely ‘C’ will derive a vested interest as soon as he is born and
hence if ‘C’ dies later, his vested interest will go to his heirs ‘C’ can also transfer his
vested interest even during the life time of (B\ But the property will not vest on
birth in one case, namely there is a contrary intention appears in the document to
the effect that property should not vest on birth. For example if a transfer to ‘A’ and
then to ‘B’ (unborn) who shall attain the age of 18. Here ‘B’s interest is only
contingent and so the property will not vest in him on his birth, but only when he
attains the age of 18.
3.9. CONTINGENT INTEREST (SECTION 21)
Contingent interest is one which will create interest in future and that-too an
fulfilling a condition. A contingent interest is said to become a vested interest when
" ' '9
tShe condition is fulfilled. The contingent interest is defined in Section 9.1 of Transfer
Property Act. _
Exception: Where, under a transfer of property, a person becomes entitled to
an interest therein upon attaining a particular age, and the transferor also gives to
him absolutely the income to arise from such interest before he reaches that age, or
directs the income or so much thereof as may be necessary to be applied for his
benefit, such interest is not contingent”.
Contingent interest arises in the following cases , ^
(1) A transfer is made to ‘A ’ in case 13’ dies under his age of 18.’A’ has
contingent interest until ‘B’ dies under 18. When ‘B’ dies under 18, ‘A’s contingent
interest becomes a vested interest.
(a) A transfer is made to ‘A’ for life and after his death to *B’ if T3’ survives ‘A
but if T3' dies before ‘A’ dies, to ‘C\ Here ‘B’ and ‘C’ have contingent interest. If ‘A’
dies and T3’ is alive ‘B’s interest beconês vested and ‘C’ loses interest. But if T3’ dies
during the life time of ‘A * ‘C’s interest becomes a vested interest on the death of ‘B\
(b) A transfer is made to *A* until he shall marry and after that event to T3’. ‘B's
interest is contingent and if ‘A’ marries ‘B’s contingent interest becomes a vested
interest.
2) If an interest is created in favour of a person if a specified event shall not
happen, such person acquired a contingent interest in the property and such
interest becomes a vested interest when the happening of the event becomes’
impossible.
Example: A transfer is made to ‘A’ if 13’ shall not marry ‘C’ within 5 years. ‘A ’s
interest is contingent until the condition is fulfilled by expiration of the 5 years
without ‘B's having married ‘C\ Hence if ‘B’ did not marry ‘C’ till the expiry of 5
years. ‘A’s contingent interest becomes vested on expiry of 5 years. Further ‘A’s
contingent interest will also become vested even within 5 years if the event becomes
impossible. That is if ‘C’ dies or ‘B’ dies within 5 years before their marriage. They
cannot marry at all the event cannot occur at all and so ‘A’s contingent interest will
become a vested interest on the death of TB’ or ‘C’.
3) If a transfer is made to a person giving him the property upon attaining a
particular age he gets only contingent interest, until he reaches that age. But if the
transferor also gives to him absolutely the income to arise from such interest before
he reaches that age or directs the income or so much thereof as may be necessary
to be applied for his benefit such interest is not contingent, but a vested one.
EXAMPLE
(1) A transfer is made to *B* upon his attaining 18 years his interest is
contingent.
(2) A transfer is made to 13’ upon his attaining 18 years and the transfer
directs that *B’ can enjoy the income from such property absolutely till he reaches
18 years. The interest is vested and not contingent.
It is to be noted that a spes succession is not a contingent interest.
35
Contingent Class (Section 22)

Under Section 22 if an interest is created in favour of such member or a class
as shall attain a particular age such interest does not vest in any member of the
class who has not attained that age.
A gift to such of the children of ‘A* as shall attain the age of 18 is a gift to
contingent class. ‘A’ has 2 children fB’ and ‘C’ . ‘B’ will get vested interest only when
he attains 18th and similarly ‘C’, will get vested interest only when he attains 18th
age. If ‘C’ dies before attaining his 18th a,ge he will not get vested interest at all.
Time o f Happening o f the Event (Section 23)
If in a transfer, an interest is to accrue to a specified person if a specified
uncertain event shall happen and no time is mentioned for the occurrence of that
event the interest will fail unless such event happens before or at the time as the
intermediate or precedent interest ceases to exist.
Section 23 recognized this principle only _to an limited extent. That is the
transferor can specifically say that the event may occur after some time after the
expiry of the prior interest and in that case the contingent interest will not fail if it
happens before that specified time. As stated earlier the transfer is to C A} for life and
to ‘B’ if he marries with in 10 years of ‘A’ s death. Hence the prior interest will
come to an end on the death of ‘A’ and ‘B’ cannot become the owner until he
marries *X’ and from the death of ‘A’ to the date of marriage of ‘B’ with 9C there is a
gap. But even if the transferor does not mention the time within which event
should occur, the principle of Common Law will be followed and the event should
occur before or at the expiry of prior interest. Hence if the transfer is to ‘A’ for life
and then to *B’ if he marries *X’, 13’s interest will fail unless he marries 0C before or
at the death of ‘A’.
Gift to Survivor (Section 24)
Section 24 deals with a transfer to survivor. It says that if in a transfer an
interest is to accrue to such of certain persons as shall be. surviving at certain
period is not specified, the interest shall go to such of those as shall be alive, when
the intermediate or precedent interest ceases to exist unless a contrary intention
appears from the terms of transfer.
Illustration
1) The transfer is to ‘A’ for life and after his death to ‘B’ and ‘C’ equally to be
divided between them or to the survivor of them. ‘B’ dies during the life of ‘A' ‘C’
survives ‘A’ . ‘A ’ s death the property passes to ‘C’
2) In the above illustration both ‘B’ and ‘C’ survive ‘A’. Both T3’ and ‘C’ will take
equally.
It is to be noted the principle of Section 24 is to be applied only when there is
no contrary intention appeared in the terms of transfer.
1) Property is given to ‘A’ for life and after his death to ‘B’ and ‘C’ or to the
survivor with a direction that if 13’ dies before the transferor his children are to
36
stand on his place ‘C’ dies during the life time of transferor. ‘B’ survives the
transferor but dies during the life time of ‘A’ The children of <B’ will get the property.
Here the time of distribution was fixed as the death of the transferor.
2) Property is given to ‘A’ for life and after his death to IB’ and ‘C’ with a
direction that in case either of them dies during the life time of ‘A’ the whole shall
go to the survivor *3’ dies in the life time of ‘A’ Afterwards ‘C’ dies in the life time of
‘A* the property goes to the heirs of ‘C’ Here the time of distribution is that of one
transfers surviving the other.
In the above said both illustrations a contrary intention is appeared from the
terms of the transfer.
3.10. SUMMARY ,
Every person competent to contract who is a major, sound mind and is not
disqualified from contracting by any law to which he is subject. Hence a minor can
not be transferor. The power of alienation of the transferee cannot be restrained
absolutely.. If the transferor prohibits him from alienation by putting a condition or
limitation such a condition or limitation is void. Section 11 prohibits the restriction
on the enjoyment of property. Section 10 prohibits a restriction on the transfer of
property. Both Sections rest on the same principle that a conditions repugnant to
the interest created is void Transfer of Property Act says that though a transfer
cannot be made directly to an unborn person, interest can be created for the benefit
of such person on fulfilling certain conditions. Those conditions aregiven in Section
13.Further we have seen Doctrine of accumulation andvestedand contingent
interest in detail in the lesson
1. Analyse the provison relating to rule against perpetuity
2. What is meant by Vested Interest?Distingush between vested and contingent
interest
3. Explain Doctrine of Accumulation
a. Transfer in favour of group persons
1. H.P. Vepasarathi - Law of Transfer of Property 4th Edition, 2000.
2. Venkata Subba Rao - Law of Transfer of Property.
3. Mulla - The Transfer of Property Act.
3.13. KEYWORDS
Oral transfer - transfer by words
Election - Choice
Perpetuity - Indefinite period .
□
37
LESSON-4
__________________________________________ CONDITIONAL TRANSFER

STRUCTURE
4.1. Introduction
4.2. Objectives
4.3. Conditional transfer
4.4. Fulfillment of Condition Precedent
4.5. Doctrine of Acceleration
4.6. Conditional Limitation
4.7. Condition subsequent
4.8. Doctrine of Election
\
4.9. Summary
4.12. Keywords
4.1. INTRODUCTION
A transfer can be made in favour of a person by creating an interest in him on
fulfilling a certain condition, till such condition is fulfilled his interest is a
contingent interest, and on fulfillment of such a condition, his interest becomes a
vested interest. Such a condition is called Condition Precedent, and such a transfer
is called Conditional Transfer. Though the transferor can impose any conditions as
he likes, there are certain restriction in the nature of condition to be imposed, such
restrictions are given in Section 25. In this lesson we are going know about
Conditional Transfer and Doctrine of election in detail Section 25 to 37 deals
about this
4.2. OBJECTIVES
In this lesson we are going
1. to know about conditional Transfer
2. to know about Doctrine of Acceleration
3. to know about Doctrine of Election
4.3. CONDITIONAL TRANSFER
Section 25 reads as follows. “An interest created on a transfer of a property
and dependent upon a condition fails, if the fulfillment of the condition is
impossible or is forbidden by law or is of such a nature that, if permitted, it would
defeat the provisions of any law or is fraudulent or involves or implies injury to the
person or property of another or the court regards it as immoral or opposed to
public policy
Hence the following conditions are invalid and the transfer cannot take effect
at all in the following cases.
38
Impossible condition
A .lets a farm to 13’ on condition that he shall walk a hundred miles in an hour.
The lease is void as nobody can walk 100 miles in an hour. It is an impossible
conditions.
Conditions forbidden by Law
‘A’ transfer a property to *6’ on condition that ‘B’ should lease his farm to ‘C’
for the retail sale of opium. The transfer is void as the sale of opium without a
license granted by the Collector is forbidden by the Opium Act.
Condition defeating the provision o f any Law
‘A’ transfer property to T3’ on condition that ‘B’ should not oppose his final
discharge of ‘A’ in insolvency proceedings. The transfer is void as the condition if
permitted would defeat the provisions of insolvency Law.
Fradulent conditions
‘A’ transfers property to fB’ on condition that ‘B’ who is an agent of ‘C’ should
grant a lease of land of ‘C’ with out the knowledge of his principal ‘C’ The transfer is
void as the condition is a fraud on the principal.
Condition involving injury on person or property o f another
‘A' transfers property to T3’ on condition that ‘B’ shall murder ‘C\ The transfer
is void as it involves injury to the body of ‘C’
Immoral Condition
‘A’ transfer property to ‘B’ on conditions that ‘B’ should live with ‘A’ as his
concubine. The transfer is void as the condition is immoral.
Condition Opposed to Public Policy
‘A’ transfers property to ‘B’ on condition that T3’ should desert her husband.
The transfer is void as the co* .dition is opposed to public policy.
In all the above said cases the condition precedent is void and so the transfer
also in void.
4.4. FULFILLMENT OF CONDITION PRECEDENT: (SECTION 2 6 ) * ^ "
If a property is transferred subject to fulfilling a condition precedent is it
necessary for the transferee to fulfill the condition strictly or whether the
substantial compliance of condition is enough? The answer is given is Section 26.
Section 26 reads as follows. Where the terms of a transfer impose a condition
to be fulfilled before a person can take an interest in the property, the condition
shall be deemed to have been fulfilled if it has been substantially complied with”.
Illustrations
(1) ‘A’ transfer a property to ‘B’ on conditions that he shall marry with the
consent of ‘C’ T)’ and ‘E’ ‘B’ marries without the consent of ‘C’ ‘D’ and ‘E’ but
obtains their consent after the marriage. ‘B’ had not fulfilled the conditions. Here as
T3’ failed to get consent at all before marriage, he has not even substantially
complied with the condition and so his interest fails.
39
(2) ‘A’ transfers a property to £B’ on condition that he shall marry with the
constant of ‘C’ ‘E’ ‘A’ marries with the consent of ‘C’ and ‘D’ alone while all of
them were alive. ‘B' has not fulfilled the conditions
(3) ‘A’ transfers a property to -<B’ on conditions that ‘B’ shall execute a
document within a specified time ‘B’ executed the document within a reasonable
time, but not within the specified time. ‘B’ has not performed condition:
The principle underlying this Section is called the Rule of Cypres. In the case
of conditional transfer the question arises whether the conditions if valid or
satisfied for the transfer, it can take effect only if and when the condition is fulfilled.
The rule that is applied here is the rule of substantial compliance, otherwise know
as the Rule of Cypres means “ as near as possible”. The reason for applying the
principle is that Law favours vesting. Law leans in favour of vesting and against
divesting, hence if a transfer is made subject to a conditions precedent, Section 26
provides that the condition shall be deemed to have been fulfilled even if it is
substantially complied with thus if ‘A’ transfers property to ‘B’ on condition that he
shall marry with the consent of ‘C’, ‘D’ and ‘E’ and if after death of ‘D’, ‘B' marries
with the consent of ‘C’ and ‘E’ the condition is deemed to be complied with and T3’
can take property. The substantial compliance is called the Rule of Cypres. On the
other hand conditions subsequent is subject to the rule of strict compliance, since
it divests previously vested interest. This rule is laid down in Section 29.
4.5. DOCTRINE OF ACCELERATION (SECTION 27)
The Doctrine of acceleration has been embedded in Section 27 as follows:
Where on a transfer of property, an interest therein is created in favour of one
person and by the same transaction an ulterior disposition of the same interest is
made in favour of another, if the prior disposition under the transfer shall fail. The
ulterior disposition shall take effect upon the failure of the prior disposition
although the failure may not have occurred in the manner contemplated by the
transferor. '*f \
But, where the intention of the parties to the transaction is that the ulterior
disposition shall take effect only in the event of the prior disposition faijir\g, in a
particular manner. The ulterior disposition shall not take effect unless the>prior
disposition fails in that manner.
If property is given to ‘A’ and if ‘A’ fails to take t]fte property on non fulfillment
of condition precedent and if the same transfer there is a gift over to ‘B’ on ‘A’
failure to take the property. ‘B’ can get the property and it is ntft necessary that ‘A’
» * • * * *
failure to take the property should be due to his failure to do the condttapr.. Even if
‘A’ could not take property for any other reason, the interest of ‘B’ v/ill take effeqft. In
other words on ‘A’ failure to take the property 3 ’ transfer is accelerated and so it is
called doctrine of acceleration. ,
40
Illustration
1) A transfer is made to ‘A’ for life and then to *B* ‘A’ disclaimed interest. T3’
transfer takes effect on disclaimer need not wait till the death of ‘A’ and T3’ interest
is accelerated on failure of ‘A ’ interest.
2) *X' executed a will in favour of ‘A’ for life and remainder to ‘B’ ‘A’ attested the
will. The gift to ‘A’ failed because of his attestation and so 13' can get the property
immediately even before the death of ‘A’.
Exception: But this rule is subject to an exception that where the intention of
the parties to the transaction is that ulterior disposition shall take effect only in the
event of the prior disposition failing in a particular manner, the ulterior disposition
shall not take effect unless the prior disposition fails in the manner.
It is to be noted that Section 27 comes into operation only if the prior interest
is valid, but fails due to some reason of the non-fulfilling the condition precedent.
But if the prior interest itself is invalid under Section 13 or 14 the subsequent
interest will not take effect at all under Section 16. For example, a property is
transferred to ‘A’ for life. Then to <B’ for life and then to ‘C’ Here T3’ interest will also
fail under Section 16. It is not accelerated under Section 27 because prior interest
is not at all valid. Only when a prior interest is a valid one but fails due to some
reasons like non fulfillment to any condition Section 27 will come into play and
latjer interest will be accelerated.
4.6. CONDITIONAL LIMITATIONS
Section 28 reads as follows “On the transfer of property, an interest therein
may be created to accrue to any person with the condition supera added that in
case a specified uncertain event shall happen, such interest shall pass to another
person, or that in case a specified uncertain event shall not happen such interest'
shall pass to another person. In each case the disposition are subject to the rule
contained in Section 10,12, 21, 22, 23,24, 25 and 27.
If property is given to ‘A’ and ‘B’ is to take the property,in case ‘A ’ performs or
fails to performs or fails to perform certain condition such condition is valid and it
is called Conditional Limitation. A conditional limitation is jone containing a
condition which divests an estate that has vested and vests it in another person. As
regards the prior interest it is a condition subsequent, but as regards the ulterior
interest it is a condition precedent. Under this Section both the dispositions, prior
and ulterior, are subject to the rules contained in Sections 10, 12, 21, 22, 23, 24,
25 and 27.
Illustrations
Section 10: ‘A’ transfers his property to ‘B’ without power of alienation and in
case of OS's death without issues to ‘C’ without power of alienation. The restrictions
are void in both the cases under Section 10 as they are the absolute restraint of
alienation.
41
Section 12: ‘A ’ transfers his property to <B* and if *B’ becomes insolvent to *C\
‘B’ becomes insolvent. The property will vest in Official Receiver and not in *C\ The
disposition in favour of ‘C’ is hit by Section 12 such condition is void.
Section 21: ‘A’ transfers his property to and in case of ‘B’ s death without
issue to ‘C’. ‘C’ has a contingent interest which becomes vested on TB’s death
without issue. That is the condition is subject to Section 21.
Section 22: ‘A’ transfers his property to ‘B’ and on ‘B’s death to such of the
children of ‘C’ as shall attain the age of 18. All the children of *C’ who are alive at
‘B’s death have an interest which vests when they attain the age of 18. That is the
condition is subject to Section 22.
Section 23: ‘A’ transfers his property to ‘B ’ for life and then to ‘C* if ‘C* goes to
England. ‘C’ does not go to England after ‘B ’s death. The interest fails under Section 23.
The condition is subject to Section 23.
Section 24: ‘A’ transfers his property to ‘B’ and on ‘B’s death without issue to
the sons of 4C* or survivor of them. The sons of ‘B’ who survive TB* take the property.
Section 25: ‘A’ transfers his property to T3’ on condition that he murders *C*
with a proviso. That on ‘B’s death without issue the property shall belong to T)\ The
interest of both ‘B ’ and T)’ fails.
Effect of invalid Ulterior Disposition (Section 30)
Under Section 30, if the ulterior disposition is not valid the prior disposition is
not affected by it. For example if ‘A’ transfers a property to for her life and if she
does not desert her husband to ‘C’. TB’ is entitled to the property during her Ufe as if
no condition has been inserted. Here the condition subsequent is void and so the
prior estate in favour of <B’ is not affected.
It may be noted that if the prior disposition is invalid as being illegal or
impossible under Section 25 or as offending against the rule against perpetuity, the
subsequent disposition also fails under Section 16. but if the subsequent
disposition is invalid, the prior disposition is not affected under Section 30.
Other Illustrations
(1) ‘A’ transfers his land to T3’ with a provision that if ‘B’ does not set fire to ‘C’s
hay stock within a year, the land shall belong to ‘D’, The ulterior disposition to ‘D’ is
in valid under Section 25, but the interest of ‘B’ is not affected.
(2) ‘A’ transfers his property to ‘B’ with a condition that if *B’ shall not walk 100
miles per hour the estate shall go to ‘C’. The condition subsequent is void and ‘B’
retains his property as if no condition was attached.
4.7. CONDITION SUBSEQUENT (SECTION 31)
If an estate was created, it can be destroyed on happening of an uncertain
event or on not happening of an uncertain event. The condition imposing such a
circumstance for divesting the estate is called ‘Condition subsequent’.
42
Section 31 reads as follows: Subject to the provision of Section 12, on a

transfer of property an interest therein may be created with the condition
superadded that it shall cease to exist in case of specified uncertain event shall
happen or in case a specified uncertain event shall not happen.
A condition subsequent terminates an interest and revest it in the grantor. It is
not a conditional limitation, which creates an interest in a third person under
Section 32, a condition subsequent must be valid. Otherwise it will not have the
effect of terminating the interest to which it is attached.
Illustrations
(1) ‘A’ transfers a property to T3’ for his life with a provision that in case ‘B’
cuts down a certain wood the transfer shall cease to have any effect. ‘B’ cuts down
the wood. He loses his life interest in the farm. It is a case of happening of
uncertain event.
(2) ‘A ’ transfers a property to T3’ for his life with a proviso that if ‘B’ shall not
go to England within 3 years after the date of transfer, his interest in the property
shall cease. ‘B’ does not go to England within 3 years. His interest in the property
ceases. It is a case of not happening of an uncertain event.
Exceptions: A condition subsequent should not be hit by Section 12. That is
condition subsequent should not be a condition ceasing an interest on transferee
becoming insolvent or endeavoring to transfer or dispose of the same.
Illustrations
(1) ‘A’ transfers his property to with a proviso that if T3’ becomes insolvent
T3’s interest in the property shall cease is adjudged insolvent. There is no
divesting of ‘B’s interest as the condition subsequent in the case is hit by Section
12 and the property will vest on official Receiver or Official Assignee.
(2) ‘A’ transfers his property to <B’ subject to a condition that the property will
revert to the grantor, if attached in execution of a decree against ‘A' by a creditor.
The condition is void.
Fulfillment o f condition subsequent (Section 29)
If a property is transferred to *3’ and there is a gift over to T3’ if ‘A’ performs
some condition, such condition is called condition subsequent for ‘A’ so as to lose
his title. Under Section 29 condition subsequent should be strictly fulfilled.
Section 29 says a follows: “An ulterior disposition of the kind contemplated by
Section 28, Transfer of Property Act cannot take effect unless the condition is
strictly fulfilled.
As law favours the vesting of estate on a condition subsequent which has the
effect of divesting an estate is subject to the rule of strict construction and a
condition precedent which vest an estate is subject to the rule of substantial
compliance.
'• . w *
43
Illustrations
(1) ‘A’ transfers Rs. 500/- to *B’ to be paid to him on attaining majority or
marrying with a proviso that if tB’ dies as minor or marries without ‘C’s consent,
then Rs.500/- shall go to *D\ T3’ marries when only 17 years of age with out ‘C’s
consent. The transfer to ‘D’ takes effect. Here TB’ has not fulfilled the condition
strictly
Condition precedent and Condition subsequent-Distinction
1) By fulfillment of a condition precedent an estate not previously vested
becomes vested.
By fulfillment of a condition subsequent an estate previously vested becomes
divested.
2) If fulfillment of condition precedent is impossible both condition and the
estate limited upon it are void.
If fulfillment of condition subsequent is impossible the condition and the
previous estate becomes indefeasible.
3) For fulfillment of condition precedent, substantial compliance is sufficient.
For fulfillment of condition subsequent strict compliance is necessary.
Validity o f Condition Subsequent (Section 32)
Section 32: in order that a condition, that an interest shall cease to exist may
be valid, it is necessary that the event to which it relates be one which could legally
constitute the condition of the creation of an interest.
A condition which is void as a condition precedent is also void as a condition
subsequent. If a condition subsequent is invalid it will not divest the estate.
Illustration
‘A’ transfers his property to ‘B’ with a proviso that if T3’ does not set fire to 'C’s
haystack in a year his interest will cease. This condition subsequent is void and so
‘B’s interest is not affected and so even if rB’ does not set fire, he need not lose the
property.
Time for Performance o f Condition Subsequent (Section 33)
Section 33 deals with the time for performance of condition subsequent. It
reads as follows. Where on a transfer of property, an interest therein is created
subject to a condition that the person taking it should perform a certain act, but no
time is specified for the performance of the act condition is broken when he renders
impossible permanently or for an indefinite period, the performance of the act”.
When the deed of transfer does not fix any time for the performance of a
condition subsequent it is broken not only when the person does an act which
renders performance impossible, but also when he does an act by which the
performance is indefinitely postponed.
✓ • 44
Illustrations: ‘A bequest is made to A , with a proviso that it shall cease to have
any effect - if he does not marry B’s daughter .A marries a stranger and thereby
indefinitely postpones the fulfillment of the conditions, the bequests cease to have
effect.
Fraud o f Interested Person (Section 34)
If the performance of a condition precedent or condition subsequent is
prevented by a person interested in its non-fulfilment, the delay is excused and the
condition is discharged. A party should not be allowed to take advantage of his own
fraud. This principle is laid down in Section 34 as follows:
'Where an act is to be performed by a person either as a condition to be
fulfilled before an interest created on a transfer of property is enjoyed by him, or as
a condition on the non-fulfilment of which the interest is to pass from him to
another person, and a time is specified for the performance of the act, if such
pexfoanance within the specified time is prevented by the fraud of a person who
would be dheUlj benefited by non-fulfilment of the condition, such further time
«HflTI<as against him be allowed for performing the act as shall be requisite to make
up for the delay caused by such fraud. But, if no time is specified for the
performance o f the act then, if its performance is by the fraud of a person interested
in the non-fulfilment of the condition, rendered impossible or indefinitely
postponed, the condition shall, as against him, be deemed to have been fulfilled”.
Htuatm tons
1) *A' transfers property to on condition that should marry ‘C’ in one year
time. The heir of *K did not inform the transfer to *B' for 2 years 'B' will get I year
time after expiry of 2 years to marry
4.8. DOCTRINE OF ELECTION (SECTION 3 f)
Election means choice Election is explained under Section 35 . It is an
obligation to choose between two inconsistent of alternative rights . Nemodat quod
non habet . It means no one can convey a better title than what he himself has.
However , Doctrine of election is an exception to such general rule. Where there is a
clear intention of the grantor that the grantee should not enjoy both rights, he is
bound to choose only one of them. Election may be express or frwptt—* . Express
election is final and conclusive .The foundation of the Doctrine of election is that
the person taking a benefit must also bear the burden .This Doctrine applies to all
kinds of property and person including wills, conveyances and settlements .Section
35 is not applicable to Mohammedans.
Illustration : The farm in Thanjavur is the property of C and worth Rs 800/- A
by an instrument of gift professes to transfer it to B, giving by the same instrument
Rs 1000/- to C . C elects to retain the farm .He forfeits the gift of Rs 1000/-
Conditions
\
1.Transferor must profess to transfer property not his own
45
2. Transferor must not have any right to transfer such property

3. Transferor must confer some benefit upon the property owner
4. Transfer and benefit must be part of same instrument
5. Benefit must be directly conferred on the owner
6.Beneficiary must have proprietary right in the property
7. Benefit must be accepted with knowledge of his duty to elect.
The principle of doctrine of election was laid down in Cooper Vs. Copper (LR6
C h i 5) Mr Cooper wrote a will and stated that after the death of his wife the
property shall be sold and the 2 Je proceeds shall be distributed among his three
sons A, B and C . Mrs Cooper gave the property of her husband to A and her self
acquired property to B and C. After widows death, A filed a suit against B and C
and asked them to elect. The court held that B and C have a choice either to accept
the Mrs Cooper’s deed of transfer and waive their inheritance or to reject the will
and retain the inheritance. It was held that since the testatrix was not the owner of
the property, her attempt to dispose of it by her Will, when she had no longer a
disposing power over it raised a case of election against the person who, taking
under her will, had an interest in that property.
He who gets benefit in lieu of something being lost has to elect. Simply, the
owner of property has to elect, by his election he may either accept the instrument
of transfer, with all its contents or reject it altogether. Electors ownership may be
vested or contingent.
Time for election The election has to elect within one year specified in the
instrument of transfer. If the owner is silent, it is deemed to have been elected
.After the expiry of one year, if owner does not elect the transferee may require him
to make such election. If he does not elect within a reasonable time after such
requisition, he is deemed to have elected in favour of the transfer.
Principle :He who accepts a benefit under a deed of will, must adopt the whole
contents of the instrument, conforming to all its provisions and renouncing every
right inconsistent with i t . No one is allowed to approving the part of an instrument,
which is beneficial to him and disapproving that part which goes against him.
Limitation: According to Section 35 a person who is not getting benefit
directly but deriving a benefit under it indirectly , need not elect.
Apportionment by Time (Section 36)
According to Section 36 in the absence of a contract of local usage to the
contrary all rents annuities, pensions, dividends and other periodical payments in
the nature of income shall upon the transfer of interest of the person entitled to
receive such payments be deemed as between the transferor and the transferee, to
accrue due from day to day and to be apportionable accordingly but to be payable
on the days appointed for ♦•be Payment thereof.
!
46
The following points are relevant under the apportionment by time.

(1) It applies to all rents annuities, pensions, dividends, and other periodical
payments in the nature of income. A Hindu widow’s right to maintenance accrues
from day to day. Hence on the death of a Hindu widow her heirs are entitled to
recover the maintenance allowance up to the day of her death, although the
allowance has, for the convenience of the parties been expressed to be payable on a
fixed date. The other periodical payment means the payments which are made
periodically, recurring at fixed time, not at variable periods, not in the exercise, of
the discretion of one more individuals, but from some antecedent obligation and
further they must be in the nature of income that is coming in from some kind of
investment. This expression does not include the profits of a partnership which
accrue only after the adjustment of account.
(2) If entire sum is payable to the transferor before transfer. It cannot .be
apportioned. Hence where rent was payable quarterly in advance and the landlord
reentered for non payment of rent during the quarter he was entitled to recover the
whole rent.
(3) This section does not alter the date of payment of income Vj the person
liable to pay income. Thus if under a lease the rent is payable at the end of the
year, an assignment by the lessor of his interest in the middle of the year will result
in the transferor and the transferee being each entitled to half in the rent but the
lessee still remains liable to pay only at the end of this year.
(4) This rule is excluded when there is a contract or usage to the contrary. In
Allahabad there is a custom making appropriation with reference not to the rent of
the whole year but with reference to the rent of the season in which the crop was
reaped.
(5) This Section does not apply to transfer by operation of law as they are not
transfer intervivos as per Section 2(d) of Transfer of Property Act ‘A’ has let his
house at a rent of Rs. 100/- payable on the last of each month. In execution of a
decree against. ‘A’ the house was sold by the court and purchased by *B’ on the 15th
June. On 30th June T3’ is entitled to the whole of the rent of Rs. 100/-.
Apportionment by Estate (Section 37)
While Section 36 deals with apportionment by time, the Section 37 deals with
apportionment by estate. Section 37 reads as follows:
When, in consequence of a transfer, property is divided and held in several
shares, and thereupon the benefit of any obligation relating to the property as a
whole passes from one to several owners of the property, the corresponding duty,
shall in the absence of a contract to the contrary amongst the owners be performed
in favour of each of such provided that the duty can be severed and that the service
does not substantially increase the burden of the obligation; but if the duty cannoc
be severed, or if the severance would substantially increase the burden of the
47
obligation, the duty shall be performed for the benefit of such one of the several
owners as they jointly designate for that purpose.
Provided that no person on whom the burden of the obligation lies shall be
answerable for failure to discharge it in a manner provided by this Section, unless
and until he has had reasonable notice of the severance.
Nothing in this section applies to leases for agricultural purposes, unless and
until the State Government, by notification in the official Gazette, so directs.
Before the Transfer of Property Act, when a landlord sold the house to two or
more persons, the tenant was obliged to pay the rent to all the purchasers jointly,
unless an apportionment was agi ot:d to by all the parties or had been ordered in a
suit to which sill concerned were parties. If there is any such agreement, it is
binding on tenant.
But under the present section the tenant is obliged to perform his obligation
severally, if he was given the notice of sale. But it is subject to certain limitation.
The relevant points under the Section are as follows.
1) There should be a person like a tenant who is bound to perform an
obligation in respect of a whole property. The whole ought to have been transferred
to two or more persons in several shares.
2) The person who was bound to perform whole obligation, must be given
notice of transfer.
3) He is bound to perform the obligation to each of the transferees severally in
proportions to their share that is he should apportion the_obligation accordingly to
the share in estate. For example if ‘A' sells to ‘B’, ‘C’ and ‘D’ a house which was
originally leased to ‘E’ at an annual rent of Rs. 40/- and delivery of one cow, T3’ is
entitled to Va share, ‘C’, to % share and T)’ to %th share and if was given notice,
of transfer ‘E’ shall pay Rs. 20/- to tB’ Rs. 10/- to ‘C’ and Rs. 10/- to T>\
If the obligation cannot be apportioned he should perform the obligation for
the benefit of such one of the several owners, as they shall jointly designate for that
purpose. In the above illustration the obligation to deliver one cow cannot be
severed and so he must deliver the cow according to the joint direction of ‘B’, ‘C’
and ‘D’.
4) If the severance of obligation will substantially increase the burden of the
obligation, he need not apportion it but can do it for the benefit of all. For example
if the rent is payable in kind by doing 10 days labour each year on a day to prevent
inundation <E’ the tenant need not do 10 days work for each of ‘B’, ‘C’ and T)’ and it
is enough if he does 10 days work according to joint direction of ‘B’, ‘C’ and *D\
Similarly if an agricultural land with a farmhouse well to be divided
was allotted to one co-owner and appurtenant farmhouse was allotte
co-owner, the tenant need not pay rent separately for the farm house.
*
48
5) This Section does not apply to involuntary transfers or to case of

succession. The heirs oTa deceased creditor are only jointly entitled to enforce the
right which the deceased if alive could have singly enforced.
6) This Section does not apply to agricultural leases until and unless the State
Government.by notification in the Official Gazette so directs. The reason is that the
severance the obligation to pay rent would cause much harassment to
agriculturists.
4.9. SUMMARY
Generally Law leans in favour of vesting and against divesting, hence if a
transfer is made subject to a conditions precedent, the Condition shall be deemed to
have been fulfilled even if it is substantially complied with. The substantial
compliance is called the Rule of Cypres. On the other hand conditions subsequent
is subject to the rule of strict compliance since it divests previously vested interest.
This rule is laid down in Section 29. Law thus favours vesting and not divesting.
Further in this lesson we have seen Doctrine of Election and apportionment in
detail.
1. What is meant by condition Precedent and Condition subsequent?
2. Explain Doctrine of election
3. Explain Doctrine of apportionment
4.12. KEYWORDS
Apportionment - Distribution
Acceleration - increasing speed
□
49
LESSON-5
TRANSFER OF IMMOVABLE PROPERTY

STRUCTURE
5.1. Introduction
5.2. Transfer in Certain circumstances (Section 38)
5.3. Covenant
5.4. Covenants Running with Land (Section 40)
5.5. Revocation of Transfer (Section 42)
5.6. Transfer by Ostensible Owner
5.7. Lispendens
5.8. Part performance
5.9. Summary
5.12. Keywords
5.1. INTRODUCTION
Section 5 to 37 Transfer of Property Act applies for the Transfer of both
movables and immovable properties we have seen the same in the previous lesson.
Section 38 to 53 (A) of Chapter II apply for the transfer of immovable property
alone. We shall see Section 38 to 53-A in this lesson.
5.2.0BJECTIVES
1. know about covenant
2. know about Lispendens
3. know about Part performance
5.3. TRANSFER IN CERTAIN CIRCUMSTANCES (SECTION 38)
An absolute owner can always alienate his immovable properties. But a person
may be authorized to alienate only in certain circumstances and he may not have
power to transfer always and at all circumstances. Under the Hindu Law a Manager
of undivided Hindu Family has got a right to alienate entire joint family properties
including the share of other coparceners to a third party for the legal necessity and
for the benefit of the family. For example if there is no income for running of the
family the manager can sell a vacant site belonging to the family to a third party in
order to spend the sale proceeds for running the family. The other coparcener may
impeach the sale. The purchaser has to prove the legal necessity or benefit of the
family which enabled the manager, to sell. That is the purchaser must prove the
circumstances under which the manager was authorized to sell. The burden lies on
the purchaser. Section 38 of Transfer of Property Act lays down that if the
purchaser has acted in good faith after using reasonable care to ascertain the
50
/
existence of such circumstances, in law such circumstances shall be deemed to
have existed.
In order to invoke Section 38 the following conditions are to be fulfilled.
1. The transferor should be authorized to transfer only in certain
circumstances which are variable in th£ir nature. In other words the circumstances
are not uniform in all the cases and mey will vaiy according to the facts of each
case and the status of the transferor. We have to know who are the persons
authorized to transfer, in certain circumstances. As stated earlier, the Manager of
Hindu undivided family can sell in the circumstances justifying legal necessity or
benefit of the family. A Hindu father can sell to discharge antecedent debts incurred
even for his personal use. A Hindu widow can sell for wordily purposes and
religious purposes. A guardian can transfer for the minor’s benefit under Textual
Hindu Law. The circumstances may vary from case to case. It is a question of fact
in each case.
2. Such a person should transfer for consideration. That is he may make sale,
mortgage, lease, exchange etc, but not gift.
3. The transferor must make a representation that such circumstances exist. If
a transferor sells the property telling that he is not selling for legal necessity or
benefit of the family, the purchaser is not saved and the law does not presume the
existence of such circumstances, as the transferor himself did not say so.
4. The transferee should take reasonable care to ascertain the existence of
such circumstances and he should act in good faith. That is the transferee should
not simply take the words of the transferor about the existence of such
circumstances as correct, but he should enquire the matter diligently. If he gets any
doubt he should not purchase. He should not collude with the transferor. He
should act honestly and in good faith. He should believe the existence of such
circumstances.
5. If all the above said conditions are satisfied the circumstances shall be
deemed to have existed as between the transferee on one hand and the transferor
and other persons affected by the transfer on the other hand. That is if the person
who is entitled to attack the transfer files a suit, the transferee can take advantage
of the deeming provisions namely that such circumstance shall be deemed to exist.
He need not prove them to have existed as a question of fact. He can prove his
bonafide enquiry and good faith and by proving them he can claim to have proved
the existence of such circumstances. He can rely upon the recital of the old
document. The transferee need not prove that the money received frotn him for the
transfer was spent for such circumstances, for meeting of which the property was
sold. It is enough if he proves | ^ a fid e enquiry on the existence of such
circumstances and his good faith. The reason is that a transferee„is § stranger to
51
the family and he has no control over the management of the family of the
transferor.
Illustration
A, a Hindu widow, whose husband has left collateral heirs, alleging that the
property held by her as such is insufficient for her maintenance, agrees for purpose
neither religious nor charitable, to sell a field, part of such property to B, B satisfied
himself by reasonable enquiry that the income of the property is insufficient for A ’s
maintenance, and that the sale of the field is necessary, and acting in good faith,
buys the field from A. As between B on the one part, and A and the collateral heirs
on the other part, a necessity for the sale shall be deemed to have existed.
5.4. COVENANT
In England a contract contained in a sealed instrument is called a covenant. A
contract embodied in a deed of transfer is a covenant. The tenant’s promise under
the lease deed to pay rent Lessor to the Lessor’s promise contained in the lease to
ensure quiet enjoyment of the property to the tenant and the sellers’ promise in the
sale deed that he will be answerable for any defect in the title to the property are
instances of covenant. The person bound by the promise is called the covenantor
and the person entitled to the benefit of it is called the covenantee.
A covenant may be something more than a mere agreement. A covenant may
(1) amount to the grant or restriction of an equitable interest in land or an
easement or (2) it may be a personal contract.
Affirmative Covenant and Restrictive Covenant
A covenant to dig a well on the land sold for the supply of water to the
covenantee’s dwelling house in the neighbourhood or a pay money in maintaining a
. road is an affirmative covenant. It is also called positive covenant. Positive covenant
invariably involves the expenditure of money on the land and their enforcement
necessitates compelling the covenantor to put his hand into his pocket. Affirmative
covenants are collateral.
A covenant
I "*"
to keep his
' —..... —ii
land vacant uncovered with
_. — • ----- ■---- - -
buildings
■^
or—not
■■■
to use anyi
house that may be erected on it as a shop is a restrictive covenant. A restrictive
covenant is also called a negative covenant. It restrains the covenantor from putting
his land to certain specified use. It does not compel him to enjoy the land in any
particular manner. Upon the sale of land it becomes desirable to impose conditions
restrictive of the enjoyment of the land by the purchaser. These restrictions are
intended to preserve the general character and amenities of other land reserved by
the covenantee.
Covenant annexed to land and covenant not annexed to land
A covenant which is annexed to land , is one which binds the land in its
inception or which affects the nature, quality or value of the land, such a covenant
must have the following characteristics: (1) They must be made with a covenantee
who has an interest in the land to which they refer or (2) They must concern or
52
touch the land, for example implied covenant for title under Section 55 (2) (Sale) of
Transfer of Property Act, implied contracts by mortgagor under Section 65, implied
covenants of lessor under 108 (c) etc., are the covenants annexed to land, a
covenant can be annexed to land only when the land is capable of being benefited
by it.
A covenant restricting the use of land may be one imposed for the personal
benefit of vendor only. In that case it is a personal and collateral covenant not
annexed to land. A restrictive covenant entered into by a purchaser with a vendor
who is selling the whole of the estate and has retained no land for the benefit of
which the covenant should ensure is a covenant not annexed to land. Such a
covenant occurs in building schemes when they are imposed not for the benefit of
any particular plot but in order to enable the vendor to get a better price for the rest
of the property. In the case of sale a covenant to pay money is purely a personal
covenant, and is not annexed to land.
5.5. COVENANTS RUNNING WITH LAND (SECTION 40)
Section 40 has two aspects as follows. One is in first paragraph and the other
in 2nd paragraph.
r
A third person should have a right as against a transferee to restrain the
enjoyment of an immovable property in a particular manner and that the restraint
is necessary for the more beneficial enjoyment of that third party’s own immovable
property. That right should be independent of that third person's any interest in the
immovable property transferred and the right should not be an easement on the
property transferred. If all the above said conditions are satisfied such a third
person can enforce his right to restrict the transferee. If the transferee has
transferred his interest in the property to another transferee also but such a
transferee from a transferee should have had the transfer with the notice of such a
right of third person or he should be a transferee for no consideration. That is he
should be a donee. But if the transferee had the transfer for consideration and
without notice of the right of such a third person, the third person cannot enforce
his right to restrain the such transferee or as against the property transferred to
him.
In order to appreciate the scope of first paragraph of Section 40 we have to
know the meaning of (1) Covenant, (2) Affirmative Covenant, and restrictive
covenant, (3) Covenant annexed to land and covenant not annexed to land, (4)
Covenant running with the land and not running with the land.
Scope o f First Paragraph o f Section 40
(1) An affirmative or restrictive covenant will bind the parties to the covenant •
namely covenantor and covenantee, provided the covenant is made for the purpose
of securing the beneficial enjoyment of another piece of such property.
53
(2) Covenant not annexed to land does not bind even covenantor, if it is
repugnant condition. It is an affirmative covenant not intended for the beneficial
enjoyment of another property of transferor. Hence, it is -not binding if it is
repugnant. For example if ‘A ’ sells land to ‘B’ absolutely S ’ covenants to put up a
road on it, it is not binding even on ‘B ’ as it is an affirmative covenant not annexed
with land.
(3) Covenant annexed to land will bind parties to the covenant. Whether such
a covenant will have force between transferees from covenantor or covenantee? The
answer depends upon the facts whether such a covenant is running with land or
not and whether the covenants runs with land in law or in equity.
If it is not running with land transferee of a covenantor is not bound by it. For
example, ‘A’ sells whole of his land to <B’ who covenants not to put up a hotel on it
*8’ sells the land to *C\ ‘C’ is not bound by the covenant.
(4) If a covenant runs with the land in law that it will bind the transferee from
the covenantor even if he had no notice of such a covenant. That is the benefit of
the covenant can be enforced either by covenantee or his assignee as against the
covenantor or his assigns. In such a case the assignee of covenantor need not have
had knowledge of covenant at all the time of transfer. Such a covenant passing in
law may be affirmative or restrictive
(5) If a covenant runs with the land in equity, it will bind the transferee from
covenantor only if he had notice o f such a covenant. Only restrictive covenants will
run with the land in equity. It cannot be enforced as against a purchaser for value
without notice. It is to be noted that restrictive covenant can be enforced against
trespasser.
Restrictive Covenant and Building Schemes
In Section 41 we read that a covenantee or his assign can enforce restrictive
covenant against covenantor or his assigns. Is it possible for one convenantor? It is
possible in buildings in their respective ‘plots purchased by them. Each purchaser’
covenants with the original owner that he will follow Certain: restrictions in
construction. If one of the covenantors commits, a breach the briginai owner and
other purchasers enforce the bovehant against'the purchaser who commits .breach.
Thus if ‘A’ sells plots to B ’, ‘C’, 'D’ and ahd *3 C D E’ covenants separately with
‘A* that for the beneficial enjoyment of land retained by *Ar and ofda&d purchased by
13’, ‘C’, TV and ‘E’ each of ‘B* ‘C’ ‘D* and ‘E’ will follow certain restrictions-in the use
of plot. If/E ’ commits a breach'of covenant, not only ‘A’ but also T3’ ‘C’ TD’ may
enforce covenant against *E’. The pnncipie was stated in Torbay Hotel V$> Jehkins
as follqws; “Where an owner of land^ dekls with his liarid bn:'$He footing :of imposing
restrictive obligations on the use of & e varibiis portions b f ‘it aiid as when he
alienates them for the common benefit to himself (so far as he retains aLny land and
of the various purcha^rs interest.) A Cdu'rt'OfBquiV;^ ^ :giye*’®ffe^t?td :;this common
54
intention not withstanding the absence of mutual covenant provided that the
intention that there should be a mutual obligation is efficiently established”. 1
Restrictive Covenant and Easement
According to Section 40, restrictive covenant should not be as easementary
right. Hence they are not the same. But restrictive covenant are now approximated
rather to easements than to covenants running with land, In other words the
negative covenant is put on a level with an easement.
Covenant running with land in law is not an easement, because it can be
enforced against trespasser. But they differ in one aspect namely that restrictive
covenant cannot be enforced against a bonafide purchaser for value without notice
of covenant but an easement is binding upon him also. Hence Maitland observed
that, “The negative covenant is put on a levelwith an easement though one subject
to a peculiar exception, viz., that it is destrOyable by a bonafide purchase for value
with the legal estate”. It may be stated that the restrictive covenants have been
approximated to easements. They differ from easement in the circumstances that
they may be defeated by the plea of purchase of the covenanter’s that without
notice of the covenant. Easement are enforceable irrespective of notice.
Second Paragraph in Section 40
The right referred to in the first paragraph of this Section 40 has come into
existence before the transfer and prestippose ownership of property. The right
referred to in the second paragraph also has come into existence before the
transfer, but does not presupposes ownership of property. It is purely a personal
right arising out of contract and the person who has the right need not be the
owner of any property at all. But the right though personal must be annexed to the
ownership of immovable property. A covenant for preemption creates an obligation
arising out of contracts and annexed to ownership of property as defined in the
second paragraph of the Section.
Thus Section 40 deals with restrictive covenant in its first paragraph and
contractual obligation in second paragraph.
Transfer by ostensible Owner- Transfer, by unauthorized Persons
If ‘A ’ sells the property to fB’ and if ‘AMs the owner of the property, ‘B’ will get
title to the property. But if ‘A ’ himself is not the owner of the property, but ‘C’ is the
real owner of the ^.property, whether can ‘B ’ claim title? General rule is that ‘B’
cannot claim title as ‘A’ has defective title and so T3' is a holder under a defective
title. A person cannot confer better title than he has. The maxim is Nemo Dat Quid
Non Habet (No one gives who possesses not). But, maxim has 4 exception namely
(1) a transfer by ostensible owner (Section 41) (2) feeding the estoppol (Section 43),
(3) Doctrine of election (Section 35), and (4) improvement (Section 51). In all these
cases a transferee under a person having no or defective title gets better title.
55
5.6. Transfer by Ostensible Owner (Doctrine o f Holding out) (Section 41)

Section 41 reads as follows, “Where with the consent, expressor implied, of
the persons interested in immovable property, a person is the ostensible owner of
such property and transfers the same for consideration, the transfer shall nbt be
voidable on the ground that the transferor w as not authorized to make it provided
the transferee, after taking reasonable care to ascertain that the transferor had
power to make the transfer has acted in good faith.”
Law o f Estoppel
This section is a Statutory application of the law of estoppel the general
principle, requirement of Section 41
The following conditions are necessary for the application of the section,
namely.
, 1. the tr ansfer is by the ostensible owner,
2. he is so by the consent, express or implied of the real owner,
3. the transfer is for consideration,
4. the transferee has acted in good faith taking reasonable care to ascertain
that the transferor has power to transfer.
5. Then the transfer cannot be attacked by the real owner.
Onus o f P roof
This Section is an exception to the general rule that no person can transfer
better title than what he has and so the onus is in the first place on the transferee
to show that the transferor was the ostensible owner and that the transferee had
acted in good faith and with reasonable care. Then the onus is shifted on the real
owner to show that there was something to call attention and invoke inquiry. This
is because the real owner having created the appearance of title in another person
it is incumbent on him to show something which amount to constructive notice of
the real title some specific circumstance as the starting point of an enquiry which
would have led to the discovery of it.
Revocation o f Transfer (Section 42)
Under Section 42, where a person transfers any immovable property, reserving
power to revoke the transfer, and subsequently transfer the property for
consideration to another transferee, such a transfer operates in favour of such
transferee, as a revocation of the former transfer to the extent of the power, but the
revocation is subject to any condition attached to the exercise of the power.
For example, ‘A ’ lets a house to T3’ and reserves power to revoke lease if, in the
opinion of a specified surveyor, *3* should make a use of it detrimental to its value.
Afterwards ‘A ’ thinking that such a use has been made lets the house to ‘C\ This
operates as a revocation of ‘B’s lease subject to the opinion of the surveyor as W
use of the house having been detrimental to its value
56
Transfer by unauthorized person who subsequently acquires interest in property

transferred (Doctrine Of Feeding the Estoppel )(Section 43)
Section 43 Transfer of property Act arid Section 13 (1) (a) of Specific Relief Act,
1963 embody the Doctrine pf Feeding tiie estopple in India.. Section 13 (1) (a) of
Specific Relief Act ,1963 reads as follows.
Section 13 (1) where a person .contracts to sell or let certain immovable
property having no title or only an imperfect title, the purchaser or leasee (Subject
to the other provision of,this chapter) has the following rights namely.
(a) If the vendor or leaser has subsequently to the contract acquired any
interest in the property, the. purchaser or lessee may compel him to make good the
contract out of such interest. Section 43 applies the principle of feeding the
estoppel to the completed transfers.
Ingredients o f Section 43
The following conditions are to be fulfilled to invoke Section 43.
(1) The transferor should have made a fraudulent or erroneous representation
that he is authorized to transfer the immovable property.
(2) The transfer should have been made for consideration.
(3) Subsequent to the transfer and while the contract of transfer subsists, the
transfer should have acquired an interest in the property.
(4) Then the transferee has option to require that the subsequently acquired
interest should operate in favour o f the transferee.
(5) But the transferee cannot, exercise £uch option when a third party has
acquired the subsequent right of the transferor in good faith for consideration
without notice of the existence of such option.
Transfer by one Co Owner (Section 44)
Where one of two or more co owners of immovable property legally competent
in that behalf transfers his share in that behalf transfers his share of such
property or any interest therein the transferee acquires, as to such share or interest
, and so far as is necessary to give effect to the transfer , the transferors rights to
joint possession or other common or part enjoyment of the property and enforce a
partition of the same , but subject to the conditions and liabilities affecting at the
date of the transfer , the share or interest so transferred.
Where the transferee of a share of the dwelling house belonging to an
undivided family is not a member 6f the family, nothing in this Section shall be
deemed to entitle him to joint pbssession or other common or part enjoyment of the
house, .
Illustration: If ‘ABC’ own a land jointly and ‘A’ is entitled to Vi share T3’ to Vi
share, and fC’ to Vi share and ‘A’ transfers his interest to *D\ ‘D’ will derive certain
rights. They are dealt with in Section 44.
57
Under Section 44 a transfer from one of the co sharer will derive the following
rights.
(1) The transferee will derive the share of the transferor in the common
property transferred. In the above illustration ‘D’ will get 6/2 share.
(2) The transferee will get right for joint possession of the property along with
other non alienating co sharer. In the above said illustration.‘D’ can beinjoint
possession of the property along with ‘B’ and ‘C’.
(3) The transferee will get right for other common enjoyments of the property.
That is he can also exercise rights of easement etc. annexed to land.
(4) The transferee will derive right for part enjoyment. That is if ‘A ’ is in
exclusive possession of any portion of an undivided holding not exceeding his l/2
share. ‘A ’ cannot be disturbed in his possession until partition. Similarly ‘D’ also
cannot be disturbed in his possession.
(5) The transferee can enforce a partition of his share. That is ‘D’ can demand
partition of ‘A ’s V* share.
(6) If he is the transferee of a dwelling house belonging to an undivided family
and he is not a member of the family, he is not entitled to joint possession or other
common or part enjoyment of the house. This exception is laid down in order to
preserve privacy and peace. If a stranger purchaser takes joint possession other
members of the family, especially female member cannot reside with the stranger.
Hence a transferee of a share of a dwelling house was not given any right for. jo in t'
possession. But he can sue for partition by metes and bounds and after division he
can take separate possession of the property allotted towards his share. If the
house could not be conveniently divided, the provision of Partition Act can be
applied and the co sharer can buy out the transferee’s share at a valuation to be
made by the court. The word undivided family is not limited to Hindus, but
includes any group of person related in blood who live in one house under one head
and it applies if they are undivided dwelling house which they own. It is not
necessary that the family should have constantly lived in the house.
Joint Transfer for Consideration (Section 45)
When two or more persons join together and purchase a property the question
will arise as to what extent of their share in the property purchased. Section 45
deals with such a transfer as follows:
(1) If the price is paid out of a common fund each person is entitled to. the
same share as they are entitled to in the fund. For example if ‘A ’ had contributed
of fund, ‘B’ Vith and ‘C’ lA th and a property was purchased out of that fund ‘A’ is
entitled ‘/a share in the property purchased. ‘B’ to lA th share. But it is subject to a
contract to the contrary. If ABC agree that they should take equal share then ‘ABC’
will take equal share in the property.
58
(2) If the price is paid out of separate funds by each of them they are entitled
to a share in the property in proportion to the share of the consideration paid by
them. For example if ‘A* pays Rs,50/-. Rs.25/- and ‘C’ Rs.25/- and a property
was purchased for Rs.100/-. ‘A ’ is entitled to Va share, *8’ %th share and *C* %th
share. But it is subject to a contract to the contrary. If ‘ABC’ agree that they should
have equal share, ‘ABC’ will be entitled to l/3 rd share each.
(3) If it is not known as to that share in joint fund or as to the amount

advanced by them separately, they will be entitled to equal share. For example if
‘ABC’ put their savings in a same hundi, or deposit the same in the same account it *■
is not possible to know the exact amount contribution by ‘A ’ or *C* to the fund. In
such a case if a property is purchased out of that fund, they are entitled to equal
share. That is there is a presumption of equality.
It is to be noted that the principle behind this Section makes ‘ABC’ as co
owners and not coparceners. In other words each of ‘ABC’ will have a defined share.
Hence law favours tenancy in common and not joint tenancy.
Transfer by persons having Distinct Interest (Section 46)
Where immovable property is transferred for consideration by persons having
distinct intersts therein , the transferors are , in the absence of a contract to the
contrary entitied to share in the consideration equally, there their interests in the
property were equal value , and , where such interests were of unequal value ,
proportionately to the value of the irrespective interests.
Illustrations
(1) Where two or more persons have distinct interest in an immovable property
and it is sold by all of them they are entitled to equal share in the consideration
received provided their interest in the property is equal. For example if ‘A ’ is entitled
to l/3 rd share in a property^ and that was transferred for Rs. 120 ‘A ’, T3’, ‘C’ are
entitled to Rs.40/- each. But it is subject to a contract to the contrary, of ‘ABC’
agree that ‘A' should take Vi of consideration *B’ %th and ‘C’ %th, then ‘A ’ will take
Rs.60/-. ‘B’ Rs. 30/- and ‘C’ Rs. 30/-.
(2) Where two or more persons have distinct interest in an immovable property
and it is sold by all of their extent of interest is not equal, they will take the
consideration in proportion to the value of their respective interest.
Transfer by Co-owners o f share In common Property (Section 47)
This Section deals with the case of a transfer of share in an immovable
property owned by several co owners not as joint tenants, but as tenants in
common. Joint tenancy implies both unity of title and poMesskm. Tenancy in
common implies only unity of possession but not title. Person having different
definite shares in a property may choose to remain in joint poMetsion of it and they
will then be called tenants in common. When these persons transfer a part of the
estate, the share of each co owner is proportionately reduced . If the shares are
| 59
equal, each share is reduced equally . if Vhe sharers are unequal there is greater
reduction in the greater share and lesser reduction in the lesser share .This Section
refers to tenancy in common.
JOINT TENANCY
Joint Tenancy is created when property Is given to two or more persons
without a word of Severance.
Ex : X gives his property A and B. A and B are said to enjoy the property as
joint tenants . If A dies , B become the owner o f entire property . If A leaves behind
his son C, he is not entitled to enjoy the properly along with B. This illustration
explains that joint tenancy is based on the principle o f survivorship.
Joint tenancy is based on the following requirements.
1. Unity of possession
2. There must be unity of interest.
X conveys his black acre of A and B . A leases his share to C. Now C and B
enjoy the property as tenants in common because C is having lease hold interst
and B is having absolute interest.
3. There must be unity of time and unity of title.
conveys his property to A and B A sells his share in the property to C so A

and B can enjoy the property collectively or jointly but C gets the property
subsequent to B. There is no unity of time.
There is no unity o f title because B transfers his title to X , where as C traces
his tile to A .So except unit of possession if any or all other unities are absent then
it is tenancy in common is th a t. It is not based on the principle of survivor ship.
Illustration : X gives his property to A and B . Joint tenancy is created , A
sells his share to C and C & B will enjoy as tenants in common. If C dies C ‘s heir
and B will become tenants in common.
a. A joint tenant cannot transfer his share by will.
b. A Joint tenant cannot transfer his properly to another joint tenant
All these are possible in tenancy in common.
Sec 44 to 47 : When a co -owner transfers his share in a joint property, the

transferee can usually step into shoes of the transferor. However, a share in an
undivided dwelling house is sold , the purchaser cannot ask for a common part
enjoyment of the house by him. (Sec 44) His proper remedy is to ask for partition.
Sec 45 lays down the rule that the interst of a transferee in the property acquired
by him and others will pe in proportion to the contribution he has made towards
the consideration paid for the transfer.the rule is subject to a contract to the
contrary. Sec 46 'is the converse of Section 45 and is based upon the principle that
a man should get proper return for his property. If out of an entire 16 annas share
A owns 4 annas , and B owns 12 annas and the together sell eight annas, A will
60
be deemed to have sold lA th of 8 annas ‘or 2 annas and B ZA of 8 annas or 6 annas

share.
The concept of Joint tenacy is unknown to Hindu law except in the Hindu
co. parcenary
Ex X dies leaving his three minor sons A; B, C . If A diesB &Cget the
property. If B dies C alone gets the property.
2) Further a coparcener is entitled to the whole property just as in the case
of joint tenancy
1.Difference : Co Parcenary is alwa>^ r i b i ^ âctuations by the birth of
male members to the existing co parceners . so there is no unity of interest. •f
Ex. A, B, C get a property from the father . A begets to a son D. B gets E and
F. If they partition the property for A and his son each will 1/6 th . B,E and F
each will get 1/9th and C will get 1/3 th .So there is no unity of interst .There is
no unity of title and time also in the case of Co parceners. Order above
illustrations:
2. Hindu Co parceners : is based on the right by birth. In other word
the creation of law whereas joint tenancy is created by deed of will
3. Co parcener can alienate the property subject to Hindu personal Law .A
joint tenant can transfer in any way except making a will.
4. A tenant cannot make transfer his share on the name of another joint
ten an t. But a co parcenar make a transfer.
5. Wife and children of co parcenar are entitled to maintenance from the co
parcenary property. This not possible in joint tenancy. ' ’ '
TENANCY IN COMMON.
If any one of the above unities except the unity of possession is ab sen t, tenacy
in common is created .There is no principle of survivor ship in the case of tenancy
in common.
Ex X gives his property to A and B .A sells his interst in favour of C.C and B
become tenants in common. If B dies leaving his only son D ,C and D becomes
tenant in common.
In India we have only tenancy in common except in the case of Christian and
, par'sees.
' » In Joint tenancy there is unity of title and unity of possession both. In case of
Tenants -in -common, though there is unity of possession, there is no unity title. If
a notice is .served under section Sec 106 for terminations of lease, its effects are
quite, different in above two cases. In case of joint tenancy, the notice is effective to
terminate the tenancy of all the joint tenants even if it is served on any one of them
In case of tenancy - in - common no such effect follows the reason is that co tenant
in-case of tenancy in common unity of title .Each co tenant is owner of a specific
interest in the property.
61
Illustration
If ‘ABC’ own a property in comiri'on and ‘ABC’ transfer a share thereof without
specifying, that the transfer is to take effect on any particular share of ‘A ’, ‘B* and
‘C’, the transfer take effect as among ‘ABC’, on such shares equally provided if
the;r shares are equal. If they are unequal the transfer take effect proportionately to
the extent of their share.
Priority (Section 48)
Section 48 reads as follows. Where a person purports to create by transfer at
different times rights in or over the same immovable property and such rights
cannot all exist or be exercised to their full extent together, each later created right
shall, in the absence of a special contract or reservation binding the earlier
transferees, be subject to the rights previously created.
Priority means first choice .Generally the ownership of a property is bundle of
different rights which a person has in respect of it, and that an owner of property
can assign either all or any of his rights to another person. If he transfers only a
few of his rights the remaining ones are still with him. And he can deal with all or
any of them in any lawful manner he pleases.
■ Therefore it must be noted that an owner of an immovable property can create
any number of transfer either at the same or different times in respect of the same
property.
Conditions
1. Transferor must transfer the same property to two or more person
2. The two or more transfers must be made successively
3. The transfer must be made at different times
4. The rights cannot exist at all or be fully exercised together
For example, if ‘A ’ is the absolute owner of property he may execute a simple
mortgage in favour of ‘B’ on 1-5-1983, another simple mortgage in favour of ‘C' on
1-6-1983, a lease deed in favour of ‘D’ on 1-7-1983 and a sale deed a favour of ‘E’
on 1-8-1983. All these transfers are not inconsistent and they can stand together.
That is ‘BCD* and TS’ can enforce their rights. But mortgage in favour of ‘C’ will be
subject to its mortgage in favour of T3’ lease in favour of ‘D’ if subject to mortgage in
favour of ‘B’ and ‘C’ and sale in favour of ‘E’ is subject to mortgage in favour of *B’
and ‘C’ and lease in favour of ‘D\ In other words later transfer is made subject to
prior transfers.
But if ‘A’ executes a mortgage in favour of on 1-5-1983 and sells the
property to ‘C’ on 1-6-1983 free from encumbrance then both mortgage and sale
cannot stand together. Because sale is effected free of any encumbrance and so the
question will arise whether ‘C’ can take the property free from mortgage in favour of
‘B’ or whether the sale in favour of *C’ is subject to mortgage in favour of T3’ That is
as between mortgage and sale which will get priority? The answer is given in
i
Section 48 to that effect that the transfer will get priority in the order of the date of
execution that is an earlier transfer, will take effect over a later transfer. In tHe
above illustration the mortgage in favour of ‘B’ is effected, on 1-5-1983 but the sale
in favour of *C is effected on 1-6-1983 and so the mortgage is earlier and sale is
later transfer and so under Section 48, mortgage will get priority over sale. In other
words ‘O' will take the property subject to mortgage in favour of *B\
The above principle of priority is based upon the maxim Oui Prior est tempore
votior est jure (that which is prior in time shall prevail in law).
Hence under Section 48, date of execution of transfer is the crucial date to
decide priority and not the date of registration. For example if ‘A ’ executes a sale
deed in favour of ‘B’ on 1-5 1983 but registers it on 1-7-1983 and executes another
sale deed in respect of the same property in favour of ‘C’ on 1-6-1983 and registers
it on 1-6-1983 itself, the sale deed in favour of ‘B’ will get priority though the date
of its registration is subsequent to the date of registration of the sale deed in favour
of ‘C\ It is so because under Section 47 of registration Act 1908, a transfer operates
from the date of execution of the deed although it may have been registered at a
later date.
A difficulty will arise in respect of mortgage by deposit of title deeds for which
no document need be executed. As it is also a legal mortgage under Section 58(f) of
Transfer of Property Act, a mortgage by deposit of title deeds shall take effect as
against any mortgage deed subsequently executed and registered relating to the
same property and similarly an earlier mortgage by deposit of title deeds will have
priority over subsequent sale.
If successive transfers are made at different dates, there is no difficulty in
fixing the priority as the documents of earlier date will- have priority over documents
were executed on the same date evidence has to be given as to which was executed
first and first has priority. In the case of mortgage if time of execution in such a
case, cannot be determined, the mortgages take as tenants in common or joint
tenants.
It is to be noted that an earlier. transferee may lose priority under the
circumstances mentioned in Section 78. and 79 of Transfer of Property Act. That is
priority is forfeited by fraud, misrepresentation or gross negligence under
Section. 78 and of a prior mortgage is to secure future advances and expresses the
maximum to be secured a puinse mortgage who has notice of the prior mortgage is
not entitled to the priority over subsequent advances by the prior mortgage within
the amount of the expressed maximum under Section 79.
Exception to Section 48
(1) If there is a special contract or reservation binding the earlier transferee to
the effect that later transfer will get priority over earlier transfer, Section 48 does
not apply and later transfer will get priority over earlier transfer.
63
(2) Section 50 of Registration Act gives a subsequent registered deed priority

over a prior unregistered deed of which the registration is optional. But this
exception is subject to the doctrine of notice and only applies when the deeds are
antagonistic and not when effect can be given to one without infringement of the
otner.
(3) Forfeiture of priority under Section 78 Transfer of Property Act takes away
priority.
(4) The another exception is the mortgage for securing future advance under
Section 79 Transfer of Property Act.
Transferee's right under policy (Section 49)
Where immovable property is transferred for consideration and such property
or any part thereof is at the date of transfer insured against loss or damage, may in
the absence of a contract to the contrary require any money which the transferor
actually receives under the policy or so much thereof as may be necessary to be
applied in re-instating the property.
The following points axe relevant under the Section 49.
(1) ‘A ’ is the owner of a house and he has insured the same against fire. ‘A ’
executes a mortgage in favour of ‘B\ The property was damaged by fire ‘A’ will
receive the insured amount from Insurance. Company, but *B’ has a right to require
it to be applied in reinstating the house. If ‘A ’ failed to do so ‘B’ has a right under
Section 68 (b) to sue for his mortgage money.
(2) ‘A ’ is the owner of a house and he has insured the same against fire. ‘A ’
executes a lease deed in favour of T3’ ‘A ’ will receive insurance amount if the house
is burnt, but ‘B’ can require ‘A ’ to restore the house with that money. If the house
was wholly destroyed or rendered unfit for the purpose for which it was leased T3’,
the lessee has the option of avoiding the lease under Section 108(e) and if he avoids
lease, he cannot demand insurance amount under Section 49 for reinstating the
7 house.
(3) ‘A’ is the owner of a house and he has insured it against fire. ‘A ’ sells the
house to ‘B’. After sale, the house was burnt. ‘A ’ becomes the trustee of insurance
money for T3’ the purchaser and ‘A ’ is liable to reinstate the house with the
insurance amount.
(4) In all these cases, the transferee cannot claim the insurance amount from
insurance company, but he can -only require the transferor to spend the
amount to reinstate the property.
- '(5f~Tfre transferee cannot exercise his right under the Section, if there is a
contract to the contrary between him and the transferor.
. (6) To invoke Section 49, there should be a completed sale and not a mere
agreement to sell.
64
Rent bonafide paid to Holder.under defective Title (Section 50)

No person shall be chargeable with any rents or profits of any immovable
property which he has in good faith paid or delivered to any person of whom he in
good faith held such property, not withstanding it may afterwards appear that the
person whom such payment or delivery was made has not right to receive such
rent or profits
‘A ’ the owner of a house- dies leaving his son ‘B ’, ‘B’ lets out the house to ‘X ’
who in good faith pays rent to <B\ Later on it is found that ‘A ’ bequeathed the house
to ‘C’ who established his claim to the property as against T3’. Can ‘X ’ be required to
pay rent over against to ‘C ? The answer is given in negative in Section 50.
Illustration
‘A ’ lets a field to C
Q’ at a rent of Rs.50/- and than transfers the field to ‘C’. ‘B’
having no notice of the transfer, in good faith pays the rent to ‘A ’. ‘B’ is not
chargeable with the rent paid.
This Section protects rents paid bonafide to a holder under defective title. If
the tenant pays rent to the lessor not having reasons to believe that any transfer
has been made the lessee shall not be liable to pay such rent over again to the
transferee. Section 109 Transfer of Property Act also says so. There is no statutory
obligation on the transferee to give notice of transfer or assignment to the lessee,
but if he omits to do so and the lessee pays rent to the assignor the transferee
(assignee) will not be entitled to recover it from the lessee. On the other hand, if the
assignee of the lessor gives notice to the lessee, he will be entitled to the rent after
the assignment.
It is to be noted that, in order to get the benefit of the Section, the tenant
ought to have paid rent as rent and not in advance, because a payment in advance
is treated as a loan. The reason is th&t this Section refers to the fulfillment of an
obligation imposed by law to pay rent, while payment in advance is a loan to the
landlord with an agreement that on the day when the rent becomes due, such loan
will be treated as the fulfillment of the obligation. But if rent is payable in advance
as per the terms of the lease, it is rent for the purpose of this Section also. Only
when the tenant paid rent in good faith without the knowledge of transfer. A
payment made to the transferor after notice of transfer is not a valid payment and
the tenant cannot escape liability to pay once again rent to the transferee under
this section.
Improvements made by bonafide holders under defective title (Section 51)
When the transferee of immovable property makes any improvements on the
property, believing in good faith that he is absolutely entitled thereto, and he is
subsequently evicted there from by any person having, a better title, the transferee
has a right to require the person causing the eviction either to have the value of the
improvement estimated and paid or secured to the transferee, or to sell his interest
V
65
in the property to the transferee at the then market value thereof, irrespective of the
value of such improvement.
The amount to be paid or secured in respect otsuch improvement shall be the
estimated value thereof at the time of eviction.
When, under the circumstances aforesaid, the transferee has planted or down
on the property crops which growing when he is evicted there from, he is entitled to
such crops and to free ingress and egress to gather and carry them.
The following conditions are to be satisfied to invoke Section 51. Transfer of
Property Act.
1. There shall be a transferee of immovable property who believes in good faith
that he is absolutely entitled to it and he should make an improvement.
2. He should.be evicted by a person having a better title.
3. Then the transferee has a right to require the evictor either to pay the value
of improvement as on the date of eviction to the transferee or to sell his
interest in the property to the transferee at the then market value 'thereof,
irrespective of value of such improvement. The option is with the evictor.
4. If the transferee was evicted he is entitled to crop raised by him andto
ingress or egress to gather and carry them.
This Section is an application oif the equitable maxim that he who seeks equity
must do equity Svhere a purchaser for value is evicted in equity under a prior title,
he will be credited with all money expended by him in necessary repairs or
permanent improvements’ (except improvements made after he had discovered the
effect of title) and will be debited with the rents which he has received. Section 51 is
a general provison dealing with improvements effected by transferee to transferred
property.While Section 63-A is special provision dealing with the improvements
effected by a mortgagee in possession .
Illustration ‘A’ sells a vacant site to B ’ who purchases the same in good faith
and constructs a building over the vacant site ‘C’ file’s a suit against B ’ for recovery
of vacant site on the ground that ‘A ’ had no title to the vacant site, but the real
owner is ‘C’. If it is found that ‘C’ alone is the real owner ‘C’ will get a right to
recover possession of the vacant site from B\ in such a case what is happen to the
house constructed by B ? It is an improvement made by B ’ who is a holder under
defective title. Is ‘C’ liable to pay compensation to B ’ for improvements and if so
under what condition? The answer is given in Section 51
5.7. DOCTRINE OF LIS PENDENS
Lispendence means pending Litigation. Pendence means pending. According to
this doctrine when the litigation is pending before a court with regard to the title
of a property there shall not be any transfer of that property. Transfer includes
sale, lease, mortgage, gift and exchange. The suit pending must be related to the
question regarding title in an immovable property e.g suit for partition, a suit on
mortgage, a suit on for pre emption. This Doctrine of lis pendence is based on ‘ut
66
lite pendente nihil innovetur * It means during the pendency of litigation nothing new
should be introduced.
Object : The object of the Section is to protect the rights of the parties to the
suit and to prevent multiplicity of unnecessary litigation in future. This section
applies only when a suit or proceedings is pending before a court of competent
jurisdiction.This section applies also to involuntary transfers such as transfers
may by an order of the court Section 52 does not apply to the transfers with
permission of court.
Essentials
1. There should be a suit or proceeding in which the right to immovable
property is directly and specifically in question, pending.
2. Such suit or proceeding should be pending in a court of competent
jurisdiction.
3. Such suit or proceeding should not be collusive.
4. Any one of the parties to the suit or proceeding should make a transfer of
suit property or deal with the suit property during the pendency without
authority of Court
5. Then such a transfer or dealing with the suit property will not affect the
right of any other party therein under any decree or order which may be
made therein.
Pendency
The following points deal with pendency of a suit
A suit is commenced by the filling of a plaint and appeals and execution
proceedings are a continuation of suit. The date of service of suit summons on the
defendant or the knowledge of the defendant about filling of the plaint is irrelevant.
2) When the suit is filled by an indigent person under Order 33 rule 1 C.P.C.
the pendency period will commence from the date of presentation of pauper
petition, if such petition, is not rejected ultimately.
3) But in all the cases the court in which the suit was filed must be a
competent court. If a plaint was filled in a wrong court and plaint was returned for
presentation to a proper court, the pendency will start only from the date of
representation in the proper court. In all case if the plaint was rejected, there is no
pendency at all.
4) Though a revision or review cannot be said to be a continuation of suit, the
transfer during revision or review period Will also be covered by the period of
pendency of suit as it extends upto the date of receiving full satisfaction and as an
order or decree which is subjected to revision or review also becomes executable.
It is to be noted that only transfers effected during the pendency of suit is
affected by lis pendens but it does not affect a transfer before suit or any right
accrued before suit.
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Lis Pendens Rule and Civil Procedure code

The Civil Procedure Code recognizes the doctrine of lis pendens as follows:
1. Under Order 21 Rule 102 C.P.C. a transferee pendente lite of the judgement
debtor cannot make a claim in execution proceedings.
2. Under order 22 Rule 10 C.P.C. an alienee pendente lite is a proper though
not a necessary party to the suit and so he may be impleaded at the discretion of
the plaintiff.
3. For the propose of Section 47 C.P.C. a transferee during the pendency of
suit, is a representative of his transferor and is bound by the decree.
4. The rights of a party to a suit under a decree or order are secured and made
unaffected by the transfers made by the other party during the pendency of the suit
under the doctrine of lis pendens of Transfer of property Act and after the passing
of the decree or order the same result is achieved in respect of such a transfer made
after the pendency of the suit under the doctrine of res Judicata of Civil Procedure
Code.
Fraudulent Transfers
Transfers which are intended to cheat the creditors . Generally debtor is at
liberty to transfer his property, but Section 53 prohibits fraudulent transfers with
an intention to defeat or delay the creditors . This Section contains two clauses.
Section 53(1) is related to the fradulant transfers made with an intention to defeat
or delay the creditors .Similarly Section 53(2) is related to the fraudulent transfers
made with intention to defraud the subsequent transferees.
Conditions under Section 53(1)
1. There must be a transfer of an immovable property.
2. There should be intention to defeat or delay transferor’s creditors
3. Transfer shall be voidable at the option of creditor or creditors
Conditions under Section 53(2)
1. The property must have been made without consideration
2. The transfer must be made to defraud the subsequent transferee
3. Same property must be tranferred to a subsequent transferee
Exceptions: This section does not apply to transfers such as nominal transfers,
sham transfers Binami transfers because in these transfers there is no intention to
transfer the property and no right is conveyed
5.8. DOCTRINE OF PART PERFORMANCE
Part performance means partly doing. According to the Doctrine of part
performance, where a person has taken possession of immovable property on the
basis of a contract of sale and he is either performed or is willing to perform his
part of contract, then he would not be ejected from property on the ground that sale
was unregistered and legal title has not been transferred to him.
Illustration : A and B entered into a contract of sale of House property. The
contract was reduced in to writing , but it was not registered. B had partly paid the
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price and expressed his willingness to pay the remaining amount on a later date .
on the basis of that contract B had taken possession of land. Thereafter , A sells
the house to C through a registered deed. C having legal tile on the land ,
attempts to eject B . At this juncture through court may enforce specific
performance of the contract between A and B . Thus interest of B is protected
under Section 53-A.
Object : The object of Section 53-A is to prevent fraud by the parties . It
provides protection to an ignorant transferee who takes possession or spends
money on improvement on the contract of transfer. The burden o’f proof lies on the
party concerned th,at he has done something in furtherance uf the contract and is
always ready and willing to perform his part of ooli&dtion.
Essentials
1. There must be a contract to transfer an immovable property
2. There must be consideration in such contract.
3. It must be in writing and signed by or on behalf of transferor
4. The transferee must be in possession or continue to possess
5.; The transferee must have performed or willing to perform his part of duty.
"The Section 53 A does not confer any title on the transferee but imposes a
statutory bar on transferor to seek possession of the immovable property from the
transferee. Thus the transferee can avail the benefit of this Section and protect the
possession.
5.9. SUMMARY
Section 38 to 53 (A) of Chapter II apply for the transfer of immovable property
alone. In this lesson we have discussed about Covenant, Estoppel, Priority,
Doctrine of Lispendens and Part performance in detail
1. Explain the Doctrine of Estoppel?
2. Explian the Doctrine of Lispendens? ■
3. What is meant by Covenant? What is meant by affirmative covenant?
5.12. KEYWORDS
Ostenisble owner - pretended owner
Convenant - Condition (agreement)
Priority - First Choice

□
LESSON-6
_________ ______________ .________________________________________________ SALE

STRUCTURE
6.1.., Introduction. •
6.2. Objectives ..
6.3. Definition 1 - . ^ "
6.4. The Essential elements of a Sale
6.5. Contract for Sale
6.6. Distinction between Sale and Other kinds o f Transfers
6.7. Rights and Liabilities of buyer and Seller
6.8. Doctrine of Marshalling .
6.9. Summary
6.10. Suggested Question
6.11\ Suggested Readings
6.12. Keywords
6)1. INTRODUCTION
Sale has defined as transfer of ownership for a price. In a sale there is an
absolute transfer of all rights in the property sold. In another Way, we can say,
transfer of property voluntarily to a buyer for price. Section 54 & 55 T.P Act deals
about sale. In this lesson we are going to study about sale in detail. ___
6.2. OBJECTIVES
1 know what is meant by sale
3. know what are the essentials for the sale
4. know what are the rights and duties of seller and buyer
6.3. DEFINITION OF SALE ’
“Sale” is transfer of ownership in exchange for a price or promised or part paid
and part- promised (Section 54)
A sale as per Section 54 is defined as a transfer of ownership for a price. In as
much as a sale involves the transfer of ownership. In a sale thereis anabsolute
transfer of all the rights vested in the transferor over the propertysold and the
transferor retains no right whatsoever in him over the property sold to the buyer.
This characteristic of a sale distinguishes a sale from other transfers. In a
mortgage, there is transfer of an interest in immovable property to the mortgagee
the mortgagor still retaining for himself the right of redemption, a right to get back
the property mortgaged on payment of the debt. This right of redemption is in
immovable property. So there is no absolute transfer in a mortgage. Likewise in a
lease, there is only s. transfer to the lessee and the lessor retains what is
called the reversion in the property leased out. The reversion is also in immovable
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property. So a lease does not involve the absolute transfer of the ownership in the
property leased.
6.4. THE ESSENTIAL ELEMENTS OF A SALE
1 The parties to sale ,
2 The subject matter of sale '
3 The transfer or conveyance and
4 The price of consideration
1. Parties to-the sale
The parties to sale are the seller and the buyer. The seller should be a
competent person to transfer underSection 7 of the Transfer of Property Act. A
transferee may be any person. So a sale infavour of a minor is perfectly valid, in
the case of Mohari bibi Vs. Dharmadas Ghosh 30 Cal. 539 (P.O.) held that a
transfer in favour bf a minor was void. But in later case Raghavachari Vs.
Srinivasan 40 Mad. 308 (F.B.) the High Court reversed the earlier decision and
held;
1 Sale by a minor alone is void and the privy Council ruling in Mohari Bibi’s
case is a proposition on that point
2 Sale in favour of a minor is not void. So also a mortgage or a gift in favour of
a minor.
3 Section 7 of the Transfer Property Act. Which speaks of persons competent
to contract applies to transferors and not transferees^
2. Subject matter o f sale
Transferable immovable property only is the subject matter of sale under
Section 54. The sale of Goods Act governs the sale of movables. The Section itself is
clear that under Sec. 54 both tangible as well as intangible immovable Property can
be sold.
Mode o f transfer by Sale
There are only two modes of transfer by sale (1) Registered Instrument and
(2) Delivery of possession.
In all case, whether the immovable property is tangible or intangible, the sale
is by a registered instrument. The only exception being in the case of tangible
immovable property of value less than Rs. 100/- , that the Section 9 allows the
mere delivery of possession for conveying title to the property. But even there, it is
better that the transfer is by a registered instrument. In the case of intangible
immovable property, even in the case where the value is less than Rs.100/- the
transfer must be by way of a registered instrument.
So far as Section 54 concerned, the modes of transfer under it are exhaustive
and there can be no other mode of transfer under it. Property or ownership docs
not pass until registration is effected. At the same.,.time, mere registration o f tlu*
deed does not necessarily pass the property. Registration merely serves as p roof ol
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intention to transfer the title, but it is not proof of operative transfer if there is a
condition precedent that title will pass only if the sale price has to be paid before
title passes. In such a case, notwithstanding the fact, that the deed is registered.
The title will not pass if the price has not been paid. This condition precedent is to
be strictly fulfilled.
The intention of the parties as to when the title is to pass is to be gathered
from the sale deed itself. But mere paying of the price will not pass the title where
the deed has to be registered. It is only registration which will transfer the property.
The student may like to know as what effect an unregistered deed may have. In
Varadhu Pillai Vs. Jeevaratkinamn •dL it was held that an unregistered deed can be
used for collateral purposes, to show the nature of possession and that possession
is validly obtained. This was a case of an unregistered gift deed, where possession
was delivered. In course of time, this possession without title c&n ripen into
ownership. But on the other hand, where there is an unregistered document which
has to be registered under Section 54, Transfer of Property Act and Registration Act
though title does not pass, yet once registration is effected, the title relates back to
the date of execution. This is the effect of Section 47 of the Registration Act.
Transfer o f Ownership
Transfer should be an absolute transfer, i.e., it should be full and permanent.
It is not the point that the transferor should be the full owner of the property
transferred. Even an owner of a limited right such as a right held by a lessee or
mortgagee can transfer his right under Section 54. What is necessary is that the
whole of the right must be conveyed to the transferee, the transferor retaining for
himself no interest whatsoever in the property conveyed: Otherwise a transaction
labeled as a sale cannot be a sale. So we do not go by the label of a transaction. We
go by the nature of rights transferred.
Price
>Price means money and is an essential ingredient of a sale. If no money is paid
then the transaction is not a sale. The price must be an'ascertained sum of money.
It may be an ascertainable sum and this price is to be fixed by the contract
antecedent to the conveyance. As price is the very essence of "a contract of sale,
unless the price is fixed, there is no enforceable contract. It is sufficient if the
contract specifies definite means of ascertaining the price at the time of execution of
the deed of sale on Specific Performance has stated in the law on this aspect very
clearly.
"In all sales it is evident that price is an essential ingredient and that where it
is neither ascertained nor rendered ascertainable the contract is void for
incompleteness, and incapable of enforcement. It is not however necessary that the
contract should in the first instance determine the price. It may either appoint a
way in which it is to be determined or it may stipulate for a fair price*.
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From the above, it is clear that a stipulation for a fair price or market value is
good enough. A transfer for services rendered is not a sale, but if the service was
rendered for monetary consideration, it will be a sale. A transfer partly for money
and partly for things will not be a sale, but only an exchange.
Transfer o f Ownership and Payment o f Price
Already it has been pointed out that payment of price is not necessarily the
sine qua non to the completion of the sale. If the intention of the parties as seen in
the document and the surrounding circumstances that the title to the property
should pass on registration of the document, then on registration irrespective
whether the price has been paid wholly or partly or not at all the tide to the
property will pass to the buyer, who may sue for possession if such possession has
not been delivered to him. The words of the Section are clear “Price paid or
promised or part-paid or part-promised*. As sale is governed by the stipulations
and covenants between the buyer and seller, passing of the title will depend upon
the intention of the parties contained therein. It will be a valid sale if the stipulation
is for payment of price on delivery of possession. A sale will not become invalid if
the price is inadequate. From the above we can formulate the under mentioned
rules:
For a sale (1) the parties should intend to transfer the ownership of the rights-
in the property vested in the seller. In other words, it should be an absolute
transfer. (2) the intention must be to pay a price whether in present or in future
(3) If the intention is only to transfer the ownership, but intend to pay no price, it is
not a sale under Section 54.
As to the unpaid seller’s right after title has passed, he can only sue for the
purchase money or enforce unpaid seller’s charge. He cannot sue for recovery of
possession, because possession is one of the incidents of ownership. Consequently,
where possession has not been delivered to the purchaser, not withstanding that he
has not paid the purchase money can sue for possession as a matter of right.
6.5. CONTRACT FOR SALE .......... •
Sometimes, this is referred to as a contract to sell. Every sale is preceeded by a
contract or agreement to sell the property. In this contract, the price to be paid is
fixed, the mode of payment and other stipulations to govern their conduct among
themselves vis-a-vis the contract is also fixed. If the buyer is in possession under
the contract then his remedy is under Sec. 53A. If he has paid the price wholly or in
part in anticipation of conveyance then he gets a charge under Section 55(6) (b) on
the property to the extent of the amount paid. The contract can be enforced against
a subsequent transferee with notice of his prior contract.
Delivery o f Property .....
Under Section 54, there, are only two modes of delivery of property: one is by
registration and the other by delivery of possession.
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a) R e g is tra tio n : If the intention of the parties is that ownership is to pass on

registration, then on registration the purchaser is entitled to delivery of property
and if property is not delivered he can sue for possession, whether the price has
been paid or not.
b) D elivery o f Possession: Possession is a very important incidence of
ownership. What is the nature of delivery of possession? Under Section 54 delivery
takes place when the seller places the buyer or such person as he directs in
possession of the property* There has been a great deal of controversy as to the
nature of delivery. Should it be actual or real or is it sufficient to be constructive?
An example of constructive delivery is a case where the lessee is already in
possession and the lessor sells his reversion to the leasee. Here* there cannot be
actual delivery, there is only constructive delivery. By a change in the animus the
mediate possession is conveyed to the immediate possessor. In Muthii Karuppan Vs.
Muthu Samban 38 Mad. 1158, the mortgagee was already in possession. The equity
of redemption was less than Rs.100/- in value so there was an oral sale to the
mortgagee. Here it was held that constructive delivery was good to constitute a valid
sale. But where the seller is in possession the delivery of possession must be actual
or real. But one point is to be noted that a reversion whatever its value can be sold
under Section 54 only by a registered instrument.
6.6, DISTINCTION BETWEEN SALE AND OTHER KINDS OF TRANSFERS
Before winding up Section 54, a discussion on the distinction between sale
and other transfers under the Transfer of Property Act will be apt here.
a) Sale and mortgage: In a sale there is an absolute interest transfer but not
so in a mortgage. The mortgagee gets only an interest in the property and he holds
that interest as security for the debt. The mortgagor retains the equity of
redemption and on satisfaction of the rent, he has the right to redeem the property.
b) Sale and Exchange: In sale the consideration is the price, it is money and it
applies only to immovable property. In exchange, the consideration is not the price,
it can be any thing and it applies to both movables and immovables.
c) Sale and Lease: In sale there is an absolute transfer. In the lease, the
possession for enjoyment of that property for a fixed term is conveyed to the lessee.
The lessor retains the reversion to get the property back after the expiry of the term
and he has also the right of re-entry.
d) Sale and Gift: In a gift there is no consideration, whereas in a sale the very
essence is consideration..
6.7. RIGHTS AND LIABILITIES OF BUYER AND SELLER
At the outset, I would like to mention the very important point about
Section 55,-that it applies only where there is no contract to the contrary. Where
there is a contract to the contrary, the stipulations and conditions contained
therein will govern and regulate the rights and liabilities of the buyer and seller. An
74
open contract on the other hand is one which sets out only the names of the parties
to the contract o f sale, the price and the property to be conveyed. In such a
contract, the implied rights and liabilities between the parties are provided by
Section 55 and they are strictly be followed and enforced for they have received
statutory recognition.
In the absence of a contract to the contrary, the buyer and the seller of immovable
property respectively are subject to the liabilities and have the rights mentioned in the
rules next following, or such of them as are applicable to the property sold: (Section 55)
Duties o f Seiler
The seller is bound
a. to disclose to the buyer any material defect in the property (or in the
seller’s title thereto) of which the seller is and the buyer is not aware, and
which the buyer could not with ordinary care discover,
b. to produce all documents of title relating to the property which are in
the seller’s possession or power to the buyer on his request for examination
c. to answer to the best of his information all relevant questions put to him
by the buyer in respect to the property or the title thereto;
d. on payment or tender of the amount due in respect of the price to execute a
proper conveyance of the property when the buyer tenders it to him for
execution at a proper time and place;
e. between the date of the contract of sale and the delivery of the property,
take as much care of the property and all documents of title relating
thereto which are in his possession as an owner of ordinary prudence would
take of such property and documents;
f. to give, on being so required, the buyer or such person as he directs, such
possession of the property as its nature admits;
g. to pay all public charges and rent accrued due in respect of the property
up to the date of the sale, the interest on all encumbrances on such
property due on such date, and except where the property is sold subject to
encumbrances to discharge all encumbrances on the property then existing.
1 The seller shall be deemed to contract with the buyer that tfye interest
^ h ic h the seller professes to transfer to the buyer subsists and that he
has power to transfer the same;
2 Provided that, where the sale is made by a person in a fiduciary
character, he shall be deemed to contract with the buyer that the seller
has done no act whereby the property is encumbered or whereby he is
hindered from transferring it.
3 The benefit of the contract mentioned in the rule shall be annexed to and
shall go with the interest of the transfers as such, and may be enforced
by every person in whom that interest is for the whole or any part thereof
from time to time vested.
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4 Where the whole of the purchase money has been paid to the seller, he is
also bound to deliver to the buyer all documents of title relating to the
property which are in the seller’s possession or power.
Provided that (a) where the seller retains any part of the property comprised in
such documents, he is entitled to retain them all, and (b) where the whole of such
property is sold to different buyers, the buyer of the lot of greatest value is entitled
to such documents, But in case (a) the seller, and in case, (b) the buyer of the lot of
greatest value is bound upon every reasonable request by the buyer, or by any of
the other buyers, as the case may be, and at the cost of the person making the
request, to produce the said documents and furnish such true copies thereof or
extracts the reform as he may require; and in the meantime. The seller, or the
buyer of the lot of greatest value, as the case may be, shall keep the said
documents safe, unconcealed and undefaced, unless prevented from so doing by
fire or other inevitable accident.
Sellers Rights
2. The seller is entitled
a. to the rents and profits of the property till the ownership thereof
passes to the buyer;
b. where the ownership of the property has passed to the buyer before
payment of the whole of the purchase money to a charge upon the
property in the hands of the buyer, (any transferee without
consideration or any transferee with notice of the non payment) for
the amount of the purchase money, or any part thereof remaining
unpaid and for interest on such amount or part from the date on
which possession has been delivered.
Buyers duties
3. The buyer is bound
a. to disclose to the seller any fact as to the nature or extent of the seller’s
interest in the property of which the buyer is aware but of which he has
reason to believe that the seller is not aware, and which materially increase
the value of such interest.
b. to pay or tender, at the time and place of completing the sale, the purchase
money to the seller or. such person as the directs, provided that, where the
property is sold free from encumbrances the buyer may retain out of the
purchase money the amount of any encumbrances on the property existing
at the date of the sale, and shall pay the amount so retained to the persons
titled thereto;
c. where he ownership of the property has passed to the buyer, to bear any
loss arsing from the destruction, injury or decrease in value of the property
not caused by the seller;
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d. where the ownership" of the property has passed to the buyer, as between
himself and the seller to pay all public charges and rent which may become
payable in respect of the property, the principal moneys due on any
incumbrances subject to which the property is sold, and the interest thereon
afterwards accruing due.
Buyers Rights
6) The buyer is entitled
a. where the ownership of the property has passed to him, to the benefit of any
improvement in or increase in value o f the property and to the rents and
profits thereof.
b. unless he has improperly declined to accept delivery of the property to a
charge on the property, as against the seller and persons claiming under
him to the extent of sellers interest in the property for the amount of any
purchase money properly paid by the buyer in anticipation of the delivery
and for interest on such amount and when he properly declines to accept
the delivery also for the earnest money (if any) and for the costs (if. any)
awarded to him of a suit to compel specific performance of the contract or to
obtain a decide for its.rescission..
An omission to make such disclosures as are mentioned in this Section,
paragraph (1) clause (a) and paragraph (5) clause (a), is fraudulent.
Let us look at Section 55 as given above. This section sets out the rights and
liabilities of the seller and buyer. These rights liabilities are effective in an open
contract which I have already discussed earlier. These rights and liabilities can be
divided into 2 classes:
1. Before completion of the sale. . „
2. After completion of the sale.
Let me present you these rights and liabilities under Section 55 in a tabular
form so that you can get a bird’s eye view of them.
Before Completion o f the Sale
Seller’s Liabilities Buyer’s Liabilities
Sec. 55 (1) (a) -To disclose material Sec. 55 (1) (a) -To disclose facts
defects. materially increasing value.
Sec. 55 (1) (b) - To produce title deeds.
Sec. 55 (1) (c) To answer question as to
title.
Sec. 55 (1) (d) -To execute deed of Sec. 55 (5) (b) -To pay price.
conveyance.
Sec.’ 55 (1) (e) -To take care of the
property. •
Sec. 55 (1) (g) - To pay outgoings.
Seller’s Right Buyer’s Right
Sec. 55 (4) (a) - To take rents and profits Sec. 55 (6) (b) - Charge for price prepaid.
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After Completion o f the Sale

Seller’s Liabilities Buyer’s Liabilities
Sec. 55 (1) (f) - To give possession Sec. ,55 (c) -To.bear loss to the.property.
Sec. 55 (2) - Implied covenant for title
Sec. 55 (3) - To deliver title deeds on Sec. 55 (d) - To pay outgoings.
receipt of price. ’
Seller’s Right Buyer’s Right
Sec. 55 (4) - Charge for price not paid. Sec. 55 (6) (a) — Benefit of increment. .
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,,, • .t ■■ ----- :. —r-------:--------- ■---------
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When we analyze the above rights and liabilities, we find the following:
1. Before , completion:. The rights and liabilities before completion are all
contractual with the exception of the seller’s right to take rents and profits under
Sec. 55(4) (a) which is a right of the seller as he still continues to be the owner after
the contract. As for the liabilities to pay all outgoings and take care of the property,
they are obligations collateral to the contract and can be enforced after the
conveyance. *• • •
2. After completion: These rights and liabilities after completion are not
contractual, but are the incidents of ownership that has been transferred to him.
The seller’s rights for purchase price remaining Unpaid are security for enforcing
the buyer’s liability to pay the price. Now for a thorough discussion of the Section-
55 Seller’s liability before sale w
Seller’s duty of disclosure of material defects Sec. 55 (1) (a) :

This liability of the seller will apply only in an open contract of sale and
therefore the duty of disclosure is;nQt absQ]utQ,. ;It.isvalâ not absolute dn ,the sense ..
the obligation to disclose is only of the latent defects of which he is aware. The duty
extends only to the extent .that the seller is aware of the latent defects, but the
purchaser is not cognizant and which the purchaser could not discover for himself
even having exercised reasonable care. There is no duty to disclose latent defects
which the buyer has actual or constructive notice. As to the patent defects, such
as, the ruinous conditions of the building or a footpath there is no duty of
disclosure, for the buyer can discover them for himself by exercising ordinary
diligence which he is expected to exercise in the normal course of business. Here
the maxim caveat emptor applies. ~ - • /.
The defect should be a material defect. It should relate either to the property or
the title and it must be such a defect that if the buyer was aware of the same, he
would not have entered into an agreement for the purchase of the property., A few
examples of What constitute material defects will be helpful. In Plight Vs. Booth 131
E.R. 1160; a leasehold right to a house was auctioned. There were restrictions from
carrying on both offensive and inoffensive trades. There was disclosure only as to
offensive trades and no inoffensive ones. The auction purchaser filed a suit to set
aside the sale on non-disclosure of a material defect. The court held that a
restriction in respect of an inoffensive trade is a material defect and non-disclosure
entitles the auction purchaser for a decree. : ; .. . .
A defect in title exposes the purchaser to adverse claims to the-property. They
are usually latent. The liability to. disclose such defects is a statutory duty and
therefore, even if there is a condition to buy with all faults, êt the duty of
disclosure is intact. Defects in title are o f various kinds. The following are a few
example^:' •• ■*V •
Encumbrances,- * ■<\
v.fr. _ Restrictive; covenants, . V \
.: Property liable to be compulsorily acquired under Land Acquisition A ct,.
❖ An easement,
❖ A portion of the property already allotted to a co-sharer in a partition decree,
• :'' *> ••Title being voidable a t the option of a. third party,.
But a defect which is constructively within the. buyer’s knowledge, or which
the buyer can ordinarily discover, there is no duty to disclose.. In Ahmed Hussein
' Vs. G aniVepri Chetty A.I.R. 1953 Mad. 628, a portion /of the property sold was
included in the Town Planning Scheme. On the question whether this -was a
material defect in title, and. nondisclosure entitled the plaintiff to have the sale set
aside, it was held, even ^ ^ ^ ^ tiie re ;W ^ a :'-ih a te ria l defect.in the M e of the seller,
the buyer can ordinarily discover such’ a /^defect by exercising ordinary care and
therefore* t h e r e r ' ■
If the buyer, finds before completion of the sale that the, seller was guilty of
non-disclosure of a material defect in the title,; he may refuse to complete the sale
and can claim damages. He can also resist a suit for specific,performance.
After sale i f non-disclosure is proved, the sale can be set aside. In Gajapathi
Vs: Alagia fl886|9 Mad. 89, after conveyance it was discovered that; a portion of the
property had been allotted to C in a decree for: partition. It was held, that the seller’s
omission to disclose the decree is fraudulent and. the sale can. be set aside. •
Misdescription of the property and title’ may be a very serious matter. If mis
description amounts to mere laudatory remarks;' that is hot a material defect in
title. But there are misdescription which go .to the root of the contract.. In such •
“ case, the contract,can be repudiated and i f .the sale is. completed, it can be set
aside. But where the buyer is aware that there is a misdescription, which, goes to
the root of the contract and yet. buys the property, later he cannot have the sale set
aside.
‘ Remedies for non-disclosure . \‘ •
Before sale, the intending purchaser .can. rescind, the contract or oppose a suit
for specific performance or. sue for damages. If after, sale,, .th,e sale can be set aside
on grounds of fraud such fraud must be proved, because the last sentence of
Sec. 55 states ‘omission to make a disclosure is fraudulent’. Where no fraud is
proved, then the only remedy is damages. •
Production o f Title Deeds Sec, 55(1) (b)
Under this .sub- section, there is no obligation to produce title deeds unless the
buyer makes a request. But once a request has been made and then the duty to
produce the document arises. These.documents have to be produced for inspection
only arid not for deiwery:’ The buyer is entitled to them only, on completion of the
sale. In case there is no request, there is no duty to produce the: title deeds. But,
the .buyer must not omit to inspect the title deeds and satisfy himself as to the title
Otherwise-he will .be‘ deemed to have constructive notice of matters which he would
have discovered i f he. h^d lqoked into the title deed;
Answer Relevant Questions: Sec. 55(1) (c)
After . inspection .of- tihe property , and documents, the buyer, may make
requisitions and objections, which may be (1) requisition on title: (2) requisitions as
to matters relating to conveyance (3) questions relating.to income.or rental value.
These are. relevant questions for the protection of- the buyer. These, questions have
•to be answered b y the; seller.- Once these relevant questions are asked, there is a
statutory duty to answer; He is not bound to answer frivolous questions.
Execution o f conveyance: Sec. 55 (1) (d)
• Under tiiis'sub- section.execution of the conveyance and payment of the price
are-reciprocal-duties arid, are to'be performed simultaneously. Each party must be
•willing and ready .to perform his duty.. This alone will give a right, to. resist a suit for
specific performance by. proving, that the party against whom the suit is filed was
ready arid willing to perform his part of the bargain. . . -A :.
The proper.time 'placj;îsviadt--menti'oned"in. the Section;..Place can be fixed
by. the. parties." As to timej . usually time’ is'n o t the essence. of the contract, but
where there iis-inordinate.delay.it is ;open for eith er’pajrty. to make time the essence
of .the contract.. Any default entails a termination of the contract by notice to the
defaulter or a suit for specific performance’ of the contract. The conveyance is to be
executed in;favour<>f the:buyer or his nominee.; .;
Care o f the Property S ec.55(1) (e)
In Indian Law,- a contract to sell the- property creates no right to immovable
property in the intending purchaser. We have- already seen this earlier. But none
the less under this .Sub- section, a statutory duty is cast on the seller to take care
of.tifie property;arid to keep the property in reasonable care and protect it from
injury-by .trespassers, until, the1sale is completed. This duty is in the . nature of a
trust. Likewise;; he has. to take care of the title deeds', as loss depreciates the value
of the property.and is, therefore, damage to property. On completion of sale, he has
to deliver the title deeds to the buyer.
Supposing, the* property is insured and in the event of the property being
destroyed-wholly or.partly, by fire, flood, etc., the question arises as to whom the
1 benefit of the insurance money should go. If the property is destroyed after the
' contract to sen has Seen entered into, but before the completion of the sale, under
Indian Law as the buyer-gets no beneficial ownership before the sale is completed,
: .. 80 . v . .... .
the seller alone bears the loss and is entitled to the Insurance money if it has been
insured. If the sale is completed then the irisurance money, goes to the buyer by
virtue of Sec. 49 of.the'TrarisferofProperty Act.
To pay outgoings and public charges - Sec. 55 (1) (g) \

The liability imposed on,the.seller.under tiiis sub section is collateral to the
contract and so it can be enforced ,even after, completion of. the sale. This liability
proceeds from the duty to take care of the property and title deeds so that the buyer
gets an. unimpeachable title to .the property. The duty involves payment o f (1) all
public, charges accrued up to the date of the sale, (2) the’ interest on all
encumbrances (3) to discharge all encumbrances on the property except where the
property is sold subject to '.encumbrances. Where property is sold free of
encumbrances the buyer .can insist upon the payment of all encumbrances before
execution of the conveyance so that the title is. free and full.
To give possession-S ec. 55 (1) (f) y. :k.v.
■•■■■■: As possession is an important incidence o f ownership, on completion of sale,
the buyer is- entitled >to ..possession :of the property. Possession means only such
possession as its.nature admits. If it is a house,, handing over the key of the house
is sufficient. •• •••••• • ■. . ■ .
Covenant for title - Sec. 55 (2)
1 Before completion of thfc‘sale,theseller’sititle shiDuld be. free-from reasonable
doubt. Before sale, the buyer has a right to investigate the title, to ask all relevant
questions to satisfy himself taking all reasonable care if the sale is completed he
has no remedy on the contract except for fraud. If fraud is proved, then the sale can
be set aside. Omission to make disclosure, under Sec. 55; (1) is fraud.
If by reason of a defect in title he is dispossessed the buyer can recover the
purchase price and also claim damages. . . . ,..
. An express covenant for title in the sale deed is not necessary, because under
this clause, such a covenant is implied in. every sale of immovable property. This is
so because a covenant for title runs with- the land, even into hands of successive
purchasers. The covenants under English law which are available in Indian law
also are the following: • ■.*.
1. The seller has power, to convey the same;
2. The land is free from encumbrances;
3. Buyer shall have quiet-enjoyment;- •' •
4. TheTseller shall do all further acts necessary to assure the land1to the buyer.
The maxim caveat emptor does riot apply here, as. a warranty for good title is
absolute and implied in every sale of property and for the breach of it the seller will
be liable unless there is a clear coritfact to the contrary.
As to the .nature of the covenant, as the covenant runs with'' the land any
owner or possessor of. the land, even subsequent transferees c a n . enforce the
covenant against the original seller but does not extend to disturbance by
......." “•w**
. 81 ■ . . - • .
trespassers. Certain High Courts hiave held this covenant, for title is available only •
on completion of the sale, but others even after the contract to sell..But one thing.is
sure and that is before the sale is completed, no buyer is entitled.to an absolute
guarantee to title but can insist only on a title free from reasonable doubt, An.
absolute guarantee of title is given only on the 66mpletion df sale! *
To Deliver Document of T itle-S ec . 55 (3) *■
On completion of the sale, all the documents relating to title to /the.’,property-
must be delivered to the buyer. But in case the seller retains aily ;p.art of 'the
property, then the seller is. entitled to retain all the documents.:In sticli a case,
buyer has a right of inspection of the documents whenever fteicessaiy.
Buyer’s \
To Bear Loss - Sec. 5$ (5)(C )^nd
Sec. 55 (5) (d) To Pay Encumbrancesand. Charges - . . : . , . ;
(,The âbilitiescontained in the above -mentipned. si^s^ctiqns have already been..
dealt With, There is .Onl^.one. is':''
sold subject to encumbrances, we have already seen./featrhe-;lQoks ,to.;.'ê buyer;for ,
satisfaction of the debt due to him and the buyer ret^ns the" price tq.;.th^^t§.nt cjf-
the. debts on the property in order to clear the encumbrances.. I'he .point: to be.;
cleared is, supposing in the above case it is found, theencumbrance, is invalid, and
unenforceable, who is to enjoy thebenefit of it. The Privy Council hast ruled on this
iii the leading case of izzatunnissa Begum Vs. Kuriwar Pratap Singh 36 I.; Av. 203
P.C. The Judicial Committee; h e ld :A fte r t&e purchase is completed .the seller has
no claim, to participate in any benefit which; the purchaser, may derive ’from- .his .
purchase”. This decision makes it clear.that the benefit goes t o .the buyer.- But on
the other hand, if the sale is. free of encumbrances, and the buyer, retains the price
to the extent of the debt in order to clear 'the encumbrances, the creditor ;looks to ,
the seller for his debt. In such case, the benefit of an invalid debt goes to the seller.
The money retained by the buyer must be returned to the seller, because it form s;
part of unpaid purchase money, . - y ••
Seller’s Right on Completion of.Saiie : ;rs*..r-j ?; -: -
Unpaid Vendor’s Lien - See. 55 (4) (b) '
After; completion o f the sale,' if the. p riceis unpaid -wholly; pr/partly, the. seller •.
gets a charge for unpaid price under this Sub- section. This /right of the' seller is the •
converse of the buyer’s right for price,prepaid under;sec; '55' (6) .(b).;'An' important;'-
condition under this'Sub-'section is that: foran.unpaid 1 êhdoifs:.lien. to .Operate; the
ownership must have passed to the buyer. This charge is called equitable lien o f '-:.
. unpaid vendor. .
A problem that may arise is, if the promise is to pay at; a future, date i s ‘the'
consideration, then does the vendor get a charge on completion, of sale? If you- read
Section 55, definition of sale .what do you see? This Section defines: sale “S a le is a
transfer of ownership in exchange for a price paid or promised or part paid and
“part promised\ Therefore, the price can be promised Or part promised to be. paid in
future. So there is no question of unpaid price and a charge, for unpaid price.. We
have, therefore, to 'draw-distinction-between a case o f a sale .in consideration o f a
• 82
sum o f money covenanted to be paid and case o f a sale in consideration o f a

covenant, to pay a sum o f money in future. In the latter case, the consideration for
the sale is the covenant or prp.mise .and so., there can bejô charge as there is no
scope for one.
Buyer’s Right After Completion O f Sale >
Right to Rents and Profits - $ec.55(6) (a ): ■
After sale the buyer.,is entitled to rents and profits which are legal incidents of
ownership. If the seller has carried out repairs, the benefit goes to the buyer, and no
compensation can be claimed by the seller for the same.', ... \ •
6.8. DOCTRINE OF MARSHALLING ..... ' : v
Section. 56 states t “if .the owner of two;o r,more. properties mortgages them to
one .person arid, then sells one or more of the .properties to. another ,person, the
buyer is, in. the'absence of a contract to the contrary,,entitled to have the mortgage- >
debt satisfied ou t of. the property Or properties riot sold to him, so far .as the same
will extendj but. not., so as to prejudice the rights, of the mortgagee .or; persons
claiming under him or of any other person who has .for consideration acquired an
interestin'ariy ofth e properties*. • . ‘
6.9. SUMMARY . •• V * * "
In a sale the'ire is-an absolute ,transfer of all-the rights vested hr the transferor -
over .the property sold and tiie tf^s.feôr.retaiii8 ,no> r i^ }:;wji^ti5.6ever în.. huri over .
the ■property sold to the buyer. This. characteristicof a sale., distinguishes a sale
from other. traiisfers The essential elements of a sale;are: The parties to.a sale,;The
subject matter of. sale, The transfer or conveyance, and The price or consideration.
Under Section 5^, there are,only. two .modes of/delivery •of; property:* one. is by
registration and'the other by delivery, of possession. Farther’iri. this lesson'we have
seen- the rights and liabilities of seller and buyer in. detail. •:
€.16. SUOOESJED QUESTIONS ,
1. pe^rie .‘s£ie,, pistinguisli it, from-a n ‘Agreement tp'seir :- ' —„
2. What are the formalities required for the completion of sale?
•’ 3. Explain the rights.^dliabttitiesO f seller before arid after sale:
6.11; SUGGESTED. REAWMGt .
1 .H .P .V e p a s a * a t h i- ^ of property 4tf\ Edition, 20,00.
2. Venkata 3ubha Rsu> ^ ^ w . o f Trcmsfer of Property.
. 3. Mulla - The T r ^ s fe r of Property Act/ ‘
6.12. KEYWORDS ' •
• •• Alienate - Transfer
Affirmative - Positive ;
Amend - Modify
83
LESSON-7
MORTGAGE
STRUCTURE
7.1. Introduction
• 7.2. Definition ; ' .
7.3. Kinds of Mortgages
7.3.1. Simple mortgage
7.3.2. Mortgage by conditional sale
7.3.3. Usufructuary mortgage .
7.3.4. English.mortgage ,
7.3.5. Equitable mortgage
7.3.6. Anomalous mortgage •
7.3.7. Sub mortgage • . " . •
7.4. Summary . •
7.5. Suggested Questions . . ; J -
7.6. Suggested reaidings : : - . 0'
,'7.7..'' .Keywords:••••< v"-:'.'- ■ v* "
7 4 ; INTRipbUCTiON : • ./ ; ;/.V
; It .will be -.of interesting.' to ..the student to know that the word . ‘Mortgage’ It is
actually derived from two French words, the ‘Mort’ and ‘gaga’ both together mean ‘a
dead pledge’. The original mortgage at common, law was more a pledge than a
mortgage. The transfer was not of title, but of possession and the creditor enjoyed•
the rents and profits, till: the. debt. Was repaid and property re-c.onveyed to the
debtor. Therefore, so far as the. debtor was concerned, the-property.was deemed to
be lost The history o f mortgages can be •traced back ,to. Roman «Law, which
recognized three kinds o f mortgages, the Fidusia, .the Pignus and the Hypotheca:
. Fid usia: Here the property was transferred; to the creditor with a condition
that it should, be reconveyedto the 'debtor when & e d e b t was'-repaid.;’ ■
.. Pign u s: In this .;kind of mortgage, rthQ:property: was transferred to ,the creditor,
who retained possession and <ehjoyjhent of it till debt was repaid.1.It W assim ilar to.
the modern usufructuary mortgage.. • ' '■*':. :.*•• .. Y . • ' ‘ * . *«-/•••!
H ypotheca: This form of mortgage was a more perfect form of mortgage known
to Roman law. In this form, the property is retained; by the1debtor, but a kind of
security is created in .favour of the creditor. This-wa$ more or .less similar to our
simple mortgage. These mortgages were of two classes, the vivum Vadium and the
mortuum vadium. ,: 7 . ,
The principle of forfeiture was applied under Common Law. If the debtor was
not able to repay the loan within the stipulated period,, the debtor could not recover
his property. This hardship to the debtor was mitigated by equity by looking a t the
84
essence of.th e transaction and viewing the mortgage in essence a borrowing

transaction. So equity recognized the rule ‘once a mortgage always a mortgage’ and
allowed' redemption even after the expiry of the stipulated periocL In 1925, the law
was' amencfed by the Law oY i^roperty Acf/^1925 which'brought'.about theim portant
change that a borrower or debtor need not transfer the property to the creditor. It is
enough if an encumbrance is created on the property in favour of the creditor. A l f
the above principles are applied in India to the law of mortgages.' Now, for a detailed
discussion of the Law of Mortgages -we have to see Sections 58 to 104 in this
lessons
7.2. OBJECTIVES
In this lesson we are going to v --
❖ know about Mortgage and essentials of mortgage
❖ know about various kinds mortgage
❖ know about sub mortgage
7.3, DEFINITION OF MORTGAGE:
Section 58 defines a mortgage and the terms involved in a mortgage. It also
. describes the kinds of mortgages in India. - .' ' -;
a. • A mortgage is the transfer of an interest in specific immovable property for
the purpose of securing the payment of money advanced or to be advanced
* by way of loan, an existing or future debt, or the performance of an
engagement which may give rise to a pecuniary liability. The transferor is
• - .' .called a mortgagor, the transferee is called mortgagee; the principal money
and interest o f which payment is secured for the time being are called
:♦ ‘mortgage money and the instrument (if any) by which the transfer is effected
• is called a mortgage deed,
rr ^' The vb est ' definition of a mortgage is to be found in
. Section $8. A mortgage is in a striking contrast to a sale. A sale is a transfer of
ôwnership over a property, but a mortgage is, the transfer of only some interest or
right in property while the ownership and the remaining rights still continue to vest
in the. transferor and who can still exercise those rights.
.A mortgage in our law is-nothing more and nothing.less- than a ‘pledge’ of
specific immovable property for repayment of money or moneys worth. Section 5ii
(a) gives the perfect definition of a mortgage has been expressed by Mahmood J in
Gopal Vs. Pursotam All. .121 “Mortgage as understood in this country cannot be
defined better,than by the definition adopted by the legislature in Section 58.w
From 'the definition, you will notice that the necessary ingredients to create a
transfer by mortgage are:
1. There must be a transfer of an interest;
2. Such interest must be in.specific immovable property;
85 • ' ,
* . . ' '* *'
3, The transfer should be made to secure the payment of a present or future
loan of money or existing or future debt, or the performance o f an
engagement resulting in a pecuniary liability.
When the transfer of immovable property possesses these three ingredients the
transaction amounts to a mortgage.
TRANSFER OF AN INTEREST
Although in a mortgage, there is transfer of only an interest in specific
immovable property, the interest itself is immovable property. The interest or
interests transferred in the several kinds of mortgages are not identical; they
depend upon the kinds of mortgages. But what is important in all the mortgages is
the right in immovable property transferred to the mortgage is accessory to the
right to recover the debt. The right is also a right in rem. The following are the
interests transferred in the different kinds of mortgages. .
Simple mortgage : Power of Sale

Usufructuary mortgage : Right of possession and enjoyment of the
usufruct .
Mortgage by conditional sale : Ownership is transferred
English Mortgage : transfer with a condition of retransfer —
Equitable mortgage : the interest transferred
Anomalous mortgage : Will depend upon the terms between the
parties.
Parties to Mortgage
Mortgagor
The person who actually mortgages the property is the mortgagor. The
Amendment Act, 1929 has introduced a new Section. Section 59A which states:
“Unless otherwise expressly provided, references in the Chapter to mortgagors and
mortgagees shall be deemed to include references to persons deriving title from
them respectively”. Those deriving title are their heirs, executors, and
administrators. *
Mortgagee
A mortgagee is a person in whose favour a mortgage is created. Section 59A
applies here. Every mortgage deed must name a mortgagee, otherwise, it is not a
mortgage. Thus, a security bond given to a court cannot be enforced as a mortgage,
the court is not a judicial person.
Mortgage Money
Mortgage money is not only the principal debt, but' alô the interest accrued
thereon. A mortgage cannot be Redeemed by payment of only the principal, the
interest has also to be paid, because the interest is regarded as a charge upon the
property just as much as the principal amount. But there can always be a contract
to the contrary, in which case the terms of the contract will decide whether or not
the interest will be a charge on the property.
*■ ,* • ' •• '86*. .
Mortgage deed
No particular'form is necessary for the creation of a mortgage. There should be
a transfer of an interest which originally intends to create a security for the debt.
The court will look into the intention and jural relations of the parties and
construction i f the deed.
Specific immovable property
The property to be mortgaged ,must be a specified item or item of property so
that they can be identified easily.. “A mortgage of my house and landed property”
void for uncertain, when the mortgagor has many houses and msmy pieces of
landed property,. . ' • • -
The transfer shouldbe b y way-of security'. '
'A mortgage is created only for the purpose of Securing a .debt or other
pecuniary obligation. Therefore there must be a subsisting debt. A transfer which
extinguishes a debt cannot-be a mortgage-
Consideration o f mortgage'
Consideration is another important ingredient of a mortgage. So, without
consideration, the mortgage .can create no charge oh the property mortgaged so it
becomes unenforceable. So a mortgage must be supported by consideration..A
mortgage which is not supported-by consideration is a nullity - Kumarappan Vs.
Narayanan 35.1.C: 455 (Madras). Consideration may,be neither (1) money advanced
or to be advahced b yw ay of loan'; (2) an existing or future debt; (3) the performance
of an engagement giving-rise to pecuniary liability.
1. Money advanced
These words include “existing debt” and something, m o r e e v e n one barred by
•limitation, whereas “existing debt” excludes a time-barred debt.
2. Future debt
A mortgage can be created for. an existing debt, as well as for advances to be
made in future. The mortgage in such a case, will' be security for a current account
upto a’limit' riarhecl. between the parties, the security is. a running- security.
3. Performance o f an engagement giving rise to a Pecuniary liability
These words include a legal-obligation to pay dto&ge's, A very: illustrative case
is that of Ramchand Vs. Iswas Chandra;. 48 Cal. 625 (F.B.) In this case, the
defendant borrowed paddy from the plaintiff and executed a bond agreeing to.
return with' interest- Which was also payable, in paddy. By way of security. for the
return of the paddy and the •interest, he mortgaged certain immovable property. The
bond gave the plaintiff po\yer to sell the property.'. The bond gave the plaintiff power
to sell the property to realize the; price of paddy and the interest in case the
defendant committed default.-The defendant having committed default, the plaintiff
sought to enforce the security. On the question. whether the transaction was a
mortgage, the Court held:
1. the transaction is a mortgage;-
• . '87
2. the essence of the transaction was the land which was made secufity for the •
value of the paddy; \ ■
3. failure to deliver paddy will entitle the mortgagee to recover the price there of
by sale of the land; and .’ ^
4. so the parties entered into an agreement which if not performed by delivery
of paddy, would give rise to a pecuniary liability.
Another point on consideration is - where the mortgagee has paid only part of
the consideration, he is entitled to a charge on the property to the extent of the
amount advanced. The mortgagor cannot, sue for the, balance. His right is a claim
for damages for breach of agreement and he may-redeem immediately on repayment
of the amount actually received by him. •’
A breach of an agreement to. mortgage, the remedy is not specific performance
of the contract as the court will not enforce an agreement to make a loan of money,
whether on security or not. Relief is only damages’for breach of contract.
7.4. KINDS OF MORTGAGES
Section 58 contemplates six kind of mortgages:
1. Simple mortgage -• * "■
2. Mortgage by conditional sale -
3. Usufructuary mortgage .
4. English mortgage .
5. Equitable mortgage
6. Anomalous mortgage
7.3.1. Simple mortgage Sec. 58 (b)
In a simple mortgage, the mortgagor retains possession o f the property
mortgaged. Possession is never delivered to: the mortgagee. Further, the mortgagor
covenants personally to pay the mortgage-.money and agrees i f the commits default
in payment the mortgagee shall have the right of realizing the debt by causing the
property to be sold under an order of court. Therefore, the characteristics of a
simple mortgage are:
1. There must be a loan, 2. There is a personal Hkbility to pay, 3. Possession is
not delivered, 4. There is no foreclosure, 5. No power of private sale, but sale only'
through Court - Sec. 67. Right of private sale can be reserved expressly, but such
reservation is subject to the provisions in Sec. 69'(b) and .(c):
Transfer o f power o f sale
The interest that is transferred in a simple mortgage is the power of sale. This
power of sale is a right in rem and is in immovable property. But this power, must-
be exercised only through a court. In Sri Raja Pappammarao Vs. Ra.m Chandra Raju
19 Mad.249, Lord Hobhouse observed: “In default of payment, a simple mortgage
gives to the mortgagee a right not to possession, but to sale which he must work
out in execution proceedings”.
I
88 ' ‘ •
Personal covenant to pay

The existence of this personal covenant to pay is the essence of a simple
mortgage. The covenant may be either express or implied. It is implied from the very
acceptance of the loan. .
A few examples of personal covenants are given below:
a. In Sivakami Ammal Vs. Gopala 17 Mad. 131 F.B., the covenant was
“I shall pay the amount in Chitrai 1883” .
b. In Kangaya Gurukal Vs. Kali Muthu, 27 Mad. 526, the covenant was “On 30th
Panguni, Bhava year causing the aforesaid Rs. 200/- to be paid we shall
redeem our land”. '
,c. In MamoOno Labbai Vs. Ramanatha (1946) I.M.L.J. 90, it was “On expiry of
the stipulated period, I shall pay the amount and redeem the land”.
No possession
As already seen, in a simple mortgage, possession of the mortgaged property is
not given. So a mortgagee cannot enforce his security by asking for possession. It is
illegal and even if a decree for possession is passed, it will not operate as
foreclosure, but only make it a simple mortgage with possession. But in a simple
mortgage, by a separate agreement between the mortgagor and mortgagee, (when I
say separate, it means that it has nothing to do with the agreement that created the
mortgage in the first instance) the mortgagor agrees to give possession if he
commits default in payment of the interest, such an agreement will not convert the
simple mortgage into a simple usufructuary or anomalous mortgage. The mortgagee
in such a case can exercise his power of sale and he can also under the separate
agreement, take possession and enjoy the property. But he has to adjust the rents
and profits, if any, towards the debt due to him.
In a simple mortgage, the mortgage has two remedies;
1. Power of sale through a court to realize what is due to him and
2. under the personal liability of.the mortgagor, a money decree. These two .
remedies may be exercised concurrently or separately.
7.3.2. Mortgage by conditional sale - Sec. 58 (c)
When we examine this clause, we find the -following characteristics to make a
mortgage by conditional sale:
1. The mortgagor ostensibly sells the mortgaged property. The transaction
has the appearance of a sale, but it is not a sale, because of the condition,
2. that in default of payment of the mortgage money on a certain date, the sale
shall become absolute;
3. but on such payment being made, the sale shall become void and
4. the buyer shall retransfer the property to the seller.
89
5. the transaction to be a mortgage by conditional sale must have the above

conditions embodied in the very same document which ostensibly purports
to sell the property to the mortgagee (see Proviso to Sec* 58 (c)
6. the remedy of the mortgagee is by foreclosure and not by sale- (Sec. 67)
7. it must be by a registered instrument where the consideration is less than
Rs. 100/- either by delivery or by registration (Sec.59).
Here absence of personal liability to pay the debt. So the mortgagee can look
only to the property for his debt. He cannot bring the property for sale as no power
is given. This remedy is only by foreclosure. The ostensible sale on default ripens
into an absolute sale to be enforced by foreclosure. Another point to remember'is
that this kind of mortgage isnon-possessory and the mortgagee cannot pay himself
out of the rents and profits' as in an usufructuary mortgage.
Distinction between a Mortgage by conditional sale and a Sale with a clause to
repurchase
In spite of clear cut distinctions, the two transactions are confused one for the
other. A sale with an option to repurchase is very rare in India, but let us examine
them and draw out their differences.
In the earlier days, a mortgage by conditional sale was created by means of
two instruments, one being the sale deed, and the other containing the condition
for/reconveyance. This brought doubts as to whether the transaction was a
mortgage by conditional sale or a sale with an option to repurchase. So, the courts
had to develop a number of tests to determine the nature of the transaction. The
tests and distinctions are given below:
1. If possession was delivered, the presumption was it was a sale,
2. If there was provision for the payment of interest, or the purchaser had to
account to the vendor for the rents and profits, then it was held as a
mortgage. ‘ ,
3. If the relation between the vendor and the purchaser was that of debtor and
creditor and the consideration grossly inadequate, then it could only be a
mortgage.
4. If the ownership vests immediately in the transferee, it is'only a sale with an
option to repurchase; In a mortgage, the ownership not vest immediately in
the transferee and the transferee cannot exercise the ordinary rights of
ownership. . . .
5. In a sale with an option to repurchase,, time is the essence of the contract. A
time is stipulated within, which the seller must exercise- his option of
repurchase. On expiry of the time fixed, the seller loses his option for ever.
In a mortgage, time is not the essence. The mortgagor, may redeem even after
the due date, provided there is no contract to the contrary.
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6. In a mortgage, the right to redeem is assignable, but not in a sale with an

option to repurchase The option can be exercised only by the seller and it is
not assignable, being a personal right.
7. The best general test is the intention of the parties.
As already mentioned, the best general test is the intention of the parties. The
question is how to prove intention. Oral evidence was admissible prior to the
passing of the Evidence Act. Section 92 of the Evidence Act states that no oral
evidence is admissible, which runs inconsistent to the terms of the contract,
embodied in a document. The Privy Council condemned the practice of allowing oral
evidence in Balkishan Das Vs. Legge 22 All (P.C) 92 to ascertain the intention of the
parties to determine the nature of the transaction.
7.3.3. Usufructuary Mortgage - Sec. 58 (b)
The special characteristics of the mortgage are:
1. There is a delivery of possession of the mortgaged property of
hypotheca to the mortgagee. If there is no immediate delivery there is an *
express or implied undertaking on the part of the mortgagor to deliver it;
2. The condition is that the mortgagee has to retain possession until the debt is
repaid. The mortgagee satisfies himself out of the usufruct of the property.
He receives the rents and profits out of the property, in lieu of interest or in
payment of the money, i.e., the principal or partly in lieu of interest and
partly in lieu of the principal amount. So in a pure usufructuary mortgage,
the mortgagee cannot sue for the debt. His right is to remain in possession
until the debt is repaid out of the usufruct. So no time is fixed. It goes on
indefinitely. If a time is stipulated, it cannot be a pure usufructuaiy
mortgage, but becomes an Anomalous mortgage. This is clear from the
words in the clause, “until payment of the money”.
3. There is no personal liability to pay. So the mortgagee cannot sue for the
sale of the property. As the mortgagee cannot sue for the sale of the
property. As the mortgagee has the right to pay himself, he is saved from the
trouble of going to court. There is no question of limitation. Another
advantage is till the mortgagor brings a suit for redemption, he the
mortgagee, can prolong his enjoyment of the property, but he has to take
care of the property and render accounts to the mortgagor. If no suit for
• redemption is brough4- within 85 years, he becomes the absolute owner of
the property. If the ~sufruct is inadequate to pay both the interest and
principal, it is a hardship to the mortgagee as neither sale of the property
nor foreclosure of the mortgage is available.
4. When a Usufructuary mortgagee is not put in possession, he can sue for
possession. Under Sec. 68, he can sue for the money and get a money
decree. This is a statutory right given under Sec. 68(1) (d) where in the
absence of a personal liability to pay by the mortgagor, the mortgagee under
certain circumstances, may sue for the money and obtain a decree. In
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Ramanatha Pillai Vs. .Annamalai Chettiar and' another (1963) I. M.L.J. 263
the Madras High Court held that an usufructuary mortgagee was not put in
possession of the mortgaged property, he can exercise his statutory right
under Sec. 68 (1) (d). ...
5. There is redemption of the mortgaged property when the debt is fully
discharged.
6. If the consideration is Rs. 100/- or above, the mortgage is to be created by a
registered instrument, if the consideration is less than Rs. 100/- it may be
created either by a registered instrument or by mere delivery of possession.
Delivery o f Possession - Its Nature
■ One of the distinguishing features of a usufructuary mortgage is the delivery of
possession of the hypotheca to the mortgagee. This feature distinguishes this
mortgage from a simple mortgage. The Privy Council brought out this distinction
between the two very clearly in the case of Maina Bibi Vs. Chaudri Vakil Ahmed
A.'I.R. 1925 (P.C.) 63. The main difference between a usufructuary and an ordinary
mortgage is that in the former, it is the part of initial agreement by which the
security is created, that the mortgage shall at once go into possession of mortgaged
property and apply the proceeds, he may derive from the use and occupation of it,
to discharge the mortgage debt. In the case of an ordinary mortgage of the usual
sort it- is, in general, not the initial intention of the parties, that the mortgages
should go into possession of the property pledged immediately or at all - although
he is empowered to do so if the interest on the mortgage money be not paid”. This
point we have already noted earlier. In a simple mortgage, there is no question of
possession initially, if delivery of possession is made contingent on failure to pay
interest it still remains a simple mortgage.
Delivery of possession to the mortgagee need not be actual or real. It may be _
constructive. It may happen that the mortgagor is not in opposition to give
immediate possession - for example, if the property has been leased out, in such a
case, it is enough if the mortgagee is given the right to possession.. This is possible
by adding the words “or expressly or by implication binds himself to deliver
possession” .
Another characteristic of this possession with the mortgage is he has the right
to exclusive possession even as against the mortgagor. Besides the two remedies
mentioned if the mortgagee is not given possession, there is yet a third remedy and
that is to sue for damages for breach of the contract to give possession.
7.3.4.English M ortgager Sec.58(e)
An English Mortgage has the following characteristics:
English mortgage is one in which the mortgagor binds himself to pay the
mortgage money on a certain date and he transfers the property, the hypotheca
absolutely to the mortgagee, but this transfer is subject to the condition that the
mortgagee will retransfer the property when the debt is discharged.
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From the above, .we can call out the following ingredients that go to make up
an English mortgage:
1. There is a personal covenant to pay the debts;
2. It is effected by an absolute transfer of the hypotheca with the proviso for
retransfer on the payment of the debt;
3. There is a delivery of possession and enjoyment of the usufruct;
4. The remedy of the mortgage is to sell the property (Sec.69) and not to
foreclose the mortgage;
5. There is a power of sale. Private sale is possible under Sec.* 69; such power
given to certain persons under certain circumstances. The above essentials
of an English mortgage have been reiterated by the Madras High Court in
Narayana Vs. Venkataramana 25> Mad. 220 F.B. Their Lordships laid down;
a. The mortgagor should bind himself to repay the mortgage money on a
certain day (personal liability)
b. The property mortgaged should be transferred “absolutely” to the
.... mortgagee (absolute transfer)
c. The absolute transfer should be made subject to a proviso that the
mortgage will return the property to the mortgagor upon repayment of
the mortgage money on the date on which the mortgagor bound
himself to repay the same (proviso for reconveyance).
Personal Liability
If the mortgage is an English mortgage, the personal liability of the mortgagor
will be presumed, as this is an essential ingredient of an English mortgage. The
personal covenant is to repay the money on a certain date. Certain date has to be
fixed, the date on which the mortgagor may redeem and the mortgagee may
exercise the power of sale.
Absolute Transfer
1. Though the words mentioned in the clause are “absolute transfer” when read
with clause (a) this can hardly be an absolute transfer. Some estate is left in
the mortgagor and only an interest is transferred to the mortgagee. It is
“absolute”. It is “absolute” merely in form and not in reality.
The student should remember that each clause (b), (c), (d) (e), (f) (g) must be
read along with the substantial rights of the mortgagors and mortgages.
7.3.5 Equitable mortgage or mortgagee by Deposit o f Title Deeds Section 58(f)
This mortgage in Indian law is not like an English equitable mortgage. It is as
much a legal mortgage as the other kinds of mortgages having received statutory
recognition in clause (f). It requires no registration. No possession of the property to
the mortgagee. Its creation is very simple. There is (1) delivery of the title deeds to
the creditor or his agent; (2) an intention to create a security on them.
93
This kind of mortgage cannot be created anywhere in India. It. can be created ,
only in the towns of Madras, Bombay, Calcutta and in those towns notified by the
State Governments from time to time.
, The remedy of the mortgagee is sale and no foreclosure. All the provisions that
apply to a simple mortgage will apply to an equitable mortgagee.
A vital point is the title deeds must be deposited only in one of the commercial
towns specified to create mortgage. If deposit take place elsewhere, no equitable
mortgage will be created. Also what are deposited must be the title deeds which are
material evidence of title. Patta of land, share certificates are title deeds,' but map of
the property and tax receipts Eire not documents of title.
^ The deposit of title deeds should be to the creditor or his agent, with intent to
/create security thereon. The words, ‘creditor’ ‘or his agents’ show there must be a
I subsisting debt before the deposit of title deeds can constitute a mortgage. The
1deposit can cover not only an existing debt, but also further advances to be made.
But the intent to cover these further advances must be clear. Mere possession of
title deeds in the hands iof the creditor, without a contract of mortgage, will not
create an equitable - mortgage. The Supreme Court in Natf/an Vs. Mamtjii Rao and
\others (196,1) II M.L.J. 16,2 S.C. held that physical delivery of title dêds by the
debtor to/the creditor or \his agent is not the only mode of deposit. It can be
constructive also. Where the creditor for one reason or another is already in
possession of the title deeds, after taking the loan, th£. debtor is to ask the creditor N
to continue to hold the ti,tle deeds as security for the loan. The intention must be
• there.
‘ . It is not necessary that all the title deeds should be deposited. Only the
essential ones. Writing is also not necessary for recording the deposit, ,if there is a
memorandum to serve as mere evidence of the deposit with intention to create an
equitable mortgage, that too need n ot be registered. But if the bargain arid
stipulation between the parties are reduced to writing then if-consideration is
Rs.100/- and above, that bargain must be registered.
7.3.6. Anomalous mortgage-Section 58(g) ; ’
Anomalous mortgages : are . . composite mortgages' ‘ having one.1or more
characteristics of the other kinds o f mortgages. The rights Of the parties ' are\
governed by the special bargain between them, but always subject to the provisior^
■of clause (a) Section 58 and Section 6 0 .; . , : ~; r : . V
Usually, four , forms of anomalous mortgages are common in India (1) - a
combination of simple and ■
. usufructuary, (2) a combination of mortgage by
conditional sale and usufructuary, (3) local mortgage such as otti/and kanom,
(4) Other miscellaneous forms. The remedy is sale or foreclosure depending .upon
the special terms. ^consideration isR s.1 0 0 /- and- abOve, it .should be created by a
registered document. If below Rs. 100, by more dfihvery o f possession. , , .
I
94
I &m giving hereunder a typical case of an anomalous mortgage which came up

before the Privy Council - Lai Narsingh Pratab Bahadur Singh Vs. Mohd. Yakub
Khan 58 M.L.J. 401 (P.C.) the mortgagor covenanted to repay the mortgage money
in 35 years. Tb<“ mortgage was to take possession o f the property and enjoy the
’usufruct in lieu of interest. The mortgagor having failed to deliver possessrom of the
property, the mortgagee filed suit for sale o f the property. If the mortgage, w as a.
pure usufructuary mortgage, a suit for sale would not lie. If it was a pure simple
mortgage, then a suit for sale would be premature as the money is to be paid only
after 35 years from the date o f the mortgage. The Privy Council held the mortgage
being partly usufructuary the money became due when possession was not
delivered. Since it was partly a simple mortgage* a decree for sale could be given
under Section 67. So, the appellant - plaintiff was awarded a decree for sale of the
hypothecs, \
7.2.7. Sub-Mortgage
A mortgage by a mortgagee of his right in the hypotheca is a subrmortgage.
The right of the sub-mortgage is not higher than that o f a mortgage A ; su&-
mortgagee does not destroy the Privity of estate and the Privity o f contract between
the mortgagor and the mortgagee. The position o f the sub-mortgagee and! his rigjmts;
against the mortgagor and the hypotheca will be dealt in the later Sections^.
Mortgages when to be by Assurances - Section 59
Section 59 states — “When the principal money secured is one hundred
rupees or upwards, a mortgage other than a mortgage by deposit of title deeds can
be effected only by a registered instrument signed by the mortgagor and attested by
at least two witnesses.
Where the principal money, secured is less than one hundred rupees,
mortgage may be effected either by a registered instrument signed and attested as
aforesaid, or except in the case of simple, delivery of the property*.
A simple mortgage, whatever the amount of the consideration must be created
only by a registered document as there is no parting, with possession o f the
Hypotheca. Where registration is necessary the transaction takes effect on
execution of the deed. Where the registration is not necessary, it takes effect on
delivery of possession of the property. From this, it follows that on payment of
consideration the mortgage transaction is not complete.
Nothing in the Section shall be deemed to render invalid any provision to the
effect that, if the time fixed for payment of the principal money has been allowed to
pass or no such time has been fixed, the mortgagee shall be entitled to reasonable
notice before payment or tender of such money.
7.4. StTMWARY
A mortgage is the transfer o f an interest in specific immovable property for
the purpose o f securing the paym ent o f money advanced or to be advanced by
95
way of loan, an existing or future debt, or the performance of an. engagement which
may give rise to a^ pecuniary liability. There are six kinds of mortgage(l) Simple
mortgage(2) Mortgage by conditioned sale(3) Usufructuary mortgage(4)English
mortgage(5)Equitable mortgage(6)Anomalous mortgage. In this lesson we have
discussed all kinds mortgage in detail
7.5. SUGGESTED QUESTIONS ’
1. What is meant by mortgage? What are the essentials of valid mortgage?
2. What is meant by Usufructory mortgage? What are the essentials of
* usufructory mortgage
3. What is meant by Anomlac us mortgage?
7.7. KEYWORDS
Sub mortgage - A mortgage by a mortgagee
Anomalous mortgage - Composite mortgage
LESSON-8
:\ m G H T S ^
.STRUCTURE ^
8.1, Introduction r’
8:2. ■ Objectives
8.3; Rights of Mortgagor
8.4, Once a mortgage is always a mortgage
8.5. Clog on Redemption
8:6. Partial Redemption .
8.7. Accessions (Section 63-63A) •
8.8. Liablities of the morgager
8.9. Summaiy ,r
8.10. Suggested Questions u ;,
8.11. Suggested readings £/..?*«»; \
8.12. Keywords
8.1. INTRODUCTION
Mortgagor is a person transfers an interest in specific immovable property for
the purpose of securing loan. Such mortgagor has certain duties. .Section 60-645
and 65-A deals with the rights and duties of mortgagor . In this lesson we are going
to see above said rights and liabilities of mortgagor in detail.
8.2.0B jECTIVES
. In this lesson we are going to
❖ know about Rights and duties of Mortgagor
❖ know about redemption, and clog on redemption
❖ know about partial redemption
8.3. RIGHTS OF MORTGAGOR
Section 60-64 and 65-A deal with rights of the mortgagor.
1. Right to redeem the mortgaged property (Sec 60)
2. Right to inspection, production of documents(Sec 60-B)
3. Right to redeem separately or simultaneously (Sec 61)
4. Right to Recover possession (Sec 62)
5. Right to accession to mortgaged property (Sec 63)
6. .Right to improvements to the property (Sec 63-A)
7. Right to renewal of mortgaged lease(sec 64)
8. Right to lease (Sec 65-A)
1. Right to redeem the mortgaged property (Sec 60)
Section 60 deals with the most important right of the mortgagor. This right is
the right to redeem the hypotheca. It is. a statutory right and is not subject to
contract to the contrary, that is to say he will not be allowed to contract away his
right to redeem, the mortgage. It is the essence of a mortgage that after discharging
his debt, he can recall the security. Under .Section 58 (a) we have already seen that
in a mortgage only an interest in the hypotheca is transferred to the mortgagee^ the
mortgagor has all the residuary right over the property and it is-because of these
residuary rights,, he still continues to be; the owner of the property which is the
subject matter o f the mortgage and once the debt is, discharged, he has a right to
get back the rights, transferred to the mortgagee. This right to get: back, the rights
surrendered so that he once more becomes the full owner of property is called the
right of redemption.,
This right of redemption is, an absolute right, which cannot:be defeated by the
parties providing, in the: mortgage that the mortgagor will have n*D> such rigfiit*. nor
can the right to redeem be fettered! or closed, by any onerous or harsh'. comd?M<ms
forming part of the mortgage- The mortgagor can exercisethas'rig^; to :get :back Ms
property any time1after the money has; .become-danse- and any condition to impede its
exercise is a clog, on the rigjta.fr to; redeem and therefore invalid. Suck conditions
which fetter of clog, v right o f redemption and run counter to his statutory right
under Sec. 60 bind neither the mortgagor nor his assignees. . ••••.•
v
Atari^r time after the Principal Money has become due

The Section itself opens with the above words. When does the money become
due so that the mortgagor may redeem his mortgage? ■ .
1. In a case where no time is specified in the mortgage-the mortgage money
becomes due from the execution of the mortgage deed and so the right of
redemption is available from the date of execution. Likewise, the mortgagee
can also enforce his security immediately. The only exception is the
usufructuary mortgage when redemption will be available only when the
debt is satisfied from the rents and profits of the property.
2. When the debt is payable on demand - when it is stipulated the mortgage
amount will become due, only on demand, then there must be a demand and
the mortgagor may redeem from that date onwards by paying off the debt.
There must be an actual', demand and it must be expressed clearly -
Venkataswami Chettiar Vs. Ramqlingam A.I.R. (1.954) Mad. 157. -
3. When a term is fixed fo r redemption: The money becomes due only after the ;
specified date; has passed. Till^then, there is no right to. redeem. When the
mortgagor has no right to redeem, the mortgagee cannot have the right to
enforce the mortgage security. Both the: rights arise simultaneously. This is
expressed by saying “Redemption and foreclosure'are co-extensive”. The
exercise of one right puts an end to the other.- Section 60 embodies this
98
principle which was originally formulated by Lord Parker in Kreglinger’s Case

1914 A.C. 25.
ZA. ONCE A MORTGAGE ALWAYS A MORTGAGE
The most important right o f the mortgagor is the right of redemption. It cannot
be contracted away, nor can this right be fettered or clogged by a contract to the
contrary in the initial mortgage deed. This right is expressed in the maxim 'once a
m ortga ge alw ays a m ortgage. In Noakes & Co Vs. Rice, (1902) A.C. 24, thio
maxim was interpreted as 'a mortgage cannot be made irredeemable and . a
provision to that effect is void’. On appeal, the Privy Council confirmed the decision
o f the Court of Appeal and laid down (1) once a mortgage, always a mortgage. This
is an exception to the rule, the agreement o f the parties overrides the law; (2) the
mortgagee shall not reserve for himself any collateral advantage outside the
mortgage contract; (3) any stipulation which prevents the mortgagor who has paid
the principal, interest and costs from getting back the property in the state in
which he mortgaged, it is void. It means there should be no clog or fetter on the
equity of redemption.
o
8.5. CLOG ON REDEMPTION
The right of redemption of the mortgagor is anxiously protected by the law. So
the law frowns upon clogs which fetter the right Of redemption. Section 60 is not
subject to a contract to the contrary. So .at the time of the mortgage contract the
mortgagor cannot give up his right of redemption, nor make it illusory by confining
it to a particular time, or a particular manner or a particular description of person.
‘Once a mortgage, always a mortgage contract any, but a mortgage’ means that in
the mortgage contract any condition which prevents the mortgagor from getting his
property intact after the mortgage debt has been paid will be invalid. Any condition
or bargain is invalid which is inconsistent with the provision of Section 60 as
redemption is the very essence of a mortgage.,
But a very important point to be remembered by the student is the Doctrine of
clog on redemption relates only to the dealings between the mortgagor and
mortgagee at the time when the contract of mortgage is entered into. This is te
strictly protect the mortgagor for necessitates men are not wise men. To meet an
exigency the mortgagor may be willing to enter into any harsh bargain with the
mortgagee. But this will not be the position after the loan. Therefore the parties are
at liberty\subsequently by a separate, distinct and independent contract to vary the
terms of the original mortgage contract. So a court has to look not at an abstract
principle, but the totality of the circumstances attracting the transaction. The
Doctrine of clog is applicable to all the kinds of mortgages. This we have already
seen.xIt must always be remembered that after all a mortgage is only security for
the repayment of a debt, or the performance of an obligation and nothing more.
Therefore, on payment of the debt, the mortgagor should get. his' property and the
mortgage is bound to discharge the security. ' ■
99
Equity" soon; found, that the- wisely mortgagee contrived methods to render the
right of redemption illusory o r to defeat or clog the equity of redemption after it had
arisen. So eqpxty created subsidiary rule to invalidate the various* contrivances. The
rules are given hereunder:
a) A mortgage is always, redeemable.
b) Suspension of rijghttQ/redeem Clogs.
c) Collateral advantages.
A provision or condition,, i f it imposes a penalty on the' nmrtgûgorif hsr commits-^
default and does. not-, redeem on the contract date and w&tch. forms; a pairt off the
mortgage contract, vs, termed^ a dog*. Clogs are- o f many kinds evolve dl b y the'
ingenuity o f d ie wily' crediitoir.. o f them are; givem firereumdierr
1. A provision, restraining the alienation,, dxtrrng. the smbsistence o£ mxaEtgag^--
Ram Gtmesk Vs.. Rvjp■Nmram. 3 AM 369 F.J3L
2. A condition restricting; the; equity o f redemption to a particular' Hlasse q£
persons.. A provision tfoatoniEjp tifoe mortgagor or his sons shmaM redeem the
mortg^g^; is a clog on redemption.
3. A condition that the debt should be repaid only out o f his monies and not by
sale o f the hypotheca or by raising a loan - Ram Saran Vs. Amrit Kaur, 3 All.
369
4. A condition o f sale in default o f payment. In Vernon Vs. Bethell,(1762)1 Eden
113 Lord Henley had to say of a condition converting a mortgage into a sale:
This court, as a court of conscience, is very jealous of persons taking
securities for a loan and converting such securities into purchases. And
therefore, I take it to be an established rule, that a mortgagee can never
provide at the time of making the loan for any event or condition on which
the equity of redemption shall be discharged and the conveyance (made)
absolute. And there is great reason and justice in the rule, for necessitates
men are not truly speaking free men, but to answer a present exigency, will
submit to any terms that the crafty may impose upon them;
5. A condition for the purchase of property - Dharba Veera Vs. National
Insurance Co. A.I.R. 1974 Mad. 51 applies only to conditions at the time of
the mortgage contract. Subsequently, by a separate, distinct agreement, the
parties may enter into any kind of agreement, even clogging the right of
redemption. The rule is clearly stated in Lisle Vs. Reeve (1902) 1 Ch. 53 -
“The rule is that the mortgagee cannot, at the movement when he is lending
money and taking his security enter into an agreement, the effect of which
would be that the mortgagor should have no equity of redemption but there
is nothing to prevent that being done by an agreement which in substance
and in fact is subsequent to and independent of the original bargain”.
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8.6. PARTIAL REDEMPTION

The last para of Section 60 deals with partial redemption. It also says that a
mortgage security is indivisible! So a mortgage cannot be redeemed piecemeal or
there cannot be partial redemption. Where there is a part-owner of the hypotheca or
where there is a purchaser of part of the equity of redemption, he cannot redeem
his proportionate share alone, and then he could redeem the entire mortgage. This
principle is to save a multiplication of suits. The mortgagee can be saved from filing
as many suits as there are part owners of the equity of redemption.
Right o f redemption how exercisable
The right redemption can be exercised only after the mortgage money has
become due and before the right of redemption is extinguished either by operation
of law or by act of parties. The mortgagor can have any one of the following
remedies;
1. To pay or tender the mortgage amount at a proper time and place (Section
60).
2. He may deposit the amount in court- (Sections 83 and 84)
3. He may file a suit for redemption - (Section 91).
To pay o r tender the mortgage money
The essentials of payment or tender are: .
a. There must be a payment or tender;
b. Such payment or tender must be made at the proper time and proper place;' *
c. Such payment or tender must be made to the mortgagee.
Tender must not have any condition attached to it. Tender must be of .the
whole amount left unpaid. Part payment will not amount to a good tender. A mere
willingness will not amount to a tender. What is the proper time? The proper time is
when the payment has become due. If any payment has been made prior to the due
date it will not amount to a tender. A tender under protest is a valid tender. The
tender should be made to the mortgagee. Where there are two or more mortgages,
tender must be made to all of them. The moment the tender is made, its effect is
th e ,interest on the amount stops; but not when the tender has been properly
refused by the mortgagee or mortgagees. In such a case, it is neither a valid tender
nor will the interest cease to run.
Deposit in to Court
From the date the money is deposited into court, if it is a proper tender,
interest stops running. If .the mortgagee refuses to accept the tender, then the
remedy of the mortgagor is to file a suit for redemption.
For a valid deposit, when I say a valid deposit it means one of the whole
amount due and after the money has become due, certain essential conditions are
necessary. They sure listed here (a) it must be unconditional; (b) it must be made to
the account of the mortgagee and where there are two or more mortgagees to them,
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(c) the deposit must be only after the money has become due and before the right of
redemption is barred, (d) the entire amount must be deposited.
Redemption by other Persons
Section 91 deals about Persons who may sue for redemption:
“Besides mortgagor, any of the following persons may redeem, or institute a
suit for redemption of the mortgaged property, namely;
a. any person (other than the mortgagee of the interest sought to be redeemed)
who has any interest in, or charge upon the property mortgaged or in or
upon the right to redeem the same;
b. any surety for the payment of the mortgage-debt or any part thereof; or
c. any creditor of the mortgagor who has in a suit for the administration of his
estate obtained a decree for sale on the mortgaged property”
This Section begins with the words ‘besides the mortgagor’ it is therefore
obvious that the mortgagor cannot redeem the mortgage under this Section. The
mortgagor’s right of redemption is provided by Section 60. It is also obvious that
there are other Persons who have the right to redeem. They come under the present
Section. They can be divided into two categories.
i. Persons having an interest or charge in the mortgaged property or in the

right of redemption-clause (a).
ii. Persons who have no interest in the mortgage security X or in the right of
redemption such as the surety and other creditors of the mortgagor -
clauses (b) and (c).
The important persons need discussion, they are the co-mortgagor, the puisue
mortgagee and the sub-mortgagee.
Clause (a) deals not only with persons who have an interest in the property,
but it deals with persons who have an interest in the right to redeem the property.
Co-m ortgagor: His position is veiy clear. He has the same right as the
mortgagor to redeem the mortgage. He is also entitled to all expenses incurred in
redeeming the property. He has besides two remedies (1) a charge for contribution
under Section 82 read along with Section 100 and. (2) subrogation under Section
92.
Puisue or mesne mortgagee: Section 94 defines the rights of the mesne or
puisne mortgagor. Section 94 states - “Where a property is mortgaged for
successive debts to successive mortgages, a mesne mortgagee has the same rights
against mortgages posterior to himself as he has against the mortgagor”.
A puisne mortgagee is one is whose favour the second mortgage is created over
the same property by the mortgagor. So after the first mortgage, the mortgagor has
only the right of redemption, so what is mortgaged to the second or puisne
mortgagee is this right or redemption and he can redeem under clause (a) of
Section 91. The right of the puisne mortgagee is found in clause (a) of Section 91
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and the second h :Uf of Section 95 it can be simply stated as “redemption, sale and
foreclosure are concerned the same rights against a prior mortgages as the
mortgagor has, and the same rights against the subsequent mortgages (if any) as he
has against the mortgagor. Consequently a puisne mortgagee can redeem any prior
mortgage first as much as his mortgagor (because he has a part of the right of
redemption), and he can foreclose or sell against his mortgagor. So where there are
successive mortgages on the same property a puisne mortgagee may always redeem
the earlier mortgages, but the earlier mortgages, cannot redeem the later except by
consent.
1. Obligation to transfer to third party instead of re transference to mortgagor.
This Section was introduced by the Amendment Act, 1929. Section 60 which
g’ves the mortgagor the right of redemption also gives the mortgagor to require the
mortgagee to transfer either to the mortgagor himself or to a third person. But
under this new Section 60A, the mortgagor may require the mortgagee to assign the
mortgage itself to a third p' rson.
2. Right o f inspection and production o f documents
S ection 60 B states: “A mortgagor as long as his right of redemption subsists,
shall be entitled at all reasonable times, at his request and at his own cost, and on
payment of the mortgagee’s cost and expenses in this behalf, to inspect and make
copies or abstracts of or extracts from documents of title relating to the mortgaged
p ^perty which are in the custody or power of the mortgagee”.
This Section recognizes the right of the mortgagor to inspec and take copies of
the deeds of title relating to the mortgaged property which the mortgagee has in his
custody.
3. Right to redeem separately or simultaneously'
According to Section 61 if a mortgagor who has executed two or more
mortgages in favour of the sar -.e mortgagee, shall in the absence of a contract to the
contrary, when the principal money of and two or more of the mortgages has
become due, be entitled to redeem any one such mortgage separately, or any two or
more of such mortgages together.
Right to recover possession (usufructuary mortgage)
A cco rd in g to S ection 62: “In the case of a usufructuary mortgage, the
mortgagor has a right to recover possession of the property together with the
mortgage deed and all documents relating to the mortgaged property which are in
the possession or power of the mortgagee.
(a) Where the mortgage is authorized to pay himself the mortgage money from
the rents and profits of the property, when such money is paid.
(b) Where the mortgagee is authorized to pay himself from such rents and
profits or any part thereof a part only of the mortgage money, when the term, if any,
prescribed for the payment of the mortgage money has expired and the mortgagor
pays or tenders to the mortgagee the mortgage money or the balance thereof
deposits it in court as here-in after provided.
103 v
This Section does not mention the word redemption, as the remedy of the
usufructuary mortgagor is only to recover possession of the property. He does not
have the right of the property. He does not have the right of redemption.
Clause (a) provides for a case where the principal and interest are paid out of
the usufruct. The words “when such money is paid” refer to paying himself
(mortgagee) out of the usufruct, then the mortgagor is entitled to recover
possession, with documents etc. So under clause (a) there is no tender or payment.
In case the mortgagee does not surrender possession, the mortgagor can file a suit,
which is not a suit for redemption but a suit to recover possession or a suit of
ejectment. Even if this is called a suit for redemption in substance it is a suit for
possession.
Under Clause (a) no term can be fixed, because none can say with precision as
to when the mortgage debt will be paid out o f the usufruct. In the event a term is
fixed, it is not the essence of the contract and even before the expiiy of the term,
the mortgagor is entitled to get possession if he is able to show that the mortgage
debt has been paid o ff- Narasimha Vs. Seshavva 48 M.L.J. 363.
Clause (b) covers all the other kinds of usufructuary mortgages when the
whole or part of the usufruct are taken.
1. in lieu of interest;
2. in payment of mortgage money
3. part in lieu of interest and part in payment of mortgage money.
Under clause (b) a term may be fixed for pa}^ment of the principal or the
balance of the mortgage money as the case may be. Here the mortgagor can recover
possession only on the expiry Hu, and on payment or tender to the
mortgagee of the mortgage money or tne balance thereof or depositing the same in
the court under Section 83. Unless it is provided in the mortgage deed, he cannot
recover possession earlier, when no term is fixed the mortgagor can recover th '
possession on any day as he pleases by paying off the money due.
Even when a term is fixed the mortgagor may on equitable grounds be
permitted to recover possession before the expiry of the term, when the mortgagee
has committed breach of a covenant.
Where in an anomalous mortgage the mortgagee takes possession Section 62
does not apply as there is a personal covenant to pay.
8.7. ACCESSIONS (SECTION 63, 63A )
An accession means in addition (accretion) or improvement. Addition increases
the value of the property and become more advantageous. It may be in area or title
or in any other manner would fall under the term ‘Accession’. These three Sections
relate to accretions during the subsistence of the mortgage. They may be accessions
or improvements and the rights of the mortgagor and mortgagee are determined.
Sections 63 and 63A 'd ea l with the mortgagor’s right to these, accessions and
improvements, while Section 70 deals with the mortgagee’s right... . . ...
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Section 63: The general principle of the law is based on the principle accession
credit vnncioali w hich means, the accession or increase follows the principal. The
result of this is that when an accession or improvement is made to the property, it
merges with the property and in a mortgage during its subsistence it also forms a
part of the security. It is thus available to the mortgagee as part of the security and
in the absence of a contract to the contrary, on redemption the mortgagor is
entitled to them. This Section deal with 3 categories of accessions:
(1) N a tu ra l Accessions: These get incorporated in the original security and
are subject to redemption. For example, if during the , hsistence of a mortgage of a
village, by a fresh survey fixing the boundaries, the acreage of the village increases,
then the mortgagor on redemption is entitled to the increase. The mortgagee gets
the increase as part of the security or again if a river following the mortgaged
property changes its course and there is an increase the same principle will apply.
This accession by alluvion.
But it is to be note a that such accession should be during the subsistence of
the mortgage. If it arises after a decree extinguishing the mortgage, the mortgagor
cannot claim it.
Acquired Accessions
These are of two kinds separable and inseparable.
(a) Separable: If the mortgagee puts up a stable on the hypotheca, this is a
separable accession and the mortgagor is not bound to take it nor he is entitled to
it on redemption. But if he wants it, he must pay for it. In such a case, the
mortgagee cannot refuse the mortgagor. He is entitled only to its actual cost and
not to its market value.
(b) Inseparable: As these accessions are inseparable, the mortgagor on
redemption has to take them. But he is not always liable to pay of them. He is liable
only if the acquisition was necessary to preserve the property from destruction,
forfeiture or sale or the acquisition was made with the consent of the mortgagor.
The mortgagor need to pay the actual cost of the acquisition.
In every case where the mortgagor is liable to pay the cost of the acquisition he
is also liable to pay interest on the cost, either at the agreed rate as on the principal
amount or if no such rate is fixed, at nine per cent per annum. The profits arising
from the accession must be accounted to the mortgagor. In a usufructuary
mortgage, the profits from the accessions after deducting the expenses of acquiring
them will go towards the payment of the mortgage debt.
Section 63A is to' the effect that generally the mortgagee cannot be
compensated for the improvement made by him to the mortgaged property.
However, three exceptions have been made a Section 63A. They are-
1. Where it is necessary to preserve the property from destruction or
deterioration
2. Where it is necessary to prevent the security from becoming insufficient
(Sec. 66)
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3. Where the improvement was effected in compliances with a lawful order of a

public authority.
The mortgagee .in the above cases is entitled to the cost and not the market
value of the improvements with interest at the contract rate or nine per cent per
annum, if no contract rate has been fixed.
In Section 63A the words “contract to the contrary” mean the section can be
invoked only when the mortgage deed is silent as to improvements. Where the
mortgage deed is not silent, then the terms in the deed will govern the rights of the
parties as to the improvements.
Now, we come to some minor sections which we can dispose of without much
ado. They are:
Renewal of the mortgaged lease (S e ctio n 64) — “Where the mortgaged
property is a lease and the mortgagee obtains a renewal of the lease, the mortgagor,
upon redemption, shall in the absence of a contract by him to the contrary, have
the benefit of the new lease”.
Where there is no contract to the contrary the benefits of the new lease on
redemption go to the mortgagor. This is based upon the principle that the
additional term of the lease ‘comes from the old root and is of the same nature
subject to the same equity of redemption’
RIGHT TO LEASE
Mortgagor’s power to lease (S ection 65A) — This section applies only where
the mortgagor is in possession of the mortgaged property. This section confers on
such mortgagor the power to make leases which will be binding on the mortgagee.
But the section does not permit any covenant for the renewal of the lease. Also the
mortgagor should see that the best rent obtainable is secured and no premium is
paid or promised to be paid. There shall also be .no rent paid in advance. But this
section is subject to a contract to the contrary.
8.8. LIABILITIES OF THE MORTGAGOR
Liabilities of the mortgagor are grouped together in two Sections.65 and 66 .
These liabilities arise, but of the covenant implied in Section 65, they are implied in
all mortgages when the contract is an open contract. These covenants are similar to
those covenants by a vendor implied in a sale under Section 55. these covenants
are for
(a) covenant for title Sec-65A
(b) covenant for defence of title, Sec-65 (b)
(c) covenant for payment of public charges Sec65 ( c)
(d) covenant for payment of rents in case of lease Sec 65(d)
(e) Duty of payment of interest on the prior mortgage discharge Sec 65(e)
(f) Duty to not to waste the mortgaged property.Sec 66
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The last para speaks as to who gets the benefit of all these covenants. All these .
covenants run with the land anci. are enforceable by every person in whom the
interest of the mortgage vests from time to time.
Waste by mortgagor in possession - But the Section 66 will not hold the
mortgagor responsible for what is called permissible waste, i.e., natural
deterioration and omission to repair the property. He will be certainly held
responsible for active waste committed by his own act, such as a cutting timber,
working a new mine, removal of valuable fixtures, etc. but the liability will arise
only in case the security was already insufficient or by such acts the security
becomes insufficient. So, it must be clear to you that where the security far exceeds
in value than the money advanced and by these $cts of active waste the security
does not become insufficient the mortgagor will not be liable for waste.
The remedy of the mortgagee in case due to waste by mortgagor the mortgage
security becomes insufficient, is that he can claim damages or he may bring a suit
for recovering the mortgage money under Sec. 68(c). If he is about to commit waste
which will make the security insufficient and reduce its value below the statutory
standard fixed by Sec. 66, then the mortgagor can be restrained by an order of
injunction of the court.
8.9. SUMMARY
The most important right of the mortgagor is the right of redemption. It cannot
be contracted away, nor can this right fettered or clogged by a contract to the
contrary in the initial mortgage deed. So at the time of the mortgage contract the
mortgagor cannot give up his right of redemption, nor make it illusory by confining
it to a particular time, or a particular manner or a particular description of person..
The mortgagor’s right of redemption is provided by Section 60. It is also obvious
that there are other Persons who have the right to redeem. They come under
Section.91. Further rights and duties of the mortgagor are discussed in detail in
this lesson.
1. Explain -Clog on redemption
2. What are the rights and liabilities of mortgagor
3. .‘Once a mortgage always mortgage.-Discuss
2. Venkata Subba.Rao - Law of Transfer of Property.
8.12. KEYWORDS
Redemption - act of purchasing back something previously sold
Clog - block . •' .
Accession - addition
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LESSON-9
__________________________________ RIGHTS AND LIABILITIES OF MORTGAGEE

STRUCTURE
9.1. Introduction
9.2. Objectives
9.3. Rights of mortgagee
9.4. Liablities of m ortgagee-
9.5. Doctrine of Substitution
9.6. Doctrine of Marshalling
9.7. Doctrine of Subrogation
9.8. Summary
9.10. Suggessted Readings
9.11. Keywords
9.1. INTRODUCTION
The mortgagee is a person to whom an interest in specific immovable property
is transferred for the purpose of securing a loan. Such mortgagee has certain rights
and duties .Section 67-73 and Section 76 deals about the rights and liabilities of
mortgagee In this lesson we are going to discuss the above said topic in detail.
9.2. OBJECTIVES
1. know about rights and liabilities of mortgagee
2. know about Doctrine of Substitution
3. know about Doctrine of Marshaling

4. know about Doctrine of Subrogation
9.3. RIGHTS OF MORTGAGEE
i. Right to foreclosure or sale (Sec. 67)
ii. Right to sue for mortgage money (Sec. 68).
(The first is a remedy against the hypotheca or mortgage security, while the
second is a personal remedy against the mortgagor under the personal covenant to
pay.)
i. Right to exercise power of sale, if any (Sec. 69).
ii. Right to have a receiver appointed (Sec. 69A)
iii. Right to accession to mortgaged property (Sec. 70).
iv. Right to the benefit of the renewed lease (Sec. 71).
v. Right to spend money in certain cases (Sec. 72)
vi. Right to proceeds of revenue sale or compensation on acquisition of the
mortgaged property (Sec. 73).
108
1. Right to foreclosure or sale !

The foreclosure is not a thing which can be effected by an act of parties. It can
be effected only by the order of the court in a suit property constituted for that
purpose. The decree of foreclosure extinguishes the mortgagors right to redeem and
makes the mortgagee an absolute owner of the property from the date of the decree.
Sec. 67 is the counter part of Sec. 60, which gives the mortgagor a statutory right of
redemption once the mortgage debt is discharged. This Section confers a right on
the mortgager to foreclose the mortgage or to cause the property to be sold if the
mortgagor commits default. We have already seen that the right of redemption and
that of foreclosure are co-extensive. So they arise simultaneously and the
mortgagee can exercise his right under Sec. 67 and get a decree for foreclosure or
sale with reference to the kind of mortgage provided the mortgage money has not
been paid to him or deposited in the court under Sec. 83. Once the right of
redemption is exercised, the right to foreclosure or sale is extinguished. Important
difference between Sec. 60 and Sec. 67 is given below
Sec. 60 the right of redemption is absolute; the mortgagor when he enters into
the mortgage contract cannot contract away his right. So Sec. 60 is never subject to
a contract to the contrary. But Sec. 67 opens with words “In the absence of a
contract to the c o n tra ry T h is means that it is open to the mortgagor to curtail his
right conferred by Sec. 67. The reason behind this difference is the mortgagor has
to protect against oppression, where the mortgagee needs no such protection and
so can agree not to avail himself of this right under Sec. 67. Where there is no
contract to the contrary, Sec. 67 will operate.-
Neither the mortgagor nor the mortgagee can exercise their respective rights
until the money becomes due and payable. But the terms of the mortgage may
allow the mortgager to exercise his right before the right of redemption arises Linder
certain conditions and on reasonable grounds e.g. if the hypotheca is mortgaged or
transferred to another, or there is a reason to believe that the security may become
wholly or partly insufficient. But this will not give the mortgagor a corresponding
right to redeem before the due date.
Remedies available to the mortgager under the different kinds of mortgages
Simple mortgage:. (1) to sue on the personal covenant and get a simple money
decree Against the mortgagor (Sec. 68 (a)) or (2) to bring a suit for sale of the
mortgaged property to realize the mortgage money. These two remedies are
independent of each other. He may sue separately or bring one suit in respect of
both of them.
Usufructuary mortgage: The mortgage has neither the right of foreclosure nor
that of sale. He can only retain possession of the security until the debt is paid.
^ Mortgage by conditional sale: Here the remedy of the mortgager is only
foreclosure and not sale, in this kind of mortgage the mortgage itself provides that
109
an ostensible sale will become an absolute sale on default by the mortgagor to be

enforced by foreclosure.
English mortgage: The power of sale is the only remedy available to the
mortgager.
Equitable mortgage: The mortgagor can only bring a suit for sale of the
mortgaged property.
Anomalous mortgage: The remedy will depend on the terms of the mortgage. If
it is a simple mortgage the mortgagor gets the power of sale. If it is usufructuary by
conditional sale, the right is that of foreclosure, the courts in their discretion are
very reluctant to give a decree of foreclosure, but invariably grant a decree for sale.
In a suit for foreclosure there are always two decrees like preliminary and
final. Till the final decree is passed, it is open to the mortgagor to redeem.
Partial foreclosure or sale - Sec. 67 (d)
This last clause of Sec. 67 (d) is a corollary to the last clause of Sec. 60 and
rests on the same principle of the indivisibility of the mortgage security.
This clause prohibits sale or foreclosure of only a part of the security unless
several mortgages have with the consent of the mortgagor, severed their interest
under the mortgage. This rule is intended for the protection of the mortgagor, where w
there are co-mortgagers and each is permitted to proceed against his proportionate
part of the security there will be needless harassment to the mortgagor. But it is
open to the mortgagor if he so desires to permit the splitting of the mortgage
security.lt should be clear to you by now that Sec. 67 contemplates cases of several
mortgages over the same prope H
Exception to the rule against partial foreclosure or Sale
Clause (d) itself provides this exception in the words “unless the mortgagers
have severed their interest with the consent of the mortgagor.” The consent need
not be express, it may be implied. The severance may be by an act of the parties or
by a decree of court.In 39 Mad. 17 - Vijaya Bushanammal Vs. Evalappa.
In this case one co-mortgager filed a suit for his share of the debt. The
mortgagor raised no objection to the maintainability o f the suit. A decree was passed.
There after the other co-mortgager filed a suit for his portion. The Madras High
Court held: A decree of-a court has a greater effect than the consent-of the
mortgagor, and thus the previous suit effected a severance of the mortgage security
and hence it was held to be valid. So where a decree is passed, the consent of the
mortgagor is implied;
Where mortgagor is trustee for the mortgagee
Clause (b) of Sec 67 prohibits the mortgagor, who holds the mortgagee’s right
as his trustee or legal representative and who may to file a suit for foreclosure, if
the mortgagee is the trustee for the mortgagor, there can be no foreclosure, the
110
reason being by so doing he would acquire the property for himself while it is his
duty to preserve it lor his cestui que trust the mortgagor.
Mortgagee of public works
Clause (C) pertains to this. Here in the interest of the public there can be
neither foreclosure nor sale. The appropriate remedy is to have a Receiver
appointed so that the public work can be maintained as a going concern and the
revenue adjusted towards the debt.
Mortgagee can bring one suit on several mortgages
According to Section 67-A a Mortgagee is bound bring one suit on several
mortgages. This Section deals with the Doctrine of consolidation, so it has to be
taken along with Section 61. A mortgagor who holds two or more mortgages in favor
' *he same mortgagee shall, in the absence of a contract to the contrary, when the
principal money of any two or more of the mortgages has become due be entitled to
redeem any one such mortgage separately or any two or more or such mortgages
together” .
Both Sections 61 and 67A, deal with consolidation. The remedies provided in
these Sections are subject to the doctrine enunciated in these Sections.
Under this Section, in the absence of a contract to the contrary if the

mortgagee holds different mortgages of different properties or successive mortgages
the same property from the same mortgagor, he must enforce all or none. That is
;nforce all those mortgages on which the money has become due.
For the section to apply the following are necessary:
1. There must be two or more mortgages.
2. The several mortgages must have been effected by the same mortgagor.
In Vint Vs. Padget (1858) 2 De. Gs. J. 611 -
A mortgaged an estate to X.A mortgaged another estate to Y.A mortgaged the
equity of redemption of both estates to the defendant.The first two mortgages in
favour of X and Y become vested in plaintiff who claimed consolidation.
This claim to consolidation was upheld. This means that where the owner of
different estates mortgages them to different persons and the mortgages afterwards
become united, in title, the holder of the mortgages has a right to consolidate them.
In Vint Vs. Padget (1858) 2 De. Gs. J. 611
3. The mortgage money should have become due on all mortgages. So where
there are three mortgages and the mortgage money has become due only on two of
them, then consolidation can be claimed only for those two mortgages and not for
all the three.
4. The words ‘has a right to obtain the same kind of decree' means, only such
of those mortgages which have the same relief can be consolidated. If the remedy
-111
for one mortgage is foreclosure and for the second mortgage sale, there is no
question of consolidation.
2. Right to sue for the mortgage money
The Section 68 must be noted as an enabling Section; In the absence of a
personal covenant the mortgagee cannot sue personly for the satisfaction of his
debt: This Section provides the circumstances under which the mortgagee may
exercise this right and obtain a money-decree personally against the mortgagor.
Under this Section a personal liability to pay may arise under clauses (b) (c). (d). In
Ramnarain Singh Vs. Adhindranath, 44 Cal. 388 (P.C.) Lord Parker made the
following observation: “It must be borne in mind that even if the mortgagors be in
the first instance under no personal liability, such liability may arise under Sec. 68.
(b) or (c) of the Transfer of Property Act”.
Suit on the Personal Covenant
Clause (b) - Where there is destruction or waste of security caused through no
fault of the mortgagor or mortgagee and the security becomes insufficient as per
explanation to Sec. 66 the mortgagee is entitled to sue for the mortgage-money.
Here the destruction or waste is due to a Vis. Major, for example, by diluvion, fire,
flood.
Where the insufficiency to the security is through the negligence of the
mortgagee this clause will not apply. Before instituting a suit for recovery of the
mortgage-money, the mortgagee should make a demand for substituted security
and grant time and reasonable opportunity for furnishing it.
Clause (c) - Where the deprivation is brought about Sy the wrongful act - of the
mortgagor or his representative c.: s- fc) applies. Examples of such wrongful acts
will be omission to disclose that the property is non-transferable or that there is a
prior mortgage over it. In such cases the mortgagee can sue for the mortgage
money. Clause (d) - Under this clause where a usufructuary mortgagee is not given
possession and an anomalous mortgagee entitled to possession is not put in
possession can sue under this clause for the mortgage - money.
Sub-Section 2 - A mortgagee may sue both for sale'and for a personal decree if
they are available to him. If both reliefs are claimed in the same suit, the court
usually passes a decree for the sale of the hypotheca and in case the sale proceeds
are insufficient, the balance may be recovered from the mortgagor personally/
If a suit is brought under clauses (a) or (b) for a personal decree only the court
in its discretion may stay the suit until the mortgagee exhausts the remedy against
the property or what remains of it, notwithstanding any contract to the contrary. If
the mortgagee has abandoned his security, or if necessary re-transfers the
mortgaged property, then this subsection will not apply.
1
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3. Right to private sale

Section 69 deals with private sale of the hypotheca. Ordinarily the sale can
take place only through the intervention of a court. Therefore, the mortgagee, has to
file a suit for a decree to bring the mortgage security for sale. But under Section 69
three clauses are given. The power of sale enumerated in sub-Section (1) (a) (b) (c).
In clause (a) a mortgagee in an English mortgage, and neither of the parties to
the mortgage is a Hindu., Mohammedan, Buddhist or any other community notified
in the Gazette.
In clause '(b) a mortgage in favor of the Governme only if such a right of

private sale is expressly provided for.
In clause (c) this power of private sale is expressly provided for, and the
property is situated within the town limits of Calcutta, Bombay and Madras and
those towns notified’ from time to time in the Official Gazette by a state.
Sub-Section (2) provide*" for certain conditions to be satisfied for the exercise of
this right of private sale. They are (1) a notice has to be served on the mortgagor
giving him 3 months notice to clear the debt inclusive of the interest accrued (2)
where there are two or more mortgagors, it is enough if notice is served on one of
them, (3) This right can be exercised where the mortgagor has not paid the interest
on the mortgage debt amounting to Rs. 500/- and above for three months after it
ha become due.
Sub-Section 3 deals with the effect Of a private sale. The purchaser gets a very
good title i.e., unimpeachable title to the property. If the mortgagee sells the
property by private sale without complying with the provisions of Sub-Sec. 2 then
the only remedy open to the mo tgagor is to sue the mortgagee for damages.
The student is to note that any one can purchase the property. The mortgagee
alone cannot purchase as he cannot be both seller and buyer and also to prevent
fraud. The mortgagee has to act honestly and fairly. If it is found that the mortgagee
has indulged in unfair practices the court is bound to intervene by way of an
injunction. •
By selling the hypotheca the mortgagee is protecting his own rights and
therefore he is not in the position of a mortgagee or a trustee for the mortgagor
during the sale. Once the sale is completed and there is a balance of the sale
proceeds after satisfying him, then for this balance he becomes a trustee for the
mortgagor till such time he hands over the money to the mortgagor.
Sub-section 4 deals with the order- in which the distribution of the sale
proceeds is to be made. The order is (1) A llp rior mortgages have to be a satisfied;
(2) to reimburse himself for all costs incurred (this does not include the mortgage-
money); (3) to satisfy his own debt; (4) the balance of the sale proceeds if any to be
given to the mortgagor. „' .
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If there is an assignment of the mortgage where this right of private sale is

available then the assignee from the mortgage can exercise this right.
In India the right of private sale has to be expressly provided for and very few
kinds bestow such a right, if this right is freely given it will lead to abuses especially
in the rural areas .
4. Appointment o f a Receiver
This Section 69-A was introduced by the Amendment Act, 1929. We have
already seen that a mortgagee in possession of the hypotheca is in duty bound to
manage the property prudently and account to the mortgagor for the rents and
profits from the property. He is also answerable for negligence and willful default
which may cause loss of property.
The receiver appointed under this Section even- though appointed by the
mortgagee, is deemed to be the agent of the mortgagor. Thus the mortgagee will not
be liable for any default committed by the receiver. This power of appointing a
receiver can be exercised only by a mortgagee who can exercise a power of sale
under Sec. 69 (2) and there too the mortgagee has to wait for the statutory period of
3 months after notice to the mortgagor to clear the mortgage debt. But this right
under sec 69 A is available only to 3 classes of persons under Section 69, so the
conditions under Sec. 69 (2) have to be complied with.
There is also provision for the court to order the appointment of a receiver in
cases where the court considers it necessary. This power of the court is given under
order 40 Rule I of the Code of Civil Procedure. / .
Under sub-section (2). the .person to be appointed may be (1) a person agreed to
between the mortgagor and the mortgagee at the time o f the mortgage contract itself. I f
no such person has been agreed upon then, (2) any person agreed upon subsequently.
Failing these two categories, (3) the mortgagee may apply to the court for the
appointment o f a receiver. The receiver though appointed at the instance o f the mortgagee
will be treated as the agent o f the mortgagor.
The duties of a receiver are to furnish security to keep proper and regular
accounts; to pay the money as the court directs; to be responsible for all loss due to
his negligence.
The money out of the hypotheca and in the hands of the receiver will be paid
out of the following order (1) to pay all taxes and rents (2) to pay the prior
mortgages; (3) to pay himself his commission; (4) to pay the mortgagee the interest
accrued on the mortgage-money; (5) to pay the mortgagee the principal amount;
(6) to hand over the balance if any to the mortgagor.
Under clause (10) it is open for the receiver to apply to the court for advice and
orders for the effective management or administration of the mortgaged property.
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5.Rights of mortgagee to Accession and improvement:

S ection 70: This Section deals with the rights of the mortgagee to accessions
and improvements. During the continuance of the mortgage, there may be an
increase by alluvion or there may be an improvement such as a building being put
up. These need not be due to the mortgagor. They merge with the original security
and are available to the mortgagee as part of the security - Nannu Mai Vs.
Ramchandar 5-3 All. 3.34 F.B.
6. Renewal o f mortgaged lease
As per Section 71 “when the mortgage property is a lease, and the mortgagor
obtains a renewal of the lease, and mortgagee, in the absence of a contract to the
contrary, shall, for the purposes of the security, be entitled to the new lease”.
7. Right to spend money in certain cases
The scope of Section 72 has been enlarged by the amendments carried to it by
the Amendment Act, 1929. Formerly it was restricted to the rights of the mortgagee
in actual possession. So an usufructuary mortgagee who was not put in possession
could not claim the rights under this Section. But today that is not good law; the
very wording of Section 58 (d) has made even an usufructuary mortgagee entitled to
possession within the ambit of Section 75. It also includes all mortgages.
Under that the mortgagee is entitled to be indemnified against all expenses he
has incurred as mortgagee, so long as he acts reasonably. In such a case he is
allowed all proper ‘costs, charges and expenses’ in relation to the mortgage
property, incurred by him..
But what are the costs and expenses properly incurred? The Section itself
enumerates them and they form part of the entire decretal amount and are covered
by Order 34, rule 2 (1) a) (iii), of the Code of Civil Procedure. The mortgagee who
improperly declined to accept the mortgage money will not be allowed thereafter
any costs, expenses etc.
Clause (b) - relates to expenses incurred to preserve the property from
destruction, forfeiture or sale. These words occur in Sec. 63. The word ‘destruction’
in a physical sense is only appropriate to a mortgagee in possession. Expenditure
on necessary repairs is covered by Sec. 76 (d). Improvements by Sec. 63A.
In an abstract sense there is destruction of the security when the property is
forfeited or sold. Sec. 76 (c) makes one of the duties of the mortgagee in possession
to pay all public charged etc., and failure to pay will entitle foreclosure or sale. But
.under Sec. 72 he himself can pay all these public charges to save the property, in
'case the mortgagor fails to make payment.
Under Sec. 76 (d) the mortgagee in possession has make the necessary repairs
and pay himself out of the rents and profits.
Clause (c) - supporting the mortgagor’s title. Section 65 (b) we have seen
imposes a duty on the mortgagor to defend his title always so that the security is
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not lost to the mortgagee. So where the mortgagor fails to do so, then the mortgagee
to preserve and protect the security for himself may under this clause support the
mortgagor’s title. He is entitled to the costs of litigation incurred in defending the
mortgagor’s title to the property. From this it is quite clear that this right of the
mortgagee arises when the mortgagor is negligent where his title is concerned. Such
necessary expenses can be added on to the mortgage money.
Clause (d) - Defending mortgagee’s title against the mortgagor. Here the
mortgagee is entitled to costs of enforcing the mortgage. Even where the mortgagee
sues a puisne mortgagee, these costs are also added to the mortgage money.
Clause (e) - Removal of lease. The mortgagor is under no liability to renew the
lease which is the security for a mortgage - Sec. 65 (d). But it is always open to the
mortgagee to renew the lease in order to keep his security alive. All expenses
including fines for the renewal can be added to the mortgage-money.
The proviso is very clear. This proviso was added by the Amendment Act,
1929. the mortgagor being the owner of the property mortgaged, it is his primary
duty to preserve it and protect his title. When he fails in that duty, and.
consequently the security may become insufficient or destroyed, in order to protect
himself the mortgagee is allowed to take timely steps and expend such amounts as
are reasonably necessary under clauses (b) and (c).This section is subject to
contract to the contrary. Where insurance of the property is concerned if the
mortgagor has neglected to insure his property against fire, the mortgagee may do
so and add the premimum to the mortgage debt. :
9.4. LIABILITIES OF THE M O R T G A G E E "^ "
Mortgagee is a person to whom an interest in specific immovable property
is transferred for the purpose of securing loan. Such mortgagee has certain duties
towards Mortgagor . The duties as are follows
Section 76(a) Duty to manage the property
Section 76 (b) Duty to collect rents and profits
Section 7 6 ( c ) Duty to pay the government revenue
Section 76(d) Duty to carry on necessary repair works
Section 76(e) Duty not to commit acts of waste
Section 76(f) Duty to ensure against damage by fire
Section 76(g) Duty to keep proper accounts
Section 76 ( h) Duty to appropriation of receipts
Section 76 ( i) Duty to maintain accounts
Liabilities of mortgagee in possession - “When, during the continuance of the

mortgage, the mortgagee takes possession of the mortgaged property:
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i. he must manage the property as a person of ordinary prudence, would

manage it if it were his own;
ii. he must use his best endeavours to collect the rents and profits thereof;
iii. he must, in the absence of a contract to the contrary, out of the income of
the property pay the government revenue, all other charges of a public
nature and all rents accruing due in respect thereof-default-of payment of
which the property may be summarily sold,
iv. he must in the absence of a contract to the contraiy, make such rfecessary
repairs of the property as he can pay for out of the rents and profits thereof
after deducting from such rents and profits the payments mentioned in
clause (c) and the interest on the principal money;
v. he must not commit any act which is destructive or permanently injurious
to the property;
vi. where he insured the whole or any part of the property against loss or
damage by fire, he must in case of such loss or damage apply any money
which he actually receives under the policy or so much thereof as may be
. necessary, in reinstating the property, or, if the mortgagor so directs, in
reduction or discharge of the mortgage-money;
vii. he must keep clear, full and accurate accounts of all such received and
spent by him as mortgagee, and, at any time during the continuance of the
mortgage, give the mortgagor, at his request and cost, true copies of such
accounts and of the vouchers by which they are supported;
viii. his receipts from the mortgaged property, or, where such property is
personally occupied by him, a fair occupation - rent in respect thereof, shall,
after deducting the expenses properly incurred for the management of the
property and the collection of rents and profits and the other expenses
properly and the collection of rents and profits and the other expenses
mentioned in clauses (c) and (d), and interest thereon, be debited against
him in reduction of the amount (if any) from time to time due to him on
account of interest and, so far as such receipts exceed any interest due, in
reduction or discharge of the mortgage-money; the surplus, if any, shall be
paid to the mortgagor;
ix. when the mortgagor tenders, or deposits in manner herein fact provided, the
amount for the time being due on the mortgage, the mortgagee must,
notwithstanding the provisions in the other clauses of this section, account
for his receipts from the mortgaged property from the date of the tender or
from the earliest time when he could take such amount there from on
account of any expenses incurred after such date or time in connection with
the mortgaged property.
This Section is restricted only to an usufructuary mortgagee and a mortgagee
in possession. These are statutory duties and have to be complied with. As all the
duties are very clear further discussion is not necessary
9.5. DOCTRINE OF SUBSTITUTION
The right given in Section 73 is over and above the right given to him to realize
his dues as against the security of what is substituted for it. But where the security
is diminished before proceeding against the mortgagor he has to give notice to the
mortgagor calling upon the mortgagor to furnish fresh security; and if the
mortgagor furnishes fresh security, the mortgagee has a right to this substituted
security. This is the Doctrine of substituted security.
Sec. 73 applies to the following cases:
i. Revenue sale - If the property is sold free from encumbrances for arrears of
revenue, the mortgagor’s rights are' transferred from the property to the
balance of the sale proceeds, which remain after satisfying the Government’s
dues. He has a right to sue for the satisfaction of his debt .out of the sale
proceeds. But where it is sold subject to encumbrances this Section will not
apply, because the object of the Section is to see that the security is not
diminished and not to enlarge it.
ii. Land Acquisition Proceedings - The compensation money in any acquisition
proceedings is treated as substituted security.
The claim of the mortgagee to the substituted security will take precedence
over all other claims except that of prior mortgagees, even if the principal money
has not become due. /
Receipts in lieu of interest- Section 77 states - “Nothing in Section 76, clauses .
(b), (g) and (h), applies to cases where there is a contract between the mortgagee
and the mortgagor that the receipts from the mortgaged property shall, so long as
the mortgagee is in possession of the property be taken in lieu of interest on the
principal money, or in lieu of such interest and defined portions of the principal”.:
This Section is an exception to Sec. 76. Under Sec. 76 the mortgagee is under
the duty to pay Government revenue. Under Section 77 when the rents and profits
are taken in lieu of interest and defined portions of the principal there is no
question of accounting between the mortgagor and mortgagee. So it is up to the
mortgagee to fully exploit the full value of the usufruct, else he is the loser and n ot.
the mortgagor, because the receipts are set off against the interest. So there is
nothing, to account for. So in such cases keeping accounts becomes a mere
formality.
9.6. MARSHALLING AND CONTRIBUTION
Section 81 deals with Marshalling and Section 82 deals with Contribution.
M a rsh a llin g securities: “If the owner of two or more properties mortgages
them to one person and then mortgages one or more of the properties to another
person, the subsequent mortgagee is in the absence of a contract to the contrary*
entitled to have the prior mortgage-debt satisfied out of the property or properties
not mortgaged., to him, so far as the same will extend, but not so as to prejudice the
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I
rights of the prior mortgagee or of any other person who has for consideration
acquired an interest in any of the properties.”
These-two doctrines namely, marshalling and contribution are to adjust the

rights of all the parties interested in the mortgage security. The doctrine of
marshalling is to adjust the .rights of mortgages interst and the doctrine of
contribution to adjust the rights of mortgagors where there are co-mortgagors. The
former exists for the benefit of junior encumbrancers and this doctrine is applicable
to sale legacies and the execution of settlement vide, Section 56.
NoW'coining back to Section 81 given above, the important point to be noted

is, that this Section applies only in the absence of a contract to the contrary. A
simple case of marshaling is given below:
Suppose A mortgages X and Y to B A then mortgages X to C, and if B threatens
to realize his mortgages out of X so as to deprive C of his security; C under the
Doctrine of marshalling can compel B to realize his mortgage as far as possible out
of Y so as to leave X available for himself. This was laid down in the case of Aldrich
Vs. Cooper (1803) 8 Ves. 382. If a creditor has two funds, the interest of the debtor
shall not be regarded. But the creditor having two funds shall take to that those
paying him will leave another creditor” . So this doctrine sees that no injustice is
done to another encumbrancer by making sure that the mortgagee with two funds -
is not allowed by his wantonness, caprice or rashness to do an injury to another.
The time for exercising this right of marshalling is when the mortgagee seeks
to realize what is due to him.
Conditions to be fulfilled for the Application of the Doctrine
There must be a common debtor under all the mortgages. Marshalling applies
only 'When there is a common debtor and there are different debts on the different
properties of the debtors. In Gopal Vs. Swaminatnayyar 12 Mad. 223 Muthuswami
Ayyar J. made the following observation: “No marshalling ought to be enforced
unless the parties between whom it is enforced are creditors of the same person,
and have demands against properties of the same person”.
2. No p re ju d ice to f ir s t m ortgagee: Marshalling, as many other doctrines is
a creation of equity and therefore it will protect the prior mortgagee. A prior
mortgagee cannot be compelled to proceed against a security which may be
insufficient or doubtful or involve him in litigation. Marshalling can be invoked only
if there are two or more properties and also only by compelling the prior mortgagee
to marshall he is not prejudiced.
3. No p re ju d ice to o th e r encum brancers: Marshalling will protect not only
the first mortgagee but also prior encumbrancers. An example is, A mortgages X
and Y to B; A then mortagee X to C; A then mortgages Y to D. Then if C were to
insist that B should pay himself wholly out of Y, there might be nothing left for D.
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The court in such a case would apportion B’s debt ratably between X and Y and the
surplus of X will go to C and the surplus of Y and D.
4. There should be no contract to the contrary; This right of marshalling can
be excluded by contract.
The right of marshalling is available not only against mortgagees, but also
against the mortgagor. A surety for the mortgagor can exercise this right.
C on trib u tion to m ortgage-debt: “where property subject to a mortgage

belongs to two or more persons having distinct and separate rights of ownership
therein, the different shares in or parts of such property owned by such property,
owned by such persons, are in the absence of a contract to the contraiy, liable to
contribute ratably to the debt secured by the mortgage, and, for, the purpose of
determining the rate at which each such share or part shall contribute, the value
thereof shall be deemed to be its value at the date of the mortgage after deduction
of the amount of any other mortgage or which it may have been subject on that
date.
Where two properties belonging to the same owner, one is mortgaged to secure
one debt and then both are mortgaged to secure another debt and the former debt
is paid out of the former property, each property is, in the absence of a contract to
the contraiy liable to contribute ratably to the later debt after deducting the
amount of the former debt from the value of the property out of which it has been
paid.
Nothing in this Section applies to a property liable under Section 81 to the

claim of the subsequent mortgagee”.
When this Section was amended two improvements were made. It was made to
cover cases not only where several properties are mortgaged but where mortgaged
property is subsequently divided into shares held in severally; Secondly, it fixes the
date- of the mortgage as the date at which the valuation for the purpose of
contribution should be made.
The words in the absence of a contract to the contrary relate to a contract to
which the mortgagee is also a party and not to one between the mortgagors only.
Contribution settles the rights of mortgagors of several properties or of several
shares in one property. It requires that a fund which is equally liable with another
to pay a debt shall not escape because the creditor has been paid out of other fund
alone. Therefore, such of those properties that have been sold for the realization of
the mortgage debt are not liable to a claim for contribution. So only those owners
who have contributed much more than their ratable proportion of the debt can
claim contribution and such claim can only be against those properties or share of
property, which have not contributed to the mortgage debt and have benefited by
the sale of the property of the claimant for contribution.
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If three brothers, A, B and C mortgaged their joint property first to D and then
to E. Later A, B and C effected a partition of the property into three shares. D
brought'a suit for sale on his mortgage and realized the amount by sale of A’s
share. A obtained a decree for contribution ‘ against the shares of B and C.
Thereafter B and C redeemed the puisne mortgage to E and claimed contribution
from A. Held there was no right o f contribution against A, as his share had already
been sold in satisfaction of the first mortgage. Kashi Ram Vs Het Singh (1915) 37
All, 101.
Condition for the application o f the Doctrine of contribution
The first condition is there must be a property in which two or more persons
have distinct interest or there must be two or more properties belonging to one or
several owners. These owners must have a common liability to contribute and there
must be no contract to the contraiy. Under this Section the liability to contribute
can be excluded by a contract to the contrary.
The second, condition: Common liability to contribute. The liability is attached
to the property or to the different shares of the property as the case may be.
The third condition is that this Section operates only in the absence of a
contract to ^he contrary. Such a contract to the contrary must be between the
mortgagors on the one hand and the mortgagee on the other. If such a contract is
entered into only between the mortgagors a third party will not be affected.
E q u a l e q u itie s : There can be no liability to contribute unless the equities are
equal, that means both or all the properties must be equally liable for the debt. For
example, if a person mortgages and subsequently assigns part of the mortgaged
property without mention of the mortgage, there is no claim for contribution against
the assignee. .
The last para o f the Section means that the right o f contribution is subject to the
right o f marshalling. So where there is a conflict the latter will prevail over the former.
9.7. THE DOCTRINE OF SUBROGATION
The word ‘subrogation’ means, substitution. Section 92 provides for the
Doctrine of subrogation which is based on the equitable principle “he who seeks
equity must do equity.” this is the right of a person to stand in the place of a
secured creditor whom he has paid off. The subrogee is entitled to all the rights and
remedies open to the creditor in respect of the securities held by him. This means
where subrogation is available the discharged encumbrance is treated as kept alive
for the benefit of the subrogee, otherwise puisne encumbrances will get priority over
the person who has paid off earlier encumbrance.
Kinds o f subrogation
Subrogation is-of two kinds legal and conventional. The former takes place by
operation of law when the debt is paid off by a person who has an interest to protect.
Conventional subrogation arises when the debt is discharged by a person who has
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no interest to protect but advances money under agreement that he will subrogated
to the rights of the creditor so paid. Para 1 of this section deals with legal
subrogation and Para 3, with conventional subrogation.
A very simple case of subrogation will be where A assigns his right against B to
C. C is subrogated to the position of A. Because of assignment C gets subrogated to
A in place of A. Under para 3, subrogation by agreement must be under a written
and registered agreement. More about conventional subrogation later.
Legal Subrogation
The foundation of the right of legal subrogation is the equitable rule of
reimbursement found in section 69 of the Indian Contract Act; which state ‘a
person who is interested in l.he payment of money which another is bound in law to
pay, and who therefore pays it, is entitled to be reimbursed by the other’. The
Contract Act confers only a personal right, but subrogation confers an equitable
charge on the property.
A person paying off a prior mortgage gets two remedies (i) to proceed against
the mortgagor under Sec. 69 of the Indian Contract Act, which as already seen
confers only a personal right, which is enforceable only iri his individual capacity
and not in the capacity of a prior mortgagee, and (ii) to exercise his right of
subrogation under Section 92. The charge is already there, all the subrogee does is,
to enforce that charge.
Section 92 was introduced in 1929 providing both legal and conventional

subrogation. Para 1 deals with legal subrogation which occurs in four ways
i. a puisne mortgagee redeeming a prior mortgage;
ii. a co-mortgagor redeeming the mortgage;
iii. the mortgagor’s surety redeeming the mortgage is in the position of a co
mortgagor;
iv. A purchaser of the equity of redemption redeeming a mortgage.
In the case of Gokuldas Vs. Puranmal II 1. A. (P.C.) 126 the Privy Council
applied the doctrine of subrogation to a purchaser of the equity of redemption*
Subrogation and Mortgagor
If you look at para I you will notice that it begins with the words “other than
the mortgagor”. So subrogation will not apply to the mortgagor. In redeeming the
mortgage he is discharging his own liability.
Subrogation and Co-mortgagor
The position of a co-mortgagor is so vastly different from that of a mortgagor.
He can claim subrogation. On redemption of the mortgagor he gets subrogated to
the place of the mortgagor whom he has redeemed.
Subrogation and a volunteer
Though in principle one creditor can be substituted by another who pays the
debt yet legal subrogation is not available to a mere volunteer, a. volunteer or a
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stranger is not under any legal obligation to pay the debt; nor by paying has he to
protect any right belonging to him. So a volunteer cannot claim the right of
subrogation. This right of subrogation can be claimed only by a person who is
obliged to pay for the debt for his own protection.
The privy council in Ram Tuhul Singh Vs. Biseswarlal, 2. I.A. 131 held: “It is
not in every case in which a man has benefited by the money of another that an
obligation to repay that money arises. The question is not to be determined by lic e
considerations of what may be fair or proper according to the highest morality. To
support such a suit, there must be an obligation expressed or implied, to repay. It
is well settled that there is no such obligation in the case of a voluntary payment by
A of B’s debt.
“Subrogation as a matter of right is never applied in aid of a mere volunteer”
was the rule laid down by Mukherjee J. in Gurdeo Singh Vs. Chandrika Singh,36
Cal. 193.
Conventional Subrogation
This is a contractual subrogation and it arises when a person advances money
t.o the mortgagor to discharge the mortgage debt and with the understanding that
the security will be kept alive or in other words he is to be subrogated to the rights
and the remedies of the mortgagee who is redeemed. In this kind of subrogation it
is not the third party, but the mortgagor who redeems. This agreement between the
mortgagor and the person advancing the money should be in writing and registered.
9.8. SUMMARY
In this lesson under the heading of rights and duties of mortgagee, first we
have discussed about Section 67 foreclosure. Then we have seen mortgagee’s other
rights and duties provided under Section 68-73 and Section 76 of T.P Act. Further
in this lesson we have also discussed about Doctrine of Marshelling and
contribution and subrogation in detail.
1. What are the rights and liabilities of Mortgagee
2. Explain the Doctrine of Marshalling and contribution
3. Explain the Doctrine of Subrogation? What are the essentials ?
1. H.P. Vepasarathi - Law of Transfer of Property 4th Edition, 2000 .
9.11. KEYWORDS
Subrogation - substitution
Foreclosure - to reposess the collateral for loan than is indefault
Mortgage debt - mortgage loan
□
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LESSQN-10
_________________________ . ■ _________ , CHARGE
STRUCTURE
10.1. Introduction
10.2. Objectives
10.3. Definitions
10.4. Essentials of charge
10.5. creation of charge
10.6. Doctrine of merger
10.7. Novation
10.8. Difference between charge and lien
10.9. Difference between mortgage and charge
10.10. Summary
10.13. Keywords
10.1. INTRODUCTION
Where a immovable property of one person is made security for the payment
of money to another and the transaction does not amount to a mortgage , the later
person is said to have a 'Charge' on the property. Charge is nothing but a security
of property without any transfer of interest. No particular form of words is
necessary to create charge; all that is necessary is that there must be a clear
intention to give property as security fo.r payment of money. Section 100 to 101 of
T.P.Act deals about charge. In this lesson we are going to see about ‘Charge’ in
detail
10.2.OBJECTIVES
1. know about charge
2. know how to create charge
3. know about Extinguishment of Charge
10.3. DEFINITION
Section 100; defines charge. As follows where immovable property of one
person is by act.of parties or operation of law made security for the payment of
money to another and the transaction does not amount to mortgage, the latter
person is said to have a charge on the property; as all the provisions herein before
contained which apply to a simple mortgage shall, so far as may be, apply to such
charge.
Nothing in this section applies to a charge of a trustee on the trust - property

for expenses incurred in the execution of his trust, and save as otherwise expressly
124
provided by any law for the time being in force no charge shall be enforced against
any property in the hands of a person to whom such property has been transferred
for consideration and without notice of the charge”.
10.4. ESSENTIALS OF A CHARGE
For a charge to be created certain essentials are necessary.
1. There must be immovable property;
2. This immovable property must serve as security. It may be made a security
either by act of parties or by operation of law..
3. Such security must be to secure payment of money and it must not be by
way of mortgage.
10.5 CREATION OF CHARGE
A charge may be created by act of parties arid also by operation of law
1. Charge by act of Parties
A charge by act of parties can be created by an instrument intervivos or by will
1. A charge does not contemplate any transfer of an interest in the immovable

property
2. For the creation of a charge no particular words is necessary. What is
necessary, is there should be an unambiguous intention to create charge.
The document should mention the intention to make the land security for
the payment of the money mentioned therein. Agreements to give immovable
property for maintenance allowance in perpetuity without transferring any
interest in tlîat property constitute charge on the property. They are not
mortgages.
3. A charge can be created orally, but if it is reduced to writing and its value is
more than Rs. 100, under Section 17 of the Registration Act it should be
registered. An off quoted illustration is; ‘A ’ inherited an estate from his
maternal grand-mother and executed an agreement to pay his sister ‘B’ a
fixed annual sum out of the rents of the estate. B has a charge on the estate
4. The property on which the charge is created should be specified, otherwise it
will be void for uncertainty. The property should be specified and it should
be made security for the payment of money
5. Charge cannot be created on a future contingency
6. Charge on future property is valid and operates on such property when it
comes into existence.
2. Charge by operation of Law

Charges by operation of law are based upon consideration of duty or implied
intention on the part of the owner of the property to make it answerable for a
specific claim. E.g A Hindu widow’s charge on the family property for her
maintenance, if created by a decree. A vendor’s charge for unpaid purchase money.
The T.P. Act has provided for a number of charges..
125
1. Unpaid vendor’s lien - Sec. 54 (4) (b)

2. Buyer’s charge - Sec. 55 (6) (£>)
3. For pre-purchase price which is binding on transferees irrespective of notice
- Sec. 55 (5)
4. Charge in favour of a mortgagee for surplus saleproceeds in a revenue sale -
Sec. 73.
Proviso: The proviso makes it clear that a charge is not enforceable against a
transferee of the property for consideration and without notice of the charge.
Enforcem ent o f Charge: A charge cane be enforced by filing suit in the court.
EXTINGUISHMENT OF CHARGE
A charge can be extinguished by act of parties i.e by a release of the debt or
security by the chargee. The charge also be extinguished by Novation or by merger.
10.6. DOCTRINE OF MERGER
A merger of estates may take place when two estates held in the same legal
right become united in the same hands. Merger occurs in one of two ways (1) by the
merger of a lower in a higher security and (2) by the merger of a lesser estate in a
greater estate. Section 101 deals only with the second of these cases. An example of
this will be where a charge-holder acquired the ownership in the property or the
owner acquired the charge on the property the lesser estate becomes merged and
extinguished in the greater.
One important point to be remembered is for merger the two estates must be
held in the same legal capacity. If they differ there cannot be merger unless, there is
a clear intention to keep the encumbrance alive. Ultimately it' depends on the
intention of the parties concerned. The intention may be expressed or implied. One
has to look into the document and the circumstances of each case,
10.7. NOVATION
Novation differs from merger in that the securities are equal degree and the
one security is accepted in lieu of the other. When this occurs the old security is
extinguished . But if the new security fails there has been no substitution and
therefore no extinction of the old security.
i
10.8. DIFFERENCE BETWEEN CHARGE AND LIEN
1 A charge may be created both by act of parties or by operation of Law
A lien arises by operation of law
2. A charge can exist on immovable property only
A lien exist on both movable and immovable property
3. A Charge is not possessory in nature

A lien is possessory in nature.
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10:9. DIFFERENCE BETWEEN MORTGAGE AND CHARGE

M ortgage : Sec.58 Charge : Sec. 100
Transfer of interest, righ t in rem Charge does not create any
1.
such right
. ue created only . by act of Can be created by act of parties
parties as well as by operation of Law
In a mortgage there can be a There is no personal covenant
■ personal covenant to pay to pay the holder as to took the
property only.
A mortgage secures the payment of A charge need not necessarily
4. a loan. secure any debt or loan, e.g a
charge for maintenance.
Can be enforced against a Cannot be enforced against a
5. transferee with or without notice. transferee for consideration
. \ .. without notice
A mortgage can be redeemed That is not necessarily the case
6.
with a charge.
7. A mortgage is for limited period Charge may be in perpetuity.
10.10. SUMMARY
Charge, which is nothing but a security of property, without any transfer oi
interest. No particular form of words is necessary to create charge; all that is
necessary is that there must be a clear intention to give property as security for
payment of money. Essentials of charge are 1. There must be immovable property;
This immovable property must serve as security. It may be made as security either
by act of parties or by operation of law. Such security must be to secure payment of
money and it must not be by way of mortgage. The charge may be created either by
act of parties or by operation of Law. Further we have also seen Doctrine of Merger
in this lesson
10.11. SUGGESTED QUESTION
1. What is meant by charge ? What are the essentials of charge?
2. What is meant by Novation?
3. Write a note on Doctrine of merger.
3. Mulla - The Transfer of Properly Act.
10.13. KEYWORDS
Extinguished - put an end to
Forteits - gives up
Noration •- substitute by new contact
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LESSON-11
______________ ____________________________________________________________ LEASE /
STRUCTURE
11.1. Introduction
11.2. Object
11.3. Definiton of Lease
11.4. Essential elements of lease
11.5. Kinds of Lease
11.6. Rights and Liabilities of Lessor
11.7. Rights and Liabilities of the Lessee
11.8. Determination of lease
11.9. Summary
11.12. Keywords
11.1. INTRODUCTION
The Transfer of Property Act codifies the law relating to landlord and tenant for
the first time. Prior to its passing, Hindu law was strictly applicable to the tenancy
contracts between Hindus and in all other cases the English law of landlord and
tenant was applied. In this lesson we are going to study the provisions related to
Lease
11.2. OBJECTIVES
*
1. know about the definition and essentials elements of lease
2. study about the rights and liabilities of lessor and lessee
3. know about the various types of Tenancy
4. know about the duration of lease
11.3. DEFINITON OF LEASE
Lease is a Transfer of right to enjoy an immovable property for a certain time'
or in perpetuity?
According to Section 105 “a lease of immovable property is a transfer of a right
to enjoy such property made for a certain time, express or implied or in perpetuity
in consideration of a price paid or promised or of money, a share of crops, service or
any other things of value, to .be rendered periodically or an specified occasion to the
transferor or by the transferee, who accepts the transfer on such terms. The
transferor is called the lessor, the transferee is called the lessee, the price is called
the premium and the money, share, service or other thing to be so rendered is
called the rent” .
y ,
128
• In a lease there is rightful separation of possession from ownership. The lessee

' rightfully possesses and enjoys the property while the ownership still remains in its
owner. During the currency of the lease not only third parties are excluded from the
pottesaions and enjoyment of the property, the owner himself is excluded from
possession and enjoyment of the property leased to the lessee. So a lease is not a
mere contract, it is a transfer of an interest in immovable property. It is a right in
rem that is vested in the lessee.
11.4. ESSENTIAL ELEMENTS OF LEASE

Section 105 contemplates certain elements for a lease they are:-
1. A leasehold right must be only of immovable property.
2. The parties to a lease.
3. The right in a lease consists of enjoyment of the property. So enjoyment
includes the right of possession of the property.
4. The demise, there must be a transfer of such right.
5. What is transferred must be an ‘interest’ in immovable property. A mere
personal right of enjoyment will not amount to a lease.
6. The transfer must be for a specified term. Expressed or implied or in
perpetuity.
7. The transfer must be made for consideration or rent.
As a lease involves the transfer of an interest in immovable property, it falls
within the meaning of Section 5 and all the relevant sections are applicable to the
creation of a lease.
The parties to a lease
The parties to a lease are the lessor and the lessee. On a question whether a
person can grant a lease to himself the House of Lords in Rye Vs. Rye (1962) A C.
496 held that a man cannot grant a lease to himself, as the smaller right will merge
in the larger right of ownership and get extinguished. Here Section 5 which enables
a person to convey properly to himself, to that extent is inapplicable.
The lessee must be a person competent to contract under Section 7 of the T, P.
Act. Such a person may grant a lease for any term. It is not only a full owner who
can grant a lease, but any limited owner to the extent of the right vested in him or
he can grant a lease. If a life tenant grants a lease, such a lease will not ensure
beyond the life of the tenant. A lessee can lease his leasehold right. This is called a
sub-lease it is also called an under lease; but it is still a lease within Section 105.
Executors or administrators can grant leases under Section 307, of the Indians
Succession Act, Under the Guardians and Wards Act a guardian of the property of
a minor can even without the permission of the court grant a lease of the minor’s
property for a term not exceeding five years or to ensure for more than one year
after the minor attains majority.
129/
The lessee is a person who is competent to contract on the date of the

execution of the lease. Under Section 7 a minor can be a buyer, or a mortgagee, but
he cannot be a lessee for the lease deed has to be executed both by the lessor and
the lessee and moreover a lease purports to be a covenant to pay rents and
fulfillment reciprocal obligations. A minor cannot be bound to pay rents etc. So
there can be no lease in favor of a minor as there can be no mutuality.
The subject matter of a lease
A lease can only be of immovable property. This immovable property may be
tangible immovable property or intangible immovable property. Where intangible
immovable property is concerned, it must be capable of being possessed and
continuously enjoyed, for example, the right to ferries etc.
In a lease what is transferred is the limited use of property owned by the
lessor. For enjoyment of the property possession is given to the lessee. So in a lease
the ownership is with the lessor, the lessee rightfully possessing the property for
the purpose of use and enjoyment. The right of the lessee is called a leasehold and
what remains in the lessor is called a reversion. In a lease, the right to enjoy
amounts to, an interest in immovable property. Where the right to enjoy does not
amount to an interest in immovable property, it is not a lease but only a licence. An
agreement to create a lease in future merely gives rise to a personal obligation.
Lease
A lease must be for a specified period, expressed or implied or in perpetuity
and its commencement must be certain. Where no term is specified it will be
treated as a tenancy at will, but could be converted into one of a specified term.
11.5. KINDS OF LEASES
In India a lease in perpetuity is perfectly valid. It is the duration of the lease
which determines the leasehold estate, that is created. In India, we recognize the
following different kinds of leases.
1. Perpetual lease.
2. Tenancy - at - will.
3. Tenancy - at - sufferance.
4. Tenancy - by - holding over.
5. Periodic lease.
6. Fixed lease.
7. Lease for life.
8. Sublease
1. P erp etu a l lease: A lease in perpetuity can also be created by express words
or by implication. Where the document does not show clearly that, the lease is one
in perpetuity, other circumstances have to be looked into, such as the object of the
lease , the circumstances under which it was created and the subsequent conduct
130
of the parties. A point to note is permanency of lease does not necessarily imply
fixity of rent and fixity of occupation and conversely the fact of enhancement of rent
does not run inconsistent with the tenancy being permanent. Where there is no
document in support of permanency, long occupation with a fixed rent the
presumption is in favor of permanency. An inference of permanency may arise
when the tenancy has passed through several successions or the land is held for
building purposes.
2. T e n a n c y - a t - w ith A tenancy - at - will is determinable at the will either
of the landlord or of the tenant. English law defines a tenancy - at - will as “when a
person lets to another to hold at the will of the lessor or the person letting, the
lessee or the person taking the lands is called a tenant - at - will and he may be
turned out when his landlord pleases, so he may leave when he likes.”
Where there is permissive occupation, by implication at law there is a tenancy-
at-will. Also all those cases where a person is in occupation with the consent of the
owner for an indefinite period for a compensation accruing from day to day so long
as the parties please gives rise to a tenancy - at - will. A tenant - at - will is not
entitled to notice to quit even where there is permissive occupation. A demand by
the landlord for possession is sufficient Death of either party determines the
tenancy.
3. T e n a n c y - a t - s u ffe ra n c e : This tenancy is only a fiction to avoid the
continuance in possession of the Lessee whose lease is determined operating as a
trespass. When a lease is determined the right of possession of the Lessee comes to
an end. His possession thereafter does not amount to an interest in the property.
His possession is also not permissive. He cannot be treated even as a ‘licence’. His
possession is wrongful. He is called a tenant - at - sufferance can be determined by
the landlord merely^ by entering the premises. No notice and no demand is
necessary. , N ;
' • . \
Tenancy -.by - holding over: Whereas a tenant - at - sufferance continues
" in possession without the landlord’s consent, a tenant - by - holding over continues
in possession after the determination of the lease with the consent of the landlord.
Illustrations
a) A lets a house to B for five years. B underlets the house to C at a monthly
rent of Rs. 100/-. The five years expire but C continues in possession of the house
and pays the rent to A. C’s lease is renewed from month to month.
b) A lets a farm to B for the life,of C. C dies, but B continues in with A ’s
assent. B’s lease is renewed from possession year to year”.
The principle underlying Section 106 has been clarified by the Supreme Court
in Ganga Dutt Vs. Kartik Chandra Das, 1961 S.C. 1067. The Supreme Court held
that where a contractual tenancy has expired by efflux of time or by determination
by notice to quit and the tenant continues in possession of the premises,
131
acceptance of rent from the tenant by the landlord will not afford ground for
holding that the landlord has assented to a new contractual tenancy.
Before we pass on to a study of the other kinds of leases, let us. look into the
differences between a tenant-holding over and a tenant - by - sufferance.
Difference between a Tenant holding over and a tenant - by - sufferance:
1. A tenant -holding over is one who after the determination of the lease,
continues in possession with the consent of the Lessor. A tenant - by - sufferance
on the other hand continues in possession after the determination of the lease
without the consent of the Lessor.
2. A tenant by - holding over is a periodic tenancy. By Sec. 106 a new tenancy

arises by operation of law. The duration of this new lease will .depend upon the
purpose of the original lease. If the original lease was for agricultural or
manufacturing purpose, then the new tenancy will be presumed to be year to year.
If it is for non-agricultural or non-manufacturing purposes or for purely residential
purposes, then the new lease can be terminated by a mere notice to quit. No notice
is required for a tenancy - at; - sufferance. A mere re-entry by the landlord is
sufficient.
3., All easement rights are available to a tenant - by - holding over. No such
claim can be made by a tenant - by - sufferance.
4. What a tenant - by - holding over pays in rent, but what a tenant - by -
sufferance pays is compensation for use and occupation.
5.- 'Periodic lease: A lease from year to year and month to month sre examples
of periodic leases. This does not mean that at the end of the year or montu
case may be the lease expires. Also there is no re-letting at the beginning of each
year or month. It simply means that the lease will continue till it is terminated by
notice.
Section 106 deals with periodic leases. It states “Duration of certain leases in
the absence of written contract or local usage. In the absence of a contract or local
law or usage to the contrary, a lease of immovable property for agricultural or
manufacturing purposes shall be deemed to be a lease from . year to year,
terminable, on the part of either lessor or lessee, by six month’s notice expiring with
the end of a year of the tenancy; and a lease of immovable property for any other
purpose shall be deemed to be a lease from month to month terminable on the part
of either lessor or lessee, on fifteen days, notice expiring with the end of a month of
tenancy.
\
Every notice under this Section must be in writing signed by or on behalf of

the person giving it and either be sent by post to the party who is intended to be
bound by it or be tendered or delivered personally to such party, or to '.ne of his
family or his servants, at his residence, or if such tender or delivery is not
Dracticable affixed to a conspicuous part of the properly.
I
From a reading of Sec. 106 it is quite clear that two essential of such a lease
are, firstly, the lease is intended normally to run continuously until terminated by
notice either the lessor or the leasee. Secondly, the notice must be in writing. For a
yearly lease it should be a six month’s notice and for a monthly lease a fifteen day’s
notice. The notice is to expire at the end of the year or month as the case may be.
6. Lease f o r a fix e d p e rio d : This a lease for which the period is fixed. It may
be short or long.
7. Lease f o r life : This is a lease for the life time of the Lessee and comes to aii
end on his .death. Though at the time of the creation of the lease the period of
duration is not certain, it becomes certain on the death of the grantee and this
satisfies the requirement of certainty under Section 105. a lease granted for the life
time of two persons will endure till the death of the survivor of them.
Is a leasehold right a heritable right?: A very authoritative decision on this
point was given by the Bombay High Court in the case of Bavan Saheb Vs. West
Patent Press Co. A. I. R. 1954 Bom. 257. In this case it was held, that if a lease is for
a definite period and the Lessee dies before the expiry of the period then the
remaining period ensures for the benefit of the Lessee’s heirs, unless there is a
contract to the contrary. Where the lease is for an indefinite period then the death
of the Lessee puts an end to the lease, unless, there is a contract to the contrary.
A tenancy - at - will by its very nature is such that death of the Lessee puts an
end to it. An assignment of such tenancy ends it.
8. Sublease: Depending on the terms and conditions mentioned in the original
lease, the lease holder may grant a sublease to other persons. In all such cases ,
the original lease holder becomes the head lessee for sublease holder. It should be
noted that the sublease can be granted only for a period which is less than the
original lease period which is less than the original lease period Usually a gap of a
few days is kept between the periods of the original lease and the sub lease so as to
facilitate the reversion of the property.
C o n s id e ra tio n There must be consideration. It is either premium or rent.
Section 105 defines a premium as a price paid for the lease. Premium is lump sum
payment or payment in installments by the Lessee to the Lessor for being let into
possession of the leased-property. Rent on the other hand is paid periodically to the
Lessor. .
Leases How Made
“A lease of immovable property from year to year, or for any term exceeding
one year, or reserving a yearly rent can be made only by a registered instrument.
All other leases of immovable property may be made either by a registered
instrument or by oral agreement accompanied by delivery of possession.
133
Where a lease of immovable property is made by a registered instrument, such

instrument or, where there are more instruments one, each such instrument shall
be executed by both the lessor and the lessee.
Provided that the State Government may from time-to time by notification, in
the Official Gazette direct that leases of immovable property other than leases from
year to year or for any term exceeding one year, or reserving a yearly rent, or any
class of such - leases, may be made by unregistered instrument, or by oral
agreement without delivery of possession”.
Where there is a reservation of an yearly rent, the presumption is that the
lease is from year to year, but it is always open to either party to point out that the
other parts of the instrument negative this presumption. Where theiê is an yearly
lease, delivery of possession makes it valid, even though under an oral agreement,
on the expiry of the year he is a tenant-holding over under Sec. 116.
Where a lease has to be registered and it is not registered the lease deed is void
but an unregistered lease deed where possession is delivered can be used collateral
purposes to protect his possession AriffVs. Jadunain, (1931) 58 I.a. 91.
Another important point to be noted is the lease deed must be executed by
both the Lessor and Lessee. Where it is executed by the lessee but accepted by the
lessor, it is considered as a lease.
Ground Rent : The ground rent is the amount of rental value of the open plot
of land at the time of granting the lease .After the construction of the building , the
leaseholder will, if rented get some return from the property. The difference between
the available rent from the property and the ground rent' paid by the leaseholder
represents the leaseholder’s net income of profit.
Rights and Liabilities o f Lessor and Lessee
Section 108, deals with the rights and liabilities of the lessor and lessee. Thiu
Section states: In the absence of a contract or local usage to the contrary, the lessor
and the lessee of immovable property as against one another respectively possess
the rights and are subject to the liabilities mentioned in the rules next following, or
such of them as are applicable to the property leased.
11.6. RIGHTS AND LIABILITIES OF THE LESSOR:
Section 108 is subject to a contract or local usage to the contrary.
A reading of clauses (a), (b) and (c) will show you that these clauses specify
only the liabilities of the lessor and not his rights. These liabilities are three in
number. t
(a) Duty to disclose cl. (a) : I hope you remember the duties of the seller
under Sec. 55. These duties of the Lessor so far as the duty to disclose are more or
less similar, what the Lessor has to disclose are only those defects which are
material with reference to the intended use of the property by thej^pssee, and
which' at the same time cannot be discovered with ordinary care. Tj^^/Xfteans all
134
material latent defects have to be disclosed. The duty is not absolute in the sense
the duty extends only to those defects the Lessor is aware of. The defects as to title
need not disclosed.
(b) To g iv e possession cl. (b): This duty arises when the Lessee makes a
request to deliver possession. It is an absolute statutoiy duty. The Lessee is to be
placed in possession of the leased property right from the commencement of the
lease.. In case possession is not delivered the Lessee can sue the Lessor for
possession or damages for breach of obligation. The nature of possession will
depend upon the nature of the leasehold right; for example where the lease property
is already under occupation by tenants then possession by attornment is enough.
(c) C ovenant f o r q u ite e n jo ym e n t c l (c): This covenant run with the land and
is therefore enforceable by the assignee of the Lessee against the Lessor and his
heirs and assigns. But the covenant will not be available against the tortuous.acts
of third parties. By virtue of this covenant, except in a case of lawful re-entiy the
Lessee is absolutely protected from disturbance by the Lessor. Therefore we may
say the covenant is absolute and unconditional. It is unconditional in the sense
that even if the Lessee commits default in payment of rent or commits other
breaches of contract, the covenants for quiet enjoyment cannot be broken for that
ground.
11.7. RIGHTS AND LIABILITIES OF THE LESSEE
• The rights o f the Lessee are found in clauses (d) to (f)
The following are the rights of the Lessee to be implied in every contract of
lease;
C lause (d) if during the continuance of the lease any accession is made to the
property, such, accession shall be deemed to be comprised in the lease
C lause (e): To avoid the lease in case o f destruction etc. A Lessee is not
responsible in case of fire,, unless he has undertaken his responsibility or the fire
was due to his negligence Wilful wrong. In such a case the lease is not ipso facto
void but only voidable. I f ’ the option is exercised then it becomes void. The
destruction must be due to natural causes, such as fire, flood, tempest, enemy
action.
C lause (f): To repair in default o f the Lessor. All necessary repairs to keep
the property from deterioration are the duty of the Lessor to carryout. In case of
default by the Lessor the Lessee after notice to the Lessor carry out such repairs
and deduct the expenses from the rent.
Clause (g): Deduction o f taxes etc. Where the Lessor .fails to pay taxes etc. no
notice is necessary, the Lessee can pay them and reimburse himself out of the rent,
or sue the Lessor for recovery of the amount paid.
Clause (h): Rem oval o f fixtures. The Lessee may at any time till he is in
possession of the property (even after the expiry of the lease) remove any trees he
135
has planted and, fixtures set up by him. When he removes the fixtures he should
take that the property is left in the same condition in which he has received it -
Vasudevan Vs. Valia 24 Mad. 47 (F B).
C lause (i): To remove the crops. If for no fault of his, the crops have riot been
harvested the lessess on the termination of the lease gets me right to re-enter the
land to remove the crops. This is applicable to yearly leases and leases of indefinite
duration.
Clause 0): Right o f transfer. The Lessee may transfer his leasehold rights,
provided there is no restriction imposed by the Lessor against alienation of his
interest. Section 10 and 12 have no application to leases. In case the Lessee has a
non-transferable tenure, or one under the court of wards, he cannot transfer such a
lease.
The liabilities o f the Lessee are found in clauses (k) to (q):
Clause (k): Duty to disclose . The Lessee must disclose to the Lessor all the
material facts which increase the value of the lease. These facts should be unknown
to the Lessor non-discloosure does not make the lease void, the Lessee may sue the
Lessee for damages only.
Clause (I): Duty to pay rent. It is a duty of the Lessee. The rent is to be
payable not from the date of the execution of the lease deed but from the date on
which the Lessee is given possession of the property. For payment of the rent no
demand from the Lessor is necessary.
Clause (m): Duty to keep and restore the property in repair. Unless there is
a contract to the contrary, the Lessee is always during the continuance of the lease
to maintain and restore the property in the condition in which it was handed over
to him. For this purpose the Lessor or his agent has the right to inspect the
property at all reasonable times and point out the defects if any in maintenance of
the property.
Clause (n): Duty to inform on the title being in jeopardy. If the Lessee is
aware of any proceedings by third parties to recover the property or of any
encroachments, he is bound to inform the Lessor, who may in his own interest and
to safeguard himself take necessary action.
Clause (o): Duty to use the property reasonably. At all times the Lessee
must use the property only for the purposes for which it has been leased and
prudently. This clause itself states what the Lessee should never do while using it
(Read clause).
Clause (p): Not to erect perm anent structures. The Lessee cannot erect
permanent structures except with the consent of the Lessor. If he does erect them
he is entitled to remove them under clause (k) i.e. without damaging the demised
property. If it is an agricultural lease, then he can erect structures for agricultural
purposes without the consent of the Lessor.
136
O m m If): Duty to restore possession. On expiry of the lease possession

should be restored to the Lessor. If there is a sub-lease he has to be turned out.
Failure to turn out the sub-Lessee will entitled the Lessor to file a suit for
ejectment, the costs to be borne by the Lessee. Where there are two or more Lessors
then possession can be restored to anyone of them, unless there has been a
partition of the property and the Lessee knows about it.
Rights o f Lessor’s transferee-Sec-109

If the Lessor transfers the property leased, or any part thereof, or any part of
his interest therein, the transferee, in the absence of a contract to the contraiy
shall possess all the rights, and if the Lessee so elects, be* subject to all the
liabilities of the Lessor as to the property part transferred so long as he is the owner
of it, but the Lessor shall not, by reason only of such transfer, cease to be subject
to any of the liabilities imposed upon him by the lease, unless the Lessee elects to
treat the transferee as the person liable to him.
Provided that the transferee is not entitied to arrears of rent due before the
transfer, and that, if the Lessee, not having reason to believe that such transfer has
been made, pays rent to the Lessor, the Lessee shall not be liable to pay such rent
.over again to the transferee.
The Lessor, the transferee and the Lessee may determine what proportion of
the premium or rent reserved by the lease is payable in respect of the part so
transferred, and, in case they disagree, such determination may be made by any
court having jurisdiction to entertain a suit for the possession of the property
leased”.
You have already been told that in a lease, an interest in immovable property
is transferred to the Lessee of the Lessor is called the reversion. The assignment of
the reversion may arise in three ways. Para 1 mentions the different ways it may
arise (i) An absolute assignment; (ii) An Assignment of the reversion in a portion of
the property (iii) An assignment of part of the reversion. In the first kind of transfer
there is no severance of the right of reversion. In the latter two kinds there is a
severance of the right of reversion.
i) An absolute assignment of the reversion requires no illustration. The Lessor
sells the property subject to the lease.
ii) In the second case, the Lessor sells only part of the property; for example,
A leases ten acres to B. A sells 5 acres to C. So the rent is to be split between A
and C.
iii) Here, there is an assignment of a portion of the reversion, for example, A
leases his property to B for 5 years. A assigns his right to c for 2 years. So, C can
collect rent for the first 2 years, as he has the reversionary right for the first two
years.
By assignment the Lessor cannot shed his liabilities. He can shed them only if
the Lessee elects to treat the transferee as ,his landlord. The purchaser of the
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Lessor’s rights has all the rights of the Lessor unless there is a contract to the
contrary, for example if there was a covenant to renew the lease, it is a covenant
which runs with the land therefore enforceable against the transferee of the Lessor
unless there is a contract to contrary - Ramasami Vs. Chinnan 24 Mad. 449. But
personal covenants cannot be enforced against the assignee of the Lessor.
At the time of the assignment the Lessee is to elect between the Lessor and his
assignee for enforcing liabilities. Once election has taken place it is final.
Para 2: Deals with the rights of the assignee, from the date of assignment
alone he can claim rights. For arrears he has therefore no claim. Also the assignee
cannot claim from the Lessee rent paid after assignment in ignorance of the
assignment.
Para 3: An assignee as a part of the reversionaiy right cannot eject the Lessee
from that part of the property during the continuance of the tenancy.
11.8. DETERMINATION OF LEASE
Section 111 deals with the different ways in which a lease may be
determined. The Section states, "A lease of immovable property determines -
a. By efflux of the time limited thereby.
b. Where such time is limited conditionally on the happening of such event.
c. Where the interest of the Lessor in the property terminates on, or his power
to dispose of the same extends only to the happening of any event by the
happening of such event.
d. In case the interests of the Lessee and the Lessor in the whole of the
property become vested at the same time in one person in the same right.
e. By express surrender, that is to say in case the Lessee yields up his interest
under the lease to the Lessor, by mutual agreement between them.
f. By implied surrender.
g. By forfeiture: that is to say. (1) in case the Lessee breaks an express
condition which provides that on breach thereof the Lessor may re-enter; or
(2) in case the Lessee renounces his character as such by setting up a title
in a third person or by claiming title in himself; or (3) the Lessee is
adjudicated an insolvent and the lease provides that the Lessor may re-enter
on the happening of such event, and in any of these cases the Lessor or his
transferee gives in writing to the Lessee of his intention to determine the
lease.
h. On the expiration of a notice to determine the lease, or to quit, or of
intention to quit, the property leased, duly given by one party to the other.
Illustration to clause (f)
A Lessee accepts from his Lessor a new lease of the property leased, to take
effect during the continuance of the existing lease. This is an implied surrender of
the former lease and such lease determines thereupon”.
We have already seen that a tenancy at will-and at sufferance are determined
by demand for possession and by entry of land lord respectively or by the tenant
quitting. So Section 111 refers to the determination in eight ways of the other
_ tenancies.
Clause (a): Efflux o f time - A lease for a definite period of time determines on
the last day of the term. No notice is therefore necessary. If there is a very definite
covenant for renewal, the Lessee can insist upon renewed of the lease. Death of
either, party does not put an end to the lease as it is a heritable right.
Clause (b): Contingent term when the term of the lease depends upon a
contingency, then on the happening of that event the lease expires. If the lease is
for the life-time of the Lessee or for the duration of the war, then on the death of the
Lessee or on peace being declared as the case may be the lease expires.
Clause (c): Termination of Lessor’s interest or power. Here the Lessor has
limited interest or power to grant a lease. It works on the principle that no person
can grant a larger interest in property then he himself possess. A mortgagee
granting a lease: a Lessee sub-letting the property; the owner of a life estate
granting a lease of his life tenancy are examples of this.
\ . f
Clause (d) merger: I have already explained to you the doctrine of merger in
Section 101. when a leasehold and a succession coincide there is a merger of the
lesser estate in the greater and the former is extinguished.
Clause (e) surrender: The clause applied only to those leases which can be
surrendered. Also, there should not be a contract to the contraiy. Surrender means
a relinquishment of the balance of the term with delivery of possession and the
acceptance by the Lessor of such relinquishment and not amount to effective
surrender. For valid surrendor both Lessee and less or should have mutual
agreement. The surrender should be made to the Lessor only. If there are more
than one Lessor then surrender of the lease should be made to all of them.
Clause (f) -implied surrender; Implied surrender arises by operation of law and
occurs - (1) by the creation of a new relationship or (2) by relinquishment of
possession.
During the continuance of a lease if the lessee accepts a new lease, it is
implied that the old lease has been surrendered and a new relationship created.
But a mining lease over which there exists an agricultural lease, does not operate as
' a surrender of the agricultural lease. •
The second kind of implied surrender occurs when thelessee relinquishes
possession and the lessor takes possession of the property. .
Clause ( g )- Forfeiture: The clause states the circumstances under which there
can be forfeiture. Here the Lessee commits some breach and consequently loses his
legal right. The three cases are:
/ ’
1. in case the Lessee breaks an express condition which provides that on
breach thereof the Lessor may re-enter.
2. in case the Lessee renounces his character as such by setting up a title in a
third person or by claiming title in himself; and
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3. Where the Lessee is adjudicated an insolvent and lease provides the Lessor
may re-enter on the happening of such an event.
From the above three cases it will be seen that in cases one and three must be
a provision for re-entry by the lessor. This qualification is not necessary in the
second case. Notice must be given to the lessee before the lessor exercises his right
under this clause.
Generally the law “abhors a forfeiture", so the Lessor should prove his right
strictly. In David Cutinha Vs. Salvedora Mincuzes, “A. I. R. 1926 Mad, 1202 it was
laid down “It is an axiom of law that a forfeiture clause should be strictly
construed”. •
1. Breach o f express condition: For forfeiture under this case two things* must
be mentioned in the lease deed, (i) the condition and (2) right of re-entry. If
one is absent then there is no question of a suit for ejectment, but only a
suit for damages or injunction.
2. Denial o f landlord’s title: The doctrine of estopel says that during the
continuance of the lease, a Lessee cannot deny the title of his land lord, for
he derives his title from the title of landlord however defective it might be.
3. Insolvency o f the Lessee: Here too the lease deed should expressly provide for
forfeiture in case of insolvency of the Lessee and also provide for re entry ,
In all case, notice in writing has to be. given to the Lessee on. ground of justice
and equity, under this clause forfeiture can be waived by the Lessor by accepting
rent from the Lessee or he manifests an intention to waive the forfeiture.
Clause (h) - Notice to quit Where periodic lease from year to year or month to
month are concerned notice to quit becomes necessary. The lease expires on the.
last day of the notice. Section 106 deals with this.
Section 112 - Waiver o f forfeiture: “A forfeiture under Section 111, clause (g),
is waived by acceptance of rent which has become due since the forfeiture cr by
distress for such rent, or by any other act on the parL of the Lessor showing an
intention to treat the lease as subsisting. . .. .
Provided that the Lessor is aware that the forfeiture, has been incurred.
Provided also that, where rent is accepted after the institution of. a suit to eject the
Lessee on the ground of forfeiture, such acceptance is not a waiver".
Section 11.2 provides for waiver of forfeiture provided the Lessor- is aware that
the forfeiture has been incurred. In the second proviso if rent is accepted after the
institution of a suit to eject the Lessee on the ground of forfeiture, such acceptance
of rent will not amount to waiver. '
Section 114 - “Relief against forfeiture fo r non-payment o f rent - Where a lease
of immovable property was determined by forfeiture for non-payment of rent, and
the lessor sues to eject the lessee, if, at the hearing of the suit, the lessee pays or
tenders to the lessor the rent in arrear, .together with interest thereon and his full
costs of the suit, or gives such security as the court thinks sufficient for making
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such payment within fifteen days, the court may, in lieu of making a decree for
ejectment, pass an order relieving the lessee against the forfeiture; and there upon
the lessee shall hold the property leased as if the forfeiture had not occurred”.
This section provides that where the lease has been determined by forfeiture
and a suit has been instituted for ejecting the tenant, and thereafter the tenant
tenders or pays the rent, it is open to the court to pass an order relieving him of the
burden of forfeiture.
S ection 113 - Waiver of notice to quit - “A notice given under Section 111 (h),
is waived with the express or implied consent of the person to whom it is given, by
any act oil the part of the person giving it showing an intention to treat the lease as
subsisting”.
Illustrations
a) A, the lessor gives B, the lessee, notice to quit the property leased. The
notice expires B tenders and A accepts rent which has become due in respect of
property since the expiration of the notice. The notice is waived.
b) A, the lessor, gives B, the lessee notice to quit the property leased the notice
expires and B remains in possession. A gives to B as lessee a second notice to quit.
The first notice if waived.
11.9. SUMMARY
Lease is a Transfer of right to enjoy an immovable property for certain time or
in perpetuity. In India a lease in perpetuity is perfectly valid. It is the duration of
the lease which determines the leasehold estate, that is created. Further in this
lesson we have also seen different types o f lease and rights and liabilities of lessor
and lessee in detail.
1. Define lease Examine the rights and liabilities of lessor and lessee
2. Discuss the provisions related to determination of lease.
-1. H.P. Vepasarathi - Law of Transfer of Property 4th Edition, 2000.
11.12. KEYWORDS
Perpetual - Infinite
Sublease - Sublet
Effulx of time - End of time
□
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LESS0N-.12
EXCHANGE
STRUCTURE
12.1. Introduction
. 12.2. Objectives
12.3. Definition
12.4. Essentials of Exchange
12.5. Mode of Transfer
12.6. Effect of exchange
12.7. Rights of liabilities of parties
12.8. Summary
12.11. Keywords
12.1. INTRODUCTION
Exchange is dealt under Section 118 to 121 of transfer of property Act, 1882.
Exchange is also absolute transfer of ownership like sale. The only difference
between sale and exchange is consideration matter, in sale money is the
consideration, in one part but in exchange kind (property) will be consideration
from the both parties. In this lesson we are going to study about exchange in detail.
12.2. OBJECTIVES
1. know about the definition and essentials elements of Exchange
2 .know about the rights and liabilities of parties to exchange
12.3. DEFINITION
*Exchange* is defined as follows - Where two persons mutually transfer the
ownership of one thing for the ownership of another, neither thing or both things
being money only. (Section 118) The transaction is called an ‘Exchange’.
A transfer of property in completion of an exchange can be made only in
manner provided for the transfer of such property by sale.
The definition is not confined to immovable’s alone. It covers both immovables
and movables. Because movables can also be subject matter of an exchange. In
exchange there is no price.
Illustration A transferred to B a house worth Rs. 1500/- and B transferred to

‘A ’ a field worth Rs. 1000/- and Rs. 500/- in cash. The transaction is an exchange.
12.4. ESSENTIALS FOR EXCHANGE
The essential condition in an exchange is that it must be a transfer of a thing
for another thing and both or either may be movables or immovables or there can
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be an exchange of a house for another, a house for a field, food for money, one kind
of money for another kind, a book for fountain pen and so on. The exchange should
be for money only then it becomes a sale. It can be partly for a thing and partly for
money.
12.5. MODE OF TRANSFER:
The Second para of Section 118 prescribes the mode of transfer. Where one of
the properties is immovable and the value of one of them is Rupees one hundred or
more, then Section 54- will be applicable and the transfer should be by a registered
instrument. When both properties are immovable then they are conveyed by
conveyances. But it is not necessary to have two separate deeds. Neither a partition
nor a family, settlement is an exchange.
12.6. EFFECT OF EXCHANGE
Right to party deprived of thing received in exchange is explained in Section
119. Under this Section there is an implied covenant for title as in a sale. The
aggrieved party may either rescind the contract or sue for compensation. This right
may also be claimed by a person claiming under the aggrieved party. But the right
of re-entry cannot be exercised in the possession of the land is with a transferee for
consideration. So, the aggrieved party can sue for the return of the thing, so long as
it is in the hands of the other party to the exchange, his legal representative or
gratuitous transferee.
12.7. RIGHTS AND LIABILITIES OF PARTIES TO AN EXCHANGE
The rights and liabilities are those of a seller and buyer in a sale under Sec.
55. As a matter of fact in an exchange each party has a dual capacity. He is a seller
as to that which he gives and a buyer, as to that which he takes, but not all rights
are available in an exchange. Some are necessarily excluded for instance there
cannot be a charge for unpaid purchase price. So every party enjoys the both
buyer’s and Seller’s rights.
Exchange o f Money
Section 121 deals with exchange of money 'or an exchange of money each
party thereby warrants the genuineness of the money given by him. Money here
includes not only coins, but also currency iiotes. Here there is-no warranty of title
as the title of money passes by mere delivery to one who receives it honestly. There
is however and implied warranty as to the genuineness of the money. Forged bank
notes. Worthless cheques and stolen goods-would be in total failure of
consideration.
12.8. SUMMARY
Exchange is dealt under Section 118 to 121 of transfer of property Act, 1882.
Exchange is also absolute transfer ownership like sale. The essential condition in
an exchange is that it must be a transfer of a thing for another thing and both or
either may be movables or immovable. In exchange the transfer should be
completed by a registered instrument. 'When both properties are immovable then
143
they csr conveyed by conveyances. In exchange the rights and liabilities are same
as thonc a seller and buyer in a sale. In this lesson we have discussed about
••xchanê in detail.
■1? S. SUGGESTED QUESTIONS
1. Denne Exchange unie<: Transfer of property Act..
12.1U, SUGGESTED READINGS
1. H.!\ Vcpa^vathi - Law of Transfer of Property 4th Edition, 2000.
Venkata SV.bba Rao - Law of Transfer of Property.

12.11. KEYWORuS
Conveyed - transferred
Exchange - substitute
LT
W'
144
LESSON-13
_______________ . ____________________________________ GIFTS

STRUCTURE
13.1. Introduction
13.2. Objectives
13.3. Definition
rH
CO
The essential elements of gift

13.5. Gift how made
13.6. Revocation of Gift
13.7. Onerous Gift
13.8. Summary
13.9. Suggested questions
13.11. Keywords
13.1. INTRODUCTION
Gifts are the fifth kind of transfer under the T. P. Act. There are three types of
gifts - (1) Gift inter vivos; (2) Gift martis causa; (3) Gift by w ill The second type is
excluded by Sec. 129. The third kind falls outside the scope of the T. P. Act. So here
we are going to deal only with the kind of gift, namely Gift inter vivos. In this lesson
we are going to study about gift in detail
13.2. OBJECTIVES
1. know about the definition and essentia1elements of gift
2. know how to revoke the gift
3. know about onerous gift
13.3. DEFINITION
“Gift” is the transfer of certain existing movable or immovable property made
voluntarily and without consideration, by one person, called the donor, to another
called the donee, and accepted by or on behalf of the donee.
Acceptance when to be made: Such acceptance must be made during the
lifetime of the donor and while he is still capable of giving. “If the donee dies before
acceptance, the gift is void”.
13.4. ESSENTIALS OF VALID GIFT
The following are the essential elements of a g ift:
1. There must be transfer ownership
2. The ownership must relate to property in existence
3. It must have made voluntarily
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/.
4. The transfer must be without consideration

5. There must be a donor r- .
6. There must be a donee and
7. The donee must accept the gift
1) Transfer o f ownership As in the case of sale , there must be transfer of all
the rights from the donor to the donee. It may however be noted that it is
permissible to make a conditional transfer. However that condition should not be
repuganant to any provison in the Act
2) Existence o f property. The property should be in esse. Future property

cannot become the subject matter of a gift. It may be movables or immovables. An
actionable claim, a lease, a mortgage can all be the subject-matter.
3) The g if t m u s t be made v o lu n ta rily : A gift is described in Halsbury's Law
of England as: “a gift is an act where by anything is voluntarily transferred from the
true possessor to any person with the full intention that the thing shall not return
to the donor and with the full intention on the part of the receiver to retain the
thing entirely as his without restoring it to the giver” . Gift is a gratuitous transfer of
property from one person to another. A giving away indicates a complete diverting
of ownership inJthe property by the donor. The gift must be made voluntarily. There
must be no pressure from the donee. A gift made-due to pressure from the donee is .
not void, but only voidable and a suit to set it aside must be brought within the
three years prescribed in the Limitation Act.
4) w ith o u t c o n s id e ra tio n : The essence of the gift is a gratuitous transfer.

The. word ‘gratuitous “is used in the sense as in the contract Act and excludes
natural love and affection. Natural love and affection is the consideration for gift.
5) The donor: The donor must be a competent person, competent under Sec. 7
to make a gift. So, a gift by a minor is void. A trustee unless the trust deed
authorises thereto cannot make a gift of trust property.
6) The donee: He is the person who accepts the gift. It can also be accepted on
behalf of the donee, So a minor can be a donee. But in the case of an onerous gift
the obligation cannot be enforced against the minor during his minority. The
Section requires the donee must be an ascertained or an ascertainable person. So a
gift can be made to a child en ventre sa mere.Bearing the above in mind a gift
cannot be made to the public at large. The donee must be alive at the time of the
gift and must be a ‘person’ or ‘persons’. Where there is more than one person, the
gift is taken by the donees as more than one person, the gift is taken by the donees
as joint tenants or tenants in- common according to the terms of the gift. When a
gift is made to a. class of persons so accepting the gift others avoiding it. then the
gift is valid as far as those in existence and accepting the gift are concerned. As to
the others gift fails or becomes void
I
146
7. The acceptance; A gift has to be accepted. It is an essential element both

under English law and under the T.P. Act. Acceptance will be inferred from the
donee’s possession of the property. Acceptance can be on behalf of the donee, when
the donee is not competent to accept. If the acceptance has been before the donor
dies, the transfer can be completed by registration after the donor’s death.
13.5. GIFT HOW MADE EFFECTED
For the purpose of making a gift of movable property, the transfer may be
effected either by registered instrument signed as aforesaid or by deliveiy” . Such
delivery may be made in the same way as goods sold may be delivered” .
Section 123 states “for the purpose of making a gift of immovable property, the
transfer must be effected by a registered instrument signed by or r n behalf of the
donor, and attested by at least two witnesses. This Section very clearly states the
mode of transfer in the case of immovable property and movables. This section is
exhaustive and there can be no other mode of transfer by way of gift.
Immovable property: Mere registration of the gift deed does not render the gift
complete. It has to be accepted by the donee. So before acceptance the gift can be
revoked by the donor.
So the question that frequently arises is, when does a gift become complete?
Does it become complete on registration or on acceptance by the donee? There is
conflict over this point.
In Kalyana Sundaram Vs. Karuppa Moopanar. A. I. R. 1927 P. C. 42, a Hindu
made a gift of certain ancestral property to B on 9-9-1981 and delivered the same
to B. On 1-9-1981 A adopted C. The gift deed in favor of B was registered only after
the adoption of C. It was contended on behalf of C that the gift is completed only on
registration and therefore in so far as it was registered only after adoption, there is
no completed gift, as the ancestral property cannot be given away without the
consent of C. in this case The Privy Council held that
Registration is a necessary solemnity for the enforcement of a gift of
immovable property, it does not suspend the gift until registration actually takes
'place. When the instrument of gift has been handed by the donor to the donee and
accepted by him, the former has done everything in his power to complete the
donation and to make it effective. So the gift is valid.
This decision of the Privy Council has been followed by the Madras High Court
in Venkata Subbamma Vs. Narayanaswamy A. I. R. 1954 Mad. 215.,
13.6. REVOCATION OF GIFT
The general rule is that duly completed gift cannot be revoked i.e taken back.
But under Section 126 provides two conditions under what circumstances the gift
can be revoked
\
' 147
l.The donor and donee may agree that on the happening of any specified
even t which does n ot depend on the will of the donor a gift shall be suspended or
revoked
A gift may also be revoked in any of the cases (save want or failure of
consideration ) in which , if it were a contract, it might be rescinded
When gift may be suspended or revoked: “The donor and donfee may agree that
o n the happening of any specified event which does not depend, on the will of the
donor a gift shall be suspended or revoked but a gift which the parties agree shall
be revocable wholly or in part, at the mere will of the donor, is void wholly or in
part, as the case may be.
A gift may also be revoked in any of the cases (save want orfailure of
consideration) in which if it were a contract it might be rescinded.
Save as afore >aid, a gift cannot be revoked.
Nothing contained in this Section shall be deemed to affect the rights of
transferees for consideration without notice.
Illustrations
a) A gives a field to B, reserving to himself, with B’s assent, the right to take
back the field in case B and his descendants-die before A, B dies without
descendants in A’s lifetime. A may take back the field
b) A gives a lakh of rupees to B* reserving to himself, with B’s assent, the right
to take back at pleasure Rs. 10,000/- out of the lakh. The gift holds good as to
Rs. 90,000 but is void.as to Rs. 10,000/- which continue to belong toA” .
Section 126 Para 1 provide the circumstances in which agift may be
suspended or revoked. A gift normally cannot be revoked after acceptance by the
donee. A' gift revocable at the will of the donor is no gift at all. But a gift is
revocable, it is revocable only by mutual agreement. Therefore it must have the
following two ingredients first, a valid agreement under the law of contract, and
(1) the event, on the happening of which the gift is suspended, must not depend on
the will of the donor. The agreement and the conditions must be agreed upon at the
time of the gift and be a part of the gift-deed otherwise the gift is absolute.
Para - 2 is to the effect that a gift essentially is a contract. A contract can be
rescinded, so too a gift can be rescinded on all those grounds upon which a
contract can be rescinded under the Indian Contract Act. So a gift can be revoked
on the grounds of coercion, fraud, undue influence, misrepresentation and mistake.
Para - 3 states that the section is exhaustive. The gift is revocable only on the
two grounds mentioned in the section and no other.
148
13.7. ONEROUS GIFT

Onerous gift - “Where a gift is in the form of a single transfer to the same
person o f several things of which one is and the others are not burdened by an
obligation, the donee can take nothing by the gift unless he accepts it fully.
Where a gift is in the form of two or more separate and independent transfers
to the same person of several things the donee is at liberty to accept one of them
and refuse the others, although the former may be beneficial and the latter
onerous. (Section 127)
Onerous gift to disqualified person - A donee not competent to contract
accepting property burdened by any obligation is not bound by his. acceptance. But
if, after becoming competent to contract and being aware of the obligation, he
retains the property given, he becomes so bound.
Illustrations ^
a) A has shares in X, a prosperous joint stock company, and also shares in Y,
a joint stock company in difficulties. Heavy calls are expected in respect of the
shares Y. A gives B all his shares in the jpint stock companies. B refuses to accept
the shares in Y. He cannot' take the shares in X.
b) A having a lease .for a term of years of a house at a rent which he and his
representative are bound to pay during the term, and which is more than the house
can be let for, gives to B the lease and also as a separate and independent
transaction, a sum of money. B refuses to accept the lease. He does not by this
refusal forfeit the money” .
Section 35, the Doctrine o f election has application here
Pare - 1 Under this a gift is made up of several things one or more burdened
with obligations, but not the others. If these several things are intended to be
transferred to the donee by one transfer then the intention of the donor are that the
gift be accepted in its entirety, otherwise he cannot take anything at all. The
intention of the donor has to be fulfilled.
Para - 2 provides for those cases where the several things are transferred by
two or more-separate transfers. In such a.case it cannot be presumed that the
donor intended that all those things should be accepted in its entirety. In such a
case it will be perfectly valid for the donee to accept that or those beneficial to him
and avoid those with obligations.
There is no question of election under para 2 as in para 1 as each transfer is
independent though made at the same time.
Para - 3 deals with those cases where an on onerous gift is accepted by a
minor. There is nothing preventing a minor from accepting an onerous gift. But on
attaining majority he either accepts' or repudiates the onerous gift. If he elects to
accept it he will have to fulfill the obligations attached to it.
Universal donee - "Subject to the provisions of Section 127 where a gift
consists of the donor’s whole .properly, the donee is personally liable for all the
149
debts due by end liabilities of..the liable for all the debts due by and liabilities of the
donor at the time of the .gift to the extent of the property comprised therein.
(Section 128)
A universal donee is one on whom the entire legal mantle or clothing descends
on ci man’s death. In Roman law this succession of all the rights and duties in its
entirety is called Uniuersitatus juris.
India Law by Section 128 recognizes universal succession by gift. The intention
is to preserve the rights of creditors from being defeated by the debtors disposing of
their property. It is open to the donee to reject the gift if he finds it too burdensome.
But if he elects to accept it, then the whole must be accepted for%i ^ s just a$d
equitable that he accepts the burdens also. But the Section applies if the entire
property or assets of the donor are .gifted and- not a portion; only. In case only a
portion is gifted the creditor is not entitled to the benefit of this Sectiop^^
- Saving of donations mortis causa and Mohammedan Law - ‘NOtHfeg.^fri this
chapter relates to gifts of movable property made in contemplation of deam'/'or shall
be deemed to affect any rule of Mohammedan Law”( Section 129) a
< ¥
This Section excludes gifts made in contemplation of death,, „and also gifts
made by Mohammedans. •
13.8. SUMMARY "i
Gift” is the transfer of certain existing movable or immovable, property made
voluntarily and without consideration, by one person, called the donor, tp* another,
0 § i *.
called the donee, and accepted by or on behalf of the donee. Such acc^pt^nce must
be made during the lifetime of the donor and while he ;is still Capable of giving. “If
the donee dies before acceptance, the gift is void”. Essential elem'ents of*a gift are
there must be transfer ownership, the ownership must relate tp property in
existence, it must have made voluntarily, The transfer m ttst.b e without
consideration, there must be a donor, there must be a donee andLthe>donee must’*
accept the gift. Further in this lesson we have discussed about onerous gift and
how to revoke gift in detail. . ' •*
1. Define gift, How the gift may be revoked?
2. What is meant by onerous gift?

3. Mulla - The Transfer of Property Act. 0
13.11. KEYWORDS
Donee - receiver of gift
Donor - person who makes gift
*
150
* LESSON-14.
■ ______________ THE INDIAN EASEMENTS ACT, 1882

STRUCTURE
14.1. Introduction
14.2. Objectives
14.3. Definitions
14.4. Characteristics of easement
14.5. Restriction of certain rights
14.6. Imposition acquisition and transfer of easement
14.7. Quasi Easement
14.8. Procedure for Acquisition of Easements
14.9. . Incidence of Easements
14.10. Extinction ,Suspension and Revival of easement
14.11. Summary
14.14. Keywords
14.1. INTRODUCTION
An easement means right in the property of another, in addition to the
crdinaiy rights of the property, which are determined by the boundaries of a Land,
the law recognizes the existence, as accessorial to these general rights of certain
other rights which may be exercised over the property of a neighbour and which
imposes a burden upon him. These rights in the property of another (Jura in re
aliena) are known as easements. It is a kind of privilege to enjoy the property of
neighbours. It creates some right which a person have over the land which is not
his own. According to Halsburiy’s Law of England an easement is a right annexed
to land , to utilize other land of different ownership in particular manner, not
involving the talcing of any part of the natural produce of the land or any part of
it’s soil or to prevent the owner of the other and from utilising his land in a
particular manner. In this lesson we are going to study about Law of Easement in
detail.
14.2. OBJECTIVES
1. know about definition and essential characteristics of Easement
2. know about extinction, suspension and revival of easement
14.3. DEFINITIONS
Section 4 o f the Act defines an Easement as: “a right which the owner or
occupier of land possess as such for the beneficial enjoyment of the land, to do and
l
151
continue to do something, or te p w w t and continue to prevent something being

done, in or upon or in respect off certain other land not his own”.
The land for the beneficial enjoyment of which the right exists is called the
dominant heritage, and the owacr or occupier thereof the dominant owner, the land
on which the liability is imposed is called the servient heritage, and the owner or
occupier thereof the servient owner,
Fsrog’it© -a Fendendre and Easement: It is a right similar to easement right, it
entities a person to enter into the property of another and take something from the
soil of it. E.g right to take soil, gravel, minerals, right to hunt etc. Thus a right
which enables to remove and appropriate any part of the soil or anything growing
upon or attached to the soil for the purpose of profit, which belongs to another
called Prendre.. Section 4 of the Indian easements Act makes it clear that profits - a
prendre is also included with in the scope of the definition of Easements
The expression land includes things permanently attached to the earth; the
expression “beneficial enjoyment includes possible convenience, remote advantage
and even a. more amenity; and the expression”. The dominant tenement consists of
a corporeal property. It may also consist partly of corporeal and partly in corporeal
hereditaments, e.g. land acquired by water Board for erecting reservoirs and rights
in the lands of others for laying pipes. An easement does not confer any right in
the land affected. It imposes a restriction upon the rights of the owner of servient
land. An easement does not impose any pecuniary burden on the servient owner.
An easement differs from a public right which is exercisable by any one by virtue of
the general law. It also differs from customary right which is exercisable by all who
are included in the custom independent of the ownership of a dominant heritage
14.4. CHARACTERISTICS OF EASEMENT
Essential Characteristics are
1. There must be a dominant and servient tenement.
2. The easement must accommodate the dominant tenement.
3. The dominant and servient tenements must not be both owned and
occupied by the same person.
4. The easement must be capable of forming the subject matter of a grant.
1. Dominant and servient tenement
As easement is annexed to land, no person can posses an easement otherwise
than in respect of land in amplification of his enjoyment of some estate or land.
Proximity of apartment land is not essential. The concept of belonging for more
beneficial enjoyment of the parent property is essential. So on a transfer of a
dominant tenement, the easement will pass with the land Hence the occupier for
the time being, including a lessee can enjoy it.
152
2. Easement must accommodate the dominant tenement

Th'- definition of easement shows that the easement is for the beneficial
enjoyment of the dominant tenement. So a right to easement cannot exist unless it
confers a benefit on the dominant tenement. To establish an easementary right the
plaintiff must prove that he is the owner or occupier of a land for the beneficial
enjoyment of which he has certain rights over defendant’s land. Where the owner
of a well allows neighbours to draw water for domestic purposes it is only a licence
and has nothing to do with the beneficial enjoyment of the land.
Under the Easement Act, easement includes a profit a prendre, which means a
right to take something of another person’s land. For a right to be a profit the
thing taken must be either part of the land like minerals or wild animals existing on
it and the thing must be susceptible of ownership.
3. It is necessary that dominant and servient owners should be different
persons. A person cannot acquire an easementary right over his own land because
the acts done by him over his land are in the exercise of his right as owner. In other
words an easement cannot co-exist with the ownership of the land. (Ref. Sir.
V.Devasthanam Vs. V. Kanakalashmi 1976 A; A P.250). A co-owner cannot claim
an easement against the other Co-owners.
4. The right of easement must be capable of forming the subject of grant. A
right depending upon the exigencies of the use of the land by other Owner or his
consent cannot be the subject of a grant. But in the modem times new species of
easement like right to use an airfield, have been recognized. Neither writing nor
registration is necessary for the creation or extinguishment of an easement.
Duration of easeh ents - Sec 6 speaks about duration of easement it may be:
a. Permanent for a term of years,

b. for a particular purpose.
c. Conditional (com m ent. or become void on the happening of a specified
event).
An easement restricts the natural rights of an owner. Every owner has the
exclusive right to enjoy the property without disturbance by another. The word
owner includes a limited owner like a lessee. *
14.5. RESTRICTION OF CERTAIN RIGHTS
Easements are restrictions of one or other of the following rights (Sec 7}
(namely),
a) Exclusive right to enjoy: The exclusive right of every owner of immovable
property (subject to any law for the time being in force) to enjoy without
disturbance by another the natural advantages arising from its situation.
b. Rights to advantages arising from situation: The right of every owner of
immovable property (subject to any law for the time being in force) to enjoy without
distrubance by another the natural advantages arising from its situation.
153
The illustrations appended to Section 7 elaborate these right further. They

are; right to building, right to pollution free air: right to comfortable living; right to
light and air; right to support; rights in respect of water.
\
Right to Build
The owner of a property has a right to build up to the limits of his property. It
shall not cause nuisance nor infringe the easementary rights acquired by the owner
of the adjoining land.
Right to Free Air
The owner of a land has a right that the air passing thereto is not polluted by
others. The law does not take note of minor discomfort. The pollution of air must,
be unreasonable according to the ordinary people living in the locality. Air
pollution may be caused by brick kilns, chemical works and slaughter houses.
Right to Comfortable Living
The physical comfort of an owner shall not be interfered by noise or vibration
caused by any other person. It has been held in Gotha Construction Co, Vs. Amalya
Krishna Ghose, 1968 A, Cal 91 that even if a licence is granted to ran a workshop
the holder of the licence cannot cause annoyance to the plaintiffs and others in the
neighbourhood. Once a man causes nuisance he cannot say that he is acting
reasonably.
Right to Light and Air
The owner of a land has a right to light and air above his land. It is limited to
what reach him vertically. The right does not include a right to light and air passing
laterally or at an angle on the property.
Right to Support
The owner has a right that his land shall have the support of the subadjacent
and adjacent soil of another person. But there is no natural right to later a! support
for buildings. So, a neighbour can carryout excavation on his soil. If damage is
caused to the building of his neighbour he is not liable provided there is no
negligence on his part. There is no right to support of one building by another.
Right to Pollution Free Water
Every owner of a land has a right to use the water that passes or percolates
through his land without pollution by others. He has also a right to collect and
dispose of the water in his land which does not pass in a defined channel.
Percolating water belong to no one. Where the water spreads out and flows slowly it
is surface water even though it starts from a spring.
Right to Flow o f Natural Stream
A landowner has a right over the water-that flows as a stream and he can use
it without interruption and without altering the quantity. A ripariar owner is
entitled to uninterrupted flow of water without substantial diminution by the ow:itsx
of v.He upper land who can draw water for legitimate purposes.
154
The owner of an upper land has a right to the water rising in or falling on such
land which is not passing in defined channels by the owner of the adjoining lower
land to nan naturally thereto. The Supreme Court held in Rudrayaa Vs Venkayya
.1961 A.S.C. 1821 that the owner of a higher laud can pass flood water to the lower
land where flood in the period occurence. The water on th<* higher ground must flow
due to gravity to the lower ground. If the owner o i the lower hmd creates an
emba.rkm.ent and obstructs the natural flow of water he is obstructing the natural
outlet for that water. In the case of riparian lands the owner has to protect hinisslf
against extra ordinary floods. Even so he cannot impede the flow of the stream
along its natural course. A servient owner cannot discharge its water on the land at
a higher level.
Right o f a Riparian Owner to use Water
A riparian land is one which is situated on the bank of the stream a.nd abuts
the same. A riparian owner of a natural stream has a right as owner of the soil
abutting on the stream to the benefit of the water flowing past his land without
interfering the quantity of the water to which the lower riparian proprietors are
entitled.
The riparian right refers to a natural stream. The explanation of Section 7
define a natural stream thus. “A natural stream is a stream whether permanent or
intermittent, tidal or tide less, on the surface of land or underground, which flows
by the operation of nature only and a natural and known course”.
An upper riparian owner cannot claim the exclusive user of the water in the
natural stream. He cannot'complain of the user of the water by the lower riparian
owner. He cannot bring a suit if a lower riparian owner puts a dam across the
stream for irrigating his lands. What the law requires is the bound should not be
put up to cause damage to the land of the upper riparian owner.
Illustration (j) to Section 7 makes the position clear. The right of every owner
of land abutting oh a natural stream, lake or pond to use and consume it's water
for drinking household purposes and watering his cattle and sheep; and the right
of every such owner to use and consume the water for irrigating such land, and for
the purposes of any manufacturing situate thereon, provided that he does not
thereby cause material injury to other like owners. So a riparian owner can take
water for domestic use and for other uses. But he can not store the water by
constructing a dam across the flowing water or to divert water for non riparian
uses. If the river water is insufficient for all owners to use it, each riparian owner
may draw his proportionate share. No obligation lies on the owner of a land through
which the natural stream passes to clean it..
In State of Bombay Vs Laxman 1960. A Bom 490 the principles have been laid
down.
155
1. A riparian owner can impound the water and divert it for irrigating his land
adjacent to the stream.
2. The right is subject to the condition that the user of the stream must be
reasonable, not causing material injury on others similarly situated.
3. A normal method of diverging water is by putting up a dam across che
stream. But the dams must be such that they permit the flow of water
without diverting the natural course of the stream.
4. riparian rights of lower owners should not be affected. So the upper riparian
owner, putting a dam in the stream must see that the stream continues to
flow without interruption and without any substantial diminution in volume.
14.6. IMPOSITION, ACQUISITION AND TRANSFER OF EASEMENT
Imposition of Easements
Section 8 of the Easements Act deals with the imposition acquisition and
Transfer of Easements. An easement may be imposed by any one 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. A reading of the illustration will
make it clear. A is tenant of B's land under a lease for an unexpired term of 20
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 trespasser cannot transfer any easement. A owner of a property can subject

his property to any restriction. But he cannot subject it to an easement more
extensive than his own interest. In Ayyaswami Gounder Vs Munuswarny Gounder
1984 ASC 1789 a partition took place between brothers under which Survey Nos.
95 and 96 fell to the share of plaintiffs, but 15 cents of land in plot No. 96/5 which
contained a well and a channel running from that well was kept joint for the
common enjoyment of the parties. Water from the well is not. sufficient for
irrigation. Plaintiff irrigated their land from the well in survey No. 103/2 purchased
by their father in 1928 by connecting the common channel in survey 96/5 by
means of small channel to take water to their lands. The defendants objected to the
use of common land in S.No.96/5 for carrying v/ater S.C. held that in the absence
of any specific pleading regarding prejudice or detriment to the defendants, the
plantiff had every right to use to Common Land and Common Channel.
Subject to Section 8, a servient owner may impose on the servient heritage any
easement that does not lessen the utility of the existing easement but cannot
without consent of the dominant owner impose an easement on the servient
heritage which would lessen such utility. A reading of the illustration (b) to this
section will make the position clear. A has in respect of his house a right of way
over B’s land B may grant C as the owner of a neighbouring farm the right to feed
his cattle on the grass growing on the way provided that A ’s right of way is not
thereby obstructed.
156
Section 10 deals with the rights of a lessor and mortgagor to impose

easements. A leasor may impose on the property leased any easement that does
not derogate from the rights of the lessee as such and a mortgagor may impose on
the property mortgaged any easement that does not render the security insufficient.
But a lessor or mortgagor cannot without the consent of the lessee or mortgaged
impose an}' other easement and such property unless it be to take effect on the
termination of the lease or the redemption of the mortgage. A security would be
insufficient unless the value of the mortgaged property exceeds by one third or if
the security consists of buildings, it exceeds by one half the amount for the time
being due on the mortgage.
A restriction is imposed on a lessee by Sec. 11. It provides that no lessee or
other person having a derivative interest may impose on the property held by him
as such an easement to take effect after the expiration of his own interest or in
derogation of the right of the lessor or the superior proprietor.
Acquisition
Under Section 12 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. This right may be acquired by a Co
owner without the consent of his other Co-owners. No lessee of immovable property
can acquire for the beneficial enjoyment of other immovable property of his own an
easement in or over the property comprised in this lease.
Sec. 13 defines an easement of necessity and quasi-easements. Where one
person transfers or bequeaths immovable property to another.
a) If an easement in other immovable property of the transferor or testator is
necessary for enjoying the subject of transfer or bequest the transferee or the
legatee shall be entitled to such easement or (b) If an easement in the subject of
transfer or bequest is necessary for enjoying other immovable property of the
transferor or testator, the transferor or the legal representative of the testator shall
be entitled to such easement. If a partition is made and an easement over the
share of one of them is necessary for enjoying the share of another of them the
latter shall be entitled to such easement.
Where property passes by operation of law the person from and to whom it
passes are, for the purpose of Sec. 13 to be deemed respectively the transferor and
transferee. In order to support a claim of easement of necessity that party claiming
it has to establish that the property for which the easement is claimed cannot be
enjoyed or used at all without this right of easement.
An easement of necessity arises where by a transfer, bequest or partition of a
single tenement is divided into two or more tenements is so situated, that it can not
be used without the enjoyment of a privilege on the other tenements. Convenience
is not the test of an easement of necessity. In other words easement of necessity
157
arises where both the dominant and servient tenements were under the common
" > /
ownership. So the creation of easement by implication is the outcome of previous
jointness of the two tenements. The transaction which puts an end to the common
ownership giving rise to the creation of an easement may be of either tenement or a
simultaneous, disposition of both tenements.
14.7 QUASI-EASEMENTS
Quasi easements arises in three instances (b) when one person transfers or
bequeaths immovable property to another, if such easement is apparent and
continuous and necessary for enjoying the subject of transfer, the transferor or
legatee or the legal representative shall be entitled to such easement. Where a
partition is made of the joint property of several persons if such an easement is
made of the joint property of several persons if such an easements is necessary for
the enjoyment of the share of the latter, he shall be entitled to such easement
Illustration (a) to Sec. 13 deals with the easement of a right of way. A sells B a field
then used for agricultural purposes only. It is in accessible except by passing over
A ’s adjoining land or by trespassing on the land of a stranger. B is entitled to a
right of way for agricultural purposes only over A ’s adjoining land to the field sold.
According to Section 14 when a right to a way of necessity is created the
transferor, the legal representative of the testator or the owner of the share over
which the right is exercised is entitled to set out the way; but it must be reasonably
convenient for the dominant owner. When the person so entitled to set out the way
refuses or neglects to do so, the dominant owner may set it out.
An easement of necessity cannot survive after an alternative outlet is available.
This type of easement is based on the maxim that “no one can derogate from his
own grant”. This will be implied on the part of the grantor or lessor obligations
which restrict the user of the land retained by firm further, it can be explained by
the law of easement.
Right to light
A sells B a house with windows over looking A ’s which A retains. The light
which passes over A ’s land to the window is. necessary for enjoying the house as it
was enjoyed when the sale took effect. B is entitled to the light and A cannot after
wards obstruct it by building on his land. In Smt. Kamal Vs Bhanwarlal Vaid A.I.R.
1985 S.C. 473. K gifted his house and a plot, a land D1 and the plaintiff
respectively leaving a strip in between which was gifted land and opened doors and
windows. To safeguards his privacy D1 raised a wall on the strip of land. Plaintiff
claimed easementary rights to light and air through doors and windows. The
Supreme Court held that in vies of the strip of land gifted to D1 plaintiff could not
claim any easement by prescription.
158
Right to Support
A the owner of two adjoining buildings sells one to B retaining the .other, B is
entitled to a right to lateral support from A ’s building and A is entitled to a right to
lateral supporfcJrom B’s building.
Acquisitionby Prescription
Prescription is the effect of lapse of time in creating and destroying rights.
Section J5 deals with three kinds of easements.
1. The easement must have been enjoyed peaceably. It means the dominant
owner has neither resort to physical force nor had he been prevented by use of force
by the servient owner in his enjoyment of such right.
* *
Without Interruption
The user must be without interruption. Interruption means some hostile
obstruction and not a mere non-user. For an interruption to be effective the
following three conditions must be satisfied. (1) It must cause actual cessation of
the enjoyment of the claimant (2) Obstruction causing interruption must have been
placed by some one other than the claimant himself (3) Some proof that the
claimant has submitted in the interruption for one year.
Mere discontinuous of user is not an interruption, for abeyance of enjoyment
is not inconsistent with rights being acquired. Mere non-user for long period due to
legal impediments restricting the rights does not amount to abandonment or
discontinuance. The principle is that the right must have been exercised as an
easement and not under any actual or supposed right of an occupant. This view is
upheld by the Supreme Court in Chapsibhai VS Purushottam 1971 A.S.C. 1878, “A
party to a suit can plead inconsistent pleas such as his right to ownership or a
right of easement. But where he was pleaded ownership and has failed, he cannot
plead subsequently the right of easement by prescription. This view was also
upheld by the Madras High Court in (Elumalai Chetty Vs Naina Mudali. A.I.R. 1987
Mad 102) (and Krishnair Vs Perumal Nadar A.I.R. 1973 Mad 173).
Where a relief is claimed on the basis of title is inconsistent with the relief
claimed on the basis of easement, the plaintiff having failed on the plea of title
cannot plead for relief on the basis of easement. In other words a person cannot
acquire an easement unless he has knowledge that it is a case of dominant and a
servient tenement and that he is exercising his right over property which does not
belong to him.
The right must have been enjoyed continuously for a period of twenty years.
Enjoyment without interruption would be broken if during the 20 years the servient
and dominant tenements comes under common ownership and possession. For
acquiring easement by prescription it is necessary that the period of 20 years must
end within 2 years next before the filing of the suit.
159
Section 16 excludes certain time in favour of reversioner of servient heritage.

When any land owner which any easement has been enjoyed by virtue of any
interest for life or any term of years exceeding three years from the granting of the
easement. The time of enjoyment shall be excluded in the computation of the period
20 years if the claim is within three years after the determination of such claim or
interest.
As of Right
The right has to be enjoyed openly. The claimant has to be prove his own use
also circumstances which show that the servient owner acquiesced in it. The user
should be neither violent nor contentious. The enjoyment openly by a person
claiming to use without the danger of being treated as trespasser long
uninterrupted and peaceful enjoyment is presumed to be as right.
Government Property
When the property over which the easement right is claimed is Governmental
property, the period is 30 years and Section 15 of the Act is not violative of Art 14 of
the Constitution of India. ^
14.8. PROCEDURE FOR ACQUISITION OF EASEMENTS
A person can acquire the right to access and use of light or air for any building
if he has enjoyed it peacefully as an easement without interruption for 20 years. It
is not necessary to prove enjoyment as for right. All that is necessary to prove is the
open exercise of the right. Normally one tenant cannot acquire an easement against
another tenant of the same owner. With an exception in the case of easement of
light. A Co-owner cannot acquire prescriptive right, with regard to infringement of
right to light no substantial injury is done where the angle of 45 degrees is left open
for the light to enter in the dominant tenement.
The owner of a building has no such right where it is subjected to artificial
pressure. Similarly a right of way can be claimed if it has been peacefully and
openly enjoyed by any person without interruption for a period of 20 years. Such a
right of way can be acquired as an easement. It is necessary to prove that the
enjoyment has been (1) actual open, peacefull; as of right as an easement without
interruption for a period of 20 years. The Madras High court in M. Ratanchand
Chordia Vs Kasim Khaaleeli 1964 A. Mad 209 has held that” it is not enough that
right is merely exercised by that it should be exercised consciously in assertion of
the right claimed. A mere user of the right of way by passing and repassing may not
be conclusive evidence whether the user has been as of right or not.”
Right in Respect of Water
The easement under this head may be classified under four heads (1) Right to
use water of a natural stream. (2) Right to conduct water across neighbour’s land
by a channel. (3) Right to discharge water on the neighbour’s land. (4) Right to go
over a neighbour’s land to draw water from the well. These easements may be
acquired by prescription or by implied grant.
I
I
160
Right to Commit Nuisance

No one can acquire a prescriptive right to commit nuisance on another’s land,
e.g. discharge of filthy water on the neighbour’s land. This amounts to commiting a
nuisance. Though nuisance is not a legal & enforceable act, it is an act actionable
at law.
Right of a Coparcener
A coparcener can acquire a prescriptive right over the land belonging to the
joint family.
Other kinds of Easements
A person can acquire a right of easement of use the roof for drying clothes, or
to use the land as a threshing floor, or the right to use the defendant’s courtyard
for the purpose of repairing the wall of his own house; or the right to project caves.
In the case of a common wall each co-owner can use it so long each co-owner
uses it reasonably without interfering with the enjoyment by the other co-owners,
without damaging or weaken the wall enjoyed in common.
Exceptions
Section 17 provides that the following rights cannot be acquired by
prescription:
a. A right which is likely to destroy the subject of the right or the property on
which the liability would be imposed.
b. A right to light or air to an open space of ground.
c. A right to surface water not flowing in a stream and not permanently
collected in a pool or tank.
d. A right to underground water r-ot passing in a defined channel.
In Smt. Manickam Vs Smt Kamala, 1907 A Ker. 72 it was held that no man
has a right to allow the branches of the trees in his land to over hand his
neighbours property. No such rig,.it accrues b<r mere lapse of time.
Similarly a right to pasturage or a right to bury to crimate dead bodies in the
land of others, right to use a land as a public latrine cannot be acquired
prescription.
A claim to title of lost grant can be macie under this Act on the basis of long
user. In order to establish a lost grant the owner of the dominant tenant must
establish that the right has been peaceably and openly enjoyed by a person
claiming title. Long user raises a presumption and such presumption may be
negatived by proving legal incompetence of the owner of the servient tenement to
grant an easement.
Customary Easements-Sec.18
A customary easement is one which is acquired by virtue of a local custom. A
local custom is one which prevails in a specified locality. For a local custom to be
valid, it must conform to certain requirements. (1) It must be reasonable. (2) It
161
must not be contrary to law. (3) It must have been observed as of right. In other
words it must have been followed openly. (4) It must be of immemorial antiquity.
A custom is rule of conduct observed by the persons voluntarily without the
sanction of law, because it is observed by the Community for a long period. There is
a difference between customary right and Customary easement. The Easement Act
deals with Customary easements. A customary easement as such exists for the
beneficial enjoyment of the other land and is attached to the dominant heritage. A
right over property, it is not an easement even through it may be a customary right.
Customary rights arise by custom, but are not attached to a dominant tenement.
To establish these rights the enjoyment need not be for a fixed period. However the
custom must be reasonable and certain.
In Subbiaah Goundar Vs Ramasamy Goundar A.I.R. 1973 Mad. 42 the
compliant was that the defendants pumped the water from their own well with
electric motor thereby draining. The water in the common well. It was held that Co
owners are not entitled to prevent the other Co-owners from using, the common
property in the way most beneficial to him. In the case of a Customary easement
the Court can have judicial notice of a well established custom. A customary
easement should not only be ancient and certain, but it should also be reasonable.
The right of privacy may be claimed as a customary right. It is a continuing
right. Every infringement of privacy is not actionable. It must be shown that there
has been a substantial and material infringement of privacy. A customary right of
privacy can be proved by specific instances in which the right is exercised and
recognised. An easement cannot be acquired by a lessee against lessor or by a
tenant against the landlord; A Co-parcener can acquire an easement over Co
parcenary property.
*.
Section 18 of this Act provides that nothing in the Act contained shall be
deemed to affect among other things or to derogate from any customary or other
right in or over immovable property, which the Government, the public or any
person may possess irrespective of other immovable property. Two questions arise
in a customary easement.
1. Whether the right as claimed by the plaintiff is an easement
2. Whether it'is based on a local custom.
The first question is settled by a number of cases. In the second case the
easement claimed must be based on a local custom and such a custom prevails in
the locality. In Lashmidhar Misra Vs. Ranglal. 1950 A.P.C 56 it was laid down that
once a custom is estabalished it creates a right in each of the residents of the
locality.
If a customary right is based on custom all the essential characteristics of a

custom have to be established. The burden of proof is plaintiff to prove that the
customary right of user claimed is reasonable. Though it is well settled that a
162
custom must be reasonable. Though it is well settled that a custom must be

reasonable, yet it is a very unreasonable custom for the people to walk through a
land which is cultivated already. Though there is no fixed period of enjoyment yet to
receive recognition it should have existed for a sufficiently long period.
According to Section 19, where the dominant heritage is transferred or
devolved by act of parties or by operation of law, the transfer or devolution shall
unless a contrary intention appears, be deemed to pass the easement to the person
in whose favour the transfer or devolution takes place e.g. A has certain land to
which a right of way is annexed and he lets the land to B and his legal
representative so long as the lease continues. Thus this Section .by a fiction refers
to the easements existing at the date of transfer. If no easement exists on the date
of transfer this section will not apply. If an easement exists on the date of transfer it
will also pass even if.it is not specifically mentioned in the deed. A similar provision
can be found in Section 8 of the Transfer of Property Act, there transfer of property
passes immediately to the transferee all the interest which the transferor is then
capable of passing in the property. Where the property is land the easements
annexed thereto also passes to the transferee.
14.9. INCIDENTS OF EASEMENTS
There are a number of incidents of Easements. They are given in Section 20 to
31 of the Indian Easements Act. We have to study them in detail.
The incidents of easement are as follows:
1. An easement should be used only for the purpose connected with the
enjoyment of the dominant heritage. For example if a person has got right of
way to reach the field ‘A ’ he cannot use it to reach the field ‘B’, as the
easement of right of way is not connected with the enjoyment of the
dominant heritage of field ‘B’ (Section 21).
2. The easement should be exercised by the. dominant owner in such a way as
to create least onerous to the servient owner and the easement is to be
confined to a determinant part of servient heritage. For example right of way
can be exercised at either end of the property and not at any intermediate
point. Otherwise, the servient owner cannot use his property in a better way
(Section 22).
3. The dominant owner can alter the mode and place of enjoying the easement,
but he should not impose any additional burden on servient heritage. It has
one exception that the dominant owner has no right to vary his line of
passage even if he doing the same will not impose additional burden on the
servient heritage (Section 23)
4. It is the duty of the dominant owner to do all acts necessary to secure the
full enjoyment of the easement. But he should do these things without any
inconvenience to the servient owner. That is it is not the responsibility of
. servient owner to keep the servient heritage ready for the use of the
163
dominant owner. If ‘A’ has an easement of support from s wall and if the
wall gives way, it is the duty of ‘A* to enter upon ‘B’ s land and' repair the
wall. The right of A ’ to enter upon ‘B’ s land to do necessary things
(repairing of wall in this example) to secure the full enjoyment of an
Easement is called Accessory Right (Section 24).
5. The expenses required to keep the servient heritage fit for enjoying the
easement are to be borne by dominant owner and not by servient owner
(Section 25).
6. If the dominant owner fails to do repair of an artificial work which is
necessary for enjoyment of easement the dominant owner is liable to pay
damage to the servient owner (Section 26)
7. As stated above, it is the duty of the dominant owner to keep the servient
heritage fit for enjoyment of easement by effecting repairs etc., and the
servient owner is not bound to do anything for the benefit of the dominant
heritage. The only thing is that the servient owner should not do any act
tending to restrict the easement or to render its exercise less convenient. In
other words, If A ’ has got easement of support from s wall, ‘B ’ need not
keep the wall standing in repair, but he should not pull down or weaken the
wall so as to make it incapable of rendering the necessary support (Section
27)
8. Regarding the extent of easement it can be stated that an easement of
necessity is co-extensive with the necessity as it existed when the easement
was imposed. The extent of other easement is to be decided with reference
to the intention of parties and the purpose for which the right was imposed
or acquired. The general rules are that a right of way of one kind does not
include the right of way of any other kind, and the extent of right or light or
air acquired by grant will be the quantity of light or air that entered to
opening at the time of grant. It is the quantity of light or air which has been
accustomed to enter the opening during the whole of the prescriptive period
in the case of easement of prescription (Section 28).
9. The easement cannot be increased by dominant owner be altering or adding
to the dominant heritage. For example if A ’ has got right to take 50 buckets
of water for his Rice Mill, he cannot take 60 buckets of water by converting
his Rice Mill in to factory (Section 29).
10. In the case of partition of dominant heritage, the extent of easement also will
be partitioned proportionately to be enjoyed by the partitioned portions of
dominant heritage (Section 30).
1 l.In case the dominant owner enjoys excessive user to easement, the servient
heritage has to obstruct the user but he has no right o f such obstruction if
the obstruction will interfere with the lawful enjoyment of the easement
(Section 31.)
164
12. It may be noted that all the above said rules of incidents of easement are
subject to the contract between the dominant owner .and servient owner and
so these rules can be modified by specific contract to the contrary. Further
the incidents ©f customary easement will not be affected by these rules.
(Section 20).
The Disturbance of Easement
Under Section 32, every owner or occupier of dominant heritage is entitled to
enjoy the easement without any disturbance by any other person. For example, if
‘A ’ has got right of way over T3's land if ‘C’ puts up a fence in the ‘B’ land in order
to obstruct ‘A' from using the ‘B’s land as pathway. ‘A ’ can sue ‘C’ for distrubance
of easement and recover compensation. Under Section 33, such a suit for
disturbance o f easement can be filed either by owner of dominant heritage or any
occupier of it. That is if ‘A* is the owner of the house which has got a right of way
over fB,s vacant site ‘A ’ can sue for disturbance of easement. Even if ‘A* has let out
the house to ‘C\ ‘C’ is the occupier of dominant heritage as a tenant under ‘A ’ and
so ‘C* can also sue for compensation. But in both cases, important condition is
that the disturbance ought to have caused substantial damage to the owner or
occupier. What the substantial damage is has been explained in Section 33 itself.
That is any act done affecting the evidence of easement or materially diminishing
the value of the dominant heritage, is considered to be an act causing substantial
damage. For example if a person puts up a permanent fence over the pathway of
servient heritage, it is an act which will affect the evidence of easement of right of
way. But if the servient owner builds verandah over hanging the way about ten feet
from the ground, it is not an act of substantial damage, as the easement of right of
way is not at all affected by such construction and that dominant owner can
continue to exercise right of way even after such construction. Further if the
easement disturbed is a right to the free passage of light passing to the opening in a
house, only when an act affects the evidence easement or interferes materially with
the physical comfort of the dominant owner or prevents him from carrying on his
accustomed business in the dominant heritages beneficially as he had done
previous to the disturbance. Similarly where, the easement disturbed is a right to
the free passage of air to the openings of a house, the damage is substantial if the
act of disturbance interferes materially with the physical comfort of the dominant
owner, though it may not be injurious to his health.
In the case of removal of means of support, such removal will not create a right
to sue for compensation unless and until the substantial damage is actually
sustained. (Section 34).
The owner or occupier of easement has got right to file two kinds of suits
under Section 35. He can sue for compensation if the obstruction has actually
disturbed the easement. If there is no actual disturbance of easement, but it is only
165
threatened or intended, he can file a suit for decree of permanent injunction

restraining the disturber from disturbing his easementary right.
But the law does not give a right to the owner or occupier of easement to abate
a wrongful obstruction of an easement by himself. That is he cannot take law in to
his own hands and remove the obstruction, but he has to get relief only by filing a
suit for disturbance of easement (Section 36).
14.10. EXTINCTION, SUSPENSION AND REVIVAL OF EASEMENT
An easement may be extinguished suspended and revived in various way. How
easements are extinguished suspended and revived are*discussed here under
I. Extinction of easement
In the following cases, an easement is extinguished. In other words, in the
following case extinction of easement takes place.
1. Extinction by dissolution o f right o f servient owner. If the servient owner is not
the absolute owner of property, but only an owner under conditional transfer
and if he lost title the easement created by him will get extinguished. For
example, ‘A ’ was given a vacant site so long he does not cut a tree thereon,
and ‘A’ creates an easement of right of way in favour of . Later ‘A ’ cuts a
tree and so (Ay loses the vacant site. The easement in favour of W also is
extinguished. But this extinction will not apply to an easement lawfully
imposed by a mortgagor. It is to be noted that under Section 10, a mortgagor
can impose an easement with the consent of mortgagee, if the easement does
not render the security in sufficient. Hence, such as easement imposed by
mortgagor will not be extinguished ever after the sale of the property in
satisfaction of the mortgage debt. (Section 37).
2. Extinction by Release: If dominant owner releases an easement to the
servient owner, the easement is extinguished. The release may be express or
implied. The power of release is equal to the power of the alienation of
easement. That is if ‘A ’ , <B’, ‘C\ are the dominant owners. ‘A’ can release
only his 1/3 rd of easement and not entire easement. Further after the sale
of dominant heritage, the dominant owner cannot release easement. An
implied release takes place in the following cases, (a) If dominant owner
authorizes the servient owner to do some act of permanent nature, which
will prevent the exercise of easement and servient owner actually did such
act, the release of easement is implied, example, if ‘A ’ has got right of way
over T3s land, and if ‘A ’ authorizes rB’ to build in the entire land of pathway,
and TB’ also builds in the path way, then ‘A ’ cannot exercise easement of
right of way as the building newly constructed will prevent, 1A* from using
the pathway. Hence the law presumes, a release by ‘A* (b). If the dominant
owner alters the dominant heritage in such a way that he cannot exercise,
the easement, the law implies a release of easement. For example, if ‘A ’ has
got easement to free air or light for his windows and if ‘A* closes the window
permanently with bricks, and mortar, the law presumes a release of
easement by *fi as thereafter ‘A ’ cannot receive light or air through servient
heritage. But it is to be noted that a mere non-user of an easement will not
amount to implied release of easement (Section 38)
• 3. Extinction by Revocation: If ‘A ’ has granted easement under a document
reserving power to revoke the same, if ‘A ’ revokes the easement the easement
is extinguished (Section 39).
4. Extinction on expiration o f limited period or happening o f dissolving condition:
If an easement is Imposed for 10 years the easement will be extinguished on
the expiry of 10 years period. If the grant of easement is subject to condition
of defeasance, and if, the condition happens the easement is extinguished.
For example, if ‘A ’ grants easement to ‘B’ remaining land and he can go over
the portion purchased from T3’ . Thus the easement of right of way will be
extinguished (Section 40).
5. Extinction on termination o f necessity: An easement of necessity will come to
an end when the necessity comes to an end. For example, if ‘A ’ has got right
of way over ‘B’s land, is easement of necessity and if ‘A’ purchases a portion
of ‘B’s land ‘A ’ need not go over remaining land and he can go over the
portion of purchased from * 8 ' s remaining land Thus the easement of right
of way will be extinguished Section 41).
6. Extinction o f useless Easement: If an easement becomes useless for
dominant owner and he cannot exercise it at any time, such useless
easement is extinguished. (Section 4).
7. Extinction by permanent change in dominant heritage: If dominant owner
makes a permanent changc in the dominant heritage as a result of which
the burden of servient heritage is increased the easement will be
extinguished. But there will be no extinction if the change is made for
beneficial enjoyment of easement within the original extent or the change is
trivial or it is an easement of necessity. Further, the alteration of dominant
heritage will not affect the easement of support (Section 43).
8. Extinction on permanent alteration o f servient heritage by superior. If due to
act of God, there is such a change in servient heritage as the dominant
owner cannot enjoy easement, then easement is extinguished. If for example,
if ‘A’ got a right to fish in a river running through ‘B's land, and the course of
the river is changed permanently and runs through ‘C’s land, ‘A ’s right of
easement is extinguished. Similarly if path way is cut of permanently by an
earthquake, the easement of right of way through that pathway is
extinguished. It is to be noted that the alteration should not be done by
servient owner but only superior force (Section 44).
9. Extinction by destruction o f either heritage: If dominant heritage of servient
heritage is completely destroyed, easement is extinguished. If a path way is
washed away by a permanent encroachment of sea, the easement of right of
way is extinguished (Section 45).
167
10. Extinction by Unity o f Ownership: If one person become entitled to both

dominant heritage and servient heritage absolutely, the easement is
extinguished. Because only when dominant owner and servient owner are to
different persons dominant owner can exercise easement as against owner. If
both of them are one and the same person, there is merger of dominant
heritage and servient heritage and so there is no property to exercise
easement. One cannot have easement over his own property. The easement
postulates the existence of other’s property over which easement can be
exercised. For example, if ‘A ’ has right of way over ‘B’s land and if ‘A ’
purchases T3’s land, right of way is extinguished. Similarly if T3’; purchases
A ’s dominant heritage, easement of right of way is extinguished. But what is
important is that there should be a merger of whole of the dominant and
servient heritage. (Section 46)
11. Extinction by Non-payment:
a. A continuous easement is extinguished when it was not enjoyed for
an unbroken period of 20 years. Such period is to be reckoned from
the day on which its enjoyment is obstructed by servient owner or
rendered impossible by the dominant owner. A continuous easement
is one which can be enjoyed without the act of man. For example if
A ’s house has got a right to receive light by the windows through ‘B’s
vacant land, ‘A’s house without doing any act by A ’ or fB’ or any other
person. Hence if ‘B’ obstructs the light by putting up any
construction on his vacant site, then on the expiry of 20 years from
the date of construction, the easement will be extinguished. If A ’
closes the window permanently by bricks and mortar and thereby
makes its impossible for ‘A ’s house to receive light through window,
on the expiry of 20 years from the date of closing the window the
easement will be extinguished.
b. A discontinuous easement is extinguished when it was not enjoyed
for an unbroken period of 20 years. Such period is to be reckoned
from the day on which it was last enjoyed by any person as dominant
owner. A discontinuous easement is one which needs the act of man
for its enjoyment For example if ‘A ’ has the right of way over ‘B’s
vacant land from A ’s house, the right of way is called discontinuous
easement because the right of way can be enjoyed only if ‘A ’ has been
going through the vacant site of ‘B’. Here act of man is required to
enjoy the right of way. Hence it is called discontinuous easement.
Hence, if ‘A’ failed to use the pathway for 20 years, the easement will
be extinguished on the expiry of 20 years from the last day on which
‘A’ walked through the pathway. But even in such a case, if dominant
owner registers under the Indian Registration Act a declaration of his
intention to retain such easement, the easement will not be
extinguished until the expiry of 20 years from the date of such
1
168
registration. But it should be remembered that the dominant owner

should register such declaration within a period of 20 years from the
date of last enjoyment of easement.
c. If an easement is to be enjoyed only at a certain place, or at certain
time or between certain hours or for a particular purpose, it is to be
enjoyed accordingly and if dominant owner enjoys it at different time,
plftOf, purpose, the easemment will be extinguished after the expiry of
ZO years,
.■■'d. An easement will not be extinguished for non enjoyment of easement
is in pursance of a contra of dominant owner and servient owner.
Further where two or more persons are joint dominant owners, the
enjoyment of easement by any one of such co-owners is enough and
so easement will not be extinguished.
e. If ‘A ’s house got a right of way over ‘B’s land, ‘C’s land ’ and ‘D’s land
to reach the road and lands of ‘B ’ ‘C’ and ‘D’ are continuous, and if ‘A ’
uses the land of ’B’ alone within the above said 20 years, and did not
use ‘C’s land and TVs land for 20 years even then the right of way
over ‘C’s land and ‘D’s land for 20 years even then the right of way
over ‘C’s land and ‘D’s land also will not be extinguished because the
easement will be considered to be a single easement for the lands of
‘B’, ‘C’ and T>\ (Section 47).
12. Extinction o f accessory right: If easement is extinguished, it will extinguish
not only easement right, but also accessory rights. For example if ‘A' has got
a right to draw water from the well situate in T3’s land, ‘A ’ has a right of way
to walk through ‘B’s land to draw water from the well. This right of way is
called accessory right. If ‘A ’ did not take water for 20 years, his easement of
right to take water will be extinguished and his accessory right of way to go
to well through TB's land will also be extinguished. (Section 48).
Thus the extinction of easement takes place.
II. Suspension o f easement

In some cases the easement is not extinguished permanently but is suspended
for certain time and after the expiry of that time, easement gets revived. That is the
exercise of easement is in suspension for certain period. It is called suspension of
easement. It happens in two cases.
a. If the dominant owner becomes entitled to possession of servient heritage for

a certain limited period easement gets suspended for that limited period. Fpr
example, if ‘A ’s house has got a right of way over ‘B’s land and if ‘A ’ becomes
a tenant of B ’s land for 5 years, there is suspension of easement for those 5
years. Because, as ‘A ’ himself became entitled to possession of ‘B’s land as
B 's tenant he can use ‘B’s land as pathway not by way of easement, but as a
tenant so long tenancy continues. Once the tenancy is determined, T3’ gets
in to possession of ‘B’s land, and ‘A ’ loses possession of ‘B’s land and so ‘A ’
169
has to use ‘B’s land is exercise of easement. Hence the easement gets revived
on termination of tenancy. It is called suspension of easement.
b. The same principle and illustration apply if ‘B’ takes ‘A ’s house in lease, that
is if servient owner becomes entitled to possession of dominant heritage $cer a
certain limited period. (Section 49).
iii. The effect of extinguishment or suspension o f easement on servient owmff .
Section 50 speaks of the effect of extinguishments or suspension of eaaanmiftt
on servient owner. That is, the servient owner has no right to insist that fchs
easement should be continued. If due to extinguishment or suspension the s e c a n t
owner incurs any damage he has to bear it provided the dominant owner gives hifia
such notice as will enable the servient owner to protect the servient heritage 4re*»
damage without unreasonable expense. If no notice is given by dominant owner,
servient owner can claim damage. For example if ‘A’ has easementary right of
cutting and removing grass grown on ‘B’s land for beneficial enjoyment of ‘A ’ house,
and if ‘A ’ did not cut and remove grass from ‘;B’s land in exercise of easement S ’s
land may get damaged due to non removal of grass. In such a case, ‘B’ can claim
damages from ‘A ’. But it ‘A’ had given a notice to ‘B’ about his intention not to
exercise easement well in advance so as to enable ‘B’ to make alternative
arrangement for removal of grass, then ‘B’ cannot claim damages from ‘A ’ (Section
50)..
IV. Revival of easement
The following are the rules of Revival of Easement.
a. Under Section 45, an easement is extinguished when either the dominant
heritage, or the servient heritage is completely destroyed. In such a case, if
the destroyed heritage is restored by the deposit of alluvion before the expiry
of 20 years, the easement will be revived. If the destroyed heritage is servient
heritage of building and if the building is rebuilt before 20 years in the same
site, the easement is revived. If the destroyed heritage is dominant heritage
of building and if the building is rebuilt before 20 years in the seme site and
that the building did hot impose more onerous easement, then the easement
is revived. If for example ‘A ’s house has got right of way over ‘B’s land and if
‘A ’s house fell down, easement is extinguished. But if the ‘A ’s house was
reconstructed in the same site within 20 years, then ‘A ’s newly built house
also will enjoy the easement of right of way over ‘B’s land under the principle
of revival of easement.
b. Under Section 46, an easement is extinguished when the same person
becomes entitled to the absolute ownership of the whole of the dominant and
servient heritage. But if that ownership is set aside by a decree of competent
court easement is revived. For example, ‘A ’s house has got right of way over
‘B’s land and if ‘A ’ purchases vacant land the right of way is extinguished.
But later if the purchase of vacant land by ‘A ’ is set aside by a decree of
court ‘A ’ will lose title for vacant land and so ‘A ’ can exercise right of way
170
over vacant land under the principle of revival of easement. Similarly if an

easement of necessity is extinguished by unity of ownership, it will revive
when the unity of ownership ceases for any reason,
c. A suspended easement will revive on removal of the cause of suspension
before the extinguishment of easement by non-user. (Section 51)
14.11. SUMMARY
Easement as “a right which the owner or occupier of land possess as such for
the beneficial enjoyment of the land. The land for the beneficial enjoyment of which
the right exists is called the.dominant heritage, and the owner or occupier thereof
the dominant owner, the land on which the liability is imposed is called the servient
heritage, and the owner or occupier thereof the servient owner. 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.
For acquiring easement by prescription it is necessary that the period of 20 years
must end. There are a number of incidents of Easements. They are given in Section
20 to 31 of the Indian Easements Act. We have also discussed about How
easements are extinguished, suspended and revived.
14.12. SUGGESTED QUESTION
1. State the circumstances under which easements are extinguished.
2. State law regarding revival of easement.
3. Discuss the various modes of acquisition of an easement.
14.13. FURTHER READINGS
1. S.M Shah & N.M Tripathi, Principles of the law of transfer, Mulla Publishing
House (1995) , Bombay 400002.
2. Sarathi V.P., Law of Transfer of property, Eastern Book Co.(1996) Lucknow.
14.14. KEYWORDS
Easement - right to use others property '
Disposition - getting rid of
Incidental to - consequent to
□
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: LESSON-15
LICENSE
STRUCTURE
15.1. Introduction
15.2. Objectives
15.3. Kinds of License
15.4. Revocation of license
15.5. Deemed Revocation License
15.6. Lease and license
15.7. Easement and license
15.8. Summary
15.11. Keywords
15.1. INTRODUCTION
License has been defined in Section 52 as follows: “Where one person grants to
another, or to a definite number of other persons, a right to do or continue to do, in
or upon the immovable property of the grantor, something, which would, in the
absence of such right, be unlawful and such right does not amount to an easement
or an interest in the property, the right is called a license. For example, if ‘A ’
permits ‘B’ to stay in his house for 2 days, it is a license. Because, without such
license, T3’s staying in the house of ‘A ’ will become unlawful. In this case, the right
of ‘B’ to stay in the house of ‘A* is not an easement and it is also not a lease. That is
a license does not create any interest in the immovable property of grantor of
license. The person giving the license is called licensor and the person to whom
license is given is called licensee. The other examples are thepermission given to a
person to cut and remove grass from a gardenandgiving a house for theresidence
of servant so long as he is in service (Service occupation).
Any person having transferable interest in immovable properly can grant
license. The licensor need not be the absolute owner. A tenant can create license.
The license may be granted expressly or impliedly. Mere conduct is enough to grant
license. If ‘A’ allows T3’ a businessman to sell his goods by having his shop in the
place of ‘A* during the festival, it is a license. In this lesson we are going to study
about license in detail.
15.2. OBJECTIVES
1. Know about license and kinds of license
2. Know about revocation and deemed revocation of license
3. Know about difference between license, leave and easement
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15.3. KINDS OF LICENSE ""

A license is a permission to do something which, without the license would not
be allowable, A license may be a bare license which is purely a matter of personal
privilege or a license may be coupled with a grant or interest which will not amount
to an interest in land.
License is of two kinds. That is license and accessory license annexed by

law. If ‘A ’ permits to cut and remove trees standing on the land of ‘A ’, the main
license is the permission to cut and remove the trees and the accessory license is
the permission to go on the land to cut the trees. An accessory .license is necessary
for the enjoyment of main license.
A personal privilege
It is open to the granter to withdraw the permission if the license is a revocable
license. Whether it is revocable or irrevocable, a license is nothing more than a
personal privilege. It does not require any formalities for its creation as already seen
the very definition of a license denotes that no interest in property in respect of
i which it is granted or is created. It is not connected with the ownership of property
for unlike an easement a license is not grantee for the enjoyment of any other
property belonging to the licensee. This may be expressed by saying “the quality of
appurtenance” which is the sine qua non of an easement is not essential in a
license. It is also as non-transferable and non-heritable right.
A license is grant for the purpose of doing or continuing to do some positive
act on the immovable property of the granter. A license is in the nature of a positive
right and not a preventive right. So a right to prevent the owner of immovable
property from doing something on his property cannot be a license.
The license is transferable in some cases and not transferable in some other
cases. A license to attend a place of public entertainment is transferable and other
licenses cannot be transferred by the licensee or exercised by his servants or
agents. But eên a license to attend a place of public entertainment can be made
non-transferase by a different intention expressed or implied. If ‘A ’ was given
V
*
permission to walk through ‘B’s land, ‘A ’ alone can enjoy the license and he cannot
transfer it to a third party. Further he cannot allow his servant or agent to walk on
his behalf. Because, the license is not annexed to any immovable property. But, if
license to given to construct a shed and do business for 6 months. The licensee can
permit his servants and agents to construct the shed and help him in the business,
because, in this case the license cannot be enjoyed by licensee, without the
assistance of others.
License how created
According to Section 54, “the grant of a license may be expressed or implied
from the conduct of the grantor and an agreement which purports to create an
easement, but is ineffectual for that purpose, may operate to create license”.
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No writing or registration is necessary for the creation of a license, the conduct

of parties may lead to the presumption that a license has been granted. Any
instrument which because of the absence of a certain element such as registration
fails to have its required effect such as transfer of an interest in property as well as
a license will operate as a license. The license so created, though it would have
been irrevocable, if the transfer of property accompanying it were effective would
merely remain a revocable license, because the transfer of property fails.
A license may be inferred from the conduct of the parties. In Romason v.
Dyson (1805) L.R.I.H.C. 129 the House Lords laid down as follows, “if a man under
Verbal agreement with a landlord for certain interest in land or what amount to the
same thing under an exception created and encouraged by the landlord that he
shall have a certain interest takes possession of such land, with the consent of the
landlord and upon the faith of such promise or. expectation and with knowledge of
the landlord and without objection by him lays out money upon the land, a court of
equity will compel the landlord to give effective to such promise or expectation. This
is called the Doctrine of “estoppels*.
Accessory license annexed by law
Section 55 states “All license necessary for the enjoyment of any interest, or
the exercise of any right, are implied in the constitution of such interest or right.
Such licenses are called necessary licenses”.
Illustration
A sells the trees growing on his land to B. B is entitled to go on the land and
take away the trees.
Section embodies the well recognized principle that when right is granted in
something, everything which is necessary for the enjoyment of the interest or right
is also deemed to have been granted with it. I t . should also be noted that if
accessory licenses are co-extensive with the right. He continue as long as the right
or interest to which they are not revocable at the will of the grantor.
Accessory license is not permanent name of any liberty. Every principal license
is bound to need some incidental adjustments howsoever minor it may be in the
circumstances concerned. Accessory license in fact completes the license expressly
granted or implied. The accessory licenses are privileges based on implication. So,
they will not be available when some or anyone of these is expressly reserved by the
grantor or when it is provided that it shall not be available to license has been
granted. They cannot be retained after principal license is terminated.
License when Transferable:
Section 36 states when a license is transferable. It provides: (1) A license.being
a mere persons privilege is not ordinarily transferable and can be exercised only by
person to whom it is granted unless there is a contrary intention expressed or
implied, in which case it can be transferred and exercised by others.
*
174
So for as places or public entertainments are concerned, by virtue of Section 6

a drama or a cinema ticket is ordinarily transferable but it can be made non-
transferable by specially making it as such. A license which can be exercised only
personally, can also be exercised through an agent or servant.
Duties o f the Grantor:
(1) Section 57 deals with the duties of the grantor: The grantor of license is
bound to disclose to the licensee any defect in the property affected by the license
likely to be dangerous to the person or property of the license of which the grantor
is and the licensee is not aware”.
If the failure to disclose such defects leads to injury to the licensee, the
licensor would be liable in damages at common law.
2) Section 58 lays down the grantor duty not to tender the property by doing
anything likely to render the property unsafe.
Both the Sections will apply only when there is willfulness on the part of the
grantor, whereas the earlier section will apply when the grantor had not known the
defect at the time of making the grantor himself was aware of the defect on it there
was no likelihood of its being dangerous to the person or the property of the grantor
or no loss is caused to the grantee by such defect or for want of such disclosure.
Section 8 will not apply if there was not willful act on the part of the grantor to
render the premises dangerous. A mere omission to keep the property in repairs
and to warn the licensee of its unrepaired condition is not sufficient to make the
licensor responsible for injury caused to the licensee. But if the licensor places an
instruction on the land or any other thing likely to make the premise dangerous,
then he is of course liable.
Section 59 states as the '.icense is a personal privilege. If the property is
transferred by the grantor, die transferee is not affected by the license nor is he
bound by it as the license is determined on the transfer of the property. But section
59 is subject to Section 6 in the sense where the license is irrevocable under
Section 60, a licensor cannot put an end to the license by mere transfer of property
affected by the license and as such a transfer does not ipso facto extinguish a
license. So as the transferee cannot get a better title than his transferor,, the
transferee, cannot revoke the license.
15.4. REVOCATION OF LICENSE (SECTION 60)
Section 60 states “A license may be revoked by the grantor unless (a) it is
coupled with a transfer of a .property and such a transfer is in force, (b) the
licensee, acting upon the license has executed a work of prominent character and
incurred exepanses in the execution*.
It is no doubt by its very nature revocable because a license tests on
permission and such permission can be withdrawn. However Section 60 states
when exceptional circumstances which make the license irrevocable. Thus when a
175
license is coupled with a transfer of property and such transfer is in force, or when
a licensee has been acting upon the license and expended money on a work of
permanent character, the license becomes irrevocable.
The two exceptions are based on the principle, the first that a grantor cannot
derogate from his own grant which governs the general law of transfer of property
and the second exceptions is based on the principle of stopped by acquiescence.
It is found that the Section has laid down the two tests of irrevocability. A
license is prima facie irrevocable when it is coupled with a grant or interest or
because of the construction of a permanent nature by incurring expenses on it.
Also there is nothing preventing the parties making revocable license into an
irrevocable one.
You may ask how a license coupled with a grant differs with one coupled with
an interests. The former is a right to do or continue to do something but in addition
to it allows the licensee to be benefited with the product of the sale. But the latter
operates as an appurtenance to the property and runs with it into the hands of
transferees and they are mostly accessory being either express or implied and
necessaiy for the enjoyment of the interest transferred under the license.
A license does not require registration, but if it is coupled with a grant which
require registration, want of registration would make the grant void, but a license
being indepencent the grant, would continue to be license simpliciter and
revocable.
Section 61 provides that the revocation of a license may be expressed or
implied.
a. A, the owner of field, grants a license to use a path across it. A with intent
revoke the license puts a gate across the path. The license is revoked.
b. B, The owner of field, grants a license to B to stock hay on the field. A lets or
sells the field to C, the license is revoked.
15.5. DEEMED REVOCATION OF LICENSE
Under Section 62, a license is deemed to be revoked in the following cases:
1. If the grantor of license loses title for the property. That is ‘A ’ was given
property to be enjoyed by him for 5 years. ‘A ’ grants a license. The license
will be deemed to be revoked on expiry of 5 years.
2. When the licensee expressly or impliedly releases his license.
3. If the license is for a specific period, on expiry of that a period the license
stands revpked. If the license is granted subject to a condition of defeasance
on happening of such condition, the license is deemed to be revoked. For
example, if ‘A ’ grants a license to ‘B’ to walk through ‘A ’s land as lone as ‘B’
did not marry ‘C\ If T3’ marries ‘C* the license is deemed to be revoked.
4. If the property over which license is granted is destroyed permanently by
superior force, the license stands revoked. .
176
5. If the license becomes the absolute owner of the property by purchase or

otherwise, the license is deemed to be revoked.
6. If the license is granted for a specific purpose and the purpose is attained or
abandoned or becomes impossible, the license is revoked.
7. In the case of service occupation, the license is revoked on the servant’s
ceasing to be the employee.
8. If the licensee did not use the license for an unbroken period of 20 years,
and such cessation is not in pursuance of an agreement between licensor
and licensee, the license will be deemed to be revoked at the expiiy of such
20 years.
9. If the main license is revoked, the accessory license also will be deemed to be
revoked.
In all the cases of revocation of license the licensee can take reasonable time to
vacate the property and to remove his goods from the property. Further if a
liciensee for consideration is evicted before the expiry of period of license, he can
recover compensation from the licensor.
15.6. LEASE AND LICENSE
In both lease and license one person permits another to be in possession of
immovable property. But they are not the similar transactions. Hence we have to
know the distinction between lease and license.
In Board of Revenue Versus A.M. Ansari (AIR 1976 SC 1813) the Supreme
Court laid down the following prepositions to find out whether a particular
transaction is a lease or license.
1. To ascertain whether a document creates a license or lease, the substance of
the document must be preferred to form.
2. The real test is the inte .ition of the parties whether they intended to create a
lease or license.
3. If the document creates an interest in the property, it is a lease but if it only
permits another to make use pf the property, of which the legal possession
continues with the owner, it is a license; and
4. If under the document a party gets exclusive possession of the property,
prima facie he is considered to be a tenant, but circumstances may be
established which negative the intention to create a lease. So although a
person who is let in to exclusive possession is prima facie to be considered to
be a tenant nevertheless he will not be held to be so if the circumstances
negative any intention to create a tenancy.
The Supreme Court has taken the same view in a recent case Capt B.V.D
Souza Versus Antonio Fausto Fernande^(1990 I LW 527) and observed that “If the
party in whose favour the document is executed gets exclusive possession of.the
property, prime facie he must be considered to be a tenant, although this factor by
itself will not be decisive.”
177
Hence we have to construe the document to find out whether it is a lease or

license with the help of above said prepositions of law laid down by the Supreme
Court.
15.7. EASEMENT AND LICENSE
An important distinction between an easement and a license, to the use of
land in particular manner is License, whereas an easement cannot be extinguished
merely at the will of the grantor, a license, is generally revocable at the will of the
grantor1, A license is merely personal and does not run with the land deed generally
is necessary to easement, but not necessary; grant a license
License, may also be implied from the passive Acquiescence of the grantor in
the act of the license. A license can also be implied from the circumstance. A mere
license does not create any estate of interest in the property to which it relates.
It only makes an act lawful which without it would be unlawful it is assignable, if
no expense has been incurred upon it by the licensee, is revocable by the grantor, if
expense has been incurred and property brought into the hand then licensee is
entitled to reasonable notice and time to remove such property if the revocation is a
breach of contract, the licensee can recover damages for the breach.
License coupled with grant of an interest : Such a license is not revocable on
assignment, and covenants may be made to run with it. A right to enter on land
and enjoy profit prendre or other incorporeal hereditament is a license coupled with
an interest is revocable.
Distinction between License and lease
In a lease there is exclusive possession of the hereditament; whereas in a
license there is no such exclusive possession as in a license the property over which
the license is exercised is in the control and possession of the grantor. The grantor
nevertheless can not grant fresh licenses so as to defeat the purpose of the first
license.
Definition o f license-Section 52
"Where one person grants to another or to a definite number of other persons a
right to do or continue to do, in or upon the immovable property of the grantor,
something which would in the absence of such right, be unlawful, and such right
does not amount to an easement or an interest: in the property, the right is called a
license".
From the definition it is clear that like an easement, a license is a right

exercisable on the immovable property of another. As the definition eliminates an
easement and other interests in immovable property a right cannot be both a
license and easement or an interest in immovable property. Therefore it is a right is
to be proved to be a license, it must be shown that is neither an easement nor an
interest in immovable property.
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An easement cannot usually arise out of permission, apart from grant,

whereas a license originates in permission. The distinction between a license and
an easement can be summarized as follows.
License Easement
1 Originates in permission Originates in grant (actual,
constructive or inferred) or
prescriptive user.
2. A purely personal privilege wholly It is right appurtenant to
unconnected with the ownership of immovable property.
property.
3. Not transferable except in the case It passess with property in
of licensee to enter place of whom so ever hands it is
entertainment. transferred
4. It does not create an interest in It creates an interest in
immovable property and therefore . immovable property and
a licensee is not entitled to sue in therefore an owner as well as
his own name. an-occupier of the dominant
heritage is entitled to sue for
an infringement of his rights in
his own name.
5. There cannot be a license to There can be easement of that
present someone else from dealing nature
with his property in and way.
6. A transferee of the grantor or An easement is enforceable
licensee is not bound by the against any one in whose
license. hands the property over which
it is exercisable passes.
Licensee’s right o f revocation
Section 63 says where a license is revoked, the licensee is entitled to a
reasonable time to leave the property affected thereby and to remove any goods
which he has been allowed to place on such property’.
Whether it is a revocable license or an irrevocable one reasonable notice
should be given to the licensee giving him reasonable time to vacate the premises if
he is summarily evicted from the premises, in the case of a revocable license he can
get damages. If irrevocable then an action for either injunction, or damages will lie.
But in the case of a contractual license, the terms of the contract will govern the
conduct and remedies of party.
Licensee’s right on eviction
Section 64 provides where a license has been granted for a consideration and
the license without any fault of his own, is evicted by the grantor before he has fully
enjoyed under the license, the right for which he contracted be is entitled to recover
compensation from the grantor” .
It follows from this Section that if a license is not given for consideration on
right for damages can arise for any improper action under this section. So the rule
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in section of applies only where consideration has passed. The other condition for
the application of his Section is that the licensee must be evicted without his fault.
If he is at fault being in breach of any condition then he cannot invoke this Section.
This rule does not apply to irrevocable licenses. It only provides for compensation in
respect of a withdrawal of a license contrary to the term of the agreement creating a
license, where the licensee had paid a consideration for the license and was evicted
without any fault on his part and before he had fully enjoyed under the license the
right granted.
It must also be noted that the section applies only to those cases where the
grantor evicts the grantee, and not to those cases where the eviction is caused by a
third party.
15.8. SUMMARY
Any person having transferable interest in immovable property can grant
license. The licensor need not be the absolute owner. A tenant can create license.
The license may be granted expressly or impliedly. Mere conduct is enough to grant
license. The license is transferable in some cases and not transferable in some
other cases. In exceptional circumstances which make the license irrevocable that
is when a license is coupled with a transfer of property and such transfer is in
force, or when a licensee has been acting upon the license and expended money on
a work of permanent character, the license becomes irrevocable. In all other cases
the license is revocable
1. Define License, What are the essentials for valid license?
2. Explain provisions related to revocation of license
3. Write down the differences between Lease and License
1. H.P. Vepasarathi - Law of Transfer of Property 4 * Edition, 2000.
15.11. KEYWORDS
Lease - rent
Lessee - tenant
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LESSON-16
EMERGING PROPERTY CONCEPTS

STRUCTURE
16.1. Introduction
16.2. Objectives
16.3. Transfer of development rights
16.4. History of Development Rights
16.5. Types of Transfer of Development rights
16.6. • Development Right certificates
16.7. Time Share
16.8. Summary
16.11. Keywords
16.1. INTRODUCTION
There are various rights have been came into existencedue to nature of uses
of immovable property to utilize development potential of land,special usage of
land during specific time in the year, manufactured housing, etc have given rise to
various other rights in the property, like development rights, time shared property.
These special kinds of rights in property require special consideration while
estimating value of such rights. In this lesson we will see about these emerging
property concepts .
16.2. OBJECTIVES
In this lesson we are going
1. to know about Transfer of Development rights (TDR)
2. to know about Time share
16.3. TRANSFER OF DEVELOPMENT OF RIGHTS
Transfer of Development of rights is a new concept in Land use Management
and has its own importance in tax valuations. Started first in European countries
in 1950’s to develop the agriculture land- In 1980’s India started implementing
TDR. Maharashtra introduced TDR in 1990 to develop the slum .Hyderabad
introduced TDR to widen the road. The state of Maharashtra is the first state
introduced the concept.in India. Transfer of Development Rights (TDR) means
making available certain amount of additional built up area in lieu of the area
relinquished or surrendered by the owner of the land, so that he can use extra built
up area either himself or transfer it to another in need of the extra built up area for
an agreed sum of money.
Purpose o f TDR
The process of land acquisition in urban areas for public purpose especially for
road widening, parks and play grounds, schools etc., is complicated, costly and
181
time consuming. In order to minimize the time needed and to enable a process,
which could be advantageously put into practice to acquire land for reservation
purposes mentioned above The various state Governments felt it necessary to
amend the Act in order to empower the local bodies (Corporations / Planning
Authorities) to permit additional FAR for the land handed over free of cost whenever
such lands are required for road widening, and or for formation of new roads or for
development of parks, playgrounds and other civic amenities etc.
16.4. HISTORY OF TRANSFER OF DEVELOPMENT OF RIGHTS
The concept of Transfer of Development rights was first conceived in England
later in USA for land preservation, environmental conservation and historic
building protection at no public expenditure .There in USA the right to property is a
sacred one and the state is not allowed to interfere with such rights except in
exchange for just compensation Thus came the need to balance a situation
whereby, private property rights are not denied as well as needs of the society to
preserve the scarce commodity like land for public purpose is not sacrificed, this
led to the evolution of Transfer of development rights in lieu of compensation for
surrender of this land needed for public purpose, for preservation of historic
building and further it did not evolve financial burden on public exchequer. This
idea of transfer of development rights transfer was tested in the case of Penn
central Transportation company which wanted to put up development over ground
control station. The U.S . Supreme court upheld the idea that the landmark
building could be spared and that no compensation need to be paid for under
utilized air space so long as development rights of the above land mark could be
transferred elsewhere.
16.5. BENEFITS OF DEVELOPMENT RIGHT
It is an Alternative methods of Land Acquisition Normally land acquisition was
done through Land Acquistion Act, but it is a long process, so Government
implements TDR which is easy to get land without any litigation. Based on
experience of Maharashtra and Andhra Pradesh and other states started to amend
the Act.
16.6. DEVELOPMENT RIGHTS CERTIFICATE (DRC)
If the owner of any land which is required for road widening for formation of
new roads or development of parks, play grounds, civic amenities etc., those
proposed in the plan shall be eligible for the award of Transferable Development
Rights. Such award will entitle the owner of the land in the form of a Development
Rights Certificate (DRC). Which he may be use it for himself or transfer to any
other person.
16.7. TIME SHARE
■i
A timeshare is a form of ownership or right to the use of a property, or the
term used to describe such properties. These properties are typically resort
condominium Units, in which multiple parties hold rights to use the property, and
182
each sharer is allotted a period of time (typically one week, and almost always the
same time every year) in which they may use the property. Units may be on a part-
ownership or lease/"right to use" basis, in which the sharer holds no claim to
ownership of the property.
History
The notion of the term "time-share" was originally created in Europe in the
1960s. A ski resort developer in the French Alps marketed his resort by
encouraging guests to "stop renting a room" and instead "buy the hotel".
Subsequent success followed, and the concept was quickly embraced by developers
worldwide, boosting sales of surplus condominium units at a time when the resort
industry-was depressed. Due to the promise of exchange, these units, called
"vacation ownership" by the industry, often sell regardless of their deeded resort
(most are deeded into a certain resort site, though other forms of use do exist). This
concept has attracted many resort developers and prominent hoteliers. Vacation
ownership has proven to be lucrative for stakeholders in these major resort families
due to its popularity with vacation-goers.
Methods o f use •*;
Owners can: Use their usage time - Rent out their owned usage - Give it as a
gift - Donate it to a charity - Exchange internally within the same resort or resort
group - Exchange externally into thousands of other resorts- Sell it either through
traditional advertising, online advertising or by using a licensed broker
Exchanging time shares
Much lauded is the.idea of owners exchanging their week, either independently
or through several exchange agencies, to stay at one of the thousands of other
resorts worldwide.Owners can also exchange their weeks or points through
independent exchange companies. Owners can exchange without needing the resort
to have a formal affiliation agreement with the companies .Sometimes, owners may
also arrange a direct exchange. This requires locating an owner with the location
and weeks both mutually desire. This form of exchange saves money on exchange
fees and is often sought-^fter. Severed bulletin boards have been created to help
time share owners meet: other owners and swap. This type of lodging may take
different forms depending on the seller. The vast majority consist of one week of
ownership - i.e., 1/52 year - but some developers sell point-based systems that are
a different form of vacation They have resort affiliate programs and members can
only exchange affiliate ye sorts. It is most common for a resort to be affiliated with
only one of the larger exchange agencies, although resorts with dual affiliations are
not uncommon. The timeshare resort one purchases determines which of the major
exchange companies can be used to make exchanges.
Deeded versus right to use
A major difference in all types of vacation ownership is that between deeded
and right to use contracts. With deeded contracts the use of the resort is usually
183
divided into n e k long increments and these are sold as fractional ownership and
are real property. As with any other piec^ of real estate the owner may use his or
her week, rent hi* or her week, give it away, leave it to his or her heirs or sell the
week to another prospective buyer. The Owner is ,also liable for his portion of real
estate taxes, which usually are collected with condominium maintenance fee.
Potentially owner can even deduct some property related expenses,. such as real
estate taxes, from his taxable income. While this form of ownersHip can offer
additional security to the owner as a form of physical ownership, deeded ownership
can be as complex as outright property ownership in that the structure of deeds
varies according to local property laws. Leasehold deeds are common and offer
ownership for a fixed period of time after which the ownership reverts to the
Freeholder. Occasionally, leasehold deeds are offered in perpetuity however many
do not convey ownership of the land but merely the apartment or 'unit' of
accommodation. With right to use, th? purchaser has the right to use the property
in accordance with the contract but at some point the contract ends and all rights
revert to the property owner. In other words, the right to use contract grants the
right to use the resort for a specific number of years
Types o f owner ship -
Fixed week ownership
The most basic unit is a fixed week; the resort will have a calendar
enumerating the weeks roughly starting with the first calendar week of the year. An
owner may own a deed to use a unit for a single specified week. For example,week
26 normally includes the Fourth of July holiday, week 51, Christmas and so on. If
an owner owned Week 26 at a resort he or she could use that week every year.
Floating
Sometimes units are sold as floating weeks. The ownership will be specific on
how many weeks the owner owns and from which weeks the owner may select for
the owner's stay. An example of this may be a floating summer week where the
owner may request any week during the summer season generally weeks 22
through 36.
Rotating
Some are sold as rotating weeks, commonly referred to as flex weeks. In an
attempt to give all owners a chance for the best weeks, the weeks are rotated
forward or backward through the calendar, so one year the owner may have use of
week 25, then week 26 the next year and then week 27 the year after that. This
method does give each owner a fair opportunity for prime weeks but it is not
flexible.
Timeshare Resale
Timeshares are generally treated as real property and can be resold to another
party. However, most timeshares do not appreciate in value, and therefore should
not be considered a money-making investment. Additionally, as much as 50
184
percent of the original purchase price of a timeshare from a developer or resort

went towards marketing costs, sales commission, and other fees, which realistically
can never be recouped by the owner. There are brokers and agents who specialize
in reselling timeshare units on behalf of their owners. This arrangement typically
involves listing fees, commissions* or both, being paid by the owner to the
brpker/agent. In return, the broker/agent markets the resale to prospective buyers.
This marketing can take the form of printed materials, Internet postings, radio and
television advertisement, and direct telephone solicitations. Most of the fees
associated with third parly resales are up-front and non-refundable, regardless of
whether the unit sells, or for how much.
16.8. SUMMARY
Transfer of Development of rights and Timeshare are the new concept in land
use Management and has its own importance in tax valuations. The process of land
acquisition in urban areas for public purpose especially for road widening, parks
and play grounds, schools etc., is complicated, costly and time consuming. In order
to minimize the time needed and to enable a process quickly and which is useful for
both government and land owner. Time share is also newly developed concept,
when scarcity of land takes place, in a wise manner it is to be used by a group of
people. In this lesson we have given a general information.
1. How the concept of TDR Evolved?
2. Write a note on Time shared property
Valuation of Real Properties - S.C. Rangwala
16.11. KEYWORDS
TDR - Transfer of Development right.
* □
185
LESSON-17
______________________ ______________________________________ LAW OF EVIDENCE

STRUCTURE
17.1. Introduction
17.2. Objectives
17.3. Definitions
17.4. Presumptions
17.5. Burden of proof
17.6. Conclusive proof
17.7. Admission
17.8. Opinions of Experts
17.9. Summary
17.12. Keywords
17.1 INTRODUCTION
Sir John Salmond has given the best juridical definition of law as follows, “Law
may be defined as the body of principles recognized and applied by the State in the
administration of justice. In other words law consists of the rules recognized and
acted on by Courts of Justice” . Corpus Juris of any country can be divided into
Substantive and Adjective law.
The Substantive law defined the rights, duties, and liabilities, the
ascertainment of which is the purpose of every Court of justice. The criminal
branch of that law is contained in the Indian Penal Code, as also in the various
special and local laws dealing with the subject. The substantive Civil law of India
has not yet been fully codified. Speaking generally, it is to be found in the various
Acts of the Indian Legislature, such as the Indian Contract Act. Transfer of
Property Act etc; In cases for which no special provision exists the Courts are
enjoined to act according to Justice, Equity and Good Conscience
Adjective law defines the pleading, procedure and proof by which the
substantive law is applied in practice. It is the machinery by which that law is set
and kept in motion. The rules relating to pleading and procedure are contained in
the Civil and Criminal Procedure Codes
Proof, the remaining branch of adjective law, logically defined, is the sufficient
reason for assenting to a proposition as true. This ,is done by the production of
evidence in proof of matters in dispute. The terms “proof” and “evidence” are
distinguished as that “proof is the effect or result of evidence, while evidence is the
medium of proof’ (Best). The facts out of which the rights and liabilities arise must
be determined correctly. Facts which come in question in courts of Justice are
186
enquired into and determined precisely. The same way as doubtful or disputed facts
are enquired into and determined by men in general except so far as positive law
has interposed with rules to secure impartiality and accuracy of decision or to
exclude collateral mischief likely to result from the investigations. These rules
whether are effective and necessary will be considered later. They are either
intimately connected with the whole theory of human knowledge or with logic as
applied to human conduct or are of a technical character designed to secure the
objects mentioned or are based on principles of general policy.
The usual stages of a Judicial procedure are the following Viz., Summon,
Pleading, Proof, Judgment and Execution. Under the first, interested parties are
given an opportunity of presenting their cases before court. Pleading presents facts
of a case and. formulates for the use of law which are in issue. Proof is
establishment of facts by proper legal means to the satisfaction of the Court.
Judgment is the final decision of the Court while execution is the last step in the
.proceeding it is the use of physical force in maintenance of judgment when a party
refuses voluntary obedience to the judgment.
17.2. OBJECTIVES
1. Know necessity of rules of Evidence
2. know important definitions in Evidence Act
3. know about Burden of proof,
4. know about Presumptions and Conclusive proof
Rutos o f Evidence
There are two views regarding the necessity for the rules of evidence. One view
is that since the object of the court is to arrive at the truth of the matters in the
dispute, the Court ought to hear every one who can say anything about the matter.
To exclude certain matters would be hampering the Court from arriving at the just
conclusion and therefore all rules laying down restriction on matters to be placed
before the Court are fetters to justice and the best rule is that there should be no
rule of evidence; The other view is that if there are no rules of evidence at all no
case will ever be decided. It would take years before a simple case is decided and
justice delayed is justice denied and justice would become a mockery. Further in
the absence of such rules of evidence it would be left to the court to decide on each
occasion what matters are connected with the matter in controversy and this would
result in great uncertainty as to relevant matters, proof and effect of evidence and
would result in protracted litigation costing the parties and the country. As it is
well known that a system of jurisprudence is the best which leaves the least to the
judge and that a judge is the best who relies least upon himself, rules of evidence
become absolutely necessary both from point to view of time, money, as well as of
certainty.
187
17.3. DEFINITIONS
Judicial Proceedings: It is juristically defined as a proceeding in which court
determines jural relation between one person and another or a group of persons or
between him and the community generally. A Statutory definition of it can be
found in Cr. PC. 1973. ‘Judicial Proceeding’ includes any proceeding in the course
of which evidence is or may be legally taken on oath.
The Indian Evidence Act does not apply to affidavits presented to any court or
officer. An affidavit is a statement or declaration in writing on oath or affirmation.
Affidavits are filed as a mode of proof of facts contained therein without the
examination of the deponent to save time. They are filed with interlocutoiy
applications, setting out facts Within the knowledge and the belief of the deponent
and are evidence by the agreement of the parties and by the order of the court.
Contempt proceedings are usually decided on the basis of affidavits and it is not
illegal to find a person guilty on the strength of affidavits alone.
Fact: “Fact” means and includes - (1) anything, state of thing, or relation of
things capable of being perceived by the senses; (2) any mental condition of which
any person is conscious.
• ^
Facts are classified into physical facts which are capable of being perceived by
senses and psychological facts of which any person is conscious. We have adopted
the classification of Bentham. Facts are physical if they are capable of being
perceived by sight, smell, taste, hearing and touching e.g. a man, heard or saw
something. . Facts are psychological if a man is conscious of mental conditions
such as intention. Knowledge good faith, negligence, rashness, ill will or good will
is that a man holds a certain opinion or that a man e.g. acts intentionally or
fraudulently. The psychological facts can now be testified by direct evidence that a
man intends to get married to X or it can be proved by circumstantial evidence e.g.
that a man’s intention can be inferred from his conduct.
Fact in the law of evidence includes factum probandum (S) and facts probandi
(P) i.e. the principal fact or facts to be proved and factum probandum (S) facts
probantia (P) i.e. the evidentiaiy fact or Faibts from which the principal fact or. facts
follow immediately or by inference.
“Matters of fact” has been defined to be anything which is the subject of
testimony evidence of a witness given viva voice in court. “Matters, of law is the
general law of the land of which the courts will take judicial cognizance.
Relevant: One fact is said to be relevant to another when the one is
connected with the other in any of the w^ys referred to in the provisions of this
Act relating to the relevancy of facts. \
All facts are relevant which are capable of affording any reasonable
presumption as to the facts in-issue or the principal matters in dispute. One fact is
relevant to another if it-is connected in any of the ways described in S.5 to 55 e.g.
4'
188
statement by a deceased person as to the cause of his death, is relevant, as the

statement raises a reasonable presumption as to his death. (S.32(1)
Facts in issue: The expression “Facts-in-issue” means and includes-any fact
from which, either by itself or in connection with other facts, the existence, non
existence, nature or extent of any right, liability or disability, asserted or denied in
any suit or proceeding, necessarily follows.
The expression “facts-in-issue means the matters which are in dispute. Issue
means dispute, fact in issue means fact or matter in dispute. Issues are framed in
civil suits and in criminal proceedings charges are included in issues. For e.g. A
caused the death of B is in issue. If A proves the fact that X caused the death of B,
A ’s criminal liability is negatived. When the existence or non-existence, nature or
extent of any right, liability, or disability necessarily follows the proof or disproof of
some facts, these facts are said to be the facts in issue. ' A fact in issue in the
Indian Evidence Act is an issue of fact in the C.P.C. An issue of fact is a fact
asserted or denied in answer to a fact in issue. For e.g. the fact is issue is A caused
the death of B. The issue of fact is that A had received grave and sudden
provocation.
The distinction between a fact in issue and a relevant fact is that when a fact
is proved, the existence non existence, nature or extent of any right, liability or
disability necessarily follows and is a judicial proof on which judgment is based. A
relevant fact is a fact connected with, the principal fact and the proof of it leads to
an inference as to the existence or non-existence of the principal fact.
Document: “Document” means any matter expressed or described upon any
substance by means of letters figures or marks or by more than one of those
means, intended to be used, or which may be used, for the purpose of recording
that matter.
The definition is similar to the definition given in S. 29 I.P.C it is not the
substance e.g. a paper or wall that is a document: whereas it is the matter
expressed or described upon any substance by means of letters, figures or marks
used or intended to be sed for recording that matter is a document, e.g. a writing,
words, numbers printed or lithographed map or plan: and inscription on a metal
plate or stone and a caricature. Matter expressed or described means thoughts of
men expressed or described upon any substance. Thus wooden scores on which
bakers indicate (by notches V shaped cuts) the number of loaves of bread or quarts
of milk supplied to customers are documents. So are the letters imprinted on trees
a sealed pocket is also a document.
A document is “probation mortua” - a dead proof which is brought to the
cognizance of tribunals through the medium of probation via-a living proof that is a
human witness.
A tape record of speeches is held to be a document in Baikbari Vs. Mebra A
1975 S.C. 1795.
189
Evidenre: “Evidence” means and includes. (1) All statements which the court
permits or requires to be made before it by witnesses in relation to matters of fact
under enquiry; Such statements are called oral evidence (2) All documents
produced for the inspection of die court; Such documents are called documentary
evidence.
The ambiguity of the word ‘evidence’ has given rise to varying definitions from
Blackstone to Best. The definition adopted' by Best is this. "The word ‘evidence’
signifies in its original sense, the state of being evident i.e. plain, apparent and
notorious. But by an almost peculiar inflexion of our language it is applied to that
which tends to render evidence or generate proof. Evidence thus understood has
been wel’ defined as any matter of fact, the effect, tendency, of design of which is to
producer in the mind a persuasion, affirmative or disaffirmative of the existence of
some other matter of fact” . In its legal and most general acceptation evidence has
been defined to include all the means, exclusive of mere argument, by which any
alleged matter of fact, the truth of which is submitted to investigation, tend to be or
would be established or disprove to the satisfaction of the court.
The word ‘evidence’ is used in common patience in three difference senses.
(1) As equivalent to ‘relevant. The presence of the accused near the scene of crime
after the crime was committed is not evidence (relevant) of the guilt of the accused
(2) As equivalent to ‘proof The possession of a stolen article soon after the theft is
evidence (proof) of the fact that the person in whose possession it is found is either
the their or a receiver of stolen property. (3) As equivalent to the material on the
basis of which courts come to a conclusion about the existence or non-existence of
disputed facts. The word ‘evidence’ is ^ s e d only in the third sense in the Act as
pointed out by a judge thus: “The woid ‘evidence’ means instruments by which
relevant facts are brought before court viz., witnesses and documents by means of
which the court is convinced of these facts”.
The main principles of the law of evidence are (1) Evidence must be confined to
facts in issue and relevant facts and no others. (2) Facts must be proved b* means
of the best evidence which the nature of the case will permit. (3) Hearsay evidence
is inadmissible. This is the natural corollary of the Best Evidence rule.
Best Evidence: The idea of best evidence is implicit in the Act. Oral evidence is
the best evidence if it is direct i.e. perceived by the senses of a witness who deposes
as to the facts so perceived by himself only and not by others (S.60). If it is
documentary evidence original or the primary of a document is the best evidence.
Documents must be proved by the primary except in cases where secondary
evidence is admissible. (Ss 62, 64 91 and 92).
Direct Evidence: Otherwise known as original evidence, direct evidence is used
in two senses. (1) Evidence, direct to the point in issue e.g. C says that he saw A
beat B. It is opposed to circumstantial evidence which proves fact in issue
indirectly. (2) Testimony perceived by senses (S.60). It is opposed to hearsay
evidence (infra). •
190
Indirect or Circumstantial Evidence: Indirect evidence otherwise called

circumstantial evidence is either'conclusive or presumptive. It is conclusive where
the connection between the principal and the evidentiary fact is a necessary
consequence of the laws of nature: it is presumptive where it rests only on a
greater or less degree or probability.
When evidence is given of the very fact in issue it is called the direct evidence;
and when evidence is given of circumstances or relevant facts from which an
inference may be drawn about the fact in issue, then it is called circumstantial
evidence. Circumstantial evidence is merely direct evit] ~ ice indirectly applied.
Circumstantial. jevidence: Must be a combination of facts creating a net work
through which there is no escape for the accused because the facts taken as a
whole do not admit any inference but of his guilt, (Anant Chinfaman Lagu Vs.
State. A 1960 S.C. 500). In cases where the evidence is of a circumstantial nature,
the circumstances from which the conclusion of guilt is to be drawn should in the
first instance be fully established and all the facts so established should be
consistent only with the hypothesis of the guilt of this accused. Again, the
circumstances should be of a conclusive nature and tendency and they should be
such as to exclude every hypothesis but the one proposed to be proved. In other
words, there must be a- chain of evidence so far complete as not to leave any
reasonable ground for a conclusion consistent with innocence of the accused and it
r"ust be such as to show that within all human probability the act must have been
d <ne by the accused. Bhatnager Vs. State. A. 1979 S.C. 836.
Sometimes it is said that witnesses may lie but circumstances never do,
thereby implying that circumstantial evidence is superior to direct evidence. There
is nothing to choose between the two if the witnesses testify falsely. As regards the
punishments its makes absolutely no difference whether the 'evidence is direct or
circumstantial once it is accepted as proving the guilt of the accused.
Hearsay Evidence: Hearsay evidence means secondary oral evidences which is
not direct. It is a fundamental rule of evidence that hearsay is not admissible. The
word hearsay is capable , of various meanings and is ambiguous in the extreme.
Stephen says the word hearsay “is used in the sense of whatever a person is heard
to say-or whatever a person declares on information given by someone else or as
nearly synonymous with Irrelevant’.
Hearsay evidence is not admissible in evidence for reasons such as the
irresponsibility of the original declarant, the deprivation of truth in tht process of
repetition, the opportunities of fraud which its admission would offer and the waste
of time involved in listening to idle rumour. The two principal objections however,
appear to be the lack of an oath and the absence of an opportunity to cross
examine him.
Though the Act does not use the word hearsay, it is made admissible under
Ss. 6, 8, 17-32, 34-38, 48, 60, 74, 75, 122-130, 136, 145, 146, 148, 151, 154-157,
159, 160. • „
191
Documentary Evidence: It is defined in the Act as “all documents produced for

the inspection of the court*. The purpose of producing document is to prove
1) Genuineness of the document 2) as evidence of its contents, 3) to prove the truth
of the contents of documents by examination of witnesses who have knowledge of
them. The Best Evidence rule requires the production of the primary (Ss.62, 64) in
the absence of which secondary evidence of the documents can be given under SS.
63, 65, 66.
There are two rules connected with documentary evidence. When a party calls
for the production of a document and is produced and inspected the parly calling
for its production is bound to give it in evidence, if the party, producing it requires
him so to do (S. 163). When a party refuses to produce the document called for, he
cannot given the document in evidences afterwards without the consent of the party
calling for the production of the document or the order of the court (S. 164). The
court may also raise a rebuttable presumption that evidence which could be and is
not produced would, if produced, be unfavourable to the person who with holds it
(S. 114 (g). The court shall presume that every document called for and not
produced after notice to produce was attested, stamped, and executed in the
manner required by law (S. 89).
Oral Evidence: Otherwise, personal evidence is that which is afforded by a
human agent who deposes viva voce or makes verbal statements in court as to the
facts within his personal knowledge. SS. 59, 60, 119.
Real Evidence: The phrase ‘Real evidence’ is covered by ‘matters before the
court’ in the definition of ‘proved’ and ‘disproved’. Real evidence, as described by
Bentham may either be immedia+e or *cpoi’ted. It is immediate where the material
thing itself e.g. weapons with whicn a crime was committed, scars of wounds or
other injury like loss of a hand or leg, blood, stained dagger, pistol bearing finger
prints property to which damage has been caused etc, is present to the senses and
the witness gives here only oral evidence and not producing real evidence
Corroborative Evidence: is additional evidence of a different character to the
same point. Oral evidence as to age is corroborated by a certificate of date of birth
from birth and Death Register. It is given in evidence to prove the truthfulness of a
witness. It is deal under Ss. 156-158.
Contradictory Evidence: is the evidence of the same kind given in evidence to
prove inconsistency and therefore untrust worthiness of a witness. A witness may
be asked in cross examination if he had made a statement in writing on a previous
occasion which is inconsistent with his testimony in court. If he denies, he can be
contradicted by drawing his attention to the writing under S. 145. He can be
contradicted on his answers as to bias and previous convictions under S. 153 and
he is also liable to be contradicted by independent witnesses under S. 155 (3).
Prima Facie Evidence is evidence which standing alone unexplained will
maintain the proposition and warrant the conclusion to support which it was
introduced.
conclusive Evidence: is not allowed to be contradicted (S.4).
Substantive and Corroborative Evidence: When evidence is given of facts in
issue and relevant facts that is called substantive. Evidence given to support or
contradict a witness is not substantive evidence Ss. 5, 145, 153, 15>5, 156-158.
“Proved” : A fact is said to be proved when after considering the matters before
it the court either believes it to exist or considers its existence so probable that a
prudent man ought under the circumstances of the particular case, to act upon the
supposition that it exists.
“Disproved”: It is the converse of proved.
“Not Proved”: A fact is said not to be proved when it is neither proved nor
disproved.
Proof: The word proof seems properly to mean anything which serves either
immediately to convince the mind of truth or falsehood of a fact or propositions and
the proofs of matters of fact in general are our senses, the testimony of witnesses,
documents and the like, êst) When evidence of facts in issue and of relevant facts
is adduced by the parties the court considers it and other matters before it by
applying the standard of certainty or the standard or probability to believe that the
facts asserted or denied exist or do not exist: or to consider that the existence or
non existence of the facts asserted or denied is so probable be that a prudent man
would under the circumstances act on the circumstance act on the supposition
’ hat they exist or do not exist. A fact is said to be proved if the court believes it to
;xist or considers its existence so probable. Absolute certainty of existence of facts
is seldom possible in any indicial proceeding and the court has to satisfy itself by
the probability of the existence of facts.
Legal Proof: Judgment* of courts must be based upon legal proof which means
that relevant facts declared by the Act are proved under the provisions of the Act.
Therefore legal proof excludes any logical fact. Suspicion, supposition, moral
conviction of judge, personal knowledge of judge. Suspicion though a ground for
further scrutiny of evidence can not be made the foundation of a judicial decision
suspicion, however grave it may be cannot take the place of proof.
Rules of Evidence in Civil and Criminal cases: “It has been solemnly decided
that there is no difference between the rules o f evidence in civil and criminal courts.
If the rules of evidence prescribe the best course to get at truth, they must be and
are the same in all cases and in all civilized countries The rules of evidence are the
same, but certain rules of evidence are applicable to criminal cases only because
the relevant issues arise only in such case e.g Confessions Ss. 24-30: Character Ss.
53, 54; a married person’ is compellable to testify for or against the other spouses S.
120 and character of a proscutrix S 155 (4). Special provisions relating to civil
cases are admissions Ss 17.23, 31: Character Ss 52, 55: Estoppel Ss. 115-117. .
Standard of Proof: By standard of proof is meant quantum of proof or measure
of proof which varies with civil and criminal cases are not above the same and it
193
has been laid down that a fact may be regarded as proved for purposes of a civil
suit though the evidence may not be considered sufficient for a conviction in a
criminal case. While civil cases may be proved by a mere preponderance of
evidence, in criminal cases the prosecution must prove the charge beyond
reasonable doubt. Proof beyond reasonable doubt is a guideline, not a fetish and
guilty man cannot get away with it because truth suffers some infirmity when
projected through human processes.
Disproved: This is merely the converse of the definition of proved.
Not proved: The term ‘not proved’ indicates a state of mind when one is unable
to say precisely how the matter stands
Probability: By probability is meant the likelihood of anything to be true,
deduced from its conformity to our knowledge, observation and experience. There
are two things which must never be lost sign of when weighting testimony of any
kind: (1) The consistency of the difference parts of narration: (2) The possibility or
probability, the impossibility or improbability of the matters related-which afford a
sort of corroborative or counter-evidence of those matters.
Matters Before Court: The definition of evidence in the Act is not complete and
has to be read with the matters before the court contained in the definition or
‘proved’
Corpus Delicti: means the facts which constitute an offence. Corpus delicti
has no reference to corpus. It means that before seeking to prove that the accused
is the author of the crime, it must be established that the crime charged has been
committed; in theft that the property has been stolen: in murder that somebody has
been killed. The strongest proof of corpus delicti in murder is the body of the vicum
or a vital part of the body by which the victim could be identified
17.4. PRESUMPTION
Presumption is used to designate and inference affirmative or disaffirmative of
the existence of some fact, drawn by a judicial tribunal by a process of probable
reasoning, from some matter of fact, either judicially noticed or admitted or
established by legal evidence to the satisfaction of the tribunal.
Presumptions, according to English law are (1) Presumptions of fact or natural
presumptions; (2) Presumptions of law; (3) Mixed presumptions. The Act does not
follow the above classification, but says precisely, that certain facts may be
presumed; that certain facts shall be presumed and that certain facts operate as
conclusive proof.
‘‘May Presume”: Whenever it is provided by this Act that the court may
presume a fact, it may either regard such fact as proved, unless and until it is
disproved or may call proof of it:
•>
The presumptions made under this clause are natural presumptions and are
rebuttable. They are presumed from common course of natural events human
conduct and public and private business. Our experience of the world leads us to
194
infer that a man who is in possession of stolen goods soon after theft and can give
no account of them, either is stolen. These presumptions of facts may be made by
the judge under Ss. 86, 87, 88, 90, 114, 118,
“Shall Presume”: Whenever it is directed by this Act that the Court shall
presume a fact, it shall regard such fact as proved, unless until it is disproved.
Presumptions of law are artificial presumptions. They are in reality rules of
law which require judge to draw them from facts developed impleadings. They are
either rebuttable or irrebutable presumptions of law. Rebuttable presumptions of
law relate to innocence, intention, death, marriage, due performance of official acts
etc. The court is bound to raise them until they are disproved. These
presumptions are raised under Ss. 79 to 85, 89, 105.
“Conclusive Proof: When one fact is declared by this Act to be conclusive proof
of another, the Court shall, on proof on the one fact regard the other as proved, and
shall not allow evidence to be given for the purpose of disproving it.
An artificial effect is given by the law to. certain facts and no evidence is
allowed to be produced with a view to combating that effect and the court has no
option but to hold that the fact exists. Clause 3 points at irrebuttable
presumptions of law and they are raised under Ss. 41, 112 113 and also under
I.P.C.S. 82.& S. 4 is to be read with Ss. 79 to 90 and 105 to 114.
17.5. BURDEN OF PROOF
This expression means two different things. It means sometimes that a party is
required to prove an allegation before judgment can be given in his favour; it also
means that on a contested issue One of the two contending parties has to introduce
evidence. The burden of proof is important where by reason of nor discharging the
burden which was put.upon it, a party must eventually fail. This burden will, at the
beginning of a trial, lie on one party, but during the course of the trial it may shift
from one side to the other. At the end of a case when both the parties have led
evidence and the conflicting evidence can the weighed to determine which way the
issue can be decided, the abstract question of burden of proof becomes academic.
The term onus probed, in its proper use, merely means that if a fact has to be
proved, the person whose interest it is to prove it could adduce some, however
slight, upon which a Court find the fact he desires the Court to find. It does mean
that to call all conceivable or available evidence. It merely means that the evidence
he lays before the Court should be sufficient, if not contradicted to form the basis of
a judgment and decree upon that point in his favour. Where, there is an admission
by a party the burden of proof shifts and it is for the party making the admission to
explain it away.
In the matter of proof, in a civil a case, a defendant cannot take up same stand
as an accused in a criminal case. In civil cases unlike criminal ones, it cannot be
said that the benefit of reasonable doubt must necessarily go to the defendant.
Even the preponderance of probabilities may serve as a good basis for decision
Supreme Court has held that in a civil case involving allegation of chart’
195
criminal of fraudulent character insistence on proving charges clearly and beyond

reasonable doubt is wrong. •
Burden o f proof : Whoever desires any Court to give judgment as to any legal
right or liability depend on facts which he asserts, must prove that those facts
exist. The burden of proof lies on that person who would fail if no evidence were
given on either side (S. 102). During the course of the trial the burden may shift
from one side to the other.
Sections 103-113 lay down the rules as to burden o f proof:
1. The burden of proof as to any particular fact lies on that person who wishes
the Court to believe it unless the law has provided that its proof shall lie on
and particular person (S. 103).
2. The burden of proving any fact in order to enable any person to give evidence
of any other fact is on the person who wishes to give such evidence (S. 104).
3. When a person is accused of an offence, the burden of proving that his case
falls within any exception in the Penal Code or any other law lies on him.
(S.105).
4. When a fact is especially within the knowledge of any person, the burden of
proving it lies on him (S. 104).
5. When it is shown that a man was alive within thirty years, the burden of
proving that he is dead is on the person who affirms it (S. 107). >■
6. When it is proved that a man has not been heard of for seven years by those
who would naturally have heard of him if he had been alive, the burden of
proving that he is alive lies on the person who affirms it (S. 108).
7. When persons have acted as partners, or landlord and tenant, or as
principal and agent, the burden of proving that such relationship has ceased
lies on the person who affirms it (S. 109).
8. When a person is in possession of any thing as owner tiie burden of proving
that he is not the owner is on the person who affirms that he is not the
owner (S.l 11).
9. When a person stands towards another in a position of active confidence,
the burden of proving the good faith of any transaction between them lies on
the person in active confidence (S.l 11).
10.The fact that a person is bom during a valid marriage between his mother
and any man, or within 280 days after its dissolution, the mother remaining
unmarried then unless non-access is proved it shall be conclusive proof of
his legitimacy (S. 112).
11. A notification in the Official Gazette of a cession of British territory before
the commencement of Part III of the Government of India Act, 1935, to any
Indian State is conclusive proof that a valid cession took place at the date
mentioned in the notification (S .l 13). '
Section 114 lays down certain cases in which the Court may presume the
existence of any fact which it thinks likely to have happened, regard being had (i) to
the common course of natural events, (ii) human conduct, and (iii) public and
.196
private business, in their relation to the fact of the particular case (S. 114) see the
illustrations to the section as of these cases.
Criminal trial:- In criminal cases it is for the prosecution to bring, the guilt
home to the accused. It is not correct to say that when the prosecution has
adduced such evidence as the circumstances and nature of the case require, it is
for the accused to establish his innocence for the reason that there is no burden
laid on the prisoner to prove his innocence and it is sufficient if he succeeds in
raising a doubt as to his guilt. In an accusatory system, such as that prevailing in
India, it is for the prosecution to prove beyond reasonable doubt that the accused
committed the offence; it is not the Court to speculate as to how the crime has been
committed, It is for the prosecution to determine what witnesses it should call in
support of its case. Witnesses essential to the unfolding of the narrative which the
prosecution is based must be called by the prosecution whether in the result the
effect of their testimony is for or against the case for the prosecution.
Benefit o f doubt:-In cases where the evidence is of such a nature that
conclusion cannot be arrived at as to who started the fight or how quarrel, started
the benefit of doubt should be given to the accused.
17.6. CONCLUSIVE PROOF
Three Sections deal with “conclusive p ro o f as defined in S.4, viz, Ss. 41. 112
and 113.
A final judgement, order or decree of a competent court, in the exercise of
probate, matrimonial, admiralty or insolvency jurisdiction, which confers upon or
takes away from any person any legal character or which declares any person to be
entitled to any such character or to any specific thing, not as against any specified
person, but absolutely, is relevant when the existence of any such legal character or
title of such person to any thing is relevant.
Such judgment, order or decree is conclusive proof that any legal character
which it confers, accrued at the time when such judgement, order or decree came
into operation, that any legal character to which it declares such person to be
entitled, accrued to the person at the time when such judgement, order, decree,
declares it to have accrued to that person.
Any legal character which it takes away from any such person ceases at the
time from which such judgement, order or decree declared that it has ceased or
should cease; and that anything to which it declares any person to be so entitled
was the property to that person at the time from which such judgement, order or
decree declared that it had been or should be his property.
This Section declares the relevancy of judgments called judgments in rem
which are conclusive against the whole world. A judgment in rem is not defined
herein. It is defined by Bower as one which defines or otherwise determines the
status of a person, or of a thing, that is to say, the jural relation of the person or
thing to the world generally. Only four classes of judgments are mentioned in this
Section viz. the final judgments of courts of Probate, Matrimony, Admiralty and
197
Insolvency. The principle of conclusiveness of judgments - in - rem as regards

persons that public policy for the peace of society requires that matters of social
status should not be left in continued doubt.
17.7. ADMISSIONS
Admission is a statement made against one’s own interest. Confession is the
sub species of admissible. It is also a self harming statement. Every confession is
an admission; but every admission is not a confession. They are relevant and
admissible in evidence on the ground that they must be true as they are against the
interest of the markers. They are self harming statements and with self-serving
statements, constitute what is called self-regarding evidence. Self-harming
statements can be proved as evidendiary i.e. to contradict or to corroborate the
testimony of a witness as well as substantive evidence whereas Self-serving
statements are used as evidentiary facts, only. Admission is a self-harming
statements relevant in civil and criminal cases not involving criminal intent.
Confession is a self-harming statement proved in criminal cases only. Admissions
are dealt with under Ss. 17-23 and 31 and confession under Ss. 24-30.
17.8. OPINIONS OF THIRD PERSONS WHEN RELEVANT SS.45 TO 51
As per Section 45 Opinions of experts defined as follows W hen the court has
to form an opinion upon a point of foreign law, or of science, or art or as to identity
of handwriting or finger impression, the opinions upon that point of person
specially skilled in such foreign law, science or art, or in questions as to identity or
handwriting of finger impression are relevant facts. Such persons are called
experts. Illustration (a) and (b) deal with medical expert opinion and illustration (c)
deals with opinion of handwriting expert.
The opinions and beliefs or third persons are as a general rule irrelevant and
therefore inadmissible and witnesses are to state facts within their perceptive
knowledge (S.60) and the court has to draw inferences from them. PW 1 sa> > A
shot B: he does not say A murdered B. A testifies as to what he saw and the court
infers from the testimony that the killing amounts to murder. There are cases in
which the court cannot draw any inference from deposition of witnesses as they
relate to matters beyond the common knowledge and experience of judges in which
cases, the judges are allowed to hear experts enable them to understand the matter
under examination. Under this head comes matters of science, art, trade
handwriting, finger'impression and foreign law. The rule admitting expert evidence
is founded on necessity.
Who is an expert?
An expert is one who has acquired special knowledge, skill or experience in
any science, art, trade or profession. Such knowledge may have been acquired by
practice, observation research or careful study. Rogers defines an expert in any
science, art or trade as one who by practice and observation, has become
experienced. Taylor defines him as one who has studied a subject carefully, though
he has never practiced it. An expert may be professional and non professional e.g.
a doctor and a nurse.
198
Difference between an expert and other witnesses:

(1) An expert is a witness of opinion, on special subjects. (2) He can speak to
experiments made by him behind the back of the other party (3) He may cite text
books of accredited authority in support of his opinion and may refresh his memory
by reference to them. (Modi’s or Taylor’s Medical Jurisprudence); (4) He may state
‘similar acts’ in order to support his opinion.
What question can be put to an expert:
He should be asked question on matters in which he is an expert. (2) He is n o t '
to be asked question of facts; unless he himself has observed those facts; (3) He is
not to be asked questions of law except of insanity as a defence or foreign law; (4)
He is not to be asked his opinion upon the legal or general merits of the case: e.g.
whether the driver was careful or on which side evidence adduced preponderates or
its effect.
Exception to opinion rule
1) Expert opinion; 2) opinion of ordinary witnesses in variety of unscientific
matters arising everyday in every judicial enquiry such as identity, handwriting,
quantity, value, weight, distance, size, age, heat, cold, temper, fear, intoxication etc.
When expert evidence is to be admitted
Under this Section expert evidence is admissible when the court has to form
an opinion upon a point of foreign law, or of science or art or as to identity of
handwriting or finger impression. The expression ‘science or art’ though used in
extended sense in the Anglo-American jurisdiction it is used in a arrower sense
quite inadequate in a progressive society. So our Supreme Court observed that in
order to make things clearer it would be better if the words “ of science or art” in S.
45 are substituted by the word “ of science, art, skill or trade or others of like kind
by amending the Section so that expert opinion on many matters on which the
court requires special help may not be excluded i"> Hanumant Vs. State A. 1952
S.C. 343. Connected with the subjcct matter on which expert evidence is necessary,
are what are the qualifications necessary for one to be an expert and whether the
expert in fact qualifies. Whenever an expert is dead or cannot be called as a witness
his opinions and grounds therefore may be proved by the production of treatises in
which such opinions are expressed under Proviso 1 of S. 60.
Competency o f Expert
Whether a witness offered as an expert is in fact an expert is a question to be
decided only by the judge. A person need not always be a professional expert.
There are court of experts in other countries. In our country the court decides
if a witness is an expert or not apart from Government experts under S.s. 292 and
293, Cr. P.C. Any document purporting to be a report under the hand of any
Chemical Examiner or the Chief Inspector of Explosives or the Director of Finger
print Bureau or an officer of the Mint upon any matter or thing duly submitted to
him for examination or analysis and report in the course of any proceeding under
the Cr. P.C., may be used as evidence in any inquiry, trial or other proceeding
199
under the Code. Such experts may be summoned by the court upon any
application made by eith er party to the proceeding for examination on such reports.
The court is bound to summon in such cases .
Mode of Examination o f Experts
The form of question to an expert must be hypothetical. Here the premises
must be stated hypothetically and accurately in order to obtain his opinion on the
hypothetical data. They are either based on facts proved in the case or on facts
assumed to be proved for the purpose of the enquiry. Such questions are put in this
way. Assuming such and such an injury of such a kind of have been inflicted, what
is your opinion as to the nature of the weapon by which it was possibly or probably
inflicted. . ' ' '
17.9. SUMMARY
Rules of evidence become absolutely necessary both from point to view of time
as well as of certainty. In this lesson we are only focusing important definitions,
burden proof, presumptions and conclusive proof. Burden of proof of importance
where by reason of not discharging the burden which was put upon it, a party must
eventually fail. This burden will, at the beginning of a trial, lie on one party, but
during the course of the trial it may shift from one side to the other. Further we
have also discussed about expert evidence which is useful for the valuers.
1. Define “Burden of p roof
2. Write short notes on (1) Presume '
(2) Expert evidence ;
1. Law evidence - H.P VePa Sarathi,
17.12. KEYWORDS
Presumption - Assumption
Expert - Person having special knowledge

Foreign Law - Law of other country
□
200
LESSON-18
LAWS RELATING TO INHERITANCE AND SUCCESSION

STRUCTURE
18.1. Introduction
18.2. Objectives
18.3. The Hindu Succession Act, 1956
18.4. Definitons
18.5. Muslim Law of Succession
18.6. Summary
18.8. • Suggested Readings
18.9. Keywords
18.1. INTRODUCTION . ■. 'j
In India, law of succession is different for Hindus and Mohammedan,

Christians. Succession in case of Hindus governed by Hindu’s succession Act
Mohammedens are governed by their own personal law. Christian’s are governed by
Indian Succession Act. Testamentary succession is governed by the Indian
Succession Act, Study of law of succession will be helpful to the valuers for
determining the share of a person in property. In this lesson we are going to study
some important areas in personal law.
18 2. OBJECTIVES
In this lesson we are going to :
1) Know the salient features U .id u Law
2) Know the Mohammedan Law .
18.3. THE HINDU SUCCESSION ACT, 1956
The old Hindu Law was prevalent in th country for centuries together. But as
time passed on social set-up and family arrangements have undergone radical
changes and that indirectly necessitated for the change in the law also. By later
half of the nineteenth century many of the old ideas gave way to the new ideas an
a series of enactments came into force resulting in modification of the old Hindu
•V.*
Law. In the Second Half of 19th century Hindu Sucession Act which was enacted in
which we have also carried amendment to that effect. . In this lesson we are going
to study in detail about the Act.
SALIENT FEATURES OF THE ACT
The Act applies to all Hindus, Buddhists, Jains and Sikhs, but not to
Muslims, Parsis and Jews. (2) The Act has abolished impartiable estate not created
by statute, p f The Act does not apply to the properties of a person who married
under the provisions of the Special Marriage Act, 1954. (4) Special provision namely
Sec.6 is made with regard u- Mitak'-.hara coparcenary special rale of succession had
2 0 1
to ke applied to them only when a coparcener dies leaving behind a female heir
mentioned in class I of the Schedule or a male relative specified in that class who
claims through such female relative. (5) The Act recognized the right of Certain
female heirs to succeed to interest of a Mitakshara coparcener. (6) The order of
succession aided by the Act is based on the concept of love and affection. The rule
of preference based on right to offer pinda has been discardedV^fflt provides simple
rules of preference and where no preference can be made' to heirs take
Simultaneously. (8) The Act makes even remotest agnate or cognates to be the heir
^^J^The Act makes no distinction between male and female heirs. (10) The Act
repeals provisions of different Acts relating to succession under Matriarchal-system
prevailing in South India. (11) The Act abolishes Dayabhaga and Mitakshara
Schools of Hindu law relating to succession.î^) The Act abolishes Hindu women's
limited estate and makes her absolute owner of the property. '{¥$) The Act provides
uniform order of succession governing the property of a female JHindu dying
intestate.' Her children will become first heirs.followed by husband and parents. In
the absence of issues, property inherited by her from her father will revert to his
family and property inherited from her husband or father-in law will revert to
husband's heirs. •(Mf* The full blood shall exclude the half blood where the
relationship is the same in other respects. (15) Where two or more heirs succeed to
the property of an intestate, they take their share per capita and not per strips and
as tenants in-common and not as joint tenantSNî'^)' The right of child in the womb
at the intestate's death and subsequently bom alive, shall relate back to the date of
intestate’s death. (17) The Act recognizes the right of pre-emption. Where the
property of an intestate devolves1upon two or more heirs and any one of them
proposes to transfer his or her interest, the other shall have a preferential right to
acquire the interest proposed to be so ld .v p ^ T h e Act gives an unmarried woman, a
widow, or a woman deserted by or Separated from her husband, the right of
residence in her father’s house. (19) Murderer and widow remarrying on the date of
succession are not entitled to succeed to the properties of person murdered and the
relatives of the widow's husband. (20) Descendants of a convert have been
disqualified from inheriting the properties of their Hindu relatives, (21) The
disqualified heir is treated as one who had pre deceased the intestate. '(22) Disease,
defect or deformity is no ground of exclusion from inheritance under the Act. (23)
The Act entitles a male.; Hindu to dispose of his interest i n- a Mitakshara
coparcenary by will.
A p p l ic a t io n o f t h e a c t
The Act is applicable to all Hindu’s as contained in Sec. 2 of the Act. The Act
applies to persons governed by the Mitakshara and Dayabhaga, as also tc those
who were previously governed by the Mammakkuttayarh, Aliyasantana and
Nambudri systems of Hindu law. The Act governs any person who is not a Muslim,
Christian; Parsi or jew by religion. Buddhists /Jains and Sikhs are also governed
202
by the Act. The Act applies to Hindus in the whole of India except the State of
Jammu and Kashmir.
Though the Preamble to the Act states that the Act is amended and codify the
law relating to intestate succession among Hindus, chapter III of the Act deals with
' testamentary succession and the title of the Act has rightly stated that it relates to
succession and to intestate succession alone. •
18.4. DEFINITIONS
Section 3 .of the Act defines the following terms : agnate, Aliyasanthana law,
cognate, custom and usage, full blood, half blood and uterine blood, heir, intestate,
Marumakkattayam law, Nambudri law and related.
Agnate: If a person is related by blood or adoption wholly through males to
another he is said to be an agnate of the other.
Cognate: If a person is so related to the other but not wholly through males he
is said to be a cognate of that other.
Reversioner r The reversioners are the persons who are entitled to take the
property on the death of a limited estate holder. They are the heirs of the last male
holders Life Estate
Custom and .usage: It signify any rule which having been continuously and
uniformly observed for a long time has obtained the force of law among Hindus in
any local area, tribe community, group or family.
A custom to be a valid custom should satisfy the following requirements
1) They must have been continuously and uniformly observed 2) they should
have been observed for a long time 3) they should have obtained the force of law
due to observance for a long time 4) they should have obtained the force of law
among Hindus in.any local area, tribe community, group or family 5) the rule
should be certain 6) the rule should not be unreasonable; 7) the rule should not be
opposed to public policy 8) if the custom is a rule applicable only to a family it
' should not have been discontinued by such family.
Full blood. Haif blood, and Uterine blood . '
Two persons are said-'to: be-reâted to each other by full blood when they are
descended from a common ancestor By the samte wife and by h alf blood when they
• ' O ' *■
are descended from a common ancestor but by different wive£; two persons are said
to be related to .each other by uttering blood when thoy are descended from a
. : - » O *
common ancesters but by different .HusbaiyW...
• • • * * ' . * o c
Heir means any person •;male *or female who is entitled'‘to succeed to the
V- , o ©
property of an intestate under this Agt.- • . ..
Intestate , /•
A person is died intestate means no •instrument effecting disposition of his
property has been made by him - . ' . v-
203
M arum akkattayam Law means the system of law applicable to persons (a)
who if this Act had not been passed would have been governed by the Madras
Marumakkattayam Act, 1932, the Travancore Nayar Act; the Travancore Nanjinad
Vellala Act; the Travancore Kshatriya Act; the Travancore shavaka
Marumakkattayam Act; the Cochin Marumakkattayam or the Cochin Nayar Act
with respect to matters for which provision is made in this Act; or (b) who belong to
any community the members of which are largely domiciled in the state of
Travancore Cochin or Madras as it existed immediately before the 1st November
1956 and who if this Act had not been passed would Have been governed with
respect .to the matters for which provision is made in this Act by any system of
inheritance in which descent iii traced through the female line, but doeS not include
the Aliyasanthana law.
Nambudri law means the system of law applicable to persons who if this Act
had not been passed would have been governed by the Madras Nambudri Act,
1932; the Cochin Nambudri Act or the Travancore Malayala Brahmin Act with
respect to the matters for which provision is made in this Act;
Related means related by legitimate kinship:
Over-riding effect o f the Act
Section 4 of the Act gives over ridding effect to the provisions of this Act. It
runs as follows :
Sec.4 (1) : Save as otherwise expressly provided in this Act,
a. Any text, rule or interpretation of Hindu law or any custom or usage as part
of that law in force immediately before the commencement of this Act shall
cease to have effect with respect to any matter for which provision is made in
this Act.
b. Any other law in force immediately before the commencement of this Act
shall cease to apply to Hindus in so far as it is inconsistent with any of the
provisions contained in this Act.
For the removal of doubts it is hereby declared that nothing contained in this
Act shall be deemed to affect the provisions of any law for the time being in force
providing for the prevention of fragmentation of agricultural holdings or for the
fixation of ceilings or, for devolution of tenancy rights in respeet of holdings;
The, over-riding effects are two fold. 1) with regard to any matter for which the
Act provides specifically, that provision alone-shall prevail and not.any other rule of
Hindu law that might have been in force immediately before the commencement of
this Act by virtue of any text rule, custom or usage. 2) If any law in.force before the
commencement of this Act is inconsistent with the provisions of this Act that lav/
will cease to have effect.
204
Sec. 4 (2) i s ; a saving clause, since legislation is necessary to prevent

fragmentation o f holdings or for the fixation of ceilings or for the determination of
tenancy right relating to lands.
Retrospective effect
The Act is not intended to have retrospective effect. Its operation only
prospective in nature. But there are two exceptions. Section 14 of the Act applies to
properties acquired by a female holder whether before or after the commencemen'.
of the Act. Under Section 26 children born to a person who have ceased or ceases to
be Hindu by conversion to another religion are disqualified from inheriting the
properly of their Hindu relatives unless they are Hindus when the succession
opens. This Section also has got retrospective effect.
Devolution of interest in coparcenary property.
S.6. When a male Hindu dies after the commencement of this Act, having at
the time of this death an interest in a Mitakshara Coparcenary property, his
interest in the property shall devolve by survivorship upon the surviving members
of the coparcenary and not in accordance with this Act.
Provided that if the deceased had left him surviving a female relative specified
in class I of the Schedule or a male relative specified in that class who claims
through such female relative, the interest of the deceased in the Mitakshara
coparcenary property shall devolve by testamentary or intestate succession, as the
case may be, under this Act and npt by-survivorship.
Explanation -1 *
For the purpose o f this Section, the interest of a Hindu Mitakshara coparcener
shall be deemed to be the share in the property that would have
been allotted to him if a partition o f the property had taken place immediately
before his death irrespective of whether he was entitled to claim partition or not.
Explanation 2
Nothing contained in the proviso to this section shall be construed as enabling
a person who has separated himself from the coparcenary before the death of the
deceased or any of his heirs to claim on intestate a share in this interest referred to
therein.
The Section contains the most important provision of the Act. It proceeds first
by making a positive provision, i.e, whenever a Hindu male having an interest in
the coparcenary property dies after the commencement of this Act, this interest in
the property shall devolve according to the rule of survivorship and not according to ^
this Act. Secondly, it provides a special rule of devolution of coparcenary property
in accordance with the provisions of the Act, where a coparcener has died leaving a
female heir of class of the schedule or a male heir claiming through such female
heir. The crux of this Section is that if there is no such female heir, or male heir
claiming through: such female heir, the rule of survivorship is not at all affected.
This is understandable because the Act is primarily intended to ameliorate the
205
position of woman in Hindu society. Further, there is no much difference in a male

heir acquiring the property by survivorship or by succession.
\
By including the proviso to Sectidn 6, the entire concept of Mitakshara

coparcenary has been affected, because there can hardly be a family without female
heir mentioned in class I of the schedule to the Act. Presence of these female heirs
prevents the interest of a Hindu male, dying intestate after the Act, being devolved
by survivorship on the other coparceners.
Examples
1. A dies after the commencement of the Act leaving three sons B, C and D. By
virtue of the first portion of Sec, 6 As interest in the coparcenary property
passes on to B, C and D by survivorship.
2. A dies after the commencement of the Act leaving a son B and grandson G S,
through the predeceased son C and two grandsons GS 2 and GS3 -through
another predeceased son D. A's interest in the coparcenary passes on to B,
GS,, GS2 and GS3 by survivorship. B takes 1/3 GS. takes (being his fathers
i.e., C's share) and GS2 and GS3 together 1/3.
With a view to give equal right for female member as that of a male member in
the coparcenary property, the Tamil Nadu legislature carried out an amendment to
the Act.
Succession to property of a male intestate
The Hindu succession Act lays down two different schemes of succession, one
in Sections 8 to 13 for a male and the other in Section 15 for a female. The old
Hindu Law also provided for such separate schemes of succession
One important principle governing the Hindu law of succession is that
inheritance can never be kept in abeyance. When a Hindu dies his nearest heirs
succeed simultaneously to his property and become entitled to the property left by
the deceased.
This principle underlies the provisions of the Act. When a male or female dies
intestate the various provisions of the Act relating to intestate take effect and
devolution of property takes place accordingly. The share of each heir becomes
vested, in him or her and if the heir dies before partition his or her share will pass
on and become vested in such persons as are his or her heirs. It is to be noted that
under no circumstance will succession remain in abeyance.
Section 8 of the Act runs thus
The property of a male Hindu dying intestate shall devolve according to the
provisions of this chapter.
a. firstly, upon the heirs, being the relatives specified of the in class I o f the
Schedule
b. Secondly if there is no heir of class I then upon the heirs being the relatives
specified in class II of the Schedule;
206
c. Thirdly, if there is no heir of any of the^two classes then upon the agnates of
the deceased and
d. Lastly, if there is no agnate then1upon the cognates of the deceased.
e. Property includes all forms and types of interest answering to the description
of property in law. It must be heritable. It should not fall into any of the
categories mentioned in Sections 5, 6 and 7. Section 8 is intended to apply
to all kinds of separate property possessed by a Hindu whether it be self
acquired or not, obtained on a partition from his family where he has no
son. Section 6 provides for an exception in the case of corparcenary property
which is to devolve by survivorship. No distinction has been made in
Sections 8, 9, and 10 of the Hindu Succession Act between ancestral or non
ancestral property as to where from or how the deceased' had got it. Section
8 has no application to cases in which succession opened prior to the
passing of the Hindu Succession Act as the Section has got no retrospective
operation.
Dying Intestate
A male Hindu would not be held to have died intestate where it is established
that he had left a valid will. The words 'Dying intestate' as used in Section 8 means
in the case of intestacy of a Hindu male and does not refer to the date of the death
of the propositus. Although Section 8 of the Hindu Succession Act is not
retrospective the expression 'dying intestate' found in it would not necessarily mean
dying after the Act came into force. Where a male Hindu died before the Act came
into force leaving a widow who dies after the commencement of the Act, but the
widow does not become the absolute owner of the property under Section 14 of the
Act and the devolution opens after the Act, then Section 8 of the Act will apply.
This principle has been amply illustrated in Anthony Serva V. Pethi Naicker
[(1974) 2 M.L.J. 19] In this case one P, the last male holder of the property died in
the year 1944. His mother F suceeded to his estate as a limited owner according to
their prevailing Hindu law. She sold the property to several persons on various
occasions, all before 1956. She died in the year 1965. Thereafter plaintiffs, C l and
C2, who were the sons of the brother of the paternal great grand-father of P filed a
suit against the alienees for the recovery of the properties. One M, the sister's
daughter of P was impleaded as one of the defendants to the suit. The plaintiffs
contention was that they .were entitled to the properties as reversioners as per the
Hindu law in force in 1944 in which year P passed away. M, on the other hand
contended that she was entitled to the properties as she was class heir under
Hindu Succession Act 1956, which was in force when the limited owner, i.e. the
mother of P died. *
207
Omat-Qreat Grand father

- m ' v :-;
6 F
M (o n e of tb e defendantiB)
The question of law involved in this case is, what is the crucial date for the
purpose of succession? Is it the actual date of last male holder's, death or the date
of death of the intervening limited owner? The trial court held that the crucial date
for determining the heirs of the deceased last male holder was the actual date of
death of the last male holder. Accordingly it decreed the. suit in favour of the
plaintiffs, as they were the nearest heirs to P as per the law in force in 1944. When
the matter came up before the High Court, it held that though the last male
holder's physical death was on a particular date, for the purpose of determining the
order of succession, fictionally he would be deemed to have died only on the date on
which the intervening limited owner died. In other words P must be deemed to have
died in, 1965 which is the year of the death of his mother, the limited owner.
Therefore it reversed the finding of the trial court and gave a decree in favour of M.
Scheme o f Succession
Section 8 classifies the heirs of a male into four classes. The first class
comprises the following : his widow, mother and his immediate descendants in the
2nd, 3rd and 4th degrees. The second;, class comprises his ascendants, collaterals
and some 4th degree descendants. The third class comprises the remaining agnates
and the fourth class the remaining cognates.
Order of Succession: According to Section 9 the persons in class I shall take

simultaneously and the exclusion of all other heirs, those in shall the first entiy in
class II shall be preferred to those in the second entry; those in the second entry
shall be preferred to those in the third entry.
Distribution o f property o f an intestate shall be divided among the heirs in
class I as per the following rules
Rule l:The intestate’s widow or if there are more widows than one, all the
widows together, shall take one share.
208
Rule 2: The surviving sons and daughters and the mother of the intestate shall
each take one share
Rule :3 The heirs in the branch of each predeceased son or each predeacesed
daughter of the interstate shall take between them one share.
Rule :4 The distribution of the share referred to rule 3
ijAmong the heirs in the branch of the predeceased son shall be so make his
widow and the surviving sons and daughters get equal proportions and the branch
Of his predeceased sons gets the same portion.
.ii) Among the heirs in the branch of the predeceased daughter shall be so
made that the surviving sons and daughters get equal portions
Distribution o f property am ong heirs in class II: According to Section 11,

the property of an intestate shall be divided between the heirs specified in any one
entry in class II of the schedule so that, they share equally.
Order of Succession among agnates and cognates: According to Section 12,

the order of succession among agnates or cognates shall be determined in
accordance with the following rules.
Rule 1 Descendants are preferred to all the others, among descendants the
heir who has fewer degrees of ascent in preferred.
Rule :2 Ascendants are preferred to collaterals. Among ascendants the one
with fewer degrees of ascent, is preferred.
Rule 3 : Where neither heir is entitled to be preferred to the other under Rule
1 or Rule 2 they take simultaneously
If there is no heir of class I then relatives mentioned in class II succeed to a
male Hindu dying Intestate. Class II mentioned in the schedule to the Act consists
of nine groups as follows. The total number of heirs falling under class II are 23.
The nine, groups are;
❖ Father;
❖ (1) Son's daughter's son (2) Son's daughter's daughter, (3) brother (4) sister;
❖ Daughter's^ son's-son (2) Daughter's son's daughter. (3) Daughter's
daughter's son (4) Daughter's daughter's daughters;
❖ Brother's son (2) Sister's son (3) Brother's daughters (4) Sister's daughters;
❖ Father's father; Father's mother;
❖ Father's widow; Brother's widow;
❖ Father's brother; Father's'sister;
❖ Mother's father, Mother's mother;
❖ Mother's brother, Mother's sister.
209
Relatives specified in class I of the schedule are:

(1) son (2) daughter (3) widow (4) mother (5) son of:a predeceased son (6)
daughter of a predeceased son (7) son of a predeceased daughter (8) daughter of a
predeceased daughter (9) widow of a predeceased son (10) son of a predeceased son
of a predeceased son (11) daughter of a predeceased son of a predeceased son and
(12) widow of a predeceased son of a predeceased son.
Mitakshara Law preferred blood relationship in ranking for succession;
Dayabhaga Law preferred persons who had more capacity in the matter of the
pindas. Under the Hindu Succession Act we find the principle of nearness of
relationship either through male or female relations both by blood and marriage is
followed. The test now adopted is not the religious test of Sapindaship but that of
affinity.
Under the Hindu Succession Act the law of intestate succession has been
changed and overhauled on the basis of propinquity and affection. Now, we may
note the position of some of the first twelve heirs noted in class I relation to the old
Law. •
Son
The term 'son' used in class I has not been defined in the Act. Under the
Hindu Adoption and Maintenance Act, adopted son acquires all the rights of a
natural bom son and so even if a natural son is born after adoption of a son the
adopted son shall continue to enjoy all the rights of a" natural born son. Under
Section 20 a son of an Intestate who was in the womb at the time of the death of
the Intestate is deemed to have been born before his 'death' for purposes of
succession. When a son is bom after partition the son so bom will take an interest
by birth in 'the property obtained in partition by-'father and it will be their
coparcenary property.. If the father dies -after the commencement of the Act
devolution of the father's interest in such coparcenaiy-will be governed by Section 6
of the Act and as regards his separate property and self acquired property
succession will be in accordance with Section 8 of the Act. Under the old law a son
who was in his mother's womb at the time of partition was entitled to a share
though born after partition. If no share was reserved for him at the time of partition
he is entitled to have the partition reopened and share allotted to-'him. If the father
has reserved to himself a share on partition and after-partition a son is begotten
and born the .partition cannot be, reopened. If the father has not reserved a share
to himself on a. partition the son begotten and born after the partition will be
entitled to re open/the partition and to have a share allotted to him. Both from the
property that §tood at the time of partition and put of the accretions there to
(accumulations made with the help of that property).
Bot& the divided son and the undivided son are treated equally under Sec 8 of
the Act. But under the old law a distinction was made between them. Under the old
law undivided son was preferred to succeed to the property over the divided son. A
step-son cannot be treated as a son.
Daughter
An adopted daughter also will be deemed to be the daughter of the adoptive
parents for all purposes. An illegitimate daughter is not entitled to succeed. Prior to
the passing of the Act a daughter should take only a limited estate. Under the Act
she take the property or her share in the same property absolutely. The Act makes
no distinction between married and unmarried or between those provided for and
those not provided for. And as such all daughters are entitled to succeed together.
But under the old law the married daughters were excluded by the unmarried,
except when the unmarried was not chaste; those who possessed means were
excluded by daughters who were unprovided.
Widow
Under the old Hindu law the widow of a predeceased male Hindu the widow of
a predeceased son and the widow of a predeceased son of predeceased son were not
entitled to succeed as heirs. By the passing of the Hindu Women's Right to Property
Act of 1937 from 14th April 1937 they were entitled to succeed to a limited estate.
But now under the Hindu Succession Act, 1956 these widows get their shares
absolutely by virtue of Section 8 and Section 14 of the Act.
Section 24 of the Hindu Succession Act provides that three widows viz., the
widow o f a predeceased son, the widow o f a predeceased son of a predeceased son
and the widow of a brother shall not be entitled to succeed to the property of the
intestate to whom they are so related if on the date when succession opens they are
remarried. These widows are so excluded only in their capacities as such widows,
but not where they are entitled to claim otherwise. A widow remarrying was
divested of the estate she inherited as the widow according to the provisions of the
Hindu Widows Remarriage Act 1856. But Section 4 of the Hindu Succession Act
abrogates the operation of the Hindu Widow's Remarriage Act 1856 and Section 4 of
the Hindu Succession Act 1956 provides the widow an absolute estate.
Formerly unchastity of a widow was a disqualification. But Section 8 of the
Hindu Succession Act 1956 provides that no person shall be so disqualified.
Change of religion and loss of caste were once considered to be the grounds of
forfeiture of property and exclusion from inheritance later on such a disability was
removed by the Caste Disabilities Removal Act, 1850, Conversion of Hindu widow to
another religion cannot be a ground for divesting her property inherited by her from
her husband.
Daughter's son
Daughter's son was recognised as a sapinda and ranked after the daughter
provided his own mother or any other daughter of the deceased was not living at
211
the time the succession opened. Under the Dayabhaga he was entitled to succeed
in preference to another daughter if she was childless widow.
Under the Hindu Succession Act the daughter's son shall succeed along with
other heirs mentioned in Class I. But he is not entitled to succeed when his mother
is alive at the time of opening of the succession.
Daughter o f a predeceased son
Under the old law the daughter of a predeceased son was not an heir. But
now under the Hindu Succession Act she is also one of the heirs in Class I. She
takes the property absolutely. [Neither remarriage nor unchastity can affect her
succession]
Certain significant features as regards the position of class I heirs in
comparison with their position under the old Hindu law may be noted thus.
1. Father was given priority over the mother in the Dayabhaga. Mother is
preferred under the Act as in Mitakshara.
2. Son's daughter's daughter was not an heir under the old law but now she is
an heir who takes the property along with the brother and sister of the
deceased. •
3. Son's daughter's son was a far remoter heir than the brother under the
Dayabhaga. But under the Act he succeeds along with the brother.
4. Sister was not recognised as an heir (except in the Bombay school) under
the old law until the passing of the Hindu law of Inheritance (Amendment)
Act of 1929. Under the Dayabhaga she was not an heir even after the Act of
1929. Even under the Act of 1929 brother was preferred to a sister. Under
the Hindu Succession Act both rank-equally along with the other heirs
mentioned in group II of class II of the schedule.
5. Daughter's son's son, daughter's son's daughter, daughter's daughter's son
and daughter's daughter's daughter were not heirs except under the Bombay
and Mayukha schools. They are now heirs under the Hindu Succession Act
taking absolute shares.
6. A brother's daughter and a sister's daughter were not heirs under the old
law. They have been made as heirs under the Hindu Succession Act of
1956.
7. Both grandmother and, grandfather succeed simultaneously under the,-
Hindu Succession Act, 1956. But under the old law either of them was
preferred according to the school to which they belonged.
8. Under-the old law except under the Bombay and Mayukha subschools
father’s widow and a brother's widow were not heirs.. But under the, Hindu
Succession Act they are heirs and rank equally.
9. .Father's brother was.a sapinda and not the father's sister. Under the Hindu
Succession Act, 1956 both of them are ranked equally and succeed
simultaneously'.
212
10. Mother was not an heir under the old law. Mother's mother is recognised as
an heir and is entitled to succeed along with mother's father under the
Hindu Succession Act, 1956.
11. Mother’s sister was not an heir. And now she is made an heir to Succeed
along with mother’s brother/
We find that certain heirs have, been newly added in tune with the principles of
giving preference to those who are closer in affinity and of giving equal shares to
both males and females of equal degree
Agnates
When a person whether a male or a female is connected with the deceased by
blood or adoption wholly through males is called an agnate. Under the Hindu
Succession Act, 1956 when there is no heir belonging to the first two classes all the
agnates shall succeed. Unlike the old law no limitation of degrees is recognised
under the Hindu Succession A ct Formerly only agnates upto 14 degrees were
recognised as heirs. Remoter agnates succeed in preference to nearer cognates
under the new Act.
Cognates
Cognate is a person who is related by blood or adoption to the deceased
through a female and not wholly through males.
Under the old law cognates up to the 5th degree only could succeed. But
under the Hindu Succession Act there is no limitation as to degrees. Cognates
succeed to the property of the deceased in the absence of cl. 1 and cl. II heirs of the
schedule and also all agnates.
Section 8 of the Act has provided a uniform scheme of succession to all
schools. It has eliminated the special heirs such as, preceptor, a disciple and a
fellow student. It has further recognised agnates and cognates as heirs without
reference to the theory of spiritual efficacy and has done away with the distinction
between the Mitakshara and Dayabhaga schools, as to who was a heritable
sapinda.
Simultaneous Succession
Section 9 of the Act provides for the simultaneous succession among the heirs
of Class I. Though this section has not specifically stated that there shall be
simultaneous succession among the heirs noted in one entry of Class II it has been
held that the groups of heirs specified in each one entry under Class II will succeed
in preference to subsequent entry or entries-Arunathalathammal v. Ramachandran
Pillai, [A.I.R. 1963 Mad 255] <
Examples
1. A dies leaving him surviving among others his widow, two sons, son of a
predeceased son, two daughters and a son of a predeceased daughter. All
these are among the preferential heirs specified in Class I. They take A's
213 >/
property simultaneously and to the exclusion of all other heirs such as

father, brother and son's daughter's son who are heirs specified in Class II.
2. A dies leaving him surviving (SSW), the widow of predeceased son of a
predeceased son, son's daughter's son and his brother SSW being the only
heir specified in Class I will take the whole of A's property to the exclusion of
all the other heirs. But if SSW has remarried during the life time of A she
will not be entitled to succeed to A's property. It will devolve equally upon A's
sons daughter's son and brother who are both heirs specified in Entry II of
Class II.
3. A dies-leaving himl surviving his father and son's daughter's son. The father
being an heir specified in Entry of Class II will take A's property in
preference to the exclusion of the son's daughter's son who is an .heir
specified in Entry II of Class II,
4. A dies leaving him surviving two brothers a son's daughter's son and .a
daughter's son's son. The brothers and a son's daughter's son being heirs
specified in Entiy II of Class II will take as property to the exclusion of the
daughter's sons who is an heir specified in Entry III of Class II.
5. A dies leaving him surviving a brother, a step brother and the son of a
predeceased brother. Full blood is preferred to half-blood (Sec. 18) and
therefore the brother who is an heir specified in Entry II of Class will have
preference over step-brother and will take the whole of as property to the
exclusion of the step-brother and of the brother's son who is an heir in Entry
IV of Class II. If A dies leaving only his stepbrother he will take the property
to the exclusion of the brother's son.
6. A dies leaving him survive,0 t step sister, a uterine brother and a uterine
sister. The-step sister will take the whole of A's property as she is within the
meaning of sister specified as an heir in Entry II of Cass II of the Schedule.
Reference to 'brother' or 'sister' in the Schedule does not include reference to
uterine brother or uterine sister.
7. A dies leaving him surviving a brother’s son and sons and daughters of his
sister. They are all heirs in Entry IV of Class II and will take A's property
simultaneously and in equal shares.
8. A dies leaving, him surviving his sister C and his brother's son, B S. The
sister C being an heir in Entry II of Class II is a preferential heir to BS who is
an heir in Entry IV of Class II.
Distribution o f property
Section 10 speaks about the distribution of property among heirs in Class' I of
the Schedule. The widow or widows together will take one share. Each one of the
surviving sons, daughters and the mother get a share. As in the case of widow,
heirs belonging to the branch of each predeceased son or predeceased daughter will
take between them one share and each daughter of the predeceased daughter shall
take an equal share among themselves.
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Examples
1. A dies leaving him surviving his widows W i and W 2 his mother M and two
sons Si and S2 and two daughters Di and D2 . Sj S2 Dj, D2 and M will each
take one share, that is one sixth share and W, and W 2 will together take one
sixth share. Therefore, each widow will take one-twelfth of the property left
by A.
2. A dies leaving him surviving his widow W; a daughter D; a son S; SS, SS2
and SD, the two sons and daughter respectively of a predeceased son. S.W.D
and S will each take one share that is one fourth., \nd SS , SS and SD will
together take one-fourth. The portion of each of them will be one-twelfth of
the property left by A.
Section 11 deals with the distribution of property among heirs in Class II of
the Schedule. It states thus. "The property of intestate shall be divided
between the heirs specified in any one entry in class II of the Schedule so
that they share equal-” ". The word 'entry* occurring in Section 9 refers only
to all that goes under the Roman numeral and not the Arabic one in Sched
ule (Class II)'
Examples
1. In examples (4) under Sec. 9 the two brothers and the son's daughter's son
who are heirs specified in Entry II will share equally, that is each will take
one third of the-property of the intestate:
2. A dies leaving him surviving a brother's son and son's and daughters of his
sister. They are all heirs in Entiy IV of class II and will take as property
'simultaneously and in equal shares.
3. B dies leaving him surviving three daughter's daughter's daughters and
daughter's son, the former being the ^rand children of his predeceased
daughter D and the latter being the grand son of another predeceased
daughter Di The distribution will not be according to the branches of the
daughters, but all the four heirs will share equally, that is, each of them will
take one-fourth of the property of the intestate.
4. A dies leaving him surviving his father's full brother, his father's step
brother and three full sisters of his father. Full blood is to be preferred to
half-food in this case, as the nature of relationship is the same in every
other respect. The distribution between the full brother and the full sisters of
the father, though they belong to what may be-described as sub-divisions,
will be that they share equally. The brother and the three sisters of the
father will each of them take one-fourth of the property of the intestate.
Section 12 mentions the order of succession among agnates and cognates. The
heir in the descending line excludes the heir in the ascending and collateral lines.
The heirs in the ascending line are preferred to the heirs in the collateral line.
A.mong the heirs in the same line nearer in degree is preferred to the more remote.
215
When two heirs are related to the deceased in the same degree of as the lieir of
asent vwho has no degrees of descent or who has fewer degrees of descent is.
preferred.
As between collaterals one who has fewer degrees of ascent will be preferred
irrespective of the degrees of descent.
Computation of degrees
Section 13 lays down the rules pertaining to the computation of degrees. It-
provides thus; (1) For the purpose of determining the order of succession among
agnates or cognates, relationship shall be reckoned from the intestate to the heir in
terms of degrees of ascent or degrees of descent or both as the case may be
(2)Degrees of descent shall be computed, inclusive of the intestate (3) Every
generation constitutes a degree either ascending, or descending.
Example
1. The heir to be considered is the father’s mother's father of the intestate. He
has no degrees of descent, but has four degrees of ascent represented in
order by (1) the intestate (2) the intestate's father (3) that father's mother,
and (4) her father (the heir).
2. The.heir to be considered is the son's daughter's, son’s daughter of the
intestate. She has no degrees of ascent, but has five degrees of descent
represented in order by (1) the intestate (2) the intestate's son, (3) that son's
daughter, (4) her son and (5) his daughter (the heir).
3. The heir to be considered is the mother's father's sister's son (that is
mother's father's, father's daughter's son) of- the intestate. He has four
degrees of ascent repn in order by (1) the intestate (2) the intestate's
mother, (3) her father, and (4) that father's father and two degrees of descent
represented in order by (1) the daughter of the common ancestor (viz., the
mother's father's father, and (2) her son (the heir).
Changes brought by The Hindu Succession (Amendment) Act,2005
The Act abolished the prevention of disintegration of agricultural holding or
the fixation of ceiling for the devolution of tenancy rights provided under Section
4(2) Hindu Succession Act, 1956
The Act treats daughter as coparcener by birth and confers all rights in the
same manner as the son (Section 6).
The Act abolished the ancient doctrine Pious obligation
The Act omitted Section 23 of Hindu Succession Act, 1956 which disentitles a
female heir to seek partition in dwelling house . ...
The Act omitted Section 24 of Hinplu Succession Act, 1956 which provides any
heir who related to an intestate as the widow of a predeceased son , the widow of a
predeceased son of a predeceased son or the widow of a brother shall not be
216
# ' *
entitled to succeed the property of-the intestate as such widow if on the date the
succession opens , she has remarried.
The Act inserted the words “disposed o f by him or by her” in Section 30 and
thus facilitated any Hindu male or female to dispose of by will or other
testamentary disposition any property in accordance with the provisions of the
Indian succession Act, 1925, or any other law for the time being in force and
applicable to Hindus
The Act added four heirs (13-16 as class heirs under Section 8) .they are
1) Son of a predeceased daughter of a deceased da 6kU;r
2). Daughter o f a predeceased daughter of a predeceased daughter
3). Daughter of a predeceased son of a predeceased daughter.
Right to Preemption
Right to Preemption means preferential right to acquire property. It is dealt
under Section 22.According to this Section when immovable property of an
intestate devolves upon two or more heirs of class I and if any one of the heirs
desires to dispose of his interest in the property or in the business, the other heirs
have a preferential right to purchase such interest proposed to be transferred.
Thus the co-heirs of class I. Thus Section 22 contains four schemes .They are
Scheme I It confers a stuatoiy right on the co owner
Scheme Ii It determines priority between competing interests of claimants

Scheme III It enforces the said primary right
Scheme IV It deals with the form
Dwelling house: Where dwelling house- is included in the property of a Hindu
dying intestate and the intestate leaves behind both male and female heirs
(specified in class I of the schedule) who occupy the dwelling house any such female
heir can claim partition of the dwelling house as per the Amended Act. Before
Amendment Act of 2005 female heir cannot claim partition of the dwelling house
unless and until the male heir choose to divide their respective Share Thus
Section 23 confers upon the female heirs a right to claim partition of their share
in the dwelling house.
Disqualifications
Section 24 to 28 deals with the disqualification to inherit the property under
Hindu law. they a re.
Section 24 Certain widows remarry may not inherit as widow (omitted in 2005
Amended Act)
Section 25 Murder disqualified : A person who commits murder or abets the
commission of murder shall be disqualified from inheriting the property of the
217
person murdered or any other property in furtherance of the succession to which

he or she committed or abetted the commission of the murder. .
Section 26. Convert’s descendents disqualified : A Hindu who has'ceased or
ceases to be Hindu by conversion to another reliligion, children bom to him or her
after such conversion and their descendents shall be disqualified from inheriting
the property of any of their Hindu relations , unless such children or descendants
are Hindus at the time when the succession opens
Section 27: Succession when heir disqualified: If any person is disqualified
form inheriting any property under this Act. It shall devolve as if such person -had
died before the intestate. .
Section 28: Disease, Defect etc., not to disqualify: No person shall be
disqualified from succeeding to any property on the ground of any disease, defect
of deformity .
Testametary Succession Means aquistion of property by Will.Section 30 deals ‘

with the testamentary succession .This Section fundamentally deals with following
matters •
It saves the law relating to will is applicable to Hindus
It saves the procedural laws as applicable to Hindus under the Indian

Succession Act
It confers testamentary powers of disposal on Hindu male over his interest in

a Mitakshara coparcenary property
18.5. MUSLIM LAW
General Principles of inheritance : The law of inheritance is founded on the
principles of Quaran, Preislamic customs and usages. Inheritance arise only on
death.A right by birth is unknown in muslim Law. The dead owner of the property
is called propositus Muslim law of inheritance described as a complex
infrastructure of devolution of the estate.
Position Under Pre islamic customary law
The following persons are entitled to inherit the estate of t)he deceased.
1. Nearest male agnate or agnates were entitled to inherit estate
2. Descendants were ascendants and ascendants to collaterals
3. When agnates were equally distant estate was divided per capita.
4. Females and cognates were excluded
The above position is changed by the principles of quaran and the prophet
made certain reforms and amendments to them. He introduced ‘newly created
heirs’ who did not get any share under pre islamic law.
1. The husband and wife
2. The females as well as cognates
3. The parents and ascendants ,
218
Who can inherit The person entitled to inheritance is based on the relations in
accordance with preferential claims .They are different under Sunni and Shia law
of inheritance.
Sunni Law
The following persons are entitled to inherit the property of the deceased under
Sunni law
I .Shares : Relatives specifically fixed by Quaran
2. Residuaries : Relatives who gets the left over property
Distant kindered : persons who are neither sharer nor residuaries
II Shia Law: The following group of persons are entiled to inherit the property
of the deceased under shia law
Group I : A Parents
B Children and other lineal descendants how low so ever

Group II : (a)A Grand parents how high so ever
b Brothers and sisters and their descendants how low so ever
Group III : (a)A Paternal uncles and aunts how high so ever.
(b) Maternal uncles
Rules o f inheritance
Under Muslim law there are five doctrines of inheritance .They are
1.Rule of representation
2. Rule of Exclusion
3. Rule of Primogeniture
4. Rule of vested inheritance and
5. Rule of spes successionis
1. Rule o f representation
It is other wise known as Doctrine of Representation. Muslim law does no:
recognize the Doctrine of Representation. According to this rule the son of a person
deceased shall not represent such person if he died before his father. He shall not
stand in the same place as the deceased would have done has he been living, but
shall be excluded from the inheritance , if he has a paternal uncle.
2. Rule of Exclusion: Exclusion means keeping out.Eveiy person entitled to
inherit unless there is a specific rule excluding him. Some persons may be
disqualified to inherit the property of the deceased even though they are legal heirs.
Law may sometime impose certain obstructions on inheritance
a. Homicide ; -(| _i>:.

b.Illegetimacy . .. . .
c. Slavery
219
d. Religious difference
e. Country difference
f. Estoppel in succession
g. Rule of exclusion
h. Exclusion of daughters
1. Rule of primogeniture: Primogeniture means seniority on the basis order of
birth born.Where a person has several sons , the eldest son has a
preferential claim over the estate of the deceased father. Shia law recognizes
this rule and it confers an exclusive right to the eldest son to claim in
wearing apparel, Quaran, ring, swords,arms and horse.
2. Rule vested inheritance : This rule is also known as Doctrine of double
inheritance. Vested means immediate .The share arising out of inheritance
vestes in the h eir immediately on the death of the deceased. It commences
from the moment a person takes his last breath. The actual distribution of
share in the property may take place in future. Therefore there shall be
immediate devolution of property .This rule is known as rule of vested
inheritance.
3. Rule of Spes successionis : Spes successionis means mere hope or chance of
succeeding to the property of another. Succession opens only on the death
of the propositus.There can be no inheritance during the life time of the
propositus. However during the life time of a person all that an heir apprant
has is a mere chance of inheriting. This is known as rule of spes
successionis.
Sunni Law o f inheritance
Sunni law of inheritance is founded on pre Islamic customary law. The
distribution and allocation of shares shall be made in accordance with the
principles of the school to which the heir belongs Under sunni law the agantes take
preference over cognates.The succession based on the principle of agency i.e tasib.
The close relatives of the deceased are given first preference in inheritance .they are
known as Quaranic heirs or shares. Other rlatives are not excluded from Quaranic
heirs.Female relatives may also iriherit either as quaranic or as residuary heirs
Under Sunni law the heirs are classified into three catogories. They are
Classification o f heirs
I shares
Male shares
1. Husband
2. Father .
3. Grandfather how high so ever
Female shares
220
' l.Wife. *
2. Mother
3. Grandmother how high so ever
4. Daughter
. 5. Son’s daughter
6 .Uterine sister *v
7. Full sister
v8. Consanguine, sister
II Residuaries ,
Descendants
1. Son • ^
2. Son’s son
Ascedants
1. Father
2. True granfatherhow high so ever
Descendants o f father
1. Full brother ,
2. . Full sister
3. consanguine brothers
4. . Consanguine sisters
5. Full brother’s son
6. Consanguine brother’s son
7. Full brother’s son ‘s son
8. Consanguine brother’s son’s son
Descendants of true grandfather how high so ever
1. Full paternal uncle

2. Consanguine paternal uncle "»
3. Full paternal uncle’s son
4. Consanguine paternal uncle’s son
5. Full paternal uncle ‘s son’s son
6. consanguine paternal uncle’s son’s son
7. Male descendants of more remote true grandfather
III. Distant Kindered
Descendants of the deceased
1. Daughter’s children and their descendants • •
2. Children of son ‘s daughter how high so ever and their descendants
J
221
Ascendants of the deceased

1. False grandfather how high so ever
2. False grandmother how high so ever
Descendants of parents
1. Full brother’s daughter and their descendants
2. Consanguine brother’s daughter and their descendants
3. Uterine brother’s children and their descendants
4. Daughter of full brother’s son how high so ever their descendants
5. Daugthers of Consanguine brothers sons and their descendants
6. Sister’s (full, cong or Uterine) children & their descendants
Descendants of immediate grand parents , true or false
1. Full paternal uncle’s daughter and their descendants
2. Consanguine paternal uncle’s daughter and their descendants
3. Utrn paternal uncle & their children & their descendants
4. Daughters of full paternal uncle’s sons & their descendants
5. Daughter of consg paternal uncles son and descendants
6. Paternal aunt and their children and their descendants
7. Maternal Uncles and aunts and their children and their descendants and
descendants of remoter ancestors ancestors how high so ever.
Sunni law o f Inheritance among sharers
The shares have been specifically fixed by Quaran .The extend of distribution
of shares is shown below. The close relatives of the deceased will get a substantial
part of estate. However, a Muslim cannot dispose of by will his entire part of the
estate. However, a Muslim cannot dispose of by will his entire property without the
consent of the other heirs. The shares are nearer than the residuaries and distant
kindered .Hence the distant kindered do hot inherit if there are either sharers or
residuaries. *.
Primary heirs
Son A son always a residuary. The shares of others are reduced so as to allot
some portion of the property.
Daughter A daughter is also residuary otherwise she gets Vi share
. When there are two or more 2/3*

Husband A husband is always sharer
With child or child of son how low so ever 1/4*
Wife /Wives ife or wives are always sharers

With child or child of son hbw low so'ever ' 1/ 8*
i ^ ^
With no child or child of son how low so ever 1/4*
1 / >•
222
Father A father is' a residuary

With son or son’s son, son how low so ever 1/6*
With no son or son’s son how low so ever father becomes
Both sharer and as residuary
Mother A mother is never a residuary
When there is child or child of son how low so ever or more
Than one brother or more than one sister or one sister
And a brother 1/6*
Otherwise 1/8*
II Substitutes for Primary heirs
Son’s daughter how low so ever
When she is converted in to a residuaiy V*
When there are two or more daughter 2/3
With one daughter / his son’s daughter 1/6*
The grand father is a substitute for father

When he is not excluded 1/ 6th
True Grandmother 1/6*
Where there are two or more 1/6 *
III.Brothers and sisters
The uterine brother not excluded by a child 1/ 6 *
Wliere there are 2 or more uterine brothers 1/3rd

>
When there are utrine brothers &. sisters 1/3rd
Full sister who is excluded by a child V2
Consanguine sister not excluded V»
Where there are 2 or more consanguine sisters 2/3 rd
Principles o f succession in respect o f shares
1. A person who claims his relation to the propositus through certain person
cannot claim the portion of the estate while that person is living. Hence the
father excludes a brother or sister. Mother does not exclude Uterine brother
or sister. This an exception
2. within each class of heirs the nearest in degree excludes the remoter . Hence
son excludes the remoter. Hence son excludes son’s son, father excludes
father’s father or father's mother. Father does not excludes mothers mother.
This is an exception
3. The corresponding primary heirs exclude the substitute heirs
223
Shis Lsw of Inheritance.

Shia Law of inheritance is not complex as sunni law of inheritance. It is simple
and does not speak the relative rights of aganates and cognates. Shia law does not
recognized the principle of Agnacy. It does not give any special place or postion to
agnate relatives. The parental relations of male sex are not given special privileges
nor are they preferred to the relations connected with the deceased through females
the paternal relationship of the male sex relations connected with the deceased
through females are treated equally.
Classification o f heirs
Under shia law the heirs are classified into two categories basing on the two
grounds
They are
1. Nasab or heirs by Consanguinity . •
2. Sahab or heirs by special cause.
Nasab or Heirs by Consangunity: They are heirs by Blood relationship
Class 1. Parents
2. Children and other lineal descendants how low so ever
Class II 3. Grandparents either true of false How low so ever
4. Brothers and sisters and their decendants how low so ever
Class III 5. Paternal uncles and aunts of the deceased
6. Maternal Uncles and aunts of the deceased and their descendants how low
so ever
II.Sahab or heirs by special cause: They are heirs by special cause
1. By marriage or Zoujiyat
2. By special relationship or wala
Sharers under Shia Law : There are three classes of heirs and heirs by
special cause such as marriage and relationship under shia law among which 9
shares are divided They are
I.Class I
1. Husband A husband is heir by affinity; with child 1/4th
2. wife A wife with child 1/8*
3. Daughter A daughter is a sharer when there is not son Vn
4. Father with son or son’s son 1/6*
5. Mother A mother without lineal descendants 1/3rd
A mother with lineal descendants 1/6*-
These five class I sharers are never excluded
II. Class II
224
6. -Uterine brother Uterine brother ; when only one l/ 6 th

7.Uterine sister Uterine sister , when only one 1/6th
Two or more uterine brothers or sister
Each l/3rd
8.Full sister Full sisters gets x/i

9 Consanguine sister Consanguine sister gets 1/2
Principles o f succession : The following principles of succession are
applicable under shia law
1.Rules o f priority
1. Among blood relations preference in distribution shall d.epend upon the
nature and quality of their relationship or Qarba with the deceased.
2. Such relationship shall be determined by class, degree and strength of
blood tie.
3. Heirs by marriage will succeed on par with the heirs by blood
4. Husband and wife always succeeds whoever be the surviving blood relations
5. Both spouses will inherit along with the nearest heirs by consanguinity
6. The husband will take % th share when there is a lineal descendant and Vi
when there is no such lineal descendant.
2. Rules o f class
1. Residuaries are entitled to receive their share in the residue ’
2. priority is given among blood relations
3. class I heirs are given preference
4. the nearest excludes the remoter
5. The parents of the desceased are neither remoter nor' nearer than his
descendants
6. When there are two or more claimants in the same generation the Uterine
blood will given first priority
7. The brother’s son will be excluded by the sister.
8. The mother’s mother will exclude the father’s father ‘s father
9. under class III heir, the nearest of them all succeeds and any member of
third class competes against all other members.
3. Rules ofdogr&e
1. within each section of classes I, II, and III the nearer in degree excludes
. the more remote
2. in class I , the rule of degree operates to exclude only lineal descendants
3. In class II, the rule of degree operates within each of the two groups but
not between them
4. In class III, the rule of degre e operates within several sub clauses . N
225
4. Rules o f strength o f blood tie.

1. Among collateral relatives who are equal under the rules of class and
degree, the final determination of priority is the strength of the blood
connection
2. The grandfather , grandmother and agnatic grand daughter are noc
included in the list of quaranic heirs.
3. The system of priority by Qarba precludes any chance of the defacto
exclusion of residuary heirs such as may occur under sunni law when the
portions of the entitled Quaranic heir exhaust the state.
5. Rule o f entitlement
1. This rule is subject to Doctrine of representation. A male takes twice the
share of a corresponding female relative
2. The estate will be distributed among the relatives on paternal side.
3. The males and females take equal shares.
I. Principles o f Distribution
The following principles are followed in the distribution of the property under
shia law
First Class heirs
1. Quranic heirs : The nearer in degree excludes the more remote relatives
quaranic heirs are given the first priority for succeeding the property. The
rest of the property if any shall be distributed among the residuries
2. Lineal descendants : The eldest son shall superior position. Chidren inherit
on a residual a male is entitled to take twice the share of female.When the
children of the parents have died, the grand children will inherit the
property of the deceased the greate grandchildren will take the portion which
their respective parents, if living , would have taken.
3. Parents :The parents can claim their share in two capacities such as
quaranic heirs and resdue holders .the father will get 1/6* share if the
deceased has left lineal descendant .the mother will get 1/6th share if there
is lineal descendants or when there are two or more full or consanguine
brothers .other wise she will get 1/3 rd share only.
4. Grandparents : The grandparents will succeed only when there is no any
parent of lineal descendent of the deceased .The paternal grandparents have
right to take the residual share of the father.
5. Great Grand parents : The number of great parents comes only when there
are no grandparents. The rule of double share to the male shall be
applicable only to the parents of the paternal grandfather of the deceased.
1. Brothers and sisters

226
a. Uterine brother or titter: The uterine brother or sister will take 1/6th
of the share. In cate of two or more uterine brothers or sisters they
will take 1/3"* of the share
b. Full sister; The full titter will take V? of the share. In case of two or
more full sisters they take 2/3rd of the share
c. Consanguine sister. The consanguine sister will take V2 of the share.
In case of two or more consanguine sisters, they will take 2/3 rd of
the share.
2. Descendants of uncles and aunts
a. in the absence of uncles and aunts of any kind, children of the deceased
uncles and aunts will become entitled for succession.They will take the
portion of their parents according to the rule of the double share to the
male.
III. Grandparents and collaterals
a. Granparents are considered as brothers or sisters. As consanguine
brothers or sisters they are entitled to be heirs. In such case
grandparents shall not inheirit as representative heirs of the father or
mother of the deceased.
Grounds o f Disqualification
A Shia Muslim doe not inherit the property on the following grounds
1. Non .Muslim A Muslim who has renounced islam or in any manner ceased
1
to be a Muslim cannot inherit the property of the deceased to who he is heir.
2. Murdered : A person who has willfully and unjustly causes the death of
another is disqualified to be the heir of the so called.
3. Child in the womb : A child in the womb is entitled to inherit only if it born
alive.
4. False charge of Adulatory: Neither the father nor the child will inherit the
property of each other if the father had made false charge of adulatory
against child.
5. Person bearing more relations than one. When a person bears more relation
than one, he will inherit in respect of each .such relation kinsmen of the full
blood rank as bearing only a single relation.
6. Childless Widow : A childless widow is not entitled to ' a share in her
husbands immovable assets
18.6. SUMMARY
The Hindu Succession Act, 1956 came into force on that day itself.The Act
applies to all Hindus, Buddhists, Jains and Sikhs, but not to Muslims, Parsis and
Jews. The Act has abolished impartible estate not created by statute. The Act does
not apply to the properties of a person who married under the provisions of the
Special Marriage Act, 1954. Special provision namely Sec.6 is made with regard to
Mitakshara coparcenary special rule of succession had to be applied to them cinly
227
when a coparcener dies leaving behind a female heir mentioned in class I of the
Schedule or a male relative specified in that class who claims through such female
relative. The Act recognised the right of certain female heirs to succeed to interest of
a Mitakshara .coparcener. We have discussed in detail in this lesson Hindu
sucession Act and its latest amendement in detail. Further we have also discussed
the Mohamedan Law in this above lesson
18.7. MODEL QUESTIONS
1. What are the properties exempted from the operation of the H indu.
Succession Act, 1956?
2. Enumerate the class I heirs under the Hindu Sucession Act, 1956
3. State the Principles applicable under the Hindu Sucession Act, 1956
4. What are the major changes made in the Hindu Succession (Amendment)
Act, 2005? '*"■
1. 1.Family Law in India,G.C.VenkataSubbarao, C.Subbia Chetty &Co
18.9. KEYWORDS
Bequest - Money or Property given after death
Breach of Trust - Breaking faith
Ancient
i custom - Old tradition
Common ancester - Joint forrunner.
Devolution - Inheritance
□
228
LESSON-19
INDIAN SUCCESSION ACT

STRUCTURE
19.1. Introduction
19.2. Objectives
19.3. Definition
19.4. Essential of wills
19.5. Kinds of wills
19.6. Probate and grant administration
. 19.7. Codicil
19.8. Revocation of will
19.9. Succession Certificate summary
19.10. Summary
19.13. Keywords
19.1. INTRODUCTION
Will means a legal declaration of the intention of a testator with respect to his
property, which he desires to be carried into .effect after his death. Will a
testamentary document .A will declares the person’s intention to be performed after
his death. Hence it. will take effect only from the date of testators death. The will
may be revoked in lifetime. In this lesson we are going to discuss about will and
succession certificate in detail
19.2. OBJECTIVES
1. know about will
2. know about of types of will
3. know about succession certificate
19.3. DEFINITION
Indian succession A ct : A legal declaration of the intention of a testator with
respect to his property, which he desires to be carried into effect after his death.
(Section 2(h)
Ttoe General clauses Act: Will included a codicil and every writing making a
voluntary posthumous disposition of property
1%A. fiSfigKTlAL CHARACTERISTICS OF A WILL

1. Legal declaration by the maker-
2. The declaration must relate to his property
3. it must take effect only after the death of the maker
W
229
4. It.rmist.be revocable during the-Hfe time of the maker

5*. •'Cap|i<cijty,;ip '■Execute, will' . : • v ;• ' •
1. Legal,declaration : Atbofding-'tqr.theSection 2 pf tiie Indian Succession Act
“ will * is a. legal declaration of the intention of a testator with respect with respect
to his propertyJ-Jv whichV required to be attested' .As per: Section ' '282' any false
declaration is'punishable under Section 193 Of Indian penal code.
2. The declaration must relate to hir property: According to Section 2 of the
Act , the declaration of the intention of the testator must relate to his property ,
which he desires" to be carried into effect after his death . If .the testator’s intention
is to dispose me property* before his death , it is not a will;
3 It must take effect only after the death o f maker: A will takes effect only
after the death of the maker. The testator must desire his intention to be carried
into effeci alter his death.
4. i t m ust be revocable during the life time o f the maker: The will is
jlevocable unlike deed . It must be revokbd during the life time of the maker of the
will .According Section 69 it can be revoked by the marriage of the maker. The will
made by a testator prior to his stands revoked by the subsequent marriage.
5. Capacity to execute: According to Section 59 the testator must have
testamentary capacity with sound mind .
Persons capable of making will : Section 59: Every person of sound mind not
being a minor may dispose of his property by will.
1. A married woman may dispose by will of any property, which she could
alienate by her own act d j~inn her life
2. persons who are deaf and dumb or blind are thereby incapacited for making
a will if they are able to know what they do by it.
. 3. A person who.is. ordinarily insane may m ake: a'w ill'du ring an interval in'
which he is of sound mind. • •; '
4. No person can make a will while he is in such a state of mind whether
arising from intoxication or from illness or from aîy other cause , that he
does not know what he is doing.
Persons incapable o f making will. Section 59 person who have no
testamentary capacity cannot make will. Hence the following persons cannot make
a will j •*•
1. Minors
2. Lunatics
3. Deaf and dumb without testamentary .capacity.

4. Intoxicated Person , .• '•
19.5. KINDS OF WILLS
There are two kinds of wills .They are privileged wills and unprivileged wills
Privileged w ills .: According to Section 65 any soldier being employed in an
expedition o r'^gaged .an actual warfare or an airman so employed or 'engaged or
any mariner being a t sea , may if he has completedthe* age^ o f Eighteen years ,
dispose o f his property by a will made in the manner provided iri Section 66.Such
wills are cîied.privileged wfll'' \ " >•
t Execution o f Privileged Wills ;Âs per Section 6& the 'piwileged; wills may be an
writing or m ay be m a d e fy wordvOf mouth. The execution^! privijfeged Wills :shall be
governed by the folipwing rules 'r. . . _
ti vhitten,wholly•by ;the t^statbr iiinjself:, in such case it need

•v ‘ r ja tit ' f e - \ V . 4
- ■- /• ' ‘ •‘ r
2. .It may be w i t i ^ ; wholly or in part by. another persoji,' iti such case it shall
3- An unsigned w ill written under the testator’s direction is deemed will.

4. Instruction . in writing of the testator for preparing the will are treated as
■his will even if he had dies before the instructions are carried.
• • Un privileged w i l l : According to Section 65 when the testator is any one else
Execution o f Unprivileged wills; Section 63 The execution of un privileged

*V
ôrJ.it’i.sKall b£ signed by
» • ; V :. ) ' • • • * ‘1- *•>£ j v*i*. • ' / : ' r - a V vVf - f ' **' **>■ ' *'* '
? ? o i« t e > ;. Pro%t^/mfans the'. copy pf^ a c e i r t j i j e ^ judder .the ^Co art o f

competent jurisdictio^’.\vim"a grant of administratipnitd thfe" estate of the testator
sec2(f).’ . V : :r .V 'S ’
* • ' •**. ' .* i ' ‘' . .. • 4 *■'.*.
Procedure for obtaining Probate: According to Section 222 probate can be
granted only to the executor appointed , expressly or impliedly by the will . An
application, for probate is- made^by:a petitioner; to;^ e p is t r ic t judge within whose
231
jurisdiction the testator at the time of his death had fixed place of abode or had
left some part of his property.
Grant administration : Section 218 deals with grant of administration and
probate.
1. if the deceased has died intestate and was a Hindu Mohammedan, Buddhist,
sikh or Jain or an exempted person, administration of his estate may be
granted to any person who according to rules for the distribution of the
estate applicable in the case of such deceased , would be entitled to the
whole or any part of such deceased’s estate.
2. When several such persons apply for such administration , it shall be in the
discretion of the court to grant it to any one or more of them •
3. When no such person applies , it may be granted to a creditor of the
deceased.
According to Section 219 if the deceased had died intestate and was not a
person belonging to any of the classes referred to Section 218 those who are
connected with him , either by marriage or by consanguinity are entitled to obtain
letters of administration' of his estate .Thus those who stand in equal degree of
kindred to the deceased are equally entitled to administration . For example the
widow is a lunatic or committed adultery or had been barred by her marriage
settlement of all interest in h se husbands estate. There is cause for excluding her
from the administration.
Persons to whom probate cannot be granted. According to Section 223
probate cannot be granted to any person who is a minor or is of unsound mind or
to any association of individuals .According to Section 224 when several executors
are appointed , probate may be granted to them all simultaneously or at different
times. .
Effect o f Probate. According to Section 227 of a will when granted establishes
the will from the death of the testator , and renders valid all intermediate acts of
the executor as such. *
To whom administration o f m ay not be granted : According to Section 236
the letters of administration cannot be granted to any person who is a minor or
is of unsound mind npr to any association of individuals unless it is a company.
Executor or administrator : Executor . Section 2 ( C ) defines executor as a
person to whom the execution of the last will of a deceased person is by the testator
\.
‘s appointment confieded.Thus executor means a person appointed by the testator
in his last will with intention to dispose his properties according to his intentions
or direction. He is also known as ‘administrator’
Duties o f the executor or Administrator: Section 305 -331 deals about the
duties of executor. Following duties are entrusted to the Executors or
administrator.
I. Duties to Court
a. He should .file an inventory of the property in his possession
b. He should file credits due and debts owed to the estate in coUrt.
c. He,should exhibit an account of the estate.
II. Preferential payments
a. He should pay reasonable medical and funeral expenses
b. He should pay the legal expenses in administering the estate
c. He should pay wages for the services, rendered.
III. Duties o f creditors
a. He should pay the debts of the general body to the creditors.
He should pay the debts of the simple money creditors
IV. Duties to legatees
a. He should pay all debts to the extent of the estate. '
b. He should pay the specific bequests of specific legatees
c. He should pay the general bequests of the general legatees -
Pow er o f the executor and adm inistrator Section 305 -331. The executor or
administrator.shall have the following powers :
a. Power of executor or administrator to dispose of property
D. Power of mortgage , charge or transfer by sale , g ift , exchange
c. Power to lease any such property for a term exceeding 5 years
d. Power of expenditure for the proper care and management
e. Power to promote religious , charitable.and other objects
Com m ission or agency- charges .Sec 309 an executor or administrator shall
not be entitled to receive or retain any commission or agency, charges at a higher
rate that for the time being fixed by the statue
Purchase by executor or. administrator of deceased’s property Section 310 :
Executor or administrator purchases either directly or indirectly any part of the
property of the deceased , the sale ..is voidable at instance of any other person
interested in the property sold.
Survival . o f . powers on death o f one of several executors or
administrators.. Upon the death of one more or several executors or administrators
in the absence of any.direction to the .contrary ,in. the will or grant of letters of
administration, all powers of the,office, become vested in the survivor.
1. • Executor o f his ow n w ron g Section 303 A person who intermediates with
the estate of the deceased or does •. any -other act which belong to the office
of executor, while .there is no rightful executor or administrator in existence
, thereby makes himself an executor of his own wrong. ’ ‘ ;Vv
2. Liability o f executor o f his own wrong : Section 304 When a person has
so acted as to become an executor of his own wrong , he is answerable to the
233
rightful executor or administrator or to any creditor., or. legatee of the

* deceased to the extent of the assets which may have come to his hands
after deducting payments made to the rightful executor or administrator ,
and payments made in due course of administration.
Devastavit According to Section 368 Devastavit is the violation of certain
duties by executor or administrator resulting, in personal liability for the
consequent loss. Devastavit is applicable to the misapplication of the esate or its
mal administration. It is committed by mal administration, willful default and
negligence. In such case he is liable to make good the loss.
Adm inistrator de Bonis non: According to Section 358 if an executor to
whom probate has been granted has died, leaving a part of testator’s estate un
administrated, a new representative may l?e appointed for the purpose of
administering such part of estate .Such new representative is called an
'Administrator de bonis non” In granting administration de bonis non, the court
is guided by the same rules which are applicable to original grants.
19.7. CODICIL
-Codicil means addition or supplement. It modifies a will codicil is an
instrument made in relation to will and explaining, altering or adding to its
dispositions. It explains the nature and character of the change made in the will.
Codicil is part of will. It is made in the same manner as any other testamentary
disposition It has resembles all the characteristics of will, it can also exist
independently .Thus a codicil may take effect even without will.
Purpose of Codicil : Sometimes the maker of-a will may prefer to alter or
amend the will executed by him . T,aw permits the maker to alterations to the will.
Revocation of codicil: According to Section 70 a codicil, or any part thereof ,
shall be revoked otherwise than marriage or by another will or codicil or by some
writing declaring an intention to revoke the same. The testator can revoke it in the
same way by which will can be revoked.
Void Will : As per Section 89 a will or bequest not expressive of any definite
intention is void for uncertainty for example if testor says I bequeath goods to A or
I bequeath to “A ” or I leave to A all the goods mentioned in the schedule and no
schedule is found.
The Indian succession Act, 1925 , recognizes the following wills as void wills
they are
1. A will which does not express any definite intention is void -for uncertainity
2. A will becomes void when it is not properly revoked
3. A will becomes void for want of testamentary capacity.
234 y
19.8. REVOCATION OF rtILL

Section 70 deals with revocation of will .Revocation means cancellation or
withdrawal .The will is revocable unlike deed .It must.be revoked during the life
time of the makei of the will
Section 70 : No Unprevilaged will or codicil, nor any part therof shall be

revoked otherwise than by marriage, or by another will or codcil, or by some
writing declaring an intention to revoke the same and executed in the manner in
which an unprevilaged will is hereinbefore required to exc uted , or by the burning,
tearing or otherwise destroying the same by the testator or by some person in his
presence and by his direction with the intention of revoking the same.
Modes o f revocation ofw il!
Section 70 provides the following modes for the purpose of of revocation of will
1.Subsequent marriage of the testator
2.Subsequent will or codicil
3. Instrument of revocation
4. Destruction of will
1. Subsequent marriage o f the Testator: According to section 69 a

husband's will in faovur of his wife becomes revoked on his subsequent marriage. It
is c jne by the operation of law. However it is subject to an exception . If the will
was made in exercise of power of appointment i.e a power to dispose of the property
of someone else, the will would be unaffected by the testator's marriage.
2. Sub sequent will or codicil. According to Section 70 a will may be
revoked by another making another will or codicil of by some writing declaring an
intention to revoke the same. If later will or codicil contains a clause revoking the
previous will of if it makes disposition s so inc insistent with the earlier will that the
two cannot stand together the previous will stand j revoked.
3. Instrum ent o f revocation : According to Section 70 a will may be revoked
by some writing declaring an intention to revoke the same and executed in the
manner , in which a will is required to be executed.
4. Destruction o f the will : According to. Section 70 a will may be revoked by
destroying the will with the intention to revoking it. It should be destroyed either by
the testator himself or in his presence by some other person under the testator,s
direction.
19.9. SUCCESSION CERTIFICATE:
Succession certificate means a certificate granted by the court with respect to
any debts or securities to which a person has become entitled as a result of
succession to, another .Security means any promissory note, debenture , stock, any
bond etc.,.Section 370 - 390 deals with provisions relating to succession certificate
proves the representative title of the holder but it is not a conclusive proof .
235
Object o f Succession Certificate : The succession certificate facilitates the

collection of debts or securities on succession . It is granted with a view to provide
protection to the debtors or the deceased against multiple claims. The succession
certificate raises a conclusive presumption against the debtor that the person to
whom the certificate is granted is entitled to receive the debt.
Who grants : According to Section 371 A district judge within whose
jurisdiction the deceased ordinarily resided or found at the time of his death ,
may grant a succession certificate
W hen to be granted: A succession certificate can be granted in the following
case.
1. When probate or letters of administration is not compulsory
2. When the deceased is an Indian Christian
3. When the deceased is a Mohammedan
4. When the deceasedis a Hindu and has left a will and probate.
5. When Hindu joint family property passes by survivorship
Application for Certificate : According to Section 372 an application for
succession certificate shall be made to district judge by a petition signed and
verified by or on behalf of the applicant in the manner prescribed by the code of
civil procedure.
Contents o f certificate: According to Sec 374 the district judge who .grants a
certificate shall specify the debts and securities and may empower the person to'
receive interest or dividends or to negotiate or transfer , the securities or any of
them.
Revocation o f certificate: According to Section 383 a succession certificate
.granted m aybe revoked for any of the following causes , namely
1. Defective certificate in substance
2. Fraudulently obtained
3. untrue allegation of fact
4. when the certificate has become useless and inoperative
5. by a decree or order made by court in a suit / other proceeding
Appeal : According to Section 384 the aggrieved party may prefer on appeal
to the High court
19/0. SUMMARY %
Will is a document through which a legal declaration of the intention of a
testator with respect to his property is made, which he desires to be carried into
effect after his death
Will included a codicil and eveiy writing making a voluntary posthumous

disposition of property. There are two types of wills , privileged will and unprivileged
will.Codicil means addition or supplement. It modifies a will, codicil is an-
236
instrument made in relation to will and explaining , altering or adding to its

dispositions. Finally we have also described modes of revocation of will. In this
lesson we have also seen what is meant by succession certificate, what are the
contents and how it can. be obtained
1. What is ‘will? Who are the persons capable of making wills?
2. What is probate? What are the procedure to be followed for obtaining
probate?
a. Succession certificate
b. Un privileged will
c. Codicil
1. Family Law in India, Prof G.C.Venkatasubbarao, V.Subbiah Chetty. Co
Indian Sucession Act- Bare Act.
19.13. KEYWORDS
Will and probate - Testament and a Judicial certificate
Unprevilaged will - testament under Sec. 65
Testament - will
Testator - a person who has died leaving valid till
□
237
39. ASSIGNMENT
An assignment is a term used with similar meanings in the Contract Law and in the Real
Estate law. In both instances, it covers the transfer of rights held by one party, the assignor,
to another party, the assignee. It can also be a transfer of a benefit, including an equitable
interest, according to established rules. The rights may be assigned or liable. The details
of the assignment determines some additional rights and liabilities (or duties).
Typically a third party is involved in a contract with the assignor, and the contract is, in
effect, transferred to the assignee.
For example, a borrower borrows money from a local bank. The local bank executes
a mortgage deed and can thereafter transfer that note to a financial institution in exchange
for a lump-sum of cash, thereby assigning the right to receive payment from the borrower
to another entity.
Mortgages and lending contracts are relatively amenable to assignment since the lender’s
duties are relatively limited; other contracts which involve personal duties such as legal
counsel may not be assignable.
NOVATION: Novation involves the replacement of the original party with a new party or
the replacement of the original contract with a new contract. Since novation creates a new
contract, it requires the consent of all parties, but assignment does not require the consent
of the non-assigning party, but in the case of assignment, the consent of the non-assigning
party may be required by a contractual provision.
Unless the contractual agreement states otherwise, the assignee typically does not receive
more rights than the assignor, and the assignor may remain liable to the original counterparty
for the performance of the contract. The assignor often delegates duties in addition to
rights to the assignee, but the assignor may remain ultimately responsible.
In other cases, the contract may be a negotiable instrument in which the person receiving
the instrument may become a holder in due course, which is similar to an assignee except
that issues, such as lack of performance, by the assignor may not be a valid defense for
the obligor. Assignment of rights under a contract is the complete transfer of the rights to
receive the benefits accruing to one of the parties to that contract. Such an assignment
may be essentially given as a gift, or it may be contractually exchanged for consideration.
It is important to note, however, that Party C is not a third party beneficiary, because the
contract itself was not made for the purpose of benefitting Party C. When an assignment
238
is made, the assignment always takes place after the original contract was formed. An
Assignment only transfers the rights/benefits to a new owner. The obligations remain with
the previous owner.
The common law favors the freedom of assignment, so an assignment will generally be
permitted unless there is an express prohibition against assignment in the contract. Where
assignment is thus permitted, the assignor need not consult the other party to the contract.
An assignment cannot have any effect on the duties of the other party to the contract, nor
can it reduce the possibility of the other party receiving full performance of the same
quality. Certain kinds of performance, therefore, cannot be assigned, because they create
a unique relationship between the parties to the contract.
Unless otherwise agreed all rights of either seller or buyer can be assigned except where
the assignment would materially change the duty of the other party, or increase materially
the burden or risk imposed on him by his contract, or impair materially his chance of
obtaining return performance. A right to damages for breach of the whole contract or a
right arising out of the assignor’s due performance of his entire obligation can be assigned
despite agreement otherwise for assignment to be effective, it must occur in the present.
No specific language is required to make such an assignment, but the assignor must
make some clear statement of intent to assign clearly identified contractual rights to the
assignee. A promise to assign in the future has no legal effect. Although this prevents a
party from assigning the benefits of a contract that has not yet been made, a court of
equity may enforce such an assignment where an established economic relationship
between the assignor and the assignee raised an expectation that the assignee would
indeed form the appropriate contract in the future.
A contract may contain a non-assignment clause, which prohibits the assignment of specific
rights and some various rights, or of the entire contract, to another. However, such a
clause does not necessarily destroy the power of either party to make an assignment.
Instead, it merely gives the other party the ability to sue for breach of contract if such an
assignment is made. However, an assignment of a contract containing such a clause will
be ineffective if the assignee knows of the non-assignment clause, or if the non-assignment
clause specifies that “all assignments are void”.
Two other techniques to prevent the assignment of contracts are rescission clauses or
clauses 'creating a condition subsequent. The former would give the other party to the
contract the power to rescind the contract if an assignment is made; the latter would
rescind the contract automatically in such circumstances.
Assignments made for consideration are irrevocable, meaning that the assignor
239
permanently gives up the legal right to take back the assignment once it has been made.
Gifted assignments, on the other hand, are generally revocable, either by the assignor
giving notice to the assignee, taking performance directly from the obligor, or making a
subsequent assignment of the same right to another. There are some exceptions to the
revocability of a gifted assignment: 1. The assignment cannot be revoked if the obligor
has already performed; 2. The assignment cannot be revoked if the assignee has received
a token picked - a physical object that signifies a right to collect, such as a stock certificate
or the passbook to a savings account; 3. The assignment cannot be revoked if the assignor
has set forth in writing the assignment of a simple chose - a contract right embodied in
any form of token; 4. Finally, the death or declaration of bankruptcy by the assignor will
automatically revoke the assignment by operation of law.
Real property rights can be assigned just as any other contractual right. However, special
duties and liabilities attach to transfers of the right to possess property. With an assignment,
the assignor transfers the complete remainder of the interest to the assignee. The assignor
must not retain any sort of reversionary interest in the right to possess. The assignee’s
interest must about the interest of the next person to have the right to possession. If any
time or interest is reserved by a tenant assignor then the act is not an assignment, but is
instead a sublease.
The liability of the assignee depends upon the contract formed when the assignment
takes place. However, in general, the assignee has righteousness of estate with a lessor.
With correctness of estate comes the duty on the part of the assignee to perform certain
obligations under covenant, e.g. pay rent. Similarly, the lessor retains the obligations to
perform on covenants to maintain or repair the land.
If the assignor agrees to continue paying rent to the lessor and subsequently defaults, the
lessor can sue both the assignor under the original contract signed with the lessor as well
as the assignee because by taking possession of the property interest, the assignee has
obliged himself to perform duties under covenant such as the payment of rent.
Unlike a Novation where consent of both the lessor and lessee is required for the third
party to assume all obligations and liabilities of the original lessee, an assignment does
not always need the consent of all parties. If the contract terms state specifically that the
lessor’s consent is not needed to assign the contract, then the lessee can assign the
contract to whomever the lessee wants to.
A tenant may assign their rights to an assignee without the landlord’s consent. In the
majority of jurisdictions, when there is a clause that the landlord may withhold consent to
an assignment, the general rule is that the landlord may not withhold consent unreasonably
2 4 0
unless there is a provision that states specifically that the Landlord may withhold consent
at Landlord’s sole discretion.
A person can also assign their rights to receive the benefits owed to a partner in
a partnership. However, the assignee cannot thereby gain any of the assignor’s rights
with respect to the operation of the partnership. The assignee may not vote on partnership
matters, inspect the partnership books, or take possession of partnership property; rather,
the assignee can only be given the right is to collect distributions of income, unless the
remaining partners consent to the assignment of a new general partner with operational,
management, and financial interests. If the partnership is dissolved, the assignee can
also claim the assignor’s share of any distribution accompanying the dissolution.
Ownership of intellectual property, including patents, copyrights, and trademarks,

may be assigned, but special conditions attach to the assignment of patents and trademarks.
Patent rights are assignable by an “instrument in writing.” Title in a patent can also be
transferred as a result of other financial transactions, such as a merger or a takeover, or
as a result of operation of law, such as in an inheritance process, or in a bankruptcy. With
respect to a trademark, the owner of the mark may not transfer ownership of the mark
without transferring the goodwill associated with the mark.
Companies sometimes request from employees that they assign all intellectual property
they create while under the employment of the company. This is typically done within an
Employment Agreement, but is sometimes done- through a specific agreement called
Proprietary Information and Inventions Agreement (PIIA)
There are numerous requirements that exist for an equitable assignment of property, outside
the ‘standard’ clear and unconditional intention to assign. These requirements are
fundamental characteristics of a statutory assignment: Absolute assignment (an
unconditional transfer: conditions precedent or part of a debt are not absolute) and the
assignment must be made in writing and signed by the assignor, and in particular, this
applies to real property.
Assigning future property in equity cannot be complimentary. The assignor must receive
consideration for the agreement, otherwise the assignment will be ineffective. However,
an absolute assignment does not require consideration to be given. Secondly, between
the period of agreement between assignor and assignee and acquisition by the assignor,
the assignees rights are not contractual, but rather a proprietary right to the property. This
means the assignee has an interest in this future property, in the same manner any owner
has over property.
* * *
A lien is a form of security interest granted over an item of property to secure the payment
of a debt or performance of some other obligation. The owner of the property, who grants
the lien, is referred to as the lienee, and the person who has the benefit of the lien is
referred to as the lienor or lien holder. In layman’s terms, it’s like someone takes one of
your things and gives it back later if you do what you promised.Eg: Bank Deposits, Shares
certificates, Insurance certificates, taken as security for the money lent to the
borrower.
In common-law countries, the term lien refers to a very specific type of security interest,
being a passive right to retain (but not sell) property until the debt or other obligation is
discharged. The common-law countries recognize a slightly anomalous form of security
interest called an “equitable lien” which arises in certain rare instances.
Liens can be consensual or non-consensual (also termed voluntary or involuntary in different

states). Consensual liens are called mortgage imposed by a contract between
the creditor and the debtor. Nonconsensual liens typically arise by statute or by
the operation of the common law. Those laws give a creditor the right to impose a lien on
an item of real property ora chattel (movable item) by the existence of the relationship of
creditor and debtor.
Liens are also “perfected” or “unperfected”. Perfected liens are those liens for which a
creditor has established a priority right in the encumbered property with respect to third
party creditors. Perfection is generally accomplished by taking steps required by law to
give third party creditors notice of the lien. The fact that an item of property is in the hands
of the creditor usually constitutes perfection. Where the property remains in the hands of
the debtor, some further step must be taken, like recording a notice of the security interest
with the appropriate office.Perfecting a lien is an important part of the task of protecting
the secured creditor’s interest in the property. A perfected lien is valid against bona fide
purchasers of property, and even against a trustee in bankruptcy; an unperfected lien may
not be.
Common-law liens are divided into special liens and general liens. A special lien, the
more common kind, requires a close connection between the property and the service
rendered. A special lien can only be exercised in respect of fees relating to the instant
transaction; the lienor cannot use the property held as security for past debts as well.
A general lien affects all of the property of the lienee in the possession of the lienor, and
242
stands as security for all of the debts of the lienee to the lienor. A special lien can be
extended to a general lien by contract, and this is commonly done in the case of carriers. A
common-law lien only gives a passive right to retain; there is no power of sale which arises
at common law, although some statutes have also conferred an additional power of
sale, and it is possible to confer a separate power of sale by contract.The common-law
liens are closely aligned to the so-called “common callings”, but are not co-extensive with
them.
A common-law lien is a very limited type of security interest. Apart from the fact that it only
amounts to a passive right to retain, a lien cannot be transferred it cannot be asserted by
a third party to whom possession of the goods is given to perform the same services that
the original party should have performed;and if the chattel is surrendered to the lienor, the
lien entitlement is lost forever (except for where the parties agree that the lien shall survive
a temporary re-possession by the lienor). A lienee who sells the chattel unlawfully may be
liable in conversion as well as surrendering the lien.
In common-law countries, equitable liens give rise to unique and difficult issues. An equitable
lien is a non-possessory security right conferred by operation of law, which is similar in
effect to an equitable charge. It differs from a charge in that it is non-consensual. It is
conferred only in very limited circumstances, the most common (and least ambiguous) of
which is in relation to the sale of land; an unpaid vendor has an equitable lien over the land
for the purchase price, notwithstanding that the purchaser has gone into occupation of the
property. It is seen as a counterweight to the equitable rule which confers a beneficial
interest in the land on the purchaser once contracts are exchanged for purchase.
PART - 2
PART - 2
h. Valuation of Real estate
44. Cost, Price and Value - 1 mark
45. Types of Value - 1 mark
46. Basic elements of Value - Marketability, Utility, Scarcity, and - 1 mark

Transferability
47,48. Factors affecting Valuation-Physical, Economic, Legal and Social - 2 marks
49. Highest and Best Use, Value in Use, Value in Exchange - 1 mark
50. Real Property: Rights and Interests in Real Estate, Types of - 1 mark
ownerships and Types of occupancy in Real Estate
51. Annuities, Capitalization, Rate of Capitalization, Years Purchase, - 1 mark

Sinking Fund, Redemption of Capital, Reversionary Value
52,53. Construction and use of Valuation Tables - 2 marks
54. Urban Infrastructure and its influence on Value of Real Estate - 1 mark
55,56. Real Estate Market and its characteristics, Investment in Real Estate, - 2 marks
Factors influencing Demand and Supply Schedule in Real Estate
Compiled by
B. KANAGA SABAPATHY
Tiruchirappalli
NOT FOR SALE
PART - 3
PART - 3
57. Relation between Income and Value - 1 mark
58. Valuation of Property affected by the Rent Control Act, Licensed - 1 mark
property under the Easement Act, 1882 and Leasehold properties
under the Transfer of Property Act,
59. Derivation of Yield Rate from Market Derived Data. - 1 mark
Remunerative Rate of Interest and Accumulative Rate of Interest
Types of rent: Outgoings, Income, Yield, Years’ Purchase
Determination of Market Rent and Standard Rent
60. Lease: lessor and lessee: Types of Lease, Lease provisions and - 1 mark
Covenants.
61. Valuation of Lessor’s Interest, Lessee’s Interest including Sub-Lease - 1 mark

in Leased Property. Premature Termination of Lease or Surrender of
Lease.
62. Real Estate as an Investment, Yield from Real Estate vis-à-vis - 1 mark
other forms of Investments- Sound Investment Comparison.
Investment Decisions: Discounted Cash Flow Techniques-Internal

Rate of Return (IRR) and Net Present Value (NPV)
63. Profit Method: Valuation of Special Properties: Hotels, Cinema, Mall, - 1 mark
Petrol Pump, Hill resorts
Compiled by
B. KANAGA SABAPATHY
Tiruchirappalli
NOT FOR SALE
INCOME APPROACH
Objectives
By the end o f this chapter student w ill learn a b o u t:
• Basic theory o f Investment.
• Qualities o f sound investm ent like Govt. Security and Real Estate;
• M ethodology to derive interest rate from sale transaction.
• Methods for estim ating M arket Value o f a property.
• Methods to Value Lessors Right and Lessee’s Right in leasehold properties.
• Effect o f other forms of investm ent on value o f property.
• Concept o f reversionary value of land.
• Factors affecting life o f building.
• Value of property by -Rental method.
• Limitation o f Rental Method o f valuation.
Contents
3.0 Introduction
3.1.1 Steps o f Income Approach o f valuation
3.1.2 Rate o f capitalisation
3.1.3 Years Purchase
3.1.4 Rate of redem ption o f capital and rate o f reversion.
3.2 Quality o f sound investm ent like Govt. Security.
3.2.1 Imm ovable property as sound investment.
3.3 Theory o f Investm ent and History o f rate of capitalisation.
3.3.1 Interest yields of G-Sec and Bank F.D.
3.4 Valuation o f leasehold properties*.
3.4.1 Types of Leases
3.4.2 Types o f Rent
3.5 Concept of reversionary value of land.
3.6 Valuation of rented properties [rental Method of Valuation]
3.6.1 Various out goings.
3.7 Type of life of building and factors for consideration.
3.8 Rental Method o f Valuation for owner occupied Bldg.
3.9 Limitation o f Rental Method.
3.10 Cases cited in this chapter.
3.11 Summary
3.12 Keywords
3.13 intext Questions
3.0 introduction
Income approach of valuation is mainly based on Investment Theorv. ?tud * •
will learn in this chapter this theory o f investment and return on investmen ■ :~
f :;ts like land, iand with building or plant and machinery7. It is also necesâr-- • -
t ; tr h rate of interest can be derived from sale transac+ •>
2
how value o f the asset can be arrived at by use of net income and rate of return
expected by tiie asset noider. oiu ucm must also learn limitation oi mis dppioacn.
‘As discussed in earlier chapter, V a lu e’ is not intrinsic to or inherent in any •

thing, object or property. It arises mainly out of its utility or usefulness in view of
existing and/or anticipated benefits by virtue of its possession and use. Perception
of such benefits differ from person to person and hence value is highly subjective
and abstract. Value comes into practice only when transaction takes place in the
market, when it becomes ‘exchange value’ or market exchange value of the
property.
Secondly, what we value - i.e. subject matter of valuation is ‘Interest’ in a

property i.e. ‘Legal right to Derive Benefits by the Legal Use’ o f a property. We do
not value property as a physical asset (land, brick and mortar etc.) but we value
‘Interest’ in a property i.e. Right to Derive 'benefit. “Benefits arising by use of a
property are mainly in the form of ‘Incom e’ i.e. actual, anticipated and/or potential
income.
Thirdly properties are generally classified into three broad categories. Based
upon type of property normally three approaches viz. Income approach, Market
approach or Cost approach is adopted for valuation.
The above three approaches to valuation are not exclusive of each other. In
Income approach fair market rent of property to be valued, as also fair market rents
o f properties involved in instances of sale are estimated by comparision method i.e.
market approach. Similarly in Cost Approach value o f land is estimated by
comparision method i.e. by Market approach.
The term ‘Income Approach to Valuation’ itself suggests that the income from a
property forms the basis for estimating value of property. To explain the income
approach to valuation in a very simplistic manner, it can be stated that Net Income
from a property is considered as interest yielded, (at a certain rate of interest) on
the amount or capital invested in purchasing that property.
In mathematical form, it is stated as under :
Capital value =Net Income x Multiplier Y.P.
Years Purchase Y.P. depends on the Rate of Interest expected to be yielded by
investment in the property.
This multiplier or Y.P. is the summation of the present worth of series of
income of R e.l/ - receivable every year, at the end of 1st year, 2nd year, 3rd year... -
nth year, for a period of ‘n’ years at compound interest at certain rate of interest.
3.11.1 The Main Steps in Income Capitalisation m etlu J

i.To collect data from market and other sources like records of Registrar of
documents, genuine instances of rentals, of comparable properties, in the
nearby locality.
3
ii.To inspect property to be valued and properties involved in instances o f rentals
and also to make local inquiry’o f prevalent rentals
iii.To find out fair and maintainable gross rent receivable from the property. In
case o f already rented property on the basis of actuals,. In case o f vacant or
owner occupied properties, on the basis o f instances of rentals.
iv.To deduct various permissible outgoings.
v.To select proper rate of capitalisation by study of Real Estate Market and
derived rates from instances o f rentals.
vi.To find out applicability/Non applicability o f Rent Control Act to the subject
property. .
vii.To capitalise net receivable income for future period of flow o f rental income.
viii.To deduct for m ajor outstanding liability including cost of immediate repairs.
ix.To estimate final value.
Correct estimation o f maintainable rent and selection of appropriate rate of
capitalisation are o f vital importance for arriving at fair value of a property under
Rental Method.
Under income approach there are three principle methods.
i. Rental Method also known as Yield Method or Return on Investment Method.
ii. Discounted cash flow technique (D.C.F. Method).
iii. Profit Method also known as Capitalisation of earnings method.

Student will learn D.C.F. Method and profit method of Income Approach
subsequently,* in next semester studies.
Following terms which are con nect'd to the values under Rental Method are
discussed below
Annuity: It is defined as the Net Annual Pay;. (Return on Investment) for
the capital invested in an immovable property or an^ other forms of investm ent
Rent from land or house, interest on Bank fixed deposit or yield on Government
Security are such examples of Annuity.
Capitalisation: It is a concept (Mode/Style) indicating the amount required to
be invested by a person, at present , desiring to acquire right for benefit (income) or
profit receivable in future. If a person desiring income in form of interest,' invests
his funds in Bank fixed deposit or if he invests his funds in purchasing the
property, to derive benefit in form of Rental Income in future, such fund is called
capital investment. In context of preparing balance sheet, Accountants use term
“Capitalised Am ount” to indicate the expenditure (investment) in land, buildings or
plant and machineries.
3.1.2 Rate of Capitalisation

It is a rate o f interest at which an investor is willing to invest his capital
(funds), to continue to get benefits (income) in future. If a person deposits
4
\
F '• .000/ in Banks fixed deposit, and Bank offers interest of 00' on F D - a t pJ
8% is called rate of capitalisation. Rate of capitalisation is decided by the investor
after considering yield rates on other forms o f sound investment at relevant period
o f time. This rate of capitalisation is also known as “Remunerative rate of Interest”.
W hen the income is of perpetual in nature or income is for long term period like
rental income from house property, (60 to 80 years total life) the yield rate on such
investm ent is called remunerative interest rate.
3.1.3 Years Purchase: Years purchase is defined as capitalised value required

to be paid once and for all, in order to receive annual income o f R s.l/-,for specified
period of time , at specified rate o f return.
yp _ Capital value x Rs. 1

Rate of capitalisation
YP when multiplied with net income gives capital value.

Hence capital value is expressed by Formula C.V. = Net income x YP
Example -1
W hat is the years purchase (Capital Investment) to receive annuity of R e.l/ - at
8% rate of return ?
Solution:
For obtaining annuity of Rs.8/-, capital sum required to be invested is
Rs.100/- and hence for getting annuity of R e.l/-, fund required to be invested,
could be found out by rule of three.
Y .P . = 100 x - - 12.50
8
In other words, if a person invests Rs. 12.50 today at 8% rate of interest, he
would earn Re. 1/ - at the end of the year.
Rate of Return: This is an economic term. In a strict economic sense this rate
not only includes rate of interest on capital value invested but also includes annual
equivalent of capital appreciation and annual equivalent of capital erosion due to
inflation.
In context o f Real Estate, rate of interest means percentage of Net Income (In
case o f house, net rental income) from capital value invested. Hence rate of return
is always much more than the rate of interest. However in present study, words
‘rate o f return’ is not used in this strict economic sense but in sense of common
men parlance.
3.1.4 Rate o f Redemption of Capital: This rate of return is normally adopted
when income is a terminable income. To recoup (Get back) the capital invested in
such type of property (Income would cease after some years), this rate of interest is
adopted. This rate is called rate of recoupment or rate of redemption of capital. It is
also called “Accumulative rate of interest”.
5
This' the rate o f return exported by the investor foi recoupment oi capital
invested in the property having terminable income. Such prpperty ai-e short term
leases or buildings having short life span say less than 50 years. As income is
terminable, capital invested in building or premium paid to acquire lease rights
m ust be accumulated back within income termination period. This recoupment
therefore requires highest and assured security with no risk whatsoever. Rate of
recoupment has to be therefore lowest possible minimum rate below which it is not
likely to fall during entire period of accumulation of capital. Rate o f recoupment for
Sinking Fund for the building, is therefore adopted at the rate, as.low as 3% to 3-
1/2% vis-a-vis rate o f capitalisation of 8% to 9% (Remunerative rate) adopted for
rental income from the building. It is thus obvious that interest rate adopted for
recoupm ent should be always much lower than the remunerative rate of interest.
Some valuers are of view that only when terminable income is for short term
(Period less than 50 years), net income is to be capitalised at duel rate (i.e.
remunerative rate on net income and Accuii.ulstion rate for recoupment of capital).
These valuers are of view that v/hen terminable income is for long term (Period more
than 50 years) net income has to be capitalised at single rate i.e. remunerative rate
only. In their view for long term, remunerative rate and accumulative rate will be
same.
Where as some other group of valuers are of view that for all types of terminable
.income (For period more than 50 years also) duel rate should be adopted. Only for
non terminable income i.e. permanent income for 100 years or perpetuity , single rate
has to be adopted. For rent controlled tenanted properties therefore single rate is
adopted for capitalisation. Second .view is more close to theoretical concept to provide
for getting back of capital invested for terminable income.
Rate of Reversion (Deferment) : It is the rate of return at which the investor is
willing to invest his funds in such a property , which will be received by him at
future date, ( or Reverted back to him) after the fixed period of time. If a person is
assured of receiving capital sum o f Rs. 10,000/- or an asset worth Rs. 10,000/- after
5 years period , and ne is willing to invest sum (Present worth of future benefit i.e.
capital asset) at 6% yield, this rate o f return is called rate of reversion. In above
instance a person has to invest Rs.7472 now, then at 6% compound interest rate,
in 5 years period, it will become R s.10,000. (Future benefit).
Capital sum invested now, to receive capital asset at future date , is called
present worth of the asset or deferred value (Rs.7472) of the receivable capital
sum.i.e. (Rs. 10,000). Generally this rate is same or 1% to 2% below the rate of
capitalisation.
3.2 Quality of Sound Investment like Govt. Security

Rate of returns expected on investment has effect on the value of the property
in the real estate market. Valuer should therefore know various forms of investment
available in the market and also know expected rate of return by the investor on an
im movable property. Knowledge of History of Rate of Capitalisation in our country,
§
will also enable the valuer to understand capital market trend« more easily We
shall therefore first study various securities available in the market and then study
history o f rate o f capitalisation m India.
There are many forms o f investm ent available in the capital market. A person
can buy equity shares or debentures of public limited company. He can deposit his
m oney in Bank Saving Account or lockup his funds in Bank’s fixed deposit. He can
also buy State Governm ent or Central Government Long Term Securities which are
called Gilt Edged Securities. He can invest his funds in purchasing silver or gold
stock and sell it at future date to earn profit. He can do trading in commodity
m arket and earn profits. He can also invest.in business and can also invest funds
in immovable property. Most o f these investments are called risky and
unsecured investments. Investments only in Long Term Govt. Securities and
immovable properties are considered as sound securities or minimum risk
investments.
There are some basic qualities expected from the asset which could qualify as
sound security.
i. Security of capital.
ii. Easy liquidity of Capital.
iii. Guaranteed income.
iv. Regularity of income.
v. Ease of Collection o f income.
Govt. Securities and immovable properties both offer these qualities, though in
variable proportions. There are some basic differences between the two. Details of
both the type o f security are discussed below
Government Securities: When the state or the central government requires
funds for their various projects and activities, depending upon govt, need for funds
and capital market conditions, Bonds or Govt. Securities are offered to the public at
fixed rate of interest, for fixed period. There are 3 types of securities available
depending upon maturity periods.
Short Term Security : Maturity is less than 5 years period.
Medium Term Security: Maturity is 6 years to 15 years period.
Long Term Security : Maturity after 15 years to 25 years and more.
W hen it is said that, 8-1/2 % Security 2015, means Govt. Security maturing in
year 2015 and offering 8-1/2% interest which will be paid every' year to the security
holder. These Govt. Securities can be sold in the market at any time, like equity
shares ,and thus can be encashed or liquidated any time.
The special features of these securities are as under:

i. It gives 100% safety of capital investment to the investor because government
does not become bankrupt.
ii. It gives lower rate of return as compared to the commercial interest rate
prevalent in the capital market.
7
ill. The interest am ount at the rate o f interest agreed under the security, by the
Governm ent is regularly paid by the government. Hence regularity of income io
assured. There is ease o f income collection as no. efforts are required to get
income.
iv. Recoupm ent o f the capital invested is assured. On maturity of security,

governm ents pays back the invested capital sum in full.
v. Liquidity o f capital is high because at any time the security can be sold in the
market.
vi. There is ease o f purchase and sale o f the security. Cost o f such transfer is not
heavy but pretty low. Even gift o f security involves minimum cost for transfer.
vii. There is practically no burden on m anagement of this asset.
viii. Owner o f this security can raise loan easily without heavy cost.
ix. Owner o f these securities gets income tax and other fiscal benefits in taxation.
x. There is no scope for capital appreciation in holding these Govt, securities.
xi. These securities can be divided in desired lots without any difficulty. Part can
be held and rem aining part can be sold. It has easy divisibility.
xii. The main disadvantage o f this security is that it does not give any hedge
against inflation. However Central Govt, had floated security in the past which
was inflation linked and such a security to a certain extent does give hedge
against inflation.
3.2.1 Immovable Property as Sound Investment

Imm ovable properties are also considered sound investm ent because it also
reflects m ost of these qualities as detailed below.
i. There is a safety of capital invested. Capital invested can not be extinguished

even if it is acquired by the authority for the public purpose.
ii. Rate o f return on investment is 2% to 3% higher than yield rate available from
long term investm ent in the Government Security.
iii. Income from property in form of rent may be regular or irregular. In case of self
occupied premises, there is saving equivalent to rental value of the premises.
iv. There is certainty of getting back capital on sale or transfer. However the
realised sum may be same, less or more than the original capital investment
amount, depending upon type of immovable property and the situation in the
money market at the relevant period of time. In rent controlled area, fully
rented, fully developed property, may perhaps bring back lesser capital on
sale, than the originally invested capital. Owner occupied properties however
will normally appreciate after few years.
v. Imm ovable property can not be easily liquidated. Before sale, lot of formalities
like search and title verification procedure is required to be undertaken, which
is expensive and time consuming.
vi. Cost of transfer is very high. In case of purchase or sale o f immovable
property, heavy stamp duty is payable to State Govt. Again legal, brokerage
and advertisement charges are required to be incurred by the owner.
vii. Managem ent burden o f building is also high. Owner has to incur expenses for
repair and maintenance for keeping the premises in habitable condition.
Properly taxes are to be initially borne by the owner and then to be recovered
from the tenant. Rent recovery from the house has to be managed. Tenants
m ay or m ay not pay rent regularly. House property is required to be insured.
All these involve lot of management burden and expenses.
viii. Loan can not be easily raised against such property. For mortgage o f property
heavy legal, administrative and stamp duty expenses a r e ' required to be
incurred by the owner (Mortgagor).
ix. Income tax benefits are minimum for immovable properties.
x. Immovable property gives hedge against inflation., only if premises are vacant
or self occupied. However premises let to protected tenants paying frozen rent
,as per provisions o f Rent Control Act, do not give any hedge against inflation.
xi. There is fairly good chance of capital appreciation for owner occupied premises
in developed area. However premises rented at frozen rent are more likely to
depreciate and hence it can be called as depreciating asset.
xii. Divisibility of holdings of immovable property is very difficult.. Very few

properties can be divided by metes and bounds. Jointly owned properties
therefore bring about more dispute and more m anagement problems.
xiii. Purchase and sale of property is cumbersome. Lot o f procedure and expenses
are required to be incurred at the time o f transfer. It takes long time to sale
and purchase.
Having studied both type of sound securities, viz. Gilt edged security and Real
Estate security, we can now study history of Rate of Capitalisation.
History of Rate of Capitalisation : During pre-independence periods in India,
the rental values of the properties were determined by the market forces like
demand and supply, locality, permitted user of premises, type of construction and
amenities provided. Land lord and tenant relationship was governed by Transfer of
Property Act.
However with the introduction of Rent Control Acts since 1947/49 periods, in
m ost of the states of India, n e w . concept of Standard Rent of premises was
introduced in the market. It was a legal force and artificial factor which pegged
rent at 1949 level or on date of I s’- letting level. As some of the Rent Acts had no
clear norms for fixation o f Standard Rent, Courts had to establish norms and
Investm ent Theory in preference to Comparable R en Theorv , to fix Standard Rent
o f the rent controlled premises. In this case court c>l;so considered, return or yield
from Gilt Edged Security as the basis, for determining fair return to the landlord,
on his investments in land and buildings. Considering and comparing alternative
forms o f sound investments viz. Govt. Security and Immovable property, the Court
upheld following returns as fair returns to the landlord, on his capital investment in
land and buildings.
1-1/2% more return than the average yield rate on long term Govt, security
was approved as fair return on land investment and 2-1/2% return more than the
average yield on long term Govt, security was approved as fair return on investment
in buildings. For leasehold properties, 1% extra yield on both types o f investment
was considered fair , to account for extra risk o f investing capital,in leasehold
properties. Obviously, these norms and principles continued to be followed for
several years, for all types o f rented properties, even for other purposes also.
Even in 1970, in Bank Nationalisation case2, Supreme Court considered, yield
on G.E. Security as proper basis ,for arriving at fair rate o f capitalisation of rented
premises
Only in year 1983, in Smt. Shantidevi’s case3 >Supreme Court held for the
first time that other forms of investm ent available in the m arket should also be
considered for comparision. -Similar view was expressed by the Supreme Court in
case of SLAO Devangere4- In this case it was stated - “It would be unrealistic .to
adhere to traditional view o f capitalised value being linked with G.E. Security ,when
investm ent on F.D. in Bank, National Saving Certificates and Blue Chip equities
/Shares command much greater returns” .
• *
3.3.1 Interest Yields of G-Sec and Bank FD
It may be interesting to know how interest rates fluctuated in our country
during last 75 y n r s period .Following detail is brief summary of interest rate
variations.
Yield on Bank
Year Bank Rate Av.Yield G-sec
F.D (3/5Yrs).
r i9 3 5 3.5 % 3 % 3 %
1957 4 % 3 % 3 %
1965 6% 6.10 % 7%
1971 6% 4.77/5.53 % 6.50 %
1974 9% 5.00/5.74 % 7.75 %
1981 10 % 6.44/7.49 % 10 %
1991 11 %/12 % 10.86/12.04% 12 %
1997 12 %/ 9 % 9.00/14.20 % 12 / 13 %
1998 11 % / 9 % 9.00/13.17 % 11.50 / 12 %
1999 8 % 10.00/13.46 % 10.5 / 11.5 %
2001 7.50/6.50 % 10.58/11.89 % r 9.50/ 10 %
2002 6.25 % 7.41/10.86 % 8.00/ 8.50 %
2004 6.00 % 5.44/7.72 % 5.25 / 5.50 %
2007 6.00 % 8.01/8.13 % 8.25 %
2010 6.00 % 7.80/ 7.84 % 7.0 % J
These figures explains in brief the history o f rate of capitalisation in our
country.
W hile estim ating rental values by application o f Theory o f Investment, the

valuer must take utm ost care about rate of return to be adopted on cost of
investments in land and building. Court decisions about rate o f capitalisation may
be proper for rent controlled .properties having frozen rent. However it may not hold
good for rent estimation o f properties which are vacant or owner occupied and even
those properties which are not covered by Rent Control Act but by Transfer o f
Property Act.
Market study indicates that in most o f the towns in India, property owners o f
residential premises are willing to licence or lease their vacant premises at interest
yield as low as 4% to 6% o f value of such premises. This is very much lower than
yield from long term Govt. Securities’. The reason for this anomaly is the fact that
such properties observe appreciation in its market value during such licensed or
leased period. This is not so for rent controlled properties. Properties given on leave
and licence basis are out side purview of Rent Act. Hence such properties offer good
hedge against inflation and erosion of rupee value. Owners of such properties also
benefit from additional appreciation due to expansion of towns and cities, increased
population due to town development and ultimate increased demand in such
towns. These are the two vital factors which tempts owners to licence at lower rate
of return. Investm ent in other monetary form like Govt. Security, Fixed deposits in
Bank etc. do not offer safe guard against capital erosion nor does it offer benefit of
capital appreciation enjoyed by.investment in Real Estate (Vacant premises).
Even 1 % difference in rate of capitalization will bring about 10 % variation in

value of the property. The valuer must therefore select appreciate rate of return
very carefully while estimating rental values of the properties.
3.4 Valuation of Lease hold properties

There are different types of rent. To understand types of rent we must first
understand relationship of land owner and land occupant (user) viz. Lessor and
Lessee or landlord and tenant.
Lessor: He is the owner of the land or land with building, who gives away
possession of his property, on rent, on certain terms and conditions. He can be
distinguished from full owner of the property (Freeholder) in the sense that he does
not possess 100% rights in the property but holds only partial rights. Some c f his
rights in property are passed on to land user (Lessee).
Lessee: He is the tenant of the property owned by and belonging to Lessor. He

holds and uses the property, for period stated in lease agreement, n rental amount
mutually agreed on terms and conditions set out in lease agreement.
Sub-lessee: Some times under lease agreement, a right is given by Lessor to

the Lessee to permit sub-letting of land or land with building to the third person.
This sub-tenant is called sub-lessee. Main Lessor in such a case is called Head
lessor.
3.4.1 Types of Leases
There are basically to ir types o f leases.
(a) Building Lease.
(b) Occupational Lease.
(c) Sub Lease.
(d) Lease for Life.
Building Lease:
This type o f leases are m ost common in which open plot of land is given on
lease by lessor to the Lessee for the construction of the building. Lease period may
be 40 years, 60 years, 99 years or even 999 years. 99 years and more period is
called long term lease or lease in perpetuity. Short terms leases are also not
uncommon. In all these type o f leases, rental income from building is received by
lessee out of which he pays ground rent for the land to lessor.
Some times in the beginning of lease , some premium amount is also charged
by the lessor as an advance lease rent for the land. These leases may be renewable
for further periods on same rent or may be renewable with enhanced lease rent.
There are leases which are not renewable and on expiry of lease period, lessee is
required to surrender back land with improvements on land to the lessor free of
cost. Some leases provide for payment of market value of building (Improvement on
land) to the lessee by the lessor ,at the time of maturity of lease. Some leases also
provide increase of ground rent at fixed intervals even during initial lease period.
Occupational Lease: This lease is for use of land and building together which
belongs to lessor. The lease period is normally short 3 years, 5 years or 10 years.
There is a clause for rent review after 2 or 3 years period and there is a clause for
renewable lease for further periods. These types of leases are not much common in
India for residential premises due to freezing of rent provisions under Rent Control
Act. Instead of leases, short period licenses are created for such residential premises.
However still, commercial premises are freely 1. nsed to limited companies as
well as individuals by granting occupational leases.
Sub Leases: In this type of lease, Head Lessor leases land to Head Lessee for
fixed lease rent for a fixed period. Head Lessee is given right to sub lease as and
when required. Head Lessee sub leases the land to sub-lessee for enhanced lease
rental but for shorter duration than the head lease period. If main lease is for 99
years, sublease is for 98 years.
Lease f o r Life: Under this type of lease, period o f lease is fixed as the remaining
life span o f the Lessee. The lease period will mature on the date of death o f the
Lessee. This type o f lease is not common in India.
3.4.2 Types of Rent

Words Landlord and Tenant are normally used instead of lessor and lessee to
distinguish building tenant (premises occupant) from land tenant. There are several
types of rent as detailed below:
Ground Rent: It is the rent charged by the land owner (Lessor) to the tenant
Jtor use ui ia.ua under bpeciiicd and mutually agreed lease terms and
conditions. It can be monthly rent or annual rent. The ground rent may be fixed for
entire period or may be increasing at fixed intervals of years or may be reviewed at
the time o f renewal.
Rack Rent: It is the actual full rental value (Gross Rent) receivable from the
property in a year. 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 leased out property. In some cases lessor receives some fixed lump
sum am ount called premium from the lessee in advance, in the beginning of the
lease. This premium amount is nothing but an advance rental for the property.
Thus returns to the lessor is divided in 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 rent.
Some times improvements are done on the property by lessee which would
ultimately belong to the lessor as per lease agreement. In such a case notional
rental value on such capital improvement works also becomes the part of the
virtual rent. Thus virtual rent is sum of the total o f actual rent received from lessee
during lease period, notional rent receivable on premium amount and notional rent
•(annual equivalent) receivable on capital sum invested by lessee in the property.
Head Rent: Many a 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. If ‘A ’ leases
property to ‘B’ for Rs.2000/month and ‘B ’ in turn subleases to ‘C ’ for
Rs.3000/mont.h, Rs.2000 is head rent, Rs.3000 is improved rent and difference
Rs.1000 is 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. The rent may be
for use of land alone or for land and buildings together. This rent may or may not
include property taxes and other outgoings. Tenancy contract would fix the agreed
norms and conditions.
Standard Rent: The concept of Rent is established under Transfer of Property
Act which governs and regulate relationship between landlord and tenant. However
since independence of India and due to post world war situations in our country’,
m ost of the states thought fit to bring out Rent Restriction Act for protection to
tenants against exploitation and ejectment. This freezing of rent and protection
against 'ejectm ent were contrary to provisions of Transfer of Property Tax. Hence
these Rent Control Acts werq treated as special legislation superior to Transfer of
Property Act.
U nder these Rent Control Acts, the norms for rent payable by the tenant to the
landlord were fixed. This was called as 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 Rent Control Act. Most o f these Rent Acts, defines
this terms "Standard Rent” and also clarifies what it includes and what it excludes
under different situations. The landlord can not charge or receive frofn the tenant,
any am ount in excess o f this legal rent i.e. Standard Rent.
M arket Rent: It is the highest rent that is receivable for the property, by the
landlord, in the open market, after conside'ring all advantages and dis-advantages
o f the property as well as market conditions, in the prudent manner. It can be more
than Standard Rent and in some cases may be even lower than Standard Rent.
Concessional R e n t When landlord gives premises on rent to some relatives or
friend at token or nominal rent which is much below ruling rent in the locality it is
called concessional rent. It is always lower than the Standard Rent and market
rent of the premises.
M onopoly R e n t Some property has unique location in the locality. This
locational advantage can be exploited by charging monopoly rent to the occupant.
This rent is normally higher than ruling market rent in the locality. The only hotel
in front o f railway station or only single office building in residential zone are the
examples of monopoly situations.
Valuation o f Leasehold Properties: Valuation of interest of Lessor and Lessee in
a property, is a very complex and difficult task. The main reason for this complexity
is various types of leases and lease periods ,as well as unusual type of terms and
conditions of lease. Applicability of Transfer of Property Act in some cases and
applicability of Rent Control Acts in some other cases complicates this situation
further due to different pnd divergent opinions amongst expert valuers.
Valuation of interest of Lessor and Lessee in a given property depends on
several facts and circumstances o f the case, including lease conditions and rights of
each one under the lease contract. Depending upon the rights of each one and lease
provisions, value of rights of the Lessor or the Lessee can be worked out.
It is a common belief that value of right of Lessor and value o f right of Lessee
when added together would be equal to value of property as if to the freeholder.
This proposition is not always correct. Sum of the total of values of Lessors interest
and Lessees interest may be more than value to the freeholder, it could be less than
the value as if freehold or it may be perhaps equal to the freehold value of the
property.
Value o f Lessor’s interest in the property as well as value o f Lessee’s interest in
the property, can be very well worked out independently,without referring to total
value o f the propisrtyas whole.
Value o f Lessor’s interest in land would comprise of following three parts based
on rights held by Lessor as per lease terms.
i. Capitalised value o f lease rent payable by Lessee under lease contract for the
unexpired period of lease.
ii. Present value o f the right o f reversion of land/land with building to self
(i.e.Lessor), on m aturity of lease period.
iii. Market value o f the rights of the Lessor, to waive any o f the restrictions
imposed under lease contract.
Value o f Lessee’s interest in land would comprise o f following two parts based
on rights held by Lessee as per lease terms.
i. Capitalised value of profit rental (Net rent income receivable from building) for
unexpired period of lease. As Lessee would lose building on maturity of lease
period, provision for recoupment of capital invested in building (Rate of
recoupment) should also be made along with appropriate remunerative rate
of interest (Duel rate table).
ii. If plot is not fully developed but it is under utilised, profit rental or utility
value o f such unutilised land, till unexpired period o f lease, has to be
considered.
Following exam ples will make these aspects more clear.
Example - 2
A Lessor leased his 1,500 sq.mts. land to Lessee in 1965 for 99 years period on
monthly lease rent o f Rs. 1000/month. Lease is renewable for further 99 years
period on same terms. Lessee constructed a residential building on plot and rented
out flats in 1966 on total rental of Rs.5000/month.Repairs and other outgoings of
the property are 40% o f house rent income. Calculate value of Lessor’s interest in
land and also calculate value of Lessee’s interest in the property. Prevalent rate of
return in the m arket is 8%.
Solution:
(a) Gross Annual Incom e o f ground rent to Lessor:
R s.1,000 x 12 = Rs. 12,000/-per year.
As rate o f return is 8%,

Value of Lessor’s interest = R s.12,000 x 100/8 = R s.1,50 ,0 0 0/-..... (a)
(b) Value of lessee’s interest in property is as under:
Gross Annual House rent income

= Rs.36,000
Net Annual Return = 60,000-36,000 = Rs.24,000/ yr.
Subsistence o f lease is subjected to compliance o f various terms, conditions

and covenants of lease. Hence investm ent in purchasing Lessee’s interest is little
risky. We should therefore capitalise net yield at 1% higher return say at 9%.
Value of Lessee’s interest in property :

= Rs.24,000 x 100/9 = Rs.2,66,666/-
Say Rs.267,000/- (b)
Example - 3
The Government Industrial Development Corporation leased an industrial plot
of 5000 sq.mts. area in 1990 for 99 years lease period by charging premium of
Rs.100/- per sq.mt. Lessee built factory on plot in 2004 at cost of Rs.75 lacs. Due
to sudden death of factory owner, the property had to be sold in 2005. Calculate
fair sale value of the property if industrial land rate for year 2005 is Rs. 1,000 per
sq.mt. and assignm ent'charge for transfer o f property is fixed at 50% of unearned
increase in value o f the land.
Solution :
Value of land as if freehold:

= 5.000 Sq.Mts. @ Rs. 1,000/- Per Sq.Mts.
Value of land = Rs. 50,00,000
Value of factory building = Rs. 75,00,000

Total value of property = R sl ,25,00,000
However property is not of freehold tenure but o f leasehold tenure.
Value of Lessor’s interest in'land: =1/2 x 5,000 x (1,000-100)= Rs.22,50,000/-

Hence value o f Lessors interest in land = Rs 22,50,000/- (a)
Total value of the property = Rs. 1,25,00,000
Value o f lessee’s interest = Total value less Value of Lessor’s Interest
= 125,00 ,00 0 -2 2 ,50 ,0 0 0 = Rs. 1,02,50,000
Hence value of lessee interest in the property = Rs 1,02,50,000 (b)*

Example - 4
The Lessor leased the plot with building in year 1994 for total 20 years period.
Lease rent (rack rent) was fixed at Rs.20,000 per year in 1994 for full period o f 20
years. Lessee who occupied the house was required to bear taxes and repair
expenses of Rs.6000 per year. Market rental value oi nouse in 20U4 is
Rs.36r,000/year. Calculate value- o f Lessor’s interest in the. property in year 2004.
Also calculate value o f Lessee’s interest in the property in 2004 if he subleases
prem ises at m arket rental o f Rs.36,000/year. Rent Control Act is not applicable to
the property.
Solution: Lessor’s interest is two fold.
(i) To receive rent o f Rs.20,000/Year till 2014.
(ii) To receive rent o f Rs.36,000/Year after 2014 till perpetuity.
Net yield receivable for 10 years period is capitalised at 7% which gives
Y.P. = 7.024
Value o f Lessor’s interest (i)= Rs.20,000 x 7.024
= Rs. 140,480/- ... (A -1) Value of Lessor’s interest (ii)
Annual yield Rs.36,000/year
Less expenses Rs. 6000/year
Net yield till perpetuity Rs.30,000/year
Rate o f return is always decided on the basis of risk involved in the
investment. In present case the return o f rent is likely to increase or decrease in
future as per m arket conditions. Hence rate of capitalization is adopted at 8%
instead of 7% to account for risk o f rent variation.
Capitalised value in 2004 : Rs.30,000 x 100/8 = Rs.3,75,000/-
This value is deferred for 10 years period at 8% to find out net present value of
this future income in year 2004.
N.P.V. o f lessor’s interest (ii) = Rs.375,000 x 0.4632
Rs. 173,700/- ... (A-2)
Total value o f lessor’s interest in year 2004 :

= R s.140,480 + R s.173,700
- Rs.314,180/-
Say Rs.314,000/- ... (A-3)
Lessee had subsisting lease contract with unexpired period of 10 years in

2004. He could very well assign his'rights at market rental of Rs.36,000/year for 10
years period. Lessee will be required to pay Rs.20,000/year to Lessor and bear
outgoings of Rs.6,000/year.
Net profit rental to Lessee = Rs.36,000 - Rs.20,000 - Rs.6,000
= Rs. 10,0 0 0 /-per year.
This income of profit rental will cease after 10 years. Capitalsing at 8% for 10
years period, value of Lessee’s interest in 2004: (Y.P. for 10 years at 8 % yield = 6.71)
17
Rs. 10,000x6.71
Rs.6/j,100/ -
* Say Rs. 67,000/-* * ............ ( B )
When interest o f both Lessor and lessee are required to be estimated

simultaneously by same authority there is considerable difficulty. Courts have
suggested some solution. In a land acquisition case o f Smt. Kusumgauri Munshi5,
Gujrat High Court has held - “In cases where the several interests are o f the
nature of derivative interests, the general rule o f valuing the several interests as if
the several interests have combined to sell, would be applicable”.
In other words Court was o f the view that said piece of land has to be valued
as a whole unit first, and then apportion said value to Lessor and Lessee in
proportion o f the rights held by each one. In said case, Court approved total
compensation of land at the rate o f Rs.7/Sq.yd. (Rs.56,000). Court awarded
Rs.39,530/- to Lessor (Lease rent of Rs.2 148/Year capitalised in perpetuity at
5.50%). Balance Rs. 16,470/- was awarded to the Lessee.
Let us consider options available to a valuer when a leasehold property is

acquired under Land Acquisition Act. It is assumed that a valuer has already
arrived at com pensation payable as a whole single unit.
There are three approaches available to the valuer, to find out value o f Lessors
interest in the property and value o f Lessees interest in the property. Surprisingly
these three approaches are based on the proposition or the formula given below :
V alae of Lessors interest + Value of Lessees interest = Full value of property

as if freehold.
a) Under first approach, valuer first estimates value of Lessees interest and then
from total realised value o f the property deducts value o f Lessees interest to find
out value o f Lessors interest. If sum o f the values o f two interests , are higher
than the total realised value o f the property , then under this approach, the
lessee is put to better position than the real worth ol his interest. However if the
sum of the two values is less than the total realised value, Lessee stands to lose
under this approach.
b) Under second approach, valuer first estimates value of Lessors interest and then
from the total realised value of the property, deducts value o f Lessors interest,
to find out value o f Lessee’s interest in the property. Under this approach, if sum
of the two values are higher than total realised value, the Lessor is put to better
position than real worth o f his interest. However if the sum of the two values is
less than total realised value, Lessor stands to lose under this approach.
c) Under third approach, the valuer estimates Lessee’s interest as well as Lessor’s
interest independently. Sum of the total of these two interests may be more than
full value of the property or may be even less than full value o f the property.
Hence valuer makes appropriate adjustments in two values by increasing or
decreasing values in proportion to and corresponding to the each individual
18
interest so as to make up the total o f two interests equivalent to the full realised
value of the proper-tv
If full realised value of the psope.-ty is R s.100 000/- ar;- if value of the
Lessor’s interest is Rs.40,000/ m d value o f the Lessc- s inter.. i? Ks.50,0C0/-t
final value o f both inter* sts will b-.. *uiju*-l< d as m der :-
Value o f le s s o r ’s interest : 4 0 0 0 0 x 100.000 -• Rs.44,44-^/
90,000
Value of lessee’s interest : 50,000 x ICO,000 -- P 55,556/-
•n>,000
If sum o f the total of two interests are more than total realised vatu.-, by same
rule of three, the value is proportionally reduc ed instead o f increasing values while
making up the adjustments.
The Courts have approved o f such adu.: l-~:e;it ill vaiuos so as to achieve
equity. Neither Lessor nor Lessee should be be r.?r off in receiving rompensation
and the proportion of values of their respective interests ir. i-u property siiouid be
same as before acquisition o f the property.
Though last approach is preferred by tl.j Courts pardcalarly in land,

acquisition cases, other two approaches are also equally in us., for valuation •../
leasehold interest for different purposes.
3.5 Concept of Reversionary Value of Land

When we value the property by sental method, ir: cases of terminable interest,
we may have to resort to the reversionary' value of the land. There is lot of
confusion am ongst the valuers about validity and existence o f vb:s concept due to
misconception o f basic fundamentals. The reason for tuis confusion is the Calcutta
High Court’s judgem ent in Smt. Ashima Sinha’s case6 where in the High Cour'.
has been mislead.
To understand this concept, we must vas? know the process o ’ reversion and
factors and rights connected therewith.
When the Lessor gives land to lessee for development, geê.Mijy he puts a
condition that on maturity of the lease he would fake back the po ession of land
in original condition viz. without the structure. Lessee is required 1o remove.' the
structure, if any, on expiry o f the lease and hand over open land to (he Lessor. This
handing over of open land back to the Lessor is called reversion o f the land to the
lessor. Many a times , lessor puts a condition tin t on maturity of lease, not only
land but building erected by the Lessee on tho 'and would also revert back to the
Lessor, free o f cost. In such a case, land as wei* a . the building reverts to the lessor
though building was built by the lessee. This is :'r. process oi reversion.
It will be seen that during existence of leas- the Lessor acquires or holds two
rights, in addition to right to receive lease rent. First right is to get back his own
land on e;:pir\ o f lease. Second right is to get full ownership of building constructed
by the Lessee, on. expiry of the lease. In such casej the Lessee’s rights are tu tally
extinguished on the expiry ol the lease. This right to get back land or land with
building , at'future date, is called reversionary right o f the owner. ('Lessor).
For leasehold properties, this concept does not create much confusion in
valuation of the property. However when freehold property is developed by landlord
himself, this concept creates confusion. When the land owner constructs a building
on the land belonging to him and lets out premises to the individual tenants, he
receives rent from the tenants which is based on investment in land as well as
investm ent in the building. Now the property may be in area where Rent Control
A ct may be applicable or in area where such act is not applicable but Transfer of
Property Act is applicable.
In the former case, the owner will never get back his land because tenants of
the building are protected under Rent Act against ejectment and their tenancy
rights are perpetual in nature. These rights continue even after the collapse of the
building. There is absolutely no possibility of reversion of open or vacant land back
to the land owner till existence of Rent Act. Obviously in such a case there is no
reversion and valuer can not and should not add any value on account of
reversionary value o f land i.e. land value receivable after future life of the structure.
In such a case only capitalised value of rent in perpetuity would give correct market
value o f the property.
However alternatively, if no such act is applicable but Transfer o f Property Act

is applicable to the property, the owner can very well eject the lessee o f premises in
accordance with lease terms. There is no right o f Lessee after collapse of the
building. On expiry of total life of tl. building also , the owner can eject all the
Lessees in the building and demolish l.. same for erection of the new building on
the open plot. In such a case, there is an established rev.rsion o f land to the land
owner. Owner of the property; in such a case, d u rr: existence of the old building
on the plot, holds two types of clear and distinct rig. ■' the property. First right is
to receive rental income from the property (Revenue income from land and building)
till future life span of the building. Second righ■ is to receive back land (Capi^
income in future) with vacant old building, on expiry o f future life of the bui’ uuig.
The value of this second right, is called Reversionary Value o f the land.
With due respect to the Court, it is submitted that the view of the court in
Ashim a Sinha’s case6 is nor proper. Court has stated that -“In method adopted by
Valuation Officer, value of land is taken twice (i) Am ount included by yield method,
(ii) Again under reversionary method. This is novel approach but in our view
erroneous”. When the court says that ‘it is a novel concept and land value can not
be taken twice’, this view, it is submitted, is not proper. This concept may not be
applicable in the aforesaid case but that does not mean that the concept is novel
and non existent. The concept does exist and value o f land has to be taken in two
parts (Not twice) in pertain cases where land is likely to revert back to the landlord
20
free from all encumbrances. When the property is governed by the Transfer of
Property Act, landlord does get back vacant possession of the building .He can
-demolish building on expiry of future life o f the building and he can make the la'nd
open and fit for redevelopment. In such a case landlord holds duel right on land.
One part is in form of rental yield on land and building investment. (Return in
form, o f revenue income ) every year. Second part, the return on land to the
landlord, is in the form o f capital income (Value o f land), one time receipt, after the
future life o f the building or after demolition o f the building.
This dual receipt concept can be easily explained and understood , by taking
the example o f other types of investments. When an investor invests his funds in
Bank fixed deposit, he gets interest every year by way o f revenue income and on
date o f m aturity o f F.D., he also gets back his full capital sum (Original
Investment). Similarly , when the investor invests his funds , in equity shares, he
gets dividend income each year as revenue income , and when he sells his shares,
he gets back his capital sum , in form of one time payment i.e. return o f capital.(It
may be more or in some cases even less than the original capital). We do not say
that capital receipt in these two cases are dual payment to the investor and hence
on same reasoning we should not hold that land value is wrongly taken twice in
case o f investm ent in real estate.
In fact under land reversion, value is not taken twice nor it is duel return to
land owner. When rent is capitalised in perpetuity, it includes full return on land
and full return on building. But when terminable income is capitalised, it includes
first part o f return i..e. capitalised sum o f letting value for said terminable period.
After this period, property reverts to open land. Its value is deferred for that period
as second part or remaining part of land value. Thus theory is perfect and not
erroneous as held by the Court. Only its applicability has to be examined in each
case on the basis of the merits of each case.
Concept o f Unearned Increased in Values:

State Government, local authorities and Semi Government agencies many a
times gives land for development to public (Individual entrepreneurs or the
com pany ) ,by creating long lease and by charging initial full premium and fixing
token lease rent o f R e.l/ - per year. Invariably such premium rates are very low and
concessional, as compared to the prevailing ruling rate of land in the locality. But
keeping in view long term public interest , and in view of desire for development of
under developed area, such lands ar^; given on long lease. Invariably such leases,
for industrial developm ent , results into creation o f lot o f new jobs for the local
people. Such leases invariably consists of a clause of payment of unearned
increase , in case of sale or transfer of leasehold interest in land. If Lessee earns
profit on land value , by way of such sale, Lessor Government or Leasing Agency
would charge share in profit (Say 50% o f unearned increase in value of the
property over initial premium payments, as per Govt. Policy).This charge by the
A,
21
lessor, in case of sale or assignment oi tne lea.se tv is called paym ent for unearned
. ^> » «
increase. It is a charge on the property and i£ deducted from total value o f the
property as upheld by Supreme Court in case o f P.N. Sikand 7.
Some more exam ples are given below ,which will explain in detail, how various
interests in leasehold properties under different circumstances could be valued.
Some o f these exam ples are for properties which are governed by provisions of
Transfer o f Property Act. However it m ust be understood that where local Rent
Control Act prohibits increase in rental value and also prohibits reversion o f land to
Lessor, the method explained in these examples to evaluate different interests will
not be applicable. Examples are also given below indicating method to value the
interest of the lessor as well, as lessee, in the properties affected by Rent Control
Act.
Example - 5: A Lessor leased 1500 sq.mts. land in 1961 to Lessee for 99 years
period by charging lease rent of Rs. 1000/month. Lessee constructed the building
yielding total rent o f Rs.5500/month. Lease is renewable for further period of 99
years on same terms. Calculate value o f the Lessee’s interest in the property and
also value the Lessor's interest in property, as on March 2006, if Rent Act is
applicable. Property taxes and other expenses for house are 40% o f Gross Rent.
Adopt expected rate o f return at 7%.
Solution : (a) Value of Lessor’s interest = Capitalised value o f ground rent

income in perpetuity.
Gross Annual Rental income = Rs.1000 x 12 = Rs. 12,000/-
Value o f Lessor’s interest: 12,000 x 100/7 = R s.171,428/-

Say R s.171,000/- ... (a)
(b) Value of lessee’s interest = Capitalised value of net house rent income.
Gross Annual house rent income = Rs.5500 x 12 = Rs.66,000/-
Less : Outgoings.
Lease rent/year = R s.12,000/-
Other outgoings 40% o f G.Rent.Rs.26,400/- = Rs.38,400/-
Net annual income = Rs.27,600/-
As Lessees rental income is subjected to risk of irregular rental income and

also risk o f likely forfeiture of the lease, 1% higher rate of capitalization is adopted.
Value o f Lessee’s interest = 27,600 x 100/8 = Rs.345,000/- ....... (b)
In this example ground rent is Rs. 1000/Month and rental income from
building is Rs.5500/Month. Hence ground rent income is said to be 5-1/2 times
more secured. Rate o f capitalisation for ground rent income could be therefore
adopted at lower rate at 7% or even at rate less than 7%.
Exam ple - 6: A private land owner (Lessor) leased 3000 sq.mts. plot to Lessee
in 1990 for 99 years period , at lease rent of Rs. 15,000/month. No initial premium
22
is taken. Lease is renewable for 99 years further period on same terms. Expected
rate o f return is'8% . Freehold land rate in -locality in year 2010 is Rs,4,000/sq.mt.
and no building is put up on the plot by the Lessee. Calculate value of Lessor’s
interest in land and value of Lessee’s interest in land as in year 2010.
Solution : (a) Value o f Lessor’s interest
= 15,000 x 12 x 100/8
= Rs.22,50,000/- ....(a)
(b) Value o f lessee’s interest

= Freehold value - Value o f Lessor’s interest.
= 3 ,0 0 0 x 4 ,0 0 0 - 22.50,000
= Rs. 120,00,000 -2 2 ,5 0 ,0 0 0 '

= Rs.97,50,000/- ....... (b)
Example -7: A freeholder (owner of property) leased his land with building to
Lessee for 15 years period , by charging net rent of Rs. 15,000/year. Rent income
from house is Rs.70,000/- per year of which Rs.25,000/year are required to be
spent for outgoings like property taxes, repairs etc. Today unexpired period of lease
is 10 years. An investor desires to purchase Lessee’s right and expects 9% yield on
investment. What price should he offer to acquire Lessee’s right in the property, if
Rent Control Act is not.applicable.
Solution: As Rent Control Act is not applicable , income would not be received
by lessee in perpetuity , but rental income from property would cease after 10
years unexpired period of iease. Hence recoupment of capital invested lias also to
be provided for, by adopting dual rate table.
Gross Annual Rental income = Rs.70,000
Less: Outgoings: Lease rent = Rs. 15,000
Taxes, repairs = Rs.25.000= Rs.40,000
Net annual income = Rs.30,000
Capitalising net income at 9% for 10 years future period and allowing for
redem ption of capital at 4%., we get Y.P. = 5.77.
Value o f Lessee’s interest = 30,000 x 5.77 = Rs. 173,100
Say Rs. 173,000/-
Exam ple - 8: A Lessor leased his land (Area 2500 Sq.Mts.) for 40 years period
for a rent of Rs. 10,000/Month. Lessee constructed house yielding rent o f Rs.40,000
per month. Lease condition states that on maturity of lease, Lessee shall remove
the structure and return open land to Lessor. Unexpired period o f lease as on today
is 10 years. Expected yield on investment is 8%. Land rate prevalent in locality as
on today is Rs.3500/Sq.mt. Rent Control Act is not applicable. Advice on fair price
for purchasing Lessor’s interest.
SoWr.'ov. - Lessors holds two rights.
i. Lease rent income for future 10 years. . ,
« !
ii. R cversionaiy value of land with building which is receivable after 10 years.
(a) Annual Rent Income = Rs. 10,000 x 12 = Rs. 120,000/-
Cspitalising this income at 8% for 10 years period y p =6 .71
Value for rental income = 1 2 0 ,0 0 0 x6 .7 1 = Rs.805,200/- .. (a)

(b) Value o f land as if freehold = 2500 x 3500 = Rs.87,50,000/-
This va!ue is not receivable now but after lapse o f 10 years period. Deferring
value at 7% for 10 years period, present reversionary value of land :
= 87,50,000 x 0.5083 = Rs.44,47,625/- .. (b)
Total value c f Lessors in te re s t:
=Rs.805,200 + Rs.44,47,625
= Rs.52,52,825/- Say Rs.52,53,000/- .. (c)

Valuer can advice investor to offer a price o f Rs.50 lacsto acquire Lessor’s
interest in the above property as on today.
it should be noted that while considering reversion, it is assumed that land
value w ill remain unchanged i.e. at Rs.3500/SM. even after 10 years period.
Another point to be noted is that it is assumed that Lessee will be able to

remove te n a n t from building and demolish building at the time of maturity o f lease
as Rent Act ? not applicable. Reversionary' value o f building is therefore adopted at
Nil value T* Rent Act is applicable, value w ill be quite different. Land value
revet sion may be Nil but building reversion value has to be considered as building
can not be demolished due to protected tenants and Rent Act.
- 9: A leasehold property is acquired by Planning Authority. Total
corn per jatio n awarded for the property is Rs.75,70,000/-. Apportion this
com pensation amount between Lessor and Lessee if relevant details of the property
are as under:
Land area = 2100 Sq.Mts,

Building area = 750 Sq.mts. Gr.fl.and 750 Sq.mts.F.FI.
Lease rent = Rs.5,000/Month from 1976 for 60 years.
Unexpired lease period 30 years.

Building rent income = Rs.50,000/- per month.
Outgoings including taxes : 30% o f Gross Rent.

Prevalent land rate = Rs.2,000/- Per Sq.Mt.
Expected yield rate 8% on interest. Rent Act i? net applicable. Lease provides
that on m aturity o f lease, Lessee will handover open plot back to Lessor.
24
( *^
Solution: (a) Value o f Lessor’s interest. ..
(i) Rental income value = 5,000 x 12 x 100/8 = Rs.750,000/- .. (a-1)
(ii) Reversionary value of land (7% for 30 years)

= 2100 x 2 0 0 0 x 0 .,1 3 1 4 = Rs.551,880/- ... (a-2)
Total value o f Lessor’s in te re s t:

= Rs.750,000 + Rs.551,880 = Rs.13,01,880/- .... (a-3)
(b) Value of Lessee’s interest:

Gross annual income = Rs.50,000 x 12 = Rs.6,00,000
Less : Lease rent Rs.5000 x 12 = Rs. 60,000
Taxes/Repairs 30% = Rs. 180,000 = Rs.2,40,000
Net Return per Year = Rs.3,60,000
Capitalising net return at 9% and allowing for redemption of capital at 3% for
future 30 years life we get value:
=360,000 x 9.007 = Rs.32,42,520/- ... (b)
(c) Total value of Lessor’ interest and value o f Lessee’s interest.
Rs.13,01,880 + Rs.32,42,520 = Rs.45,44,400/- ...(c )
(d) Total compensation awarded is Rs.75,70,000/-. This has to be distributed

between two i.e. Lessor and Lessee in proportion of their respective interest in the
property as worked out below.
Compensation payable to Lessor:
j 3,qi_,880 x 7 5 o =R s 2 i 68,654 ... (d-1 )

45.44.400
Compensation payable to Lessee :
32,42,520 x 75 = Rs 54 Q1 3 4 6 ... (d-2)

45.44.400
The reasons for this actual worth of respective rights being very low and
compensation sum being high are as under.:-
i. Lessor leased 30 years back at very low rental. Unexpired period is 50% o f total
term.
ii. Lessee did not fully utilise land by optimum permissible construction on land.
Only 71% F.S.l. was utilised.
iii. Lessee fetched low market rental which was not commensurate with expected
yield on investment.
iv. Compensation amount includes 30% solatium extra on land and building va’ue.
We have discussed various types o f rent including virtual rent. This example
explains the method of working out virtual rent.
25
Example 10: A Lessee took premises on lease for 20 years period a i rent oi
Rs. 1200/- per month. Lessee paid Rs.20,000/- as premium at the • time of
com m encem ent of lease 5 years back. He spent Rs. 10,000/- now towards
im provem ent cost in the premises. Calculate actual equivalent rental value of the
premises (Virtual Rent) borne by the Lessee. Expected m arket yield on investment
is 8%.
Solution: Lessee is paying rent o f the premises in three different forms:

i. Annual Rent paid to the owner (Lessor).
ii. Advance rent paid to owner (Lessor) in form of initial premium.
iii. Notional rent deemed to be paid to owner (Lessor), by incurring capital expenses
to improve property. (This expense, in fact, is not any loss o f interest income,
but total loss o f capital).
i. Actual Rent = 1 2 0 0 x 12 = Rs. 14,400/year............ (a)
ii. Rental equivalent o f initial premium (Advance rent) consists o f two parts.
a. Loss of interest on capital sum paid.
b. Am ount required to be set aside every year to recoup capital sum paid
to owner.
i. Adopting rate o f return at 8% for loss of Interest i.e. 0.08 of premium.
ii. Recoupment rate at 4% (Sinking Fund for 20 years) i.e. 0.0336
Multiplying factor = 0.08 +0.0336 = 0.1136
Annual equivalent rental =20,000 x 0.1136 = Rs 2272/Year .. . (b)
iii. Similarly rental equivalent of Capital sum of Rs 10,000/- spent by lessee,

can be worked out in two parts. Loss of interest amount at 8 % and
recoupment o f capital at 4% for 15 years unexpired period o f lease.
Annual equivalent rental value = 10,000 x ( 0.08 +0.0499)
= Rs 1299/ year ...... (c)
Virtual rent o f the premises = 14,400 + 2272 + 1299
= Rs 17,971 /Year ..... (d)
3.6 Valuation of Rented Properties : (Rental Method of valuation)

Having studied Lessors and Lessees interest in the property, we can now study
interest of a freeholder ( Full owner ) or Lessee ( Part owner) , in their capacity as
landlord of the property (Building). When the landlord rents out the building to the
tenants , he has to incur several outgoings ,to maintain the house property
•Building has to be kept in tenantable condition so that it will continue yielding
regular rental income.
i
Value o f the right o f the landlord, in the tenanted property, is norm ally worked
out by the Rental method. In this method, net receivable income is capitalised at
the appropriate rate o f interest ,for the period of future flow o f the rental income, to
*
26
get the value of the right of the landlord. Net receivable income is determined by
deducting outgoings from the gross income receivable from the property.
As value under rental method depends not only on rent income but also on
outgoings, we can now study types o f expenses or outgoings that the owner of
property is required to incur to maintain rental income. The outgoings for
immovable property differ to great extent with outgoings for movable assets like
plant and machinery. However in both cases, contract agreement with tenant
(actual user o f asset) and terms and conditions o f renting out, decides actual
outgoings from rental income received by the asset owner . Some of the outgoings
that are required to be incurred by the owner of the house property are as under :
3.6.1 Various Outgoings

Property Taxes
Every local body or municipality levy house tax on the buildings and in return
provide civic amenities including, road net work, water supply, drainage facility,
conservancy services, street lights and garbage disposal services. These property
taxes are normally based an actual rents received or receivable for the premises
Taxes can not be fixed on the basis of actual rent which is higher than the
Standard Rent o f the premises. In such case taxes are based on standard rent of
the premises.
It is now the new trend of many municipal corporations in India to delink
•taxes from rental base and instead fix taxes on the basis of builtup area of the
premises and user of the premises. In year 2003 Delhi Municipal Corporation Act
was amended to introduce new system of rating called “UNIT AREA SYSTEM” of
rating/taxation. Similar system of area based taxation are already operating in
cities like Amdavad, Patna, Bangalore ?n Hyderabad.
While allowing outgoings for property taxes, valuer should deduct only legally
payable taxes and should ignore actual taxes if found very high and excessive.
Special levy of tax like “Repair Cess” if levied on the property should also be
deducted as an outgoing.
Land Revenue
For every property in urban areas, Government tax on land is payable by the
landlord for non agricultural use of the land. This N.A. tax is fixed depending upon
its user viz. Residential, Commercial or Industrial. Till land is unbuilt upon even in
city area N.A. tax is not payable as said land is deemed to be considered as
agricultural land.
Ground Rent
If the property is not freehold but of leasehold tenure, landlord has to pay
lease rent or ground rent for the use of land till the date o f expiry of lease. This
outgoings should be allowed on the basis of actual.
General Repairs
Every human being requires upkeep and regular health care for long and
healthy life. Like wise buildings also requires regular upkeep and maintenance and
also occasional repairs for long service life. For continuity of rent and for same level
of r e n t , prem ises has to be in tenantabie and in the up to date condition.
It is however seen that we Indians dc not believe in maintenance and repairs

at all. Landlords repair the building very reluctantly. Even house owners who have
not rented out the premises but occupy the premises themselves, they also give last
priority to repair and maintenance o f the building. It is a matter o f last resort and
not a m atter o f routine. Rent Control Act has aggravated this situation further as
landlords now have excuse for not repairing premises due to low, uneconomic
frozen rents. This is the reason why we see in every part o f our country, several
buildings in disrepair conditions.
However in spite of all these factual position, it is for a valuer to allow
appropriate amount towards repairs and maintenance of the building. This
outgoing is essential for estimated future life o f the building and also for
maintaining present level of rent fetching capacity of the building. If building is in
bad condition, rent receivable would fall. It is customary to link Repair outgoings
with gross rental income from the property. Some valuers prefer to link repair
allowance with cost of construction of the building.
It is but natural that entirely new building does not need heavy repairs but as
it becomes old, higher repair outgoings are needed. Repair and maintenance
outgoings can be considered in the range o f 3% to 12% of gross rent depending
upon age o f building, am ount of rent received and type o f wear and tear to which
the building is subjected. For new residential building of say 5 years age with fairly
good rental income, 3% o f gross rent may be sufficient. On the other hand for
building having 40 years age yielding controlled rent even 10% of G.R. may be
inadequate.
Actual average cost of general repairs and maintenance of the property over
last 5 or 10 years period , could be a better guide for making proper allowance for
the repair outgoings, rather than adhoc percentages.
This repairs and maintenance expenses does not include for cost of upkeep
and services like regular sweepings and security services which should bf
separately allowed as outgoings. These repair expenses also does not include
accrued structural repairs like leakages^ through terrace slab waterproofing,
cracked pillars and beams etc. which should be separately allowed as accrued
repairs. Valuer who connect repairs with cost o f construction, adopt repair
outgoings at 1% to 3% of cost, depending upon permanent or semi-permanent type
of building.
House Insurance
Many landlords do not insure the house against the risk of fire, flood,
earthquake etc. Even the owners who insure the house against these perils, they
under insure the house , not intentionally but out o f ignorance and carelessness.
However valuer should estimate and allow appropriate and adequate insurance
premium in every case, as an outgoing in the interest o f safety and continuity of
rental income in future, from the house.
Even if house is not insured, outgoing for the insurance premium should be
allowed assuming that the owner him self takes up the insurer’s burden. The
insurance premium rates goes on changing. It is linked with insured amount. For
residential building it may be about Rs.1.25 to Rs.2.00/1000 o f sum insured.
Upkeep and Services

This is also a regular outgoings required to be incurred by the landlord of
tenanted building. Landlord will have to employ services oi sweeper for day to day
sweeping in com pound and common areas of building. He may have to employ
pump m an for regular water supply. If lift is provided in building, lift man in shifts
are required to be employed. If security staff is provided, watchm an’s salary has to
be allowed.
In some offices central A/c. facility is provided to each and every tenant. These
expenses are normally allowed on the basis of actual. Some times tenants pay
separately for all these services. In such a case, rental income should be
corresponding increased or expenses for services should not be allowed as an
outgoing.
Collection and Management Charges
The landlord will require services of Rent Collector if number of tenants in
building are’ many. Actual salary paid to the rent collector can be considered as
Rent Collection charges. To collect rents from tenants in slums or chawls is more
difficult. Rentals are low and paying capacity of tenant is also low. Regular flow o f
the rental income in such cases is rare. Rent collector may have to visit tenants
more than once for payment. In some cases legal notice and litigation in Court may
be necessary. Hence rent collection charges in such case may be higher. Large
rentals may also become irregular if there are disputes between landlord and
tenants.
Considering factual position in each case, these expenses can be allowed.
Normally 3% to 6% of Gross Rental Income may be sufficient towards collection
charges. In case where landlord himself collects rents from the tenants, yet this
outgoings should be allowed.
In addition to above outgoings there are other factors also which reduces yield
receivable from the building.
Vacancies & Bad debts

In most o f the urban areas, there are hardly any bad debts so far as rental
income is considered. If tenant is in arrea-s o f rent, he will be ejected and hence no
tenant takes risk of non payment of rent. Again it is extremely difficult to get new
premises in town areas and there is a system of premium (Pugree) receivable by the
tenant while vacating the premises. Hence no tenant will run away without paying
c? 29
all arrears o f rent. However in slum areas and poor class locality bad debts factor
does exist. Similarly in buildings having residential premises, there is not much
vacancy and hence it need not be provided. However in cases where premises are
licensed, there is a gap between two occupants. Some loss of income may occur on
account o f this gap. It can be adequately provided as an outgoings.
In case o f vacancies, it will be proper to adopt average short fall in rentals

during past 3 years period.
Sinking Fund
W hen rental income is capitalised in perpetuity, there is 110 need to separately
provide for Sinking Fund or Recoupment of capital invested in the building. It may
appear absurd but it is assumed that rental income will continue for ever, even for
a tenanted building having 60 or 80 years age. However when Rent Control Act is
not applicable, rental income is capitalised for future life o f building and provision
is made for the recoupm ent of capital.Similarly in cases where lessee owns the
property and he has to handover land with building back to Lessor on maturity of
lease period, separate provision for recoupment o f capital invested in the property is
necessary. This is done by providing for Sinking Fund amount. Instead of single
rate table , duel rate table has to be used to find out proper Years Purchase.
3.7 Type of Life of Building and Factors for Consideration

After rate of capitalization and outgoings , another vital factor required to be
considered by the valuer is future period for which income will continue to be
received from the building. In other words future life of the building. This future life
span o f the building on date of valuation becomes important. The building has
three types of life.
Economic Life
This is the life span of the building during which it will continue yielding rent
income , without needing heavy and uneconomic repairs. It can also be called
service life or planned life of the building.
Physical Life
This i s . the actual survival life span of the building before collapse or
demolition.
Life due to Obsolescence

When the building becomes out of date or it is not useful for the purpose for
which it is designed, it becomes obsolete and of no further use, unless alterations
are made. The residential building in an industrial zone is one such example.
In rental method o f valuation, the valuer is normally concerned with economic
life o f the building. Building may exist for 100 years (Physical life) and even
continue yielding rent, but repair expenses will be so prohibitive after age o f 60
years life that entire property becomes uneconomic to the owner. The life of the
building is dependant upon several factors. All these aspects and other aspects of
life o f the building are discussed in detail in the subsequent chapter.
30
Environment, user and other factors also help in assessing future economic
life o f the building. Generally economic life o f the building is less than its physical
life yet in some cases it is ju st the reverse. In rent controlled buildings economic life
is 100 years and physical life may be 60 years.
Under rental method, it is also necessary for the valuer to consider and allow
for accrued or outstanding liabilities including following:
Cost of accrued structural repairs

Building may need major structural repairs for safe and tenantable condition
o f building. This should not include minor repairs and maintenance work but only
m ajor immediate repairs like new waterproofing, outside plaster, replacement of
structural members' of M.T. roof or steel roof,- structural repairs o f R.C.C. frame
members.
Assignment Premium
In case o f leasehold properties transfer charges are payable to Lessor for
effecting sale/purchase. These outstanding liability or charge on the property
should be deducted from total value, to find out fair market value o f the property.
Unpaid taxes, water bills or Government land revenue

These unpaid amounts are also a liability on the property. If seller has not
cleared these outstanding, valuer must consider and allow for these unpaid
amounts.
In case where property is mortgaged or is under litigation, appropriate
allowance for the same should be made.
Similarly, if property is jointly owned, deduction for undivided share of each
co-owner has to be considered.
Having learnt income and factors involving expenses in rental property, valuer
can very well advise an investor about worth of investing capital in real estate at
relevant period of time. For proper advise of feasibility and viability of investment in
any project the valuer must have full knowledge of money market and various
alternative forms of investment available in the market at relevant period of time.
There is some definite investment pattern observed in the investment market

in m ost of the major urban areas of our country. This investm ent market includes
share market, Govt. Security market, gold and silver m arket and realestate
m arket.Now in recent years commodity market ( Market for Agricultural produce
and various metals ) has also become a big investment market. It is observed that
investors go on changing their investment in the sectors which offer greater return
on their investment. If there is a boom in real estate market, investors would
withdraw money from stock market and invest in real estate. This will bring about
some fall in stock market. Conversely if there is boom in stock market money from
all other markets and trades including real estate m arket flows towards stock
m arket which enhances value of stocks and brings about slump in other market.
''<31 :
H owever this is not always true. In 2005/2006 period, money supply in money
m arket was so high that both stock market and real estate m arket observed
unprecedented boom period for a pretty long time.
. V aluer must therefore be. aware o f various dealings and trends subsisting in ■
money m arket at relevant period o f time o f valuation.
Valuer should also keep in m ind that investment in stocks and gold/silver
m arket are risky investm ent where as investment in Govt. Security and real estate
m arket has minimum risk and they are considered sound securities.
It is also expected o f a valuer to be aware of national and international trend of

overall economy in developed nations vis-a-vis developing nations. In m ost of
developed countries like U.K., U.S.A., Australia, inflation rate is not much. It is
hardly 2% to 3% annually. Where as in developing countries like India, inflation
rate was as high as 8% to 10% in past which has now reduced to 4% to 6% per
year. Expected yield rate on the investments in real estate in developed country
and developing country will be therefore quite different. Rate o f inflation has effect
of level/amount of fair m arket rent.
In developing countries cities and towns are growing very fast. This fast
exp- :sion results in “Capital Appreciation” o f real estate in existing and established
tow centres.
Due to this fast growth in town, clubbed with high rate o f inflation, purchasing
power o f Rupee goes down. Thus there is substantial ‘Capital Erosion’ o f capital
holder, particularly more so -for the residents of the urban areas of the fast
developing towns. However owner of real estate, even in such urban areas, is not
much affected by this erosion o f rupee value .This is because value of real estate
goes up corresponding to inflation i.e. the erosion of rupee value. This is the reason
why there is hedge against inflation in investing in real estate but there is no hedge
against inflation when investor invests in Govt. Security. This is one o f the reason
why investors in real estate are happy with lower yield rate on investment as
compared to yield re "e of Govt. Security.
Situation in developed countries are quite different. Town developm ent has
become saturated. The annual growth rate is hardly 3 to 4% of G.D.P. and inflation
rate is as low as 2% to 3%. Thus real estate value in developed countries do not rise
so high in short period as in India. Hence criteria for the rate o f capitalisation are
bound to be quite different.
In recent years , growth rate in India is as high as 3% to 9% of Gross

Domestic Product. (GDP).Inflation rate is at lower level of 4% to 6%. Thus different
economic situation is now being developed and observed in India. Naturally yield
rate will have to be carefully exam ined keeping in view this changed trend in India.
It is very likely that now real estate prices may not rise at such a fast rate as in the
past. Valuer will have to take in to consideration the likely future economic trend
in real estate investments in addition to the supply and demand aspect.
Valuer m ust thoroughly understand reasons o f various m arket trends and
court rulings on th e yield rates on the investments in the real estate properties. It is
generally found in m any towns of India that investors are satisfied with as low a
rate of yield (Rental income) o f 4% to 6% on the investments in residential
premises. This is much below yield rate obtained on the Government securities. On
the other hand courts have considered about 2 % more yield above prevalent yield
rate on securities as fair and reasonable yield rate on the investments in the real
estate. Even interest offered by the banks on fixed deposits (For more than 5 years
period) is more than 6% . All these facts are enough to confuse any prudent person
. Even it may confuse the valuer as to which basis he should follow in selecting
proper yield rate.
• If the valuer conducts proper research on this yield rate in real estate, his '
confusion about different yield rates will vanish. He is most likely to reach to the
conclusion that overall yield to the investor of capital in real estate should be higher
than the yield rate on Govt. Security. Following example will make this point clear.
If an investor invests Rs.10 lacs in January 2002 in 500 Sft. flat and Rs.10
lacs in Govt, security, the overall yield in both case in December 2006 will be as
under:
Real Estate. Investor purchases 500 Sq.Ft. flat in Jan 2002 for Rs. 10 Lacs
and lets out on rental of Rs. 40,000/ year ( At 4 % yield)
Rental income in 5 years period = Rs.40,000 x 5= Rs.2,00,000
Interest income at Rs.7.5/No

Investor sells flat in Dec 2006 at Rs. 4000/sft. 500 Sq.Ft. @ 4000/Sq Ft.
Rs.20,00,000 =Rs.22,00,000 Sale proceeds of Bonds
Total income = 22,00,000 less investment Rs. 10,00,000
Net average yield/year = 12,00,000/5 = Rs. 2,40,000
Average Yield rate /Year =240,000 x 100/10,00,000
10,00,000 ( On invest. O f 10 Lacs. )
Average Yield rate/ Year = 24 % / Year
Govt. Security. Out of 10 lacs investment , the investor Purchased Bonds at •
Rs. 99/No at 7.5% yield for 5 Years period. =10101 Nos bonds for the 5 years
period.
Income of interest on bonds in 5 years period =10,101 x 7.50 x 5

= Rs. 3,78,788
On sale of bonds after 5 years he will get a sum of Rs. 10,10,100. This is more
by an amount of Rs. 10100 against Rs. 10 lacs investment 5 years back.
Total yield in 5 years is = 378,788 + 10,100

= 388,888/-
Average yield per year = 388,888/5 =77,778/year

This gives return o f 7.78 %/Yr. oh investment in Bonds.
Thus it is ve iy clear that overall actual yield on investment in an immovable

property is not restrict''"' to 4 % as it is apparently seen in the market but
intrinsic yield to the investor could be as high as 24 % vis-a-vis yield o f only 7.78
% on the investment in Govt.Security.In each and every case the difference may not
be so high. Instead o f 24 % yield ,in some cases, yield could be only
10%/year.However,Av.yield in real estate will be always more than yield on
Govt. Security.
Following examples will explain the procedure o f valuation of rented properties

by Rental Method.
Example - 11: A fully rented, fully developed building yields gross rent of
Rs.48,000 per year. Adopt total outgoings at Rs.28,000/year.If expected rate of
return is 8%, find out fair sale value of the property. Rent Act is applicable.
Solution : Gross Annual Receivable Rent - Rs.48,000
Less : Annual outgoings. = Rs.28,000
Net receivable rent = Rs.20,000
As Rent Act is applicable, yield is capitalised in perpetuity.
Value o f the property :- 20,000 x 100/8 = Rs.250,000/-
Exam ple - 12
A fully rented fully developed building has G + 3 upper floors. There are 6
tenants per floor. Ground floor tenants pay rent of Rs. 500/month for each flat.
Upper first floor, second floor and third floor tenants, pay rent of Rs.525/month
per flat, Rs.550/month per flat and Rs.550/month per flat respectively. Property
taxes are Rs.28,000 per 6 month. N.A. tax is Rs.500/year. Building Insurance
premium is Rs.850/year. Sweeper salary is Rs. 150/month. Common light bill is
Rs.80/month. Calculate m arket value o f the property if building is 30 years old and
expected rate of return on investment is 10%. There are no accrued major repairs
to building and Rent Act is applicable.
Solution : Gross Annual Rent :
(Rs.500 + Rs.525 + Rs.550 + Rs.550) x 6 x 12 = R s .1,53,000
Less : Outgoings :
Property taxes Rs.28,000 x 2 Rs.56,000

N.A. Tax per year. Rs. 500
Insurance premium Rs. 850
General Repairs 8% o f G.R. Rs. 12,240 **%•
Sweeper salary Rs. 150 x 12 Rs. 1,800
Com mon light Rs.80 x 12 Rs. 960

Collection & Management ^% GR Rs. 4.590
Total Outgoings = Rs. 76.940
34
jNet Annual Rent = lo3,00U - 7b,94U = ks. 7b,UbO
Capitalising yield at 10% in perpetuity we get :

Value o f property = Rs.76,060 x 100/10
= Rs.760,600/-
Say Rs.761,000/-
Example -1 3
A fully rented, fully developed building , has G + 2 upper floors. There are 4
tenants/each floor. Ground floor tenants pay rent of Rs.4C 3/month/flat. First and
second floor each te n a n t, pays rent of Rs.420/month per flat. Property taxes are
Rs.4800/6 months. N.A. tax is Rs.450/year. Building insurance premium is
Rs.500/year. Sweeper salary is Rs.150/- per month. Electric light bill for common
areas is Rs.80/month. Calculate market value of the property ,if building is 25
years old and expected rate of return is 8%. There are no accrued major repairs to
building and Rent Act is applicable.
Solution:
Gross Annual Rent: (400 + 420 + 420) 4 x 12= Rs.59,520
Less : Outgoings.
Property taxes Rs.4800 x 2 = Rs.9,600
•N.A. tax per year = Rs. 450

Insurance premium = Rs. 500
General Repairs 6% of G.R. -- Rs.3,571
Sweeper salary Rs.150 x 12 = Rs. 1,800
Common light 80 x 12 = Rs. 96G
Collection & management 3% of G.R. = R s.1,786
Total outgoings = Rs. 18,667
Net Annual Rent = 59,520 - 18,667 = Rs.40,853
Capitalising yield at 8% in perpetuity, we get ,
Value of the property : 40,853 x 100/8 = Rs.510,662/-
Say R s.511,000/-
Study of Real Estate M a rk e t: (Analysis of Sale)

It is necessary for valuer to learn the procedure of finding out yield rate from
sale transaction. This will enable him to learn market trend or market expectation
at relevant period of time.
The procedure is little cumbersome. Valuer has to first find out from sale
transaction, actual sale price including black money, if any, and location of
property. Then physical verification and site inqui~v is done to find out rental
income from the property and likely outgoings. From these details rate of yield is
worked out c5om'' times rent details are gi.cn in sale document itself. Oniy tax
details has to be found out from local authority. .
It is however necessary to check that there is no surplus unutilised F.S.I. area

left in sale property. Fully developed fully rented property only can give correct
yield rate.
It is also possible to find out yield rate from sale of owner occupied or vacant
properties. Procedure is similar. Valuer has to find out actual sale price including
black money part if any. He has to then estimate fair m arket rental income
receivable from such vacant or owner occupied premises. This is done by
comparision of instances o f rental in such locality. Outgoings are deducted and
then finally yield rate is worked out.
In case o f flats and shops this is not so difficult. Sale docum ent will give
recorded sale price and area. M arket inquiry will give probable income receivable
from flat. Society maintenance will give to.al outgoings. These data are sufficient to
work out yield rate prevalent in real estate market, at relevant period of time.
Following examples will explain procedure.
Exam ple-14: A fully rented and fully developed house is sold for Rs.350,000/-.
On inquiry it is learnt that total rent income from house is Rs.42,000/year.
Property taxes are Rs. 10,000/6 months. Other expenses are 20% o f Gross Rent.
Calculate rate of return available to the purchaser landlord.
Solution : Gross Annual Return : Rs.42,000
Less : Outgoings.
Property tax Rs. 10,000 x 2 Rs.20,000
Other outgoings 20% of 42,000 Rs. 8,400
= Rs.28,400
Net yield per year = 4 2 ,0 0 0 -2 8 ,4 0 0 = R s .l3 ,6 0 0
_ __ Net Yield
Rate of Return ----------------- x 100
Investment
= _13I600_ ><1oo
350,000
= 3.88 %
Exam ple-15: An ownership flat of 560 Sft. area is sold in March 2010 for a
sum of Rs.2240,000/-. Society outgoings are fixed at Rs.4200/3 months. Market
inquiry shows that flat could be licensed for Rs. 12,000/month. Calculate yield rate
on investment to the purchaser of the flat.
Solution:
Receivable-income * Rs 12,000 x 12 - Rs 144,000

Less : Outgoings.
Society charges Rs.4200 x 4 Rs. 16,800
Other expenses 4% o f G.R. Rs. 5,760

Total Expense = Rs. 22,560
Net income per year= 144000-22560 = R s.121,440
121 440
Rate of Return = — — --- — x 100
22,40,000
= 5 .4 2 %
Example - 16: An investor purchased five bed room flat in Mumbai at the cost
of five crores. He licensed the premises to multi-national company for total licence
fee of Rs. 120,000/- per month. Rs. 1 crore was taken as security deposit. Society
maintenance charges including taxes were Rs.65,000/3 months. If 8% interest is
receivable in the market on refundable security deposit, calculate rate of return on
investment. Rent Act is not applicable.
Solution:
Gross Rental Income = Rs. 120,000 x 12 = Rs. 14,40,000
Add interest income at 8% on 1 crore = Rs. 8,00,000
Total amount of yield = Rs.22,40,000
Less : Society outgoings Rs.65,000 x 4 = Rs. 2,60,000

4 Net amount of yield = Rs. 19,80,000
Yield rate on investment , by rule of three:
1980,000 x 100
= 3.96% Say 4 % Yield
500,00,000
N ote: It should be noted that investor is satisfied with only 4% revenue yield
on investment, when financial market offers yield at 8%. The real reason behind
such unusual feature is the fact that Rent Act is not applicable and hence owner of
flat can eject the occupant whenever required and can benefit by way of sale of flat
after 5 or 10 years , to receive capital appreciation income. (One time benefit
instead of high annual revenue income.) Again owner saves on annual society
charges which otherwise he will have to bear, if he keeps flat vacant. We can say
that short fall in revenue income is compensated by deferred capital income.
Exam ple-17: An investor, recently purchased, fully rented, fully developed

building, for a price of Rs. 150,000/-. There were total 12 tenants. Gross rent from
ground floor four flats was Rs.880/month. Total Rent of 1st floor four flats and 2nd
floor four fiats were Rs.940/month and Rs.980/month respectively. Net Ratable
value of the property is Rs.30,000/- and rate of property taxes is 58% of Net
37
Ratable Value of the property. N.A. tax-is Rs.4 0 0 /yea'- Building is about 30 years
old. Water charges and services expenses are borne by tenants. Calculate rate of
return on the investment, if Rent Act is applicable to the tenants.
Solution:
Gross Annual Rent :(880 + 940 + 980) 12 = Rs.33,600

Less : Outgoings.
Property taxes 58% o f 30,000 =Rs. 17,400

N.A. tax per year. = Rs. 400
Repairs 8% o f G.R. = Rs. 2,688
Insurance 1% o f G.R. = Rs. 336

Collection & management 3% of G.R. = Rs. 1,008
= Rs.21,832
Net annual yield = Rs. 11.768
Rate o f return on investment (By Rule of three) :
11,768 x 100
= 7.84% Say 8 % Yield
150,000
It should be noted that this property is rent controlled and yield rate is higher
than 6 %. There is no scope for appreciation in v. 'ue.
E xam ple-18: A residential building of G + 2 upper floors have 12 tenants.

Rental income from ground, 1st and 2nd floors are Rs.3600/month, Rs.4000/month
and Rs.4500/month respectively. Propfrty taxes are" Rs.20,000/6 months. N.A. tax
is Rs.800/year. Building is 40 years.' o d and is not in very good condition. Area of
plot is 800 sq.mts. and prevalent rate of land in the locality is Rs.4000/- per sq.mt.
Value the property for sale, if Rent Act is not applicable. Expected rate of return is
9%.
Solution:
Gross Annual Yield : (3600 + 4000 +4500)12 = Rs. 145,200

Less : Outgoings.
Property taxes Rs.20,000 x 2 = Rs.40,000
N.A. tax per year. < = Rs.800
Repairs 10% o f G.R. = Rs. 14,520
Insurance 1% o f G.R. = Rs. 1,452
Collection and m anagement 4% of G.R. = Rs. 5,808

= Rs. 62,580
Net yield = Rs. 82,620

38
Capitalising rental yield at 9% for 20 years (future flow of rental income would
be for only 20 years period , which is future life of building, total life 60 years less
age 40 years.) and allowing for redemption o f capital a t 4% , we g e t , Y.P. at 8.09 .
Value of structure =82 ,6 2 0 x 8.09 = Rs.668,396/- .................... (a)
As Rent Act is not applicable, land with vacant building would revert back to
the landlord after future life o f the building is over i.e.’ after 20 years. Hence we
have to add to the capitalised value o f rental yield, reversionary value of land
(Present worth o f land receivable after 20 years)
Present value of land = 800 sq.mts. @ Rs.4000/- per Sq.Mt.
= Rs.32,00,000/-
This capital value is receivable after 20 years. Hence deferring the value at 8%
for future life o f 20 years we get, Reversionary value of land :
=3 2 ,0 0 ,0 0 0 x0 .2 1 4 5 = Rs.686,400/-... (b)
Total value o f the property = Rs.668,396 + Rs.686,400
= R s.13,54,796/-
Say Rs. 13,55,000/-........ ...... (c)
N o te : Here, rate o f deferment could be 9% instead of 8%. However 1% less is
adopted because investment is safe and not unsecured or risky. Again land value
after 20 years is not likely to remain same as assumed under deferment theory. It
may be more than present value. Hence 1% or 2% lesser rate of return is fully
justified.
Exam ple-19: An office premises having 2000 Sft. area is leased to m ulti
national company for 10 years period. Rent for first 5 years is fixed at
Rs. 140,000/month whereas for subsequent 5 years, rent is fixed at
Rs. 160,000/month. Property taxes are borne by the Lessee, over and above the
agreed lease rent. Building is 20 years old. Similar commercial premises in locality
are available at the ownership rate of Rs. 10,000/Sft. Find out the market value of
the property if expected rate of return is 8% and Rent Act is not applicable.
Solution:
(A) Gross Annual yield for 1st five years :
Rs. 140,000 x 12 = Rs.16,80,000
Income/year =Rs. 16,80*,000
Less : Outgoings.
Repairs 3% of G.R. = Rs.50,400
Insurance 1/8 % o f G.R. = Rs. 2,100

Collection and management 2% of G.R. = Rs.33,600
= Rs.86,100
Net receivable yield = Rs. 15,93,900
/
/
39
Capitalising yield at 8% for first 5 years period, ( Y.P. for 5 years= 3.993)
Value o f property (Part- A ) =15,93,900 x 3.993 = Rs.63,64,442/-... (a)
(B) Gross Annual yield next 5 years :
=Rs. 160,000 x 12 = Rs. 19,20,000
Less : Outgoings at 5-1/8 % o f G.R Rs . 98.400
Net yield = Rs. 18,21,600

Capitalising yield at 8% for balance 5 years, (Y.P. for 5 years = 3.993)
Value o f the property (Part - B)= Rs. 18,21,600 x 3.993
= Rs.72,73,648/-
Present worth o f this value o f Part B has to be worked out by deferring value at
7% for five years period. The deferment factor at 7% for five year is 0.713. Hence
Net present value (Part B) :
= Rs.72,73,648 x 0.713 = Rs.51,86,111/- ....... (b)

(C) Reversionary Value of office premises. :
The lease would expire after 10 years and premises would revert back to the
Lessor i.e Land lord , as Rent Act is not applicable.
Value o f office premises , as if vacant :
2000 x 10,000 = Rs.2,00,00,000/-

Deferring the value at 7% for 10 years period , we get reversionary value of the
Office prem ises : 200,00,000 x 0.5083
= Rs. 101,66,000/- ...(c )
M arket value of the premises : 63,64,442 + 51,86,111 + 101,66,000

= Rs.217,16,553/-.
Say Rs.217,17,000/- ............ (d)
N ote. It may appear absurd or unusual that present worth of the premises by
rental method works out higher than the probable purchase price in the market.
But this in not unusual and we do find such instances in actual market. In fact in
Actual Real Estate market, rate o f return expected on real estate is directly linked
to value o f asset and hence change in one brings about change in other. These
changes go on as a continuous process. When expected rate of return falls in the
market. Value o f asset increases and when prices o f real assets goes on increasing
rate of return falls.
In present example, value is higher than its likely purchase price in the
market. This may be due to two reasons. One reason could be that investors in real
estate m arket think that 8% yield on investment is quite attractive as compared to
other forms o f investm ent and hence there are too many buyers in the m arket for
purchase of office premises which are limited in supply. Hence present market rate
of Rs. 10,000/Sft. in the m arket may rise say by 5%. Another reason could be that
high. But now expected yield in the market has fallen and rental value may also fall
,at the time o f renewal and hence value o f premises will rise. If m arket expects rent
to fall in near future but this property offers higher rent after 5 years, obviously its
value w ill be high in the market. Rate o f return normally tend to change demand
and supply in the m arket and in turn prices o f premises in the market.
One more care is also required to be taken by the valuer ,while estimating
value o f the property , by rental method. If value is higher than ruling rate, valuer
m ust check whether present rent received by owner is excessive or not. Rent has to
be m aintainable for future years. Otherwise adjustment in value is necessary.
However it is ve iy likely that rental values are higher in the market due to stringent
m oney market condition. Instead of buying office on out right purchase by locking
up huge capital, it is possible that the prospective occupant finds it cheaper to pay
high rental.
Example-20: An investor took a plot on lease in 1990, for 40 years period, at
lease rent o f Rs.8,000/month. As per lease condition, land and building would
revert back to Lessor on maturity o f lease. An office building was built on plot in
1991 and gross rent now received is Rs.80,000/month. Net Ratable Value of the
property is Rs.8,27,000/- and rate o f property tax is 91% o f N.R.V. Govt. N.A. tax
on land is borne by Lessor. Work out value o f the property to Lessee as on
31/3/2010. Expected rate of return from freehold property is 7% and Banks offer
3-1 /2% interest on Saving Account.
Solution:
Gross Annual Income = Rs.80,000 x 12 = Rs.960,000
Less : Outgoings.
Property tax 91% of 827,000 = Rs.752,570
Lease rent Rs.8000 x 12 = Rs. 96,000
General Repairs 4% of G.R. - Rs. 38,400
Insurance 1% of G.R. = Rs. 9,600
Collection and management 3% of G.R. = Rs. 28.800
= Rs.925,370
Net Annual Income = Rs. 34,630
The lease will expire 20 years hence (From 2010) and on maturity, income to
Lessee w ill totally cease. Therefore capitalisation has to be done not for 40 years
future life o f the building, but only for 20 years, future unexpired lease period. Rate
of return for lease has to be 1% higher than that is expected on freehold property.
Hence 8% rate o f return should be adopted. As Lessee’s income will cease at future
date, provision for recoupment o f capital should also be made. Rate of recoupment
should be minimum. In present case , we can adopt rate of 3-1/2% for recoupment
of capital (This is the minimum rate offered on savings bank account.) Capitalising
net incom e , at 8% and allowing for redemption of capital at 3-1/2% for 20years
period, w e g e t : Y.P. = 8.668 and
Value o f Lessee’s interest = Rs.34,630 x 8.668
=Rs.300,172/- Say Rs.300,000/-
41
Example-21: An owner constructed G + 2 upper floor building and rented out
ground and first floor premises. Second floor premises was occupied by the owner
himself. Total Rent income from Ground and first floor tenants is Rs.2200/month
.An additional sum o f Rs575/month is received from these tenants , towards tax
increases since 1st letting . Built up area o f the second floor is 200 sq.mts. N.R.V.
o f let out portion is Rs.20,000/- and present rate o f the property tax is 85% of
N.R.V. Govt.N.A. tax on land is Rs.600/year. House Insurance is Rs.550/year.
Prevalent rate o f ownership premises in the locality is Rs.8500/Sq.Mt. The building
is 25 years old and well maintained. Calculate the sale value of the property if
expected rate o f return is 9%. Area of the plot is 600 sq.mts. and the same is fully
utilised . Rent Act is applicable.
Solution: The property is partly tenanted and partly owner occupied. Hence
rented portion is estimated by Rental Method and owner occupied portion is valued
by Market Approach.
(A) Tenanted portion (Ground and 1st floor) :
Gross Annual Rent = (2200 + 575) 12 = Rs.33,300
Less : Outgoings.
Property tax 85% o f 20,000 = Rs. 17,000

N.A. tax 2 / 3 x 6 0 0 = Rs. 400
Insurance 2/3 x 550 = Rs. 366 '
Repairs 8% o f G.R. = Rs. 2,664

Collection and m anagement 4% o f G.R. = Rs. 1,332
Total outgoing = R s.2 1,762
Net Receivable Rent = R s .l 1,538
Present value o f rented portion :
= 11,538 x 100/9 = R s.i -3,200/- ... (a)
(B) Owner occupied portion (2nd floor) :
In case o f sale, 2nd floor will be available vacant to the buyer. Prevalent rate for
similar premises is Rs.8500/- per Sq.Mt.
Hence value o f owner occupied portion = 200 x 8500 = Rs. 17,00,000/- ... (b)
Total sale value = (a) + (b) = R s.128,200+ R s .17,00,000
= R s.18,28,200/-
S a y R s . 18,28,000/- ............................ (c)
N ote: It will be seen that 200 sq.mts. o f owner occupied portion has value of
Rs. 17 lacs whereas rented portion having 400 sq.mts. area i.e. double area , has
value o f only Rs. 1.28 lacs, hardly 10% o f value o f owner occupied portion. This
clearly indicates damage done by Rent Control Act, to the overall economy of the
nation.
42
Exam ple-22: A residential flat was rented out in 1970 at Rs. 1500/month.
Court reduced rent and .fixed standard rent at Rs .750 ner month Value the- flat
today , if the society maintenance charges are fixed at Rs. 1140/3 months as
under.
Property Taxes Rs. 600
Society Maintenance Rs. 90

Sinking Fund Rs. 30
Insurance Rs. 15
Water Charges Rs. 45
Car Parking charge Rs. 60
Non occupancy charge Rs. 300 Rs. 1140/ 3 Months
Solution:
Gross Annual Return = Rs.750 x 12= Rs.9,000
Less : Outgoings.
Property tax. 600x4 = Rs.2400
Maintenance 90x 4 = Rs. 360
Sinking Fund 30x4 = Rs. 120
Insurance 15x4 = Rs. 60
Water charges 45x4 = Rs. 180
Parking charges 60x4 = Rs. 240
Non occupancy charges 300 x 4 = Rs. 1200

Rs.4560
Collection and m anagement 3% of G.R. = Rs. 270
Internal repairs 5% of G.R. = Rs. 450
= Rs.5,280
Net Yield/Year = Rs.3,720
Capitalising net yield at 10% in perpetuity, we get ,

Value of the flat : 3720 x 100/10 = Rs.37,000/-
During practice, the valuer comes across various types of situations where in
rental method has to be adopted with modifications or in combination of other
valuation methods . Some such situations are described below:
a) Land is fully developed and Only Rental Method is applicable.

building on plot is fully tenanted.
b) Land is fully developed but Rented portion to be valued by rental
building is partly let out and method and owner occupied portion by
partly owner occupied. market approach.
43
c) Land is partially developed with Rented portion by Rental Method. Surplus
surplus available F.S.I. Rented F.S.I. to be valued by comparing with rate
building is in one side of the plot. of open plot prevalent in the locality.
Separate building in plot is possible to
consume F.S.I.
d) Land is partially developed with Rented portion by rental method. Surplus
surplus available F.S.I. But only F.S.I. to be valued after deducting cost of
vertical developm ent is possible strengthening building or extra cost of
over rented building. structural frame provided from outside.
e) Land is only partially developed Rental Method may or may not be used
but rented ground floor depending upon market trend. Balance
structures in the plot occupy potential to be valued by Development
. entire plot. Method. This is the case where total
demolition of rented building existing in the
plot is necessary for optimum use of land.
Some times there are situations where partial demolition of rented building is
sufficient , to use balance potential o f the plot. In some other cases, it is
impossible to use balance potential of land, as demolition and reconstruction cost
is prohibitive and surplus balance potential available is too little as compared to
rehousing liability under development method.
There could be many more such situations and each case has to be carefully
studied for applicability of appropriate methods of valuation .
3.8 Rental Method of Valuation for Owner Occupied Buildings

It is possible to estimate market value of owner occupied properties by
application o f rental method of valuation. Various methods of valuation are tools of
valuer and there is no water tight compartments like rented properties to be valued
only by Rental Method and owner occupied properties to be valued only by Cost
Approach. We can value owner occupied premises by rental method also. Following
examples will explain the methodology.
Example-23: A Palatial type bungalow is built bv a businessman in his native
place, a small village having population of hardly 5,000 persons. Area of plot is
2000 Sq.Mts. Bungalow builtup floor area is 200 Sq.Mts. on ground floor and 100
Sq.Mts. on 1st floor. Total cost of land and bungalow in year 2004 was Rs.3 lacs
and Rs.22 lacs respectively. Value the property as on 2010 if no one in village has
capacity to pay even 5 lacs for the property and small rented premises are available
in village at rate of Rs. 10/SM/Month.
Solution: There is no paying capacity of buyers in the village. We can therefore

value property by rental method. Assume two tenants .one paying net rent of
Rs.2000/Month for ground floor and second one paying Rs. 1000/Month for 1st
floor.
Gross Annual Receivable Rent = (2000 + 1000)12 = Rs.36,000/-

Capitalising net rent at 6%, in perpetuity, we get,
Value o f property = 36,000 x 100/6 = Rs.600,000/-
\
v
44
It will be seen that property hlaving a cost o f Rs 25 Lacs in 2004 had value of
only Rs. 6 lacs after six years.
'Even owner/occupied or Vacant flats in urban ared can also be valued by

rental method instead o f sales comparision method. However we will have to first
arrive at fair rental value o f flat with the help o f sales comparision method.
Following example will explain the procedure.
Example-24: An ownership flat having 70 sq.mts. area was purchased by a

trader in 2003 at the cost o f Rs.37 lacs. Flat is in by-lane. Value the flat as on
March 2010 from following rental instances in the locality.
Rental instance ‘A ’ : Flat having 50 sq.mts. let out at net rent of

Rs. 15,000/month in October 2009. It has standard specification. It is in by-lane.
The building is 25 years old.
Rental instance ‘B ’ : Flat area is 150 sq;mts. and it is let out in January 2010
at Rs.60,000/Month. It is on main road. Building has deluxe specification and
building has 2 years age.
Solution : Flat instance ‘B ’ is on main road and is in new building with best
specification. Rental rate is Rs.400/Sq.mt./Month. If 20% rebate is considered for
subject flat, equivalent rental value could be Rs.320/Sq.Mt./Month as per this
rental instance.
Flat instance ‘A ’ is similar, to subject flat. Rate of letting is Rs.300/SM/Month..
If + 5% weightage is considered, equivalent rental for subject flat =
Rs.315/SM/Month as per this rental instance.
Estimating rental amount of Rs.315/Sq.Mt./Month for subject flat, we
get,Rent receivable = 315 x 70 = Rs.22,050/Month Or Rs.2,64,600/Year.
Capitalising net rent at 4% in perpetuity, we get value of subject flat:
2 6 4 ,6 0 0 x 100/4 = Rs.66,15,000/- Say Rs.66,00,000/-
3.9 Limitation of Rental Method

Every method of valuation has got its own limitation. No single method of
valuation is perfect or complete having universal application for all types of the
properties. Rental Method has following limitations.
Rental Method greatly depends on selection of proper and accurate rate of
capitalisation. Even 1% variation in the selected rate of return , may change values
by 8 to 10%. This creates lot of controversy and disputes between valuers. Again
there are two set of rate of return, operating in the actual real estate market ,based
on legal aspects. There is one rate of expected return by the landlords of the rent
controlled properties .There is also another rate of return that simultaneously
operates in the market, and this rate is as per expectations of th landlords whose
properties are falling outside the purview of Rent Control Act. This second rate is
substantially lower than the first set of rates. This situation , makes the task of the
valuer , in selecting proper rate of capitalisation ,very difficult.
The rental method is not suitable for non investment type of properties like
schools, temples, museum and such other public buildings.
In case o f rent controlled premises, rental method gives too low market value
as compared to the intrinsic value of the land and buildings. In some cases
outgoing expenses are so high that they outweigh the actual income derived from
the property.
In case o f owner occupied or vacant premises applicability of rental method is

questionable .Rental method may or may not give its true market worth. It could be
lower or may be higher than the price at which such premises are likely to be
exchanged in the open market. In such cases sales comparision method would be
more appropriate method o f valuation.
When the land is under utilised (Full permissible F.S.I. not consumed), rental
method alone can not give m arket value of the whole property. Help of other
methods is required to be taken to value the balance development potential
available in the p lo t .
Assessment o f maintainable rent requires verification from point of view of
Standard Rent, for the properties falling in areas where Rent Control Act is
applicable. If actual rent is higher than Standard Rent, its adoption under rental
method will not give true m arket value o f the rented property because actual rent
may not be maintainable and future flow o f income may drop.
When the property is purchased by sitting tenants, in Rent Controlled areas,

value worked out by rental method may give much lower value than the actual
purchase price paid by the sitting tenants.
Due to Rent Control Act, a trend was developed in the market , where many
landlords started fixing rental value of the premises at much lower rate than the
standard rent of such premises. To compensate for the loss in rental income ,such
landlords started charging a very high amount , in form of non refundable one
time premium (Pugree or salami) while creating tenancy. This resulted in artificially
low market rentals and value o f such properties under rental method also came
down substantially .This evil of premium suppressed market trend of true rentals
and it also artificially reduced the value under rental method vis-a-vis intrinsic
value of the property .
In rent controlled areas, Reversionary value of land is taken at Nil value as

land never reverts back to the landlord due to Rent Act. Thus value of land is
artificially depressed and taken at nil value for rent controlled areas , under rental
method. However for the properties not affected by rent act, rental method does give
fair value because reversion of land can be considered in such cases.
For rent controlled properties, future flow of rental income is wrongly

assumed to continue in perpetuity irrespective of the condition of the building or
future life o f the building. Building worth as scrap is also valued at high price on
rental method.
Majority o f the structures in any town or the city , are generally rented. Hence
valuer should m aster this method so that such structures are valued without much
difficulty.
3.10 Case laws cited in this chapter
1. Sorab Talati V/s Joseph Michem
(Appeal No. 101 of 1949) Mumbai H.C.
2. R.C.Cooper V/s Union of India
(AIR 1970 SC-564) Supreme Court
3. (3) Union o f India V/s Smt. Shantidevi
(AIR 1983 SC- 1190) Supreme Court.
4. S.L.A.O. Devangere V/s P. Veerabhadrappa
(AIR 1984 SC- 774) Supreme Court
5. Smt.KusumGauri V/s S.L.A.O.

(AIR 1963 Guj 92) Gujrat High Court
6 . C.l.T. V/s Smt. Ashima Sinha (1979)
(116 ITR 26) Calcutta High Court
7. C.W.T. V/s P.N.Sikand (1977) (107 ITR 922)
Supreme Court.
3.11 Summary
Purchase and Investment in immovable property. Leases and rent calculations
and their limitations are discussed.
3.12 Keywords
Purchase - Redemption - Capital - Investment - Leases - Rent - Limitation.
3.13 Intext Questions

1. Explain the difference between building lease and occupational lease.
2. Explain difference between following.
i. Rack Rent and Virtual Rent.
ii. Head Rent and Profit Rent.
iii. Contractual Rent and Standard Rent.
3. Explain in detail at least five outgoings of a rented property.
4. Explain words Annuity, Capitalisation and years purchase
5. Explain by giving example why lower rate of capitalisation increases value of
property and higher rate of capitalisation reduces value o f the property while
working out value of the property by yield method ?
6 . A Lessor leased land for 99 years in 1973 at ground rent o f Rs.60,000/Year.
Lease is renewable for further 99 years period at same rent. Calculate value of
Lessor’s Interest in land. Adopt 7% rate
7. A landlord rented out a shop at rent o f Rs. 1500/Month Property taxes for shop
are Rs.2000 per 6 months. Repairs an3Mother outgoings are 20% of Gross
Income. Calculate value of the shop by yield method.
8 . Explain difference between rate for redemption o f capital and rate o f reversion
o f land.
9. Explain m erits and demerits o f investment in real estate vis-a-vis investment in
G overnm ent Security.
10. Explain in brief concept o f reversionary value of land.
11. Give in b rief history o f rate of capitalisation for rental yields.

12. State at-least five factors which affects the life of the building.
.13. Explain in brief Theory of Investment for rental.yield. Also cite relevant case
laws.
14. W hy rate for recoupm ent of capital should be lowest ?
15. W ork out rate of return to the landlord, if fully rented house property purchased
for Rs.520,000/- yields rent of Rs.60,000/Year. Property taxes are Rs. 13,500
per six months. Other expenses are 18% of Gross Rent.
16. A Lessor leased his land for 30 years period by charging lease rent of
Rs. 12,000/Year. Rent income to Lessee from house built on plot is
Rs.65,000/Year o f which Rs.25,000/Year is spent by Lessee for property taxes,
repairs etc. Value Lessor’s right as well as Lessee’s right in the property if
unexpired period o f lease is 10 years and expected yield on investment is 8%.
On m aturity of lease, land and building would vest with Lessors. Plot area is
1500 Sq.Mts. and current land rate is Rs.2,000/Sq.Mt.
17. An ownership flat is purchased by an investor for Rs.4,38,000/-. It is given on
Leave & Licence for a rent of Rs.3500/Month. Society maintenance charges are
Rs2670/- per 3 months. Calculate yield rate on investment in flat.
18. A fully rented building o f G + 2 floor has 12 tenants. Rent of ground floor four
tenants is Rs. 1600/floor/month. First floor four tenants pay rent of
Rs. 1700/floor/month and second floor four tenants pay rent of
Rs. 1800/floor/month. Property taxes are Rs.3700/- per 6 months. N.A. tax is
Rs.500/year. Building is 40 years old and Rent Act is applicable. House
Insurance is Rs.650/year. Value the fair sale price of building if expected rate of
return is 9%.
19. Explain in details Limitations o f Rental Method of Valuation.

CONTINUING TRAINING PROGRAMME
IN VALUATION OF IMMOVABLE PROPERTIES
INCOME APPROACH TO VALUE
57 Relation between Income and Value
58 Valuation of Property affected by the Rent Control Act, Licensed

property under theEasement Act, 1882 and Leasehold properties under the
Transfer of Property Act,
59 Derivation of Yield Rate from Market Derived Data.Remunerative Rate

of Interest and Accumulative Rate of Interest, Types of rent: Outgoings,
Income, Yield, Years’ Purchase. Determination of Market Rent and
Standard Rent
60 Lease: lessor & lessee: Types of Lease, Lease provisions and

Covenants.'
61 Valuation of Lessor’s Interest, Lessee’s Interest including Sub-Lease in

Leased Property.Premature Termination of Lease or Surrender of Lease.
62 Real Estate as an Investment, Yield from Real Estate vis-a-vis other

forms oflnvestments- Sound Investment Comparison.Investment Decisions:
Discounted Cash Flow Techniques-lnternal Rate of Return (IRR) and Net
Present Value (NPV)
63 Profit Method: Valuation of Special Properties: Hotels, Cinema, Mall,

Petrol Pump, Hill resorts
49
RELATION BETWEEN INCOME AND VALUE
VALUE .
Justice Hadley stated that, "Value is an estimate of the price as it is ought to be”. It
relate to the physical, geographic, economic or legal characteristics of an asset. It is

highly subjective. When the question of selling or buying an asset, then only the value is
come in to existence depending upon the requirement of the specific owner or

purchaser.
1) Market Value
Market Value is the estimated amount for which an asset or liability should exchange on
the valuation date between a willing buyer and a willing seller in an arm’s length
transaction, after proper marketing and where the parties had each acted
knowledgeably, prudently and without compulsion and with proper marketing.
2) Accommodation value
The value of land lacking in shape, size, or a recessed land, lacking direct access from
the road, or not independent will be having a lesser market value.
3) Book value
The written down value (W DV) of an asset as shown in the Book of Accounts and
Balance sheet shown in the Fixed Block as per statutory requirements

4) Breakup value
It is the estimated amount, when a Manufacturing Concern is closed, individual assets
are valued and sold separately
5) Distress Value
The urgent disposal or liquidation of assets under circumstance of personal
commitments, communal riots, obsolescence, labour unrest and other social, political
uncertainties will drastically reduce the market value.
6) Fair market value

The term used in normal conditions when the asset is sold or valued as if it can fetch. It
signifies the Market value. It is not a speculative or distress or forced sale value.
7) Liquidation Value
It is the amount that would be realized when an asset or group of assets are sold on a
piecemeal basis. Liquidation Value should take into account the costs of getting the
50
assets into saleable condition as well as those of the disposal activity. Liquidation Value
can be determined under two different premises of value; An orderly liquidation
describes the value of a group of assets that could be realized in d liquidation sale,
given a reasonable period of time to find a purchaser (or purchasers), with the seller
being compelled to sell on an as it is. This is also called Realizable value. This term
usually used in financial securities while pledging as Mortgage to the financial
institution. The reasonable period of time to find a purchaser (or purchasers) may vary
by asset type and market conditions.
8) Forced Sale value
It is the estimated amount of an asset, when sold in the open market when the asset is
under liquidation. The term “forced s a le ” is used in circumstances where a seller is
under compulsion to sell and that, as a consequence, a proper marketing period is not
possible and buyers may not be able to undertake adequate due diligence.
9) Going C oncern value
It is an estimate of the profit making running business price, in the open market with all
tangible and intangible assets with all liabilities.
10) Equitable Value
It is the estimated price for the transfer of an asset or liability between identified
knowledgeable and willing parties that reflects the respective interests of those parties.
11) Investm ent Value
It is the value of an asset to a particular owner or prospective owner for individual
investment or operational objectives.
12) Intrinsic value
The actual or true value of the asset, incurred by the owner of the assets
13) M onopoly value
It is the premium value or a fancy price of the assets due to demand, non-availability of
similar assets and these types of assets demand a special value due to this peculiar
advantages
14) M ortgage value

The term used in financial institutions while the asset is surrendered as security for the
loans taken by the owner of the assets from financial institutions

51
15) Salvage value

it is the estimated amount when an asset is sold in the open market, after the expiry of
its life span, but still continued to be used due to its present conditions.
16) Scrap value
The scrap value is defined when the asset has served its life and no more it can be
utilized for operation and it is completed in knock down status, the residual parts are
valued as a scrap pretending the scrap materials of the asset is sold in open market.
17) Replacement value
This is the estimated cost of the asset to be incurred today, by replacing a similar asset
at current pricing.
18) Reproduction value

This is the estimated cost of the asset to be incurred today, by replacing a similar
identical asset with the same technical specifications at current pricing.

19) Net present value
It is the present day value of the asset derived by deducting the depreciation amount
from the replacement value of the asset
20) Notional value

This is an imaginary value of asset or hypothetical value as required for certain
valuation process for statutory purpose
21) Potential value

An asset due to physical, geographic, economic or legal characteristics, the benefits it
enjoy will naturally have a demand. Due this factor the market value will be increased.
The potential amount will be added to the asset value.
22) Sentimental value

The value determined by the buyer or seller due to various sentimental reasons. It is a
personal value added to the market value of both buyer and seller. It may not affect the
fair market value.
23) Speculative value

When a speculator invest in buying the asset with sole motive of earning profit while
selling of the asset after specific time. The speculator may foresee likelihood of increase
in asset value and makes investment and sells the asset on profit mode.
24) What is Property income?
Profit 01 income received by virtue of owning property. Property income represents the
return for the supply of both physical capital and financial capital
25) What are the three forms of property income?

Rent, received from the ownership of natural resources Interest, received by owning
financial assets. Profit, received from the ownership of capital equipment. Property
income is nominal revenues minus expenses for labour, purchased materials and
services.
26) What is the relation between income and value?

The value of the asset is assessed on the. nature of the physical, geographic, economic
or legal characteristics and the benefits it enjoy with a demand and supply. But the
income of an asset is determined by reference to the value of income, cash flow or cost
savings generated by the asset. For example the commercial properties or business
controlled areas will fetch more income with more rate of return, and the residential
properties will fetch lesser income when compared to property value.

27) What is Rental Income?
As per the IVSC Standards, it is the estimated amount for which an interest in real
property should be leased on the valuation date between a willing lessor and a willing
lessee on*appropriate lease terms in an arm’s length transaction, after proper marketing
and where the parties had each acted knowledgeably, prudently and without
compulsion.
28) What the fundamental required for determination of the income?

if the rent subject to a lease, the terms and conditions of that lease are the appropriate
lease terms unless those terms and conditions are illegal or contrary to overarching
legislation, and If the rent that is not subject to a lease, the assumed terms and
conditions are the terms of a notional lease that would typically be agreed in a market
for the type of property on the valuation date between market participants. Income
depends upon the locational, geographical and business type and other conditions.
29) When this income approach can be applied?

The income approach should be applied and afforded significant weight under the
following circumstances:
53
• The income-producing ability of the asset is the main factoror only one of several
factors affecting value
• Reasonable projections of the amount and timing of future income or significant
uncertainty regarding the amount and timing of future income of the subject asset
• There is a lack of access to information related to the asset (for example, a minority
owned property no forecasts can be made)
• The asset has not yet begun generating income, but is projected to do so.
30) What are the additional circumstances where the income approach may be
applied?
When using the income approach, valuer should consider whether any other
approaches can be applied and weighted to corroborate the value indication from the
income approach:
31) What is the fundamental basis for the income approach?

A fundamental basis for the income approach is that investors expect to receive a return
on their investments and that such a return should reflect the perceived level of risk in
the investment. Generally, investors can only expect to be compensated for systematic
risk (also known as “market risk” or “diversifiable risk”).
32) What is annuity?
Net annual income (Return on Investment) derived from the investment made.
33) What is Capitalization?
The amount to be invested at present to have a return in future is called the capital
investment. The interest or profit received on investment is the return from the
investment and total amount received at the future date is called capitalized value.
34) What is yield rate?

The rate at which the income derived from the assets when compared to the capital
value of the asset is called the yield rate. The income periodically has to increase and
must match with the increased capital asset value due to inflation, demand and other
factors attributing to the prevailing market value of the assets on periodic intervals.
35) What is the derivation of yield rate from market derived data?
The net income from the asset is treated as interest yielded at a certain interest rate on
the amount or capital invested in buying the asset. The rental income or the yield rate of
54
the immovable assets in perpetuity, is compared with very similar Government bonds
yields. If the upward revision of income yield rate when compared the prevailing yield
from Government bonds, it is treated as systematic risk and return on investment is a
fair return. But if the downward revision of income yield rate when compared the
prevailing yield from Government bonds, it is treated as for high risk.with lower yield
rate. For rent controlled properties the rate of return on rents is frozen as per the Court
decisions. This may not hold good for owner occupied properties, properties not
affected by Rent Control Act and leasehold properties under transfer of Property Act.
36) What is the Remunerative rate of interest and accumulative rate of interest?
The rate of capitalization after due consideration to yield rates comparing other type of
investments at the relevant period of time is called the Remunerative rate of interest.
When the income from long term investments and perpetual in nature, the yield rate on
such investment is called the Remunerative rate of interest. The total interest portion
received on accumulation is called the accumulative rate of interest.
37) What is standard rent?

The rent thus collected is in accordance to the Rent Control Act. This is more relevant to
Fair Rents determined in a court of law under specific stipulations.
38) What is market rent?

The prevailing rent at a particular place depending upon the nature of location, demand
and supply chain and business nature. There may be fancy rental pattern that may
reflect on many factors.
39) W h at is eco n o m ic rent?

Rent paid to the owner for the non-produced inputs like land and assets by way of
unearned revenue, without considering profit earned out of the assets. For the most
production, like land, oil and minerals including agriculture and extraction process,
economic rent is due the scarcity or uneven distribution of natural resources.
40) What is gross rent?

Gross rent refers to the rent paid or income received for the services of land and the
capital invested on it. It consists of economic rent, interest on capital invested for
improvement of land, and reward for the risk taken by the landlord on investment on
capital.
+ _
55
41) What is monopoly rent?

The profits or the returns associated with legally enforced as monopolies like patents,
copyrights. Some business like public utilities are by their nature monopolies. Eg:
Microsoft, Intel
42) What is scarcity rent?

Scarcity rent refers to the price paid for the use of homogeneous land when its supply is
limited in relation to demand. If all units of land are homogeneous but demand exceeds
supply, all land will earn economic rent by virtue of its scarcity.
43) What is rack rent?

Full rent of the property including both land and improvements if it were subject to
immediate open market rental review. W e can termed as economic rent of land plus
interest on capital improvements plus depreciation and maintenance - normal market

rent of the property.
44) Where it is generally applied?

Applied mostly in case of eviction and land owner using his power to restrict the tenants.
The land lord charging interest over the rent or by interest and depreciation on the
capital improvements made by the land lord. David Ricardo’s Law stated that, when
there is no accessible rent free land or any society improvements nearby, the land value
of the particular property is increased due to the improvements made in the property.
This rent is called rack rent which is economically meaningful, and differs from other
types of rent
45) What is differential rent?

Differential rent refers to the rent that arises owing to differences in fertility of land. The
surplus that arises due to difference between the marginal and intra-marginal land is the
differential rent. It is generally accrued under conditions of extensive land cultivation.
46) What is contract rent?

Contract rent refers to rent that is mutually agreed upon between the landowner and the
user. It may be equal to the economic rent of the factor.
47) What is virtual rent?

56
Virtual rent is the rent received under lease agreement which includes the premium
amount and any amount incurred for improvements in the premises by the lessor or the
lessee
48) What is head rent?

The rent paid by the main lessee to the lessor is called the Head rent.
49) What is ground rent?

Ground rent specifically refers to regular payments made by a holder of
a leasehold property to the freeholder, as required under a lease. Eg: Vacant land given
on lease. In this sense, a ground rent is created when a freehold piece of land is sold on
a long lease or leases. The ground rent provides an income for the landowner.
50) What is quasi-rent?

The term that describes certain types of returns tofirms. Quasi-rent differs from
pure economic rent in that it is a temporary phenomenon. Itcan arise from the barriers
to entry that potential competitors face in the short run, such as the granting
of patents or other legal protections for intellectual property by governments. Quasi-rent
refers to that additional income which is similar to rent.
51) What is Profit Rent?

W hen the Head Lessee sub leases the property, the rent received by the head lessee
will be more than the rent paid by him to lessor. This increased rental is called
improvement rent. The difference between the rent received and rent paid by the head
lessee is called Profit rent
5 2 ) W hat are the value of the freehold interest?

A multiple of the current annual ground rent payable, which will depend on
• Outstanding term of the lease.
• Any future scheduled increases in the level of ground rent
• Market interest rates
• The probability of default
• If the rents for individual flats etc. are small, the cost of collection
57
• The net present value of the reversion, i.e. at the end of the lease
the freeholder (to whom the rent is paid) will probably be fully entitled to the
property, so the shorter the lease the greater the reversion value.
• Any substantial sum designed to compensate freeholders for their loss of interest
53) W h a t is R enting o r hiring o r letting?
An agreem ent where a payment is made for the temporary use of a good, service
or property owned by another. A gross lease is when the tenant pays a flat rental
amount and the landlord pays for all property charges regularly incurred by the
ownership.
54) W h at are the reasons for renting?
Rent used in a trade or business is tax deductible, whereas rent on a dwelling is not tax
deductible in most jurisdictions.
Financial inadequacy, such as renting a house when one is unable to buy it. One may
not wish to pay the full price that ownership would need, allowing for smaller payments
over a specified period of time.
Reducing financial risk due to depreciation and transaction costs, especially for real
estate which might be needed only for a short amount of time.
No need to worry about lifespan and maintenance.
Renting keeps off-balance-sheet the debt that would burden the balance sheet of a
company in case the property would have been bought.
Renting is good for the environment if products are used more efficiently by maximizing
utility rather than being disposed, overproduced and under-utilized.
55) W h at is rental agreem ent?

A written rental agreement or contract is to involve to specify the terms of the rental, to
regulate and manage under contract law. Eg: letting out real estate property for the
purpose of housing tenure, vehicle parking space, storage space, whole or portions of
properties for business, agricultural, institutional, or government use, or other reasons.
The tenancy agreem ent for real estate is often called a lease, and usually involves
specific property rights in real property, as opposed to personal property.
56) W h at is deduction allow able under Indian A ct on rental incom e?

58
In India, the rental income on property is taxed under the head "income from house
property". A deduction of 30% is allowed from total rent which is charged to tax.
57) W h a t is lease agreem ent?
A lease is a contractual arrangement calling for the lessee (user) to pay the lessor
(owner) for use of an asset. Ex: A land given on lease as long term rental, with or
without infrastructure for certain period. Long term rental of personal property (for
periods longer than a year) is known as leasing. The term rental agreem ent is also
sometimes used to describe a periodic lease agreement (most often a* month-to-month

lease) internationally.
The lease will either provide specific provisions regarding the responsibilities and rights
of the lessee and lessor. In general, by paying the negotiated fee to the lessor, the
lessee (also called a tenant) has possession and use (the rental) of the leased property.
The most common form of real property lease is a residential rental agreement between
landlord and tenant. The lease may be for a long term or short term or perpetual.
58) W h at is leave and license?
Section 52 in The Indian Easem ents Act, 1882 - 52 "License" defined. -W here one
person grants to another, or to a definite number of other persons, a right to do, or
continue to do, in or upon the immovable property of the grantor, something which
would, in the absence of such right, be unlawful, and such right does not amount to an
easement or an interest in the property, the right is called a license.
Business or trade requiring grant of license from concerned authority are referred as
business license and the place used for that type of licensed business is called licensed
premises. That license is defined in Section 52 of the Indian Easement Act, 1982.
The authority to grant license is called the Licensor, the person to whom the license is
granted is called Licensee and the place of business is Licensed Premises.
The Rent Control Act will not be applicable to this type of licensed business premises.
To avoid complications and relief from the Rent Control Act, the properties are given
under this type of leave and license. The property right of enjoyment is not transferred
to the Licensee.
The value of licensed premises will depend upon net profit of the business derived out
of the business.
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UNEARNED INCREASE: If the property under valuation happens to be a lease hold plot
then a certain percentage, as specified in the lease deed of unearned increase (current
market rate less premium paid) is also to be deducted from the land value.
In such cases, however, it should be ensured that if the sale instance considered is also
lease hold, then it should be first converted into free hold by applying at adjustment
factor of (+) 25% , in addition to other factors of adjustment.
59) What is financial leasing?

Leasing is usually used for high-value capital equipment, both in business and by
consumers. A leasing agreement which transfers most of the risks and rewards of
ownership, usually for the life of the asset, is known as a finance lease. Examples of a
lease for intangible property are use of a computer program (similar to a license, but
with different provisions), or use of a radio frequency (such as a contract with a cell
phone provider).
60) What is an operating lease?

A leasing agreement which is not a finance lease is known as an operating lease.
61) How tenancy is described?

The relationship between the tenant and the landlord is called a tenancy, this term
generally is also used for informal and shorter leases. The term 'tenancy' describes a
'lease in which the tangible asset is land (including at any vertical section such as
airspace, building or mine).
62) What is leasehold interest?

The right to possession by the tenant is called a leasehold interest. Under normal
circumstances, owners of property are at liberty to do what they want with their property
(for a lawful purpose), including dealing with it or handing over possession of the
property to a tenant for a limited period of time.
63) How the Lease period described?

The lease agreements can be made for a day, month, year or years, depending on the
requirement of the lessee or lessor. The period stated in the lease agreement is termed
as lease period and after the lease period the lessee has to surrender the asset. The
GO
lease agreem ent can be made with the renewable clause, for further extension of lease
period.
64) What is perpetual / long term I short term lease?

W here the lease purports to be 100 years or exceeding 100 years, the lease is called
perpetual lease. A long term lease is for over 50 years and above up to 100 years. But
nowadays, lease period for even 30 years and above is considered as a long term
lease. Any lease period entered upon below the long term lease period are deliberated
as short term lease period
65) What is rent to own?

A rental agreement for the renter 'or lessee to become the owner of the asset at the end
of the rental period, on payment of a nominal fee. Such arrangements may be known as
rent-to-own, for rental of furniture or appliances, cars, other consumer and business
equipment and property at a fixed price at a specified future time. Such are called
as lease-option, lease-to-own or lease to purchase option, hire purchase.
66) What is the Government Act for rent, lease and Leave or license?
Rent is covered under The Tenancy Act, leasehold properties by Transfer ofProperty
Act, 1882, and License by Indian Easement Act, 1982.
67) How is the ownership rights for rent and lease?

Ownership rights are not transferred in rental agreements. He has to pay rent
periodically and cannot pledge the property. He has no power to make improvements in
the property. He has only the right to live during the tenancy period.
In case of lease agreement, the right of enjoyment of the lessee is transferred and has
the enjoyment right of the property.
The. lessee can pledge the enjoyment right of the property and can make additions,
alterations and improvements in the property till the lease period.
68) Whether rental agreement and lease agreement has to be registered?

The rental agreement need not be registered but the lease agreement has to be
registered. The lease agreement has to be registered for any dispute arising out
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between the land lord and tenant, that being a statutory requirement or otherwise the
lease agreem ent will be null and void.
69) What is Ground rent?

The lease amount receivable from vacant ground given under lease is the ground rent
70) What are the types of ground rent?

Secured ground rent and unsecured ground rent.
71) What is a secured ground rent?

A vacant ground given under lease and the lessee develop the land and make
improvements and lease out the building he has constructed. He maintains the building
and pay statutory taxes. Eg: Hotels, Restaurants’ and shopping complex.
72) What is an unsecured ground rent?

A vacant ground given under lease and the lessee leases the vacant land for vehicle
parking, storing of materials without any construction or making any improvements.
73) What is the rate of return Secured ground rent and unsecured ground rent?
Both rents depend on the prevailing market rent conditions in that particular place.
Normally the secured ground rent rate of return will be 1% to 2% less than the
unsecured ground rent rate of return. The High Courts in many cases decided a rate of
return of 5% to 6% for unsecured ground rent.
74) What are the types of lease?

Building lease, Occupational lease, Full repair lease, Sub lease and Life lease
75) What is called Building lease?

A vacant ground given under lease with ground rent and the lessee develop the land
and make improvements and lease out the building he has constructed. He maintains
the building and pay statutory taxes.
The lease amount collected by the lessor is ground rent, which is here termed as Head
Rent. If the building is rented out by the head lessee, the amount collected by him is
called Rack rent.
76) What is called Occupational lease?

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A building property given on lease to the lessee, which means, both land and building in
part and parcel has been leased out. The rent collected is termed as Rack Rent. The
lessor has the right of evicting the lessee.Eg: Residential house, Apartments, shops. *
77) What is called Full repair lease?

If the lease agreem ent stipulates the lessee to undertake all outgoings apart from his
head rent, the lease is called full repairing lease
78) What is life lease?

The lease period is fixed till the death of lessee. The lease period expires on the death
of the lessee.
79) What is sub lease?

In the lease agreement if the lessee is permitted to give the lease hold property to other
occupants for a shorter time less than the lease period, with an enhanced lease
amount, then the lease agreement entered by the lessee with the incumbents is called a
sub-lease.
The main lessee is called the Head Lessee.
Other sub lease holders are called sub lease holders. The main lessee retains his
reversion of lease under his control.
80) What is assignment?

If the lease agreement stipulates that, the lessee is permitted to sell his leasehold rights
to another person, then the term is called assignment. Eg: The Government barren,
mines and quarries lands given on assignments.
81) What is the share in unearned increase?

When the Government barren, mines and quarries lands given on assignments, it is
permitted to the transfer of the assignment and will be charged while selling the
leasehold rights.
The amount thus received as a premium for transfer of leasehold rights and it is known
as share in unearned increase. The main lessee cannot retain his reversion of lease
under his control.

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82) Who is the Head Lessor, Head Lessee and sub lessee?
Example: The property ownerwho leases the property is the Head Lessor. The person
who takes the property on lease is called the Head Lessee. When the Head Lessee
leases the property to a third person as sub lease, the third person is called as sub
lessee.
83) What is the dissimilarity between Head rent and Rack Rent?
W hen the Head Lessor collects the lease amount from the head lessee, that amount is
called Head Rent. The Head Lessee collects the lease amount from the sub lessee, that
amount is called Rack Rent. Example: The head lessor leases a vacant land and
collects the lease amount from the head lessee as ground rent which is the head rent.
The head lessee develop the land and make improvements and sub-lease out the
building he has constructed and amount collected from sub-lessee is called Rack Rent.
84) What is premium?
Premium is the amount paid by the lessee to a lessor at the time of commencement of
lease agreem ent or while renewing the lease agreement. It is the price, a non-
refundable amount paid under Section 105 of the Transfer of Property Act, in return to
the transfer of Rights in the Assets, in addition to the Refundable deposit and annual
lease rent agreed under the lease agreement. The actual annual rent is added with,
dividing the premium or other amount by the number of years of the period of the lease.
85) What is the Gross Maintainable rent?

Gross Maintainable rent = Lease Rent + premium amount / No of years + interest on
Deposit amount. Interest on deposits not being advance payment towards rent for a
period of 3 months or less @ 15% P.A. on the amounts of deposits outstanding from
month to month basis for the period during which deposit was held by the owner in
previous year. The amount of premium divided by the number of years of lease period,
if the owner received premium for leasing out the property. The value of benefits or
perquisite as consideration for leasing of the property or any modification of the terms of
lease.
86) What are outgoes?

• Municipal Taxes
• Repairs and maintenance Charges

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• Ground Rent
• Insurance Cover:
• M anagem ent & Collection charges: This depends upon the number of tenants,
types, legal disputes in collecting the rent.
• Service Charges: Expenditure -sweeper, • liftman, common light point electrical

energy
• Sinking Fund: Deductions for sinking fund for only machinery equipment may be
allowed. No sinking fund is to be allowed for building.
• In case of outgoings for common securities
87) What is rent capitalization method?

This method is generally resorted to in the following situations: -
(a) In case the land is fully developed i.e. it has been put to full use legally permissible
and economically justifiable and the income out the property is normal commercial and
not a controlled return or a return depreciated on account of special circumstances.
(b) In the case of fully tenanted property and statutory control of terms and conditions of
tenancy.
(c) In the case of a property small portion of which is self-occupied and balance large
portion is tenanted.
(d) In the case of commercial establishment like cinemas and hotels, if the building is
given on outright lease / rental basis and rent fetched is reasonable.

The rent which is foundation ingredient of rent capitalization method is net maintainable
Rent which is the difference of Gross maintainable rent and out goings. The other
ingredient of this method is year's purchases or rate of capitalization.
Thus to determine the fair market value of the property gross income per annum is to be
determined. From this income all the outgoings which are essential to be incurred for
maintenance are to be deducted to find out the net maintainable rent or annual letting
value. The Annual letting value multiplied by year's purchase gives the fair market value
of the property.
88) What is the Net Maintainable rent?
Net Maintainable Rent = Gross Maintainable Rent - Outgoes
89) How to calculate profit rent of the lessee?

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Profit rent = Rack rent - ground rent - share amount of premium - outgoes.
90) Covenants of lease deed
Some of leases may have specific clauses required by statute depending upon the
property beinglease, and/or the jurisdiction in which the agreement was signed.
Covenantsof a lease include:
• Nam es of the parties of the agreement.
• The starting date and duration of the agreement.
• Identifies the specific asset being leased.
• Provides conditions for renewal or non-renewal.
• A specific consideration - premium for granting the use of this asset.
• Provisions for a security deposit and terms for its return.
• Specific list of conditions as Default Conditions and specific Remedies.
• Permission for subletting / sub leasing to others
• specific conditions - insurance, restrictive use, maintenance responsibility on
whom
91) Tenancy type - Fixed-term tenancy or tenancy for years

A fixed-term tenancy or tenancy for years lasts for some fixed period of time. It has a
definite commencement date and a definite termination date. A fixed term tenancy
comes to an end automatically when the fixed term runs out.
92) Tenancy type - periodic tenancy

A periodic tenancy also known as a tenancy from year to year, is an estate that exists
for some period of time as per the term of the payment of rent. An oral lease for a
tenancy of years that violates may actually create a periodic tenancy, depending on the
laws of the jurisdiction where the leased premises are located
93) Tenancy type - tenancy at will

A tenancy at will is a tenancy which either the landlord or the tenant may terminate at
any time by giving reasonable notice. Unlike a periodic tenancy, it isn't associated with a
time period. It may last for many years, but it could be ended at any time by either the
lessor or the lessee for any reason, or for no reason at all.

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A tenancy at will is broken, again by law, if the: Tenant commits waste against the
property. Tenant attempts to assign the tenancy. Tenant uses the property to operate a
criminal enterprise. Landlord transfers his/her interest in the property; Landlord ‘leases
the property to another person. Tenant or landlord dies.
94) When will be Lessor’s rights will be more?

• If the lease period is less
• No renewal clause
• Surrender of development by the lessee at free of cost on expiry of lease period
• Periodical rent revision in correlations to market rent
95) When wiN be Lessee’s rights will be more?

• If the lease period is a long lease (ie) the land can be treated a freehold
• No restrictive conditions
• Profit rent received is more and balance lease period is more
96) What will be Lessor’s interest?

• Capitalized value of lease rent for the unexpired period of lease
• Present value of the reversion in the property at the expiry of lease period
97) What will be Lessee’s interest?

• Difference in Capitalized value between economical rent and lease rent for the
unexpired lease period
• Revised value in the property due to improvements
• Potential balance value available to the lessee
DISCOUNTED CASH FLOW METHOD, INTERNAL RATE OF RETURN, NET

PRESENT VALUE .
98) How to apply Income Approach Methods?
Although there are many ways to implement the income approach, methods under the
income approach are effectively based on discounting future amounts of cash flow to
present value. They are variations of the Discounted Cash Flow (DCF) method and
the concepts below apply in part or in full to all income approach methods.
99) What is Discounted Cash Flow (DCF) Method?

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Under the DCF method the forecasted cash flow is discounted back to the valuation
date, resulting in a present value of the asset. In some circumstances for long-lived or
indefinite-lived assets, DCF may include a terminal value which represents the value of
the asset at the end of the explicit projection period.
In other circumstances, the value of an asset may be calculated solely using a terminal
value with no explicit projection period. This is sometimes referred to as an income

capitalization method.
100) What are the key steps in the DCF method?
Choose the most appropriate type of cash flow for the nature of the subject asset and
the assignment (ie, total cash flows or cash flows to equity; real or nominal, etc),
Determine the most appropriate explicit period, over which the cash flow will be
forecast,
Prepare cash flow forecasts for that period,
Determine whether a terminal value is appropriate for the asset at the end of the explicit
forecast period and then determine the appropriate terminal value for the nature of the
asset, (e) determine the appropriate discount rate, and
Apply the discount rate to the forecasted future cash flow, including the terminal value, if
any.
101) What is Explicit Forecast Period?

For an asset with a short life, it is more likely to be both possible and relevant to project
cash flow over its entire life, (a) The life of the asset, (b) A reasonable period for which
reliable data on which to base the projections, (c) The minimum explicit forecast period
which should be sufficient for an asset to achieve growth and profits, after which a
terminal value can be used, (d) In the valuation of cyclical assets, the explicit forecast
period should generally include an entire cycle, and (e) For finite-lived assets, the cash
flows will typically be forecast over the full life of the asset. In some instances,
particularly when the asset is operating at a stabilised level of growth and profits at the
valuation date, it may not be necessary to consider an explicit forecast period and a
terminal value may form the only basis for value (sometimes referred to as an income
capitalization method).The intended holding period for should not be the only
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consideration in selecting an explicit forecast period and should not impact the value of
an asset.
102) What is Terminal Value?

W here the asset is expected to continue beyond the explicit forecast period, valuers
must estimate the value of the asset at the end of that period. The terminal value is then
discounted back to the valuation date, normally using the same discount rate as applied
to the forecast cash flow.
103) Market Approach I Exit Value

The market approach/exit value method can be performed in a number of ways,but the
ultimate goal is to calculate the value of the asset at the end of the explicitcash flow
forecast.
Common ways to calculate the terminal value under this method include application of a
market-evidence based capitalisation factor or a market multiple.
When a market approach/exit value is used, valuers should comply with the
requirements in the market approach and market approach methods section of this
standard.
However, valuers should also consider the expected market conditions at the end of the
explicit forecast periodand make adjustments accordingly.
104) How to find out Salvage Value I Disposal Cost?

The terminal value of some assets may have little or no relationship to the preceding
cash flow.
Examples of such assets include wasting assets such as a mine or an oil well. In such
cases, the terminal value is typically calculated as the salvage value of the asset, less
costs to dispose of the asset. In circumstances where the costs exceed the salvage
value, the terminal value is negative and referred to as a disposal cost or an asset
retirement obligation.
105) What is the Discount Rate?

The rate at which the forecast cash flow is discounted. It should reflect not only the time
value of money, but also the risks associated with the type of cash flow and the future
operations of the asset.

106) How to find out the discount rate or method to be followed?
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Valuers may use any reasonable method for developing a discount rate. W hile there are
many methods for developing or determining the reasonableness of a discount rate, a
non-exhaustive list of common methods includes:
• The capital asset pricing model (CAPM),
• The weighted average cost of capital (WACC),
• The observed or inferred rates/yields,
• The internal rate of return (IRR),
• The weighted average return on assets (WARA), and
• The build-up method (generally used only in the absence of market inputs).
107) How to value by profit method
In the case of Hotels, Motels, Cinemas, Public houses which falls under the category of
the licensed premises, the market value depends primarily on the earning capacity of
the property. The market value of such properties is determined by applying profit
method provided, if
(i) The owner runs Hotel, Cinema himself.
(ii) The owner gives Hotel or Cinema on lease agreement to a lessee.
The market value of the property is determined by capitalizing the net profits (70%
tangible + 30% intangible) at certain rate of expenses, owners risk and other outgoings
from the gross income.
1. G ro ss Incom e (Excluding en tertain m ent tax):The gross income is estimated on

the basis of full house capacity lessnormal vacancies multiplied by the number of shows
in a year. The vacancies canbe determined either from the actual sale of tickets details
of which are availablewith the owner. Thus the source of gross income are:-Regular and
morning shows, Soda fountains, Advertisement slides/films, Show cases, any other
income.
As the gross income may not be consistent, so the gross income & expensesshould be
based on the average of last 3 preceding years.

2. Operating expenses: Entertainment tax if included in gross income, Total show tax,
Hire charges, other taxes pertaining to cinema business, Freight charges, Publicity,
Traveling expenses, Printing & stationary, Salaries & Bonus, gratuity, provident fund,
W elfare fund of staff, Telephone bills, Electricity bills, Postage & Telegrams, Insurance
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for building as well as plant & machinery, Repair & maintenance not exceeding 3% of
Duilding value, Ground rent, if any, Property tax, Sinking fund for furniture, equipment
and plant & machinery. ‘
3. Owners risk & entrepreneurship : 15% of gross income in the case ofowner runs
the cinema himself or 15% of conducting charges receivedby the owner form the
conductor less the owner’s liabilities such asrepairs & maintenance, ground rent,
municipal taxes, collection chargesetc., if any borne by the lessee.
4. Net Profit: The net income is worked out by deducting the expensesfrom the gross
income.
5. Rate of capitalization: The net profit is required to be divided into twoparts.

(a) One due to land, building, furniture, equipment etc. called astangible profit and
generally taken as 30 to 25% and is capitalized atinterest rate 2% higher than the rate
of interest for tangible profits.
(b) Other due to good will management, license called intangible profitand generally
taken as 30 to 25% and is capitalized at an interest rate2% higher than the rate of
interest for tangible profits.
VALUATION OF PROPERTIES AFFECTED BY RENT CONTROL ACT. EASEMENT

ACT, TRASFER OF PROPERTY ACT
1. RENT CONTROL ACTS

The law relating to the landlord’s rights to evict the tenant can be found in the while a
landlord can immediately start an action for eviction of a tenant on expiry of the notice of
eviction under the Rent Control Act.
He cannot start such an action where the rent control act applies, unless he can prove
the existence of one of the grounds of eviction under the Rent Act.
The existing provisions of the Act that related to the determining and fixing of the
standard rent.The various acts relating to the control of accommodation in urban areas
interfering with the right to hold and dispose of property under Article 19(1)(f) of the
Constitution of India.
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But such acts exist because they are considered to be necessary in public interest in
times of shortage of houses.
Ineffectiveness of the Provisions:

Properties belonging to the government, Any tenancy created by a grant from the
Government in respect of the premises taken on lease or requisitioned, by the
Government, Newly constructed properties for a period of ten years (it varies from state
to state) from the date of construction.,
Any premises, residential or other, whose monthly rent exceeds three thousand and five
hundred rupees.
Eviction Rights can be made on the following factors:

Non-payment of rent within the stipulated time period. Sub-letting the entire building or
portions of it without due authority and permission.
Using the building for a purpose other than for which it was leased.Committing acts,
which are likely to impair materially the value and the utility of the building or change its
identity.
Tenant has been convicted under any law for using the building or allowing the building
to be used for immoral or illegal purposes.
The tenant is guilty of such acts, which are a nuisance to those residing in other
portions of the same building or those in the neighborhood.
The tenant has ceased to occupy the building for a continuous period of a certain
number of months, without reasonable cause.
The tenant has denied the title of the landlord and claimed the right to permanent
tenancy, and the denial and the claim are not bona fide.
The landlord requires the building for his own occupation, bona fide.
The tenant is occupying the building as a part of his contract of employment with the
landlord and the occupation has now ceased.
The tenant has given notice to quit, but has failed to deliver vacant possession of the
premises to the landlord in accordance to such notice.
The tenant has acquired or constructed a house or a flat.
Immediate eviction of tenant can be undertaken on the expiry of period of limited
tenancy as per provisions of the agreement.

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The tenant has done any act contrary to the provisions of the Transfer of Property Act,
1882.
2. EASEMENTS ACT
"License" defined. -W here one person grants to another, or to a definite number of other
persons, a right to do, or continue to do, in or upon the immovable property of the
grantor, something which would, in the absence^ of such right, be unlawful, and such
right does not amount to an easement or an interest in the property, the right is called a
license.
Easements restrictive of certain rights. - Easements are restrictions of one or other of

the following rights (namely):-
Exclusive right to eniov. -The exclusive right of every owner of immovable property to
enjoy and dispose of the same and all products thereof and accessions thereto.
Rights to advantages arising from situation. -The right of every owner of immovable
property to enjoy without disturbance by another the natural advantages arising from its
situation.
The exclusive right of every owner of land in a town to build on such land, subject to any
municipal law for the time being in force.
The right of every owner of land that the air, noise or vibration thereto shall not be
unreasonably polluted by other persons.
The right of every owner of land that such land, in its natural condition, shall have the
support naturally rendered by the subjacent and adjacent soil of another person
Who may impose easements? -An easement may be imposed 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
Lessor and m ortaaaor.-Subiect to the provisions of section 8, a lessor may impose on
the property leased, any easement that does not derogate from the rights of the lessee
as such, and a mortgagor may impose, on the property mortgaged, any easem ent that
does not render the security insufficient.

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But a lessor or mortgagor cannot, without the consent of the lessee or mortgagee,
impose any other easement on such property, unless it be to take effect on the
termination of the lease of the redemption of the mortgage.
Lessee.- No lessee or other person having a derivative interest may impose on the
Property held by him as such an easement to take effect after the expiration of his own
interest, or in derogation of the right of the lessor or the superior proprietor.
W ho may acquire easements.-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. No lessee of immovable property can
acquire, for- the beneficial enjoyment of other immovable property of his own, an
easem ent in or over the property comprised in his lease.
3. TRANSFER OF PROPERTY ACT

W here any transaction relating to immoveable property is requjred by law to be by a
registered instrument, and the share or interest in, such property shall be deemed to
have notice of such instrument as from the date of registration.
The Chapters and sections of this Act which relate to contracts shall be taken as part of
the Indian Contract Act, 1872 (9 of 1872). And section 54 and sections 59, 107 and 123
shall be read as supplemental to the Indian Registration Act,*1908 (16 of 1908).
A mere right of re-entry for breach of a condition subsequent cannot be transferred to
anyone except the owner of the property affected thereby. An easement cannot be
transferred apart from the dominant heritage. All interest in property restricted in its
enjoyment to the owner personally cannot be transferred by him; A right to future
maintenance, in whatsoever manner arising, secured or determined, cannot be
transferred;
Fraudulent transfer— Every transfer of immoveable property made with intent to defeat
or delay the creditors of the lessor shall be voidable at the option of any creditor so
defeated or delayed. Nothing in this sub-section shall impair the rights of a lessee in
good faith and for consideration.
Rights and Liabilities of the Lessor

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The lessor is bound to disclose to the lessee any material defect in the property, with
reference to its intended use.
The lessor is bound'on the lessee’s request to put him in possession of the property;
The lessor shall be deemed to contract with the lessee that, if the latter pays the rent
reserved by the lease and performs the contracts binding on the lessee, he. may hold
the property during the time limited by the lease without interruption.
The benefit of such contract shall be annexed to and go with the lessee’s interest as
such, and may be enforced by every person in whom that interest is -for the whole or
any part thereof from time to time vested.
Rights and Liabilities of the Lessee

If during the continuance of the lease any agreement is made to the property, such
accession shall be deemed to be comprised in the lease; if by any disaster, or other
irresistible force, any material part of the property be wholly destroyed and permanently
unfit for the purposes for which it was let, the lease shall, at the option of the lessee, be
void:
if the lessor neglects to make, within a reasonable time after notice, any repairs which
he is bound to make to the property, the lessee may make the same himself, and
deduct the expense of such repairs with interest from the rent, or otherwise recover it
from the lessor;

if the lessor neglects to make any payment which he has to make, and which, if not
made by him, is recoverable from the lessee or against the property, the lessee may
make such payment himself, and deduct it with interest from the rent, or otherwise
recover it from the lessor;
The lessee may even after the determination of the lease remove, at any time whilst he
is in possession of the property but not afterwards all things which he has attached to
the earth; provided he leaves the property in the state in which he received it;
The lessee may transfer absolutely or by way of mortgage or sub-lease the whole or
any part of his interest in the property, and any transferee of such interest or part may
again transfer it.

The lessee shall not, by reason only of such transfer, cease to be subject to any of the
liabilities attaching to the lease;

Nothing in this clause shall be deemed to authorize a tenant having, an un-transferable
right of occupancy, the farmer of an estate in respect of which default has been made in
paying revenue, or the lessee of an estate under the management of a Court of Wards,
to assign his interest as such tenant, farmer or lessee;
The lessee is bound to disclose to the lessor any fact as to the nature or extent of the
interest which the lessee is about to take, of which the lessee is, and the lessor is not,
aware, and which materially increases the value of such interest;
The lessee is bound to pay or tender, at the proper time and place, the premium or rent
to the lessor or his agent in this behalf;
The lessee is bound to keep, and on the termination of the lease to restore, the property
in as good condition as it was in at the time when he was put in possession, subject
only to the changes caused by reasonable wear and tear or irresistible force, and to
allow the lessor and his agents, at all reasonable times during the term, to enter upon
the property and inspect the condition thereof and give or leave notice of any defect in
such condition;
and, when such defect has been caused by any act or default on the part of the lessee,
his servants or agents, he is bound to make it good within three months after such
notice has been given or left;
if the lessee becomes aware of any proceeding to recover the property or any part
thereof, or of any encroachment made upon, or any interference with, the lessor’s rights
concerning such property, he is bound to give, with reasonable diligence, notice thereof
to the lessor;
The lessee may use the property and its products (if any) as a person of ordinary
prudence would use them if they were his own; but he must not use, or permit another
to use, the property for a purpose other than that for which it was leased, or fell 3[or sell]
timber, pull down or damage buildings 3[belonging to the lessor, or] work mines or
quarries not open when the lease was granted, or commit any other act which is
destructive or permanently injurious thereto;

He must not, without the lessor’s consent, erect on the property any permanent
structure, except for agricultural purposes.

76
On the determination of the lease, the lessee is bound to put the lessor into possession
of the property.
TRANSFER OF PROPERTY ACT, 1882 (AMENDED BY ACT 3 OF 2003) - (Act

Sections on Lease)
Section 105 - Definition of lease, lessor, lessee, premium and rent
Section 106 - Duration to certain leases in the absence of written contract or local usage
Section 107 - Leases how made
Section 108 - Rights and liabilities of lessor and lessee
Section 109 - Rights of lessor’s transferee
Section 110 - Exclusion of day on which term commences, Duration of lease for a year,
Option to determine lease
Section 111- Determination of lease, Doctrine of merger stands statutorily in clause (d),
Section 112 - W aiver of forfeiture
Section 11 3 - W aiver of notice to quit.

Section 114 - Relief against forfeiture for non-payment of rent & Relief against forfeiture
for certain cases (Section 114 A)
Section 115 - Effect of surrender and forfeiture on under leases
Section 116 - Effect of holding over
Section 117 - Exemption of leases for agricultural purposes

PART - 4
PART - 4
64. Types of Market, Demand and Supply Curve, Bell Curve for Overall - 1 mark
Sales Performance (Probability Distribution),
Market Survey & Data Collection, Sources of Sale Transactions,
65. Comparison of Sale Instances – Factors of comparison and - 1 mark

weightages for adjustment in value
66. Hedonic Model and Adjustment Grid Model under Sales comparison - 1 mark
Method.
67. Land characteristics and its effect on Land Values - 1 mark
68. Hypothetical Plotting Scheme for value of large size land - 1 mark
Residue Technique and other development methods
Valuation for Joint Venture Development of property
Compiled by
B. KANAGA SABAPATHY
Tiruchirappalli
NOT FOR SALE
1
_____________________________ MARKET APPROACH OF VALUATION
Objectives
By the end o f this chapter, students will learn about -
• Types o f methods under Market Approach.
• Different types o f Market and its implications on sale price.
• Demand and supply curve and how equilibrium price is determined in market.
Study o f Bell curve explaining reasons when and why the deal does not 'take
place at the m arket place and also indicating ideal or fair sale price o f the asset.
• Various factors and characteristics o f the asset which affect price o f Real Estate
in open m arket and how the factors are grouped in Economic Aspect, technical
aspect, Social aspect or Legal aspect.
• Examples how value is estimated by comparison.
• Valuation by Adhoc Comparision Method.
• Valuation by Sale Comparision using adjustment grid method.
• Valuation by Sale comparision using price quality regression technique.
• Deriving land rate by Development Method.
• Valuation by use of Hypothetical Building Scheme (Ownership concept)
• Valuation by use o f Hypothetical Building Scheme (Income concept).
• Limitation of Market Approach.
Contents
5.0 Introduction
5.1 Various methods under Market Approach.
5.2 Types of m arket ^
5.2.1 Buyers Market
5.2.2 Sellers Market
5.2.3 Stable Market
5.3 Four group o f factors affecting value of the property. ^
5.3.1 Economic Factors
5.3.2 Physical Factors
5.3.3 Social Factors
5.3.4 Legal Factors
5.4 Adhoc Comparision Technique (Hedonic Pricing Model)
5.4.1 Procedure of Comparision o f sale instances.
5.4.2 Data Collection Sources
5.4.3 Analysis of Data
5.4.4 Adoption o f Weightages
5.4.5 Weightages for Land Comparison
5.4.6 Factors of comparision for flats,shops and Industrial Gala.
5.5 Adjustment Grid Model.
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5.6 Price Quality Regression Technique.
5.6.1 Weightage Score System of valuation
5.7 Development Method (Residual Technique),
5.7.1 Residual Technique (Owner occupied properties).
5.7.2 Residual Technique (Tenant occupied properties).
5.7.3 Hypothetical Building Scheme (Ownership concept).
5.7.4 Hypothetical Building Scheme (Income concept).
5.8 Limitations o f Market Approach.
5.9 Summary
5.10 Keywords
5.0 Introduction
Market Approach to value the property is m ost important and widely used
approach to value any type o f asset. It may be consumer goods, shares and stocks,
plant and m achinery or Real'Estate viz. open land or land with building. All the's3
assets can be valued by this approach, provided the asset is marketable.
Each one of us is fairly familiar with m arket place. It may be m arket for
consumer goods. It may be vegetable market, Gold market, Iron m arket or Cloth
market or Stock Market where trading (Buying & selling operation) of specific goods
are carried out. We are also aware o f haggle and bargaining system prevalent at
such market place and manner in which deal is finalised. Real Estate Market also
has most of these phenomena except that it does not have a common m arket place
as we have in case of consumer goods.
However principle operating in market o f consumer good are also effective in
Real Estate Market. Demand and supply factor and quality of product are equally
important aspects in determining exchange value o f asset in both the market.
Similarly for both market, the concept “Market is Supreme” is applicable, as all
appurtenant factors are considered by buyers as well as sellers in both the market,
while settling final price o f the asset.
In this chapter we shall discuss various factors for consideration o f the valuer
while estimating value of the property by this Market Approach. Market Approach
to value the property is m ost important and most favoured approach o f valuation
by Valuers and Courts.
5.1 Various Methods Under Market Approach
Under this approach there are two principle methods of valuation.
(a) Sale Comparision Method
(b) Development Method or Residual Method.
Different techniques under each method are as under :
(A) Sales Comparision Method : (Direct Market Comparision Method)
i. Adhoc Comparision Technique.
ii. Adjustment Grid Model.
iii. Price Quality Regression Technique.
iv. Weightage Score System.
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(B) Development Method: (Residual Method/ Indirect Comparision)
i. Actual Sales Basis (Owner occupied).
ii. Actual Sales Basis (Tenants occupied).
iii. Hypothetical Building Scheme (Ownership concept).
iv. Hypothetical Building (Income concept). \
Sales Com parison Method is based on principle of comparison and

substitution.
It is human tendency to compare and select. A custom er intending to buy
consum er product will compare quality and price o f such a product available in one
shop with quality and price of substitute similar product, may be o f other brand ,
available in same shop or other shop in the market. He would finally select the
product only after comparison o f both products from all angles including priceand
quality. It is said that ‘to err’ is human. Likewise we can also say that “to com pare”
is human.
While on the subject of necessity o f considering similarity and comparison
before determining final price, we may also study an old story on the subject, which
is very educative.
The story is like this. Once a tradesman (Saudagar) came to the Court (Darbar)
o f king Akbar and produced three exactly similar looking beautiful dolls. He than
demanded that wise person o f the Court estimate fair value o f each of these 3,dolls.
Akbar asked Birbal to do valuation. Birbal collected 3 dolls and asked for 1 day
time for valuation. Next day Birbal came to the Court and declared value of first doll
at Nil value. He said that value o f second doll is 1000 gold mohars (Gold coins) and
further added that the third doll is invaluable but he would put its value at 1 lac
gold-mohars. Saudagar agreed with the valuation.
However Akbar asked for reasons for different valuation of similar looking dolls.
Birbal gave practical demonstration. He put up a thin wire in ear o f first doll it came
out of the mouth of the doll. Birbal said that this doll symbolises a person who
listens to the secret of his friend and tells every one about it and hence such person
has no value in the society. Wire put in ear of second doll came out o f second ear.
Birbal said such person is less harmful as he neither helps the friend nor does h^
cause any harm to the friend. Hence he valued second doll more than first doll. When
he put wire in third doll’s ear it did not come out but remained inside the doll. Birbal
explained that such a person is invaluable because he not only keeps the secret with
him self but he would also try to solve problems of his friend.
There are three important lessons to be learnt from this story.
i. The similarity of property may be deceptive. We m ust thoroughly investigate
to find differences of attributes between even similar looking properties.
ii. Valuer should not immediately jum p to conclusion. Case must be
thoroughly studied by asking for time for valuation and then only
considered opinion about valuation should be given.
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iii. User o f report should ask for reasons for giving such a valuation and valuer
should support and prove his valuation by giving demonstration or
supporting evidence.
In case o f property valuation, subject property has to be compared with other
available sale instances, having similar attributes and falling in the same locality.
Appropriate positive or negative weightages are considered for variations and
magnitude o f attributes, to arrive at final adjusted value o f the subject property.
Thus valuation by comparable sale instances is based on principle of substitution
which operates not only in consumer goods m arket but also operates in Real Estate
Market with equal force.
5.2 Types of market V
Like com modity market, there are 3 types o f market conditions in Real
Estate Market also.
i. Buyers Market.
ii. Sellers Market.
iii. Stable Market.
5.2.1 Buyers Market
W hen number of units available in the m arket i.e. supply to the purchasers
are far in excess o f demand, it is Buyers Market. Prices tend to decrease because of
greater bargaining power o f purchasers and availability o f plenty of alternative and
substitute properties. Sellers compete with each other to sale their units at lesser
price. We can say that in Buyers market Buyer is the king.
5.2.2 Sellers Market
When supply of units is less_than.jdemand for such units in the m a rk e t, prices
tend to go up due to competition amongst buyers to purchase these units even at
higher price. Bargaining power of purchaser reduces. Moreover Real Estate Units
are such that like consumer products it cannot be brought into market in short
span of few days or few months. It takes pretty long time to increase the supply to
meet with market demand.We can say that in Sellers market, seller is the king.
5.2.3 Stable Market
Sometimes in market demand exists, supply also exists but due to various
reasons,-purchasers stop purchasing or defer the purchase of premises. Artificial
stoppage of demand in the market prevails. The reasons could be likely changes in
Government policies or lack of paying capacity o f people at large in the locality, to
pay high or prohibitive price of properties.
Expectations of people about likely fall in price of real estate in near future
also results in Stable Market conditions. Prices do not fall nor does it rise but
remain stable year after year. No material transaction takes place in the market
Stray sale transactions in market do not change stable market situations.
5
There are two types of property so far as Market Approach is concerned.
i. M arketable properties like flats, shops, offices, factories etc.
ii. Non nkirketable properties like Schools, Temples, Museum, Public or
Governm ent buildings, Municipal Public utility buildings like Fire station,
Hospitals, Monumental building, etc.
Under m arket approach we can value only marketable properties. Non
m arketable properties have to be valued by Cost Approach already discussed in
previous chapter.
When we are considering Market Approach, we should keep in mind two other
basic aspects also in addition to the principle o f substitution operating in the real
estate market.
First aspect to be considered is highest and best use o f the property. Though
the property is put to inferior use or has under utilfsed~F7SXlirea, price it would
fetch in open m arket would be for superior use and for full utilisation o f land. -
Another aspect operating in most o f the m arket is the concept o f supremacy of
the market. Strong m arket forces which are operating in the real estate m arket will
force everyone to believe that “MARKET IS SUPREME” . Market conditions takes
into account all types of factors operating at a relevant period of time. No one can
control market for long period o f time. Temporarily for short duration m arket can
be controlled but then strong m arket forces would start operating and person or
authority trying to control'or over power market would be wiped out.
Even Government can not control market by law ,for long period.
Governm ent’s policy to control the m arket would fail because “Market is supreme”.
Classic example of this attempt to control the market artificially is the enforcement
of Rent Control Legislation by various State Governments. Though on paper Rent
Control Act appears to be successful and effective but in actual reality, m arket has
found out its own way to over power and defeat the legislation by establishing new
trends and practices in market by taking premium, pugree, salami or key money.
Even system of giving premises on leave and license basis is also to circumvent
provisions o f Rent Control Act. O f course this concept o f supremacy o f the m arke4^
is applicable only to marketable properties and not to non-marketable properties.
When we are considering market, whether it is commodity market or real
estate market, we always consider supply and demand which is m ost important
and powerful factor affecting price level in the market. ..
The principal of supply and demand states that the price o f a commodity, or
service varies inversely with the increase in the supply of the item. Where as price
varies directly with the increase of the demand of the item in the market. This
principal can be better explained by Supply and Demand C uive shown below.
In the demand and supply curve shown below, Price is plotted vertically as
ordinate (Y Axis), indicating price of the commodity against different quantity of the
product available in the market. Quantity o f the goods available in the market is
plotted horizontally as abscissa (X Axis), indicating Number of units.
6
Figure No.1
In the above figure, Demand Curve indicates that at the price of Rs.400/No.
demand for product is hardly for 500 pieces. As price reduces to Rs.200, demand in
m arket increases to 2500 pieces. When price falls further down to Rs.50/piece,
demand in m arket rises to 9000 pieces. On the other hand supply curve indicates
that at the price o f Rs.50/No. the supply of product is negligible. When price rises
to Rs.200/No. supply o f commodity increases to 6500 Nos. and when price in
market rises to Rs.400/No. supply also increases to 9000 Nos. However the point of
intersection o f the two curves gives us equilibrium price o f the product or the fair
price o f the product. Hence price’ o f Rs 125/piece would be an ideal price for the
said product.
Apart from demand and supply aspect, it is interesting to study how price of a
commodity is determined in common market place between a buyer and a seller.
There are group of buyers in the market who compete with each other to acquire
the commodity. Each buyer determines highest price he is prepared to pay, on the
basis of his individual capacity to pay (wealth). He also at the same time estimates
fair cost o f product and his need and urgency to acquire the said commodity. In
fact his attempt is to get the product on payment of minimum price.
On the other hand, there are group of sellers in the market who compete with
each other to sell their product. Each seller determines lowest possible price for
sale on the basis o f same parameters viz. cost of products, profit margin, capacity
to withhold sale of product, need and urgency for sale. In fact expectation of seller
is to get highest possible price for his product but he succumbs to the market
forces. If offered price is higher than highest price determined by the buyer or it is
lower than lowest price determined by seller, the transaction or sale of commodity
does not take place. But in all other cases transaction does takes place after higgle
haggle (Bargaining) foi* the price. This process can be easily explained by the Bell
Curve shown below.
7
A
BELL CURVE
BUYERS---- 1 ---- SELLERS

CURVE y \ / nJ CURVE -
A F PRICE
C D
i
FIGURE ND. - 2
Buyers curve A-B-C shows number o f buyers at different price levels. ‘A’ price
is offered by the minimum number of buyers in the market. Said price being
unviable price, transaction does not take place. At ‘B ’ price, there are maximum
number of buyers who are willing to buy. Transaction may take place or may not
take place. At ‘C’ price again there are minimum number o f buyers because said
price is considered very high by buyers.
Sellers curve D-E-F shows number o f sellers at different price levels. At ‘D’
price there are hardly any sellers able to sale their product because buyers will
consider said price too high. At TL’ price there are maximum number of sellers.
Transaction may or may not take place at this priqe. Again at ‘F’ price there are
minimum sellers because said price is considered by fellers as too low.
Thus m ost of the transactions takes place in the .market in the price range of
‘F’ to ‘C\ Price ‘G’ can be said to be ideal price as it is aV^rage price of highest price
that would be offered by a willing buyer and lowest price \^hat would be acceptable
to any willing seller. It is said that in perfect competition market, transaction takes
place at ideal price ‘G\ \.
In real estate market, there is no such common m arket pl&ce, as we have for
commodity market However these concepts do operate in Real Estate Market also.
There is a range of prices for any specific property depending uôn individual
buyers needs, their paying capacity and estimation of cost of said property by each
individual buyer. Demand and supply factor and factor o f availability of substitute
property in the market operate in this m arket also with equal force.
In order to arrive at fair price of a commodity in the market, buyer as well as

seller consider various characteristics of the product viz. its use, its physical
benefit, service life etc. Similarly for Real Estate viz. land or land with building also
buyer and seller consider various characteristics o f properties viz. its usage, its
service life (in case o f building) its resale value, benefit of infrastructure amenity
and civic amenities etc.
8
Various characteristics of the property and various market forces influencing
determination o f price in the Real Estate Market can be broadly classified into
following four groups.
i. Economic Factors. Micro(Local) & Macro(National)

ii. Physical (Technical) Factors.
iii. Social Factors.
iv. Legal Factors.
Economic factors could be o f Micro level (Local aspects) or o f Macro level
(National aspects). Micro economic factors would include factors such as Local
population, employm ent opportunities, changes in services, trade and commence,
per capita income at District/City/state level, trend of city growth or expansions
etc.
Macro Economic Factors would include factors such as - Domestic Savings,

Fixed capital formation in construction and Real Estate Sector, Flow o f Capital
Investments in Bank Fixed Deposits, Shares, debentures, Government Securities
etc.
There could be many many more factors which influence market value of a
property. In which group it has to be included is not important but whether such a
factor would enhance the value o f the property or would reduce the value of the
property is the important aspect for consideration of the valuer.
5.3 Four Group of Factors Affecting Value of the Property

Various factors affecting value and four basic groups are as under.
5.3.1 Economic Factors

• Demand and supply of properties.
• State and Centi al Govt, policies for land development.
• Economic and Taxation policies o f Government.
• Income and wage level of residents, trends for saving and paying capacities of
people in the locality.
• Money market situation.
• Cyclical boom and recession periods in real estate market.
• Expected rental yields and returns on investment in real estate.
• Inflation or deflation in nations economy.
• Availability of money on credit from Banks and other institutions and rate
offered for such advances.
• Burden o f property tax and other maintenance outgoings.
• Better alternative use against current inferior use.
• Employment opportunities and development potential in area.
• Availability of alternative or substitute asset in the market.
• Local population, per capita income of residents
Q
5.3.2 Physical (Technical) Factors
• Land characteristics : Size, shape, plot area, vista, frontage, orientation, soil
type, topography etc.
• Infrastructure facility : Good network o f roads, water supply, drainage system,

power supply and telecommunication links.
• Prominence and p la cem en t: Main road, by-lane, remote area location.
• Building characteristics :
• R.C.C. framed or load bearing structure.
• Expected future life and age o f structure.
• Deterioration and present condition.
• Specification of building, (Civil, electrification and plumbing items).
• Aesthetics and workmanship quality.
• Obsolescence due to change in technology or change in life style.
• Maintenance and repair liability.
• Functional aspect : Optimum use of space, good planning and design with no
wastage, high utility value, modern habitation style.
• Amenities : Swimming pool, garden, lift, security system, car parking facility,
Health club, Children’s play area.
• Environmental aspect : Noise and smoke pollution level, sea or lake frontage,
nuisance due to railway track, industries or airport, climatic condition.
• Natural calamity : Earthquake prone areas, flooding and cyclone hazards,

Tsunami prone areas.
5.3.3 Social Factors

• Locality: Poor class, middle class, posh areas (Life style and living standards of
residents of the locality).
• Neighbourhood: Well developed, less developed, slum like, cremation ground,

dumping ground, nuisance due to community hall, cinema, school on adjoining
plot.
• Civic amenities: Proximity of shops, Mall, market, school, cinema, community

hall, hospital, railway station, bus stand, garden.
• Population: Density in area and population growth, congestion.
• Means of communication: Railway, road way or water ways.
• Prestige aspect: Prestigious building, prominent location, renowned personality

like film star or industrialist or politician or a celebrity as next door neighbour.
• Political factor: Linguistic or Religious communal unrest.
• Racial habitation: Parsi colony, Mohmedan locality, Hindu colony, Catholic

colony. Brahmanwada -\nd Mahanvada.
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• Religious factor: Proximity o f Temple, Church, Mosque, Place o f worship.
• Personal factors: Sentimental considerations, beliefs in ‘Vastu’ principles or Feng

Sui norms, Liking for specific neighbourhood, Speculative intent.
• Stigm a aspects: Haunted house, Dislike for Vyagramukhi or Tee junction plots,
fear due to past history o f cyclone, Tsunami ,flood or earthquake, case history of
m urder or suicide on property, previous use of land as Kabrastan or Cremation
ground.
5.3.4 Legal Factors
• Social legislation like T h t Rent Control Act 1948.
• Land Reform Legislation like : The Urban Land Ceiling Act 1976.
• Ecological Restriction Like : Coastal Regulations.
• Transfer o f Property Act with lease provisions.
• Covenants under lease or conveyance deed.
• Land Acquisition Act.
• Laws Governing Building Construction like Development Control Rules/
Building Bylaws/ Town planning and Zoning Regulations.
• Laws Governing Land : Town Planning Act/Municipal Corporation Act/ U.L.C.
Act/Rent Act.
• Wealth Tax Act/Income Tax Act.
• Law on earthquake resistant building.
• Reservations under different Acts.
While estimating value by m arket approach the Valuer should ask following
\ questions about the property to be valued.
i. What is the “UTILITY” o f the property ? Utility means existing and anticipated
future Benefits due to possession and use of the property.
ii. Is it scarcely available or abundant in supply ?
iii. How much is its “DEMAND” in the market ?
iv. Is it “TRANSFERABLE” ?
In Real Estate Market, valuer has to consider following factors or market
forces and then evaluate effect of these forces to arrive at final value o f the
property.,
i. Demand and Supply in Real Estate Market.

ii. Land characteristics and its effect on value.
iii. Building type (Specification, user, age and amenities).
iv. Laws governing real estate.
v. Attitude and expertise of buyers and sellers in bargaining.
Market approach is basically operating on the“Principle of substitution”.
Valuer has to find out from the market about the availability of identical property or
nearly similar property to the property which is under valuation. He should also
find out actual sale price or offered sale price of such similar property. Then valuer
11
has to compare both properties and arrive at fair value of subject proper!} after
making appropriate adjustments, based on available evidence.
This principle o f substitute product and comparision with the required
products is already operating in the consumer product market. Same principle
with a little change is operating in Real Estate Market .This is true for sale or
purchase o f the open plot of land or land with buildings as well as for sale or
purchase of ownership flats, shops, offices and industrial galas (units).
One may perhaps find two exactly similar consumer product in the market.
But there are no two exactly identical human beings in this world. Even clones
may have different nature and different behaviour pattern. Likewise there are no
two exactly identical properties in this world. They may differ in size, shape, area,
location and situation (placement), improvements, ownership pattern , usage,
topography or in many other respects. Similarity ,if any ,may be deceptive. These
variations or the differences call for adjustment in values while comparision.
Subject property is compared with similar/substitute property sold or
available in the market. Some factors which we may call as positive factors may
tend to increase price of the property. Some other factors which we may call as
negative factors may tend to reduce the price of the property.
To obtain fair and reasonable price for a real property in a real estate market,
ideal conditions should be considered, as defined under “m arket value” definition
o f real estate transaction.
i. Buyer should be a willing buyer and he should not be unwilling or compelled or
forced buyer in urgent or immediate need of the premises. He should not be a
forced purchaser as we find in case of purchase of undivided share of co-owner
in a property jointly held with the other co-owners.
ii. Seller should also be a willing seller and not an unwilling seller or a seller forced
to sale property. In case o f land acquisition, all land owners are subject to
compulsory purchase by acquiring bodies. Lane owners are like forced sellers.
All negotiated or auction sales by Banks for recovery o f mortgage debt are
forced sale by unwilling sellers (Mortgagors). Sales by a person in distress (r
daughters marriage/for major operation expenses) are also examples oi
unwilling seller.
However in order to find out whether such sales in reality are distress sale
or not, personal enquiry during site inspection is necessary. Mere mention in
sale deed may not be full proof of forced sale.
iii. Buyers as well as sellers are fully knowledgeable about prevalent market rates
and market conditions. This is ideal situation. Some times it is found that one
or both transacting parties , are unaware or ignorant about actual or true price
of the property. They also do not know factors that affect the value of the
property under sale. In number of cases it is found that the party who is
12
stronger in bargaining benefits and succeeds in getting the price fixed in his
favour .
iv. Transactions has to be at arms length. This is also not always possible. Many a
times transacting parties are related. Some times they are influenced due to
political, social or financial powers or even Mafia powers of one of the
transacting party.
In m arket approach, while comparing properties, generally “Highest & Best

use” o f the property potentials has to be considered to arrive at Fair Market Value
on the relevant date. Many a times we come across pronerty which is put to
inferior use. (e.g. property falling in commercial zone but being put to residential
use). Such inferior use properties are to be valued for best permissible user and
valued accordingly, ignoring actual inferior use or continued subsisting use o f the
property. Value o f property for continued inferior user is bound to give lower value
of the property as compared to the Fair Market Value o f the property for Highest
and Best use. However when the property is valued under development method, it
automatically considers Highest and Best use of the property.
There is no common market place for sale or purchase of real estate like
market place for sale and purchase o f other commodities and consumer goods.
Open market for Real Estate could be therefore defined as a notional forum or
platform, where group of buyers and group of sellers are present each one
competing with other to buy or to sale and where ample substitute properties are
also available for sale and purchase and monopoly aspect is not present. While
understanding this open market concept, we must also keep in view an important
fact about market that “MARKET IS SUPREME” for all marketable properties. Only
for non marketable properties like Temples, Museum, Schools, Govt, buildings this
axiom is not applicable. Market takes into account all market forces may it be
economical, technical, legal, social, political or any such other factor. Market
considers them all and prevalent rates get fixed in the market after all these
adjustments.
Even in commodity market, “Market is Supreme”. No one can control or over
power market singularly or collectively for long time. Hunt Brothers trying to corner
silver market of world failed miserably. In our country Harshad Mehta and Ketan
Parekh failed to control share market for longer duration.
Market is very Ruthless. It does not care for anv one and this any one includes
government also, if there is a person in distress in urgent need to sale the property,
he will get 20% to 30% lesser price in market because buyers available in the
market will know that seller is in distress and purchasers in the market will eniov
exploiting seller in distress by offering low price.
In case required informal ion about pre-vaVnt prices in locality a ;e not availrb* *.
in government records, the valuer should gc to the mark*"’. ?v*..uket survey
brokers, propel ly owners, contractors, local architects, will rm si :<n iiruy give you
required inform ation. Nnv only t i v r the valuet i>. ? i to p. > p r '■ j'-.' p r - o ! ov
13
property under valuation with all market forces operating at relevant period of time.
It is not too much to say that “Market will never disappoint you”. As “Market is
Supreme”, it will most certainly produce the result.
Most o f the valuers make mistake o f considering only one aspect o f the deal,
viz. what a prospective buyer is prepared to pay for the property. In fact valuer
should also consider second vital aspect viz. “at what price the seller is prepared to
part with the property77. This is the correct and balanced view o f valuation under
Market Approach. When you are in doubt about the fair value o f the property tiy to
find out the price at which the owner o f the property is willing to part with his
property.
Now we shall discuss various methods .

5.4 Adhoc Comparision Technique ( U h . ; >l " llC 1K \ C in ^ fr
Under sales comparision Method, m ost popular comparision technique is
“Adhoc Comparision Technique’’
This adhoc comparision technique is very well known and it has been in use
for several years. In fact even today, many valuers adopt this technique to save time
and to do quick reporting of valuation to the clients. This method is also known as
Hedonic Pricing Model. Under this model , price o f the property is expressed by the
formula.
P = f (STLA)
P = Price of the property in the market.
f ~ Stands for function of
S = Size or covered area, of the premises.
T = Tim e factor at which asset is traded in the market.
L = Location of the property.
A - Age or physical conditions of the property.
It w ill be seen that out of thousand of factors which affects value of the
property in real estate market, only four factors are considered in this model. Under
this adhoc comparision model, the valuer compares these four factors o f both
properties viz. sale instance property and subject property. Valuer arrives at the
rate to be adopted after doing this adhoc comparision. There is no doubt that price
o f the property is the function of area, location and time period. Location in respect
v/ith proximity of civic amenities is a major factor affecting value. Similarly time
factor indicates demand and supply position and environm ent of market at relevant
pL-nod of time which determines price o f an asset. However age factor is only for
buildings and that too in a smali way. It does not apply in case of land value
comparision where characteristic o f land decides its value m the open market.
Similarly size or area factor also is not. a majo: or a ver- im portant factor for
building values but it. does constitute an important attribute for land values.
Demand for more area is comparatively less than demand for smaller areas.
Under this adhoc comparison method the valuer normally follows steps as
detailed below.
14
i. Valuer first collects data of sale instances in the locality for the relevant period
o f time. Non genuine instances o f sales are excluded.
ii. Rates and attributes o f genuine sales are compared with the attribute of subject
property. All relevant factors and weightages applicable are recorded.
iii. Valuer then arrives at a concluding overall effect of these comparision. It may be
positive weightage over sale instance rate or negative weightage over said rate.
iv. Valuer then finally estimates the final rate for the subject property based not
only on his experience and expertise but also on the basi> o f overall impression.
Hence it is called adhoc analysis.
Following examples w ill explain the steps.

Example-1: An industrial gala, 600 sq.mts. area, on ground floor o f building
was recently sold at Rs.22,000/Sq.Mt. Find out fair value for 120 sq.mts. gala
which is on 1st floor o f same building.
Solution: Consider location and size factor. For industrial units upper floor is
a disadvantage and hence fetch lower rate. Smaller size may or may not be so much
important for the industrial unit as compared to upper floor situation aspect.Rate
o f Rs.20,000/SM. for subject gala is estimated. Market value of subject gala = 120
SM. @ Rs.20,000/SM. = Rs.24,00,000/-
Example-2: A residential flat, 75 sq.mts. area in 15 years old building is sold
at Rs.20,000/Sq.Mt. in May 2009. Building is on main road and it has garden and
parking facilities in the plot. Advice of fair purchase price in April 2010 for 50
sq.mts. flat, in nearby by-lane, in building which is 30 years old and having inferior
specification than sale instance flat.
Solution: Consider age, location and time factor of sale instance flat as against
these aspects o f subject flat. Equated rate o f sale instance flat for April 2010 could
be
+ 10% for 1 year difference i.e. time factor.

- 10% for 15 years age and specification difference.
- 10% for main road location.
- 10% (Overall % decrease)
Equated rate of sale instance flat =(0.90 x 20,000) = Rs.l8,000/Sq.M t. Same
rate is estimated for the subject flat.
Fair value of subject flat flat = 50 SM @ Rs. 18,000/Sm
= Rs.9,00,000/-
Example-3: Advice on fair purchase price for the plot having an area of 850
sq.mts. on main road of town, for year June 201L. Civic amenities are closeby but.
plot is 2 M. lower than the road level. Following 3 sales are available in locality.
Sale ‘A ’ : 1200 SM. corner plot abutting on the road running parallel to the
main road , sold in Dec.2008 for Rs.600,000/-.
15 t
Sale T3’ : 720 SM. plot in by-lane sold in Septem ber 2009 for Rs.324,000/-.
Sale ‘C ’ : 500 SM. plot at 1 KM. distance in poor class locality sold in May
2009 for Rs. 175,000/-. Adopt 12%/year price rise in real estate market rates.
Adopt Cost of earth filling at R s.l5/C M .
Solution: Consider location and time factor for all 3 sales.
Sale ‘A ’ : Rate = -6,QQ,Q0Q = Rs.500/Sq.Mt.

1200 ' ^
- 15% for corner plot.
+ 18% for time period difference (18 months)

+ 3% (overall % increase) ‘ .
Rs. 500 + Rs. 15 = Rs.515/- per sq.mt is the adjusted rate.
3 94 non
Sale <B ’ : Rate = ’ ’ = Rs.450/Sq.Mt.
720 '
+ 10% for by-lane location.

+ 9 % for time period difference (9 months)
+ 19% (Overall % increase)
Rs. 450 + Rs. 86 = Rs.5 3 6 / -per sq.mt is the adjusted rate.
Sale ‘C ’ : Rate = 1>75>QQQ = Rs.350/Sq.Mt.

500
+ 40%. location aspect.
+ 11% Time period of 11 months.

+ 51% (overall % increase)
Rs 350 + Rs. 179 = Rs.529/- per sq.mt is the adjusted rate.
Estimated base rate o f Rs.530/SM for the subject property. The plot is 2 M.
below road level involving 1 S.M x 2 M filling, i.e. 2 C.M. Earth filling in the plot
/sq.mt. of plot. Cost of earth filling = 2 C.M. at Rs. 15/CM = Rs.30/Sq.Mt.
Net rate of plot = Rs.530 - Rs.30 = Rs.5 0 0 / -per Sq.Mt. in June 2010.
Fair purchase price of plot = 850 SM. @ Rs.500/SM.
= Rs.425,000/-
ExampId-4:
A residential flat having an area of 100 Sq.Mts, is required to be valued in
March 2010. Sale instance of flat (A) is available for same locality. It is for February
2009 for flat having an area of 150 Sq.Mts. for a price of Rs.2,00,000/-. Another flat
(B) is sold on October 2009 for an amount of Rs.5,40,000/- for 60 Sq.Mts. area.
Solution:
Flat (A) Rate Rs.8,000/Sq.Mt. on February 2009.
Flat (Bt R*te Rs.9 000/Sq.Mt, on October 2009.

16
If these rates are modified for time and area factors, equivalent rate for March
2010 would be as under. (10%/vear is considered as price rise factor and 3%
variation for size factor)
Flat (A) = Rs.8,000 + 13% (T=+10%, S=+ 3%)
= Rs.9,040/- Per S.M. .

Flat (B) = Rs.9,000 +2%( T=+5%, S= - 3%)
= Rs.9,180/- Per S.M.
We can value subject flat with 100 Sq.Mts. area at rate o f Rs.9100/- Per
Sq.Mt.
Value o f the subject flat =100x9100
= R s.9,10,000/-.
Example-5:
A plot having an area o f 1200 Sq.Mts. abutting main road is required to be
valued on January 2010. Plot ‘A ’ having an area o f 600 Sq.Mts. and which is
located in bylane was sold at rate o f Rs.800/- per Sq.Mt. in December 2009.Plot ‘B*
having an area o f 1050 Sq.Mts. was sold at rate of Rs.750/- per Sq.Mt. but it is
about one kilometer away from subject plot along same road. Sale of plot ‘B ’ was of
June 2009.
Solution:
i. We have to apply appropriate weightages for Time and Locational aspect for plot
‘A ’. Say 15% extra for main road location and 5% deduction for size factor.
ii. For plot ‘B’ we may consider 5% extra for 6 months time gap and 5% for
locational aspect.
Equated values as in Jan 2010 would be as under :-
Plot ‘A ’ = 800 + 10% (L=+15%, S= - 5% )
= Rs.880/- Per Sq.Mt.
Plot ‘B’ = 750 + 10% (7=+5%, L= + 5% )
= Rs.825/- Per Sq.Mt.
We can adopt a rate of Rs.850/- per Sq.Mt. for subject plot.
Value of subject plot in January 2010 : = 1200 x 850
= Bs. 10,20,000/-
It will be seer from the abovs oxarr'p.U'? that the main procedure is to bring all
sales in one level. A sale which has inferior aspect than the subject plot, positive
weightage is considered to bring up the sale instance rate (Equated rate) in level
with the subject property. On the other hand if the sale premises holds superior
aspects then negative weightage is considered to bring down trie equated rate in
level with subject properly, fi is like communist concept to rob rich and make him
or rrrto ar-'j : . k hirr. richer .Make even/ on?- in one level.
r17
5.4.1 Sales Comparision Procedure
The procedure o f comparision of sale instances with property under valuation,
under all methods, involves following steps.
i. C ollect dajta of sale instances from different sources and weed out non genuine
sales.
ii. Analyse and work out rate o f sale in each sale instance.
iii. Select comparable and genuine (may be five or six) sales which are proximate
from time angle as well as proximate from situation angle with property under
valuation.
iv. Visit physically, site and location of all these sale instances and record all
favourable and unfavourable aspects of these sales. Formula for success in any
valuation assignment is “Inspect before you value” . Inspection of subject
property and sale instance properties is a must.
v. Select' genuine (undoubtful) and most comparable safes (3 or 4). For the
purpose of deciding genuineness of sales, obtain sale document copies of these
sales and examine for any unusual covenants or precarious conditions. Contact
or enquire with seller or purchaser to find out that sale was not a forced sale or
distress sale but was executed in normal business like circumstances.
vi. Compare each sale with the subject property and give appropriate weightages to
the rate of sale o f each sale for favourable and unfavourable factors. Also assign
weightages for major four or five attributes like time factor, size or area of
property, situation and location aspects, specification or age factor for building,
other factors. Care should be taken by the valuer to assign weightages
according to the importance of the priorities attached by the local residents
(Population) in which the subject property is situated. Priorities for size of flat
factor or the specification factor would be quite different in poor class locality
and posh area locality.
vii. Arrive at final adjusted value for each sale by adhoc comparision technique or
by detailed adjustment grid model (Balance sheet o f weighted values).
viii. Form final opinion for the fair rate for the subject property.
Each of these steps needs further detailing. But before we discuss thesame it
is necessary to learn other connected issues such as source of collecting data, area
correction etc.
5.4.2 Data Collection Sources
There are several sources from which sale instances of a particulars locality
can be collected.
i. Sales recorded at the Registrar’s office of the concerned district.
ii. Information from local brokers/.residents (Local Enquiry).
iii. Advertisement..-; u-, Newspapers.

iv' Land Acquisition cases data.
18
v. Auction sale information of different authorities.
vi. Valuers own Data Bank.
Each State Government at their District Registrars office, maintains a sales

register which is called Index II RegisterT lfflth is ~regisle?7 Registrar o f the district
records all sale transactions that has taken place during the year in entire district
under his command (Jurisdiction). Each of these sales entry in the register shows
name o f seller (Transferor) name o f purchaser (Transferee), plot No., survey No. or
City Survey No. o f sale property, name of village in which said sale property falls,
date of execution o f sale document and date of registration o f sale document in
Registrar’s office. This register also shows sale price or transfer consideration, area
o f property sold, serial number o f registration o f the sale in sale register. Register
also shows type o f transfer document viz. sale transaction or lease assignment or
mortgage deed or release deed or gift deed etc. These sales are recorded in village
wise list which are compiled in alphabetical order. All sales in a particular village in
a particular year are recorded in the register in chronological order of dates and
months o f said year. Registrar maintains separate register for each year. Old
records o f past 100 years sales in entire district are preserved and maintained by
the Registrar. These are made available to the public on payment o f fixed inspection
and search fees. Hence valuer can obtain land or property transaction details o f all
sales in any locality, for any previous year (Even 60 to 80 years old) from Registrar’s
office of concerned State and District.
The Registrar’s office, apart from issuing certified Extract of Index II Entries,
also issue certified true photo copies of any sale documents of any year that is
registered in Index II Register. Study of this document copy will enable valuer to
understand background and conditions of sale transaction. This document copy
will normally indicate agreement to sale date when earnest money was paid,
conveyance or lease deed date when balance consideration was paid and date of
registration with Registrar as endorsed on sale deed. For unit rate of sale, date and
year of agreem ent to sale should be generally taken into consideration, because
that is the first date when sale price is agreed between seller and purchaser. That is
the correct view for unit rate under the document. However some valuers adopt
date of conveyance as the basis for unit rate fixation.
Another source of data collection for sale transactions in locality is to carry out
local market inquiry. Information from local brokejs dealing in such real estate
transaction is very useful. Information from local residents and property owners
will also be helpful. Particularly owners who purchased or sold property in locality
can give sale information. Local practicing architects and engineers involved in
planning and constructing buildings for their clients can also furnish required data.
Advertisement in Newspaper and business papers also give plenty of information
on sale prices offered and prevalent rates of various types of properties in the locality.
Every- valuer should preserve at least monthly data of such newspaper
advertisements, in his own data bank, for present as well as future reference.
19
If information is available about land acquisition cases and Award details for
property acquired in the locality, such details are also valid data for prevalent rate.
Auction sale rates by Income Tax Department by Govt, or Semi Govt,
undertakings, by Banks custodian, Improvement Trusts, Court Receiver or Court
Registrar also give sale rate information.
Past experience of valuer himself, his own data bank, his local valuer friend’s
opinion can also be a source of prevalent trend in real estate market.
Before undertaking comparision with sale transactions, the valuer m ust first
check and study title deeds o f subject property very well. Correct area of the
property and ownership title should be examined thoroughly and examine whether
the sales are genuine or otherwise. Valuer should also see if there are any
covenants in the sale documents.
Many a times there is a need to check and confirm plot area . There are four
sources to check area of plot of land.
i. Area o f the plot shown in Governm ent Records called 7/12 Utara or area
shown in Extract from the Property Register Card.
ii. Area stated in conveyance deed.(Title deed).
iii. Area shown in sanctioned plan. (If building is erected on plot).
iv. Area as per actual survey carried out on site by the valuer.
It may not be too harsh a statem ent that “Plot areas as per all these four
sources are bound to differ” .
In variably, we find that area o f plot shown in conveyance and government
record do not tally. Even if actual survey is conducted on site , area as per actual
survey also do not compare well with conveyance figures or government records.
Realising such wide disparities in plot areas, several municipality in the country
have made a policy to allow developm ent in the plot, as per m inimum area of plot
under these three sources. Valuer should also therefore follow either area as per
Govt, record or minimum of three areas as correct plot area for his value estimates.
Actual survey o f land if done by Plane Table Survey or by Theoddite Survey,
resultant area by each method may differ. However area o f land arrived at by
theodolite survey is more authentic.
In case, if as per actual survey, plot area is found to be much more than area
shown in government records, property owner should be advised to get area
corrected in Govt. Records by getting resurvey of the plot done by Govt. Survey.
Unless such correction in Govt. Records are carried out, it is risky and unwise to
adopt higher plot area as per actual survey.
20
Like plot areas, there are four sources to check correct builtup floor area or
carpet area of the ownership premises. (Flats/ shops/offices/factory' galas).
i. Area shown in purchase document.

ii. Area shown in society’s record/condominium record.
iii. Area shown in sanctioned plan o f the building.
iv. Area as per actual survey on site by valuer.
Like plot areas, here also, areas are bound to be different in each case, due to
several reasons. However there is not much hesitation or complication in finding
out correct builtup floor area of the ownership premises. If the ownership premises
are built as per sanctioned plan and no unauthorized extensions are carried out,
valuer should adopt actual area found as per his personal actual survey on site as
the correct area of ownership premises. In case unauthorised works are carried out
beyond sanctioned plans said extra area should be ignored or val.ued as scrap. Area
as per society’s records should not be adopted unless thesame iscross checked
and confirmed by actual survey. Valuer should adopt carpet area as the basis of
value estimation , if in the real estate market o f the said locality , carpet area unit
is adopted as basis. However if in the said locality or town , builtup floor area is
the basis followed in Real Estate M a rk e t, valuer should base is estimate by working
out builtup floor area of such premises.
5.4.3 Analysis of Data

Having inspected subject plot on site, examine title deeds, arrive at correct
areas and having collected sale instances, valuer should then analyse data collected
in reference to subject plot.
Following sales could be normally discarded as irrelevant or incomparable sales.

i. Sales which may be distress sale. Sales having very low rate and suspected or
manipulated price to save stamp duty. Sales of property suffering from serious
draw backs which normally willing lower rates.
ii. Sales which may be special value sales or hijacked price in sale to claim higher
loan or it may be a speculative price or special purchase price which usually
give much higher rates.
iii. Sales of too large size plots, if subject plot is small size plot. Similarly sales of
too small size plots should not be compared with very large size plot.
iv. Sales which are at too far away distance from location of subject property
should not be relied upon, if sales in vicinity area are readily available.
v. Sales of land with tenanted buildings .
vi. Mortgage deed/Release deed prices.

vii. Sale properties which have too many attributes contrary to al ributes of subject
property should be avoided. For such sales too much adjustment is needed
which will make entire exercise of comparision futile and unreliable.
21
viii. Sales which are not at arms length such as sale between relatives, sales as
gifts, sales having some financial history/background.
ix. Sales taken place for earlier and sales which have taken place much later than
the relevant date for valuation.
Having screened out most o f the incomparable or irrelevant sales, valuer will
be left with some instances of sales for comparision. Having inspected properties
involved in all these sales and also subject property by physical verification on site,
the valuer will be fully equipped for the comparision process and will be ready for
adoption of positive or negative weightages for each attribute o f the property.
5.4.4 Adoption of Weightages

As stated earlier, land has innumerable characteristics or attributes. Again the
property value is affected by Economic/Technical/Social/Legal factors. All these
can not be adopted for comparision. Only few major attributes o f the property can
be considered.
In India, we have not done scientific market research to identify correct market
weightage for each attribute independently. We perhaps think that it is not possible
to do such a precise market survey and arrive at correct result in the Real Estate
Market prevalent in our country. Again parallel economy aspect in sale transaction
records also discourages such exercise. One sale may show only b0% of actual sale
price paid whereas another sale in same locality may show only 20% amount in the
sale record (80 % paid in Black money) of the total actual price paid.
However some countries have done commendable research in such fields.

They have identified as many as 400 to 500 attributes which affect the price of the
property in the m arket and they have also found accurate weightages for each of
such attributes to help in comparision. British Columbia. Town Authority are
leaders in this field.
Many valuers are of firm view that one should n oi indulge into adhoc practice.
Valuer should find out proper weightages for various attributes by study of actu?'
real estate market in the concerned locality. This view of-course is the correct view
and the ideal approach for estimating weightages. However till such authentic
m arket data research are published regularly or are made available in the market,
we can adopt adhoc weightages.
It is thought fit to give here some broad idea a b ou tlik ely adhoc weightages for
different attributes. These are purely adhoc weightages and would change from
locality to locality depending upon local market. These weightages can not
supercede weightages derived from actual m arket survey i.e. scientific field data.
22
5.4.5 Weightages for Land Comparision
In following table, purely adhoc weightages are given for each individual
variation in attributes of subject property vis-a-vis sale instance property.
Sale instance Weightage To be applied to Sale

Subject Property Attribute
property Attribute inst.rate
Double frontage Single frontage + 15% to +20%
Large size plot Small size plot - 15% to - 40%
Time Factor (current year) 12 months before + 5% to + 15% Per year
Main Road By-lane + 15% to +30%
Plot without access road Plot abutting road -75% to - 80%
(i.e. Landlocked land.)
Joint ownership Single ownership - 5% to -15%
Low lying land Level ground Deduct for cost of earth filling
Sea front plot Away from sea + 20% to +30%
Pending litigation (Stay of No litigation - 30% or more .
Court against sale) *
Forced Sale by Authority Normal Market Sale - 15 % to -30%
Even while estimating values on the basis o f adhoc weightages, valuer must
not forget basic valuation concepts e.g. while electing adhoc percentages decrease
for largeness of plot, valuer must first examine how much area of subject plot is
likely to go in road and garden under hypothetical plotting scheme.
Similarly for land locked land in city area, Valuer must first examine
possibility o f securing proper access to subject plot by purchase, OR by easement
right and then allow decrease percentage on value. It must be remembered that this
deduction is not applicable for agricultural land because agricultural access upto
fileld is available to owner under law. Application o f weightages stated in the above
table is explained below.
If subject plot has double frontage and sale instance plot has single frontage &
sale instance rate is Rs. 3000/ Sq.Mts, land rate o f subject plot could be estimated
at Rs.3000 + ’ 5% i.e. 3000+450 = Rs. 3450/Sq.Mts. Adjustm ent in values for other
attributes can be similarly worked out.
These are all adhoc weightages . These figures would change in different location
and different towns. There could be many more such indicative figures but it may
work in some locality and may not work at all in other town or other locality. Valuer
should therefore undertake market studies/surveys and make appropriate local
inquiry on these aspects before deciding about such weightages. Priorities given by
local residents for different attributes should be kept in view by the valuer.e.g. If local
residents believe in Vastu Principles ,the valuer should consider it.
Attributes and characteristics for land has been dealt with in detail in previous
chapter. Hence while comparing sale instances said factors can be considered by
valuer for estimating far market value of open land. Buildings also have certain
specific factors which are required to be separately considered in sale comparision
23
process. These factors have to be given appropriate weightages while comparing
sale instances of builtup premises.
Firstly we shall discuss general attributes o f building which we should
exam ine while undertaking comparision process. Then we shall also discuss user
specific attributes o f various types of ownership premises.
Following qualities of buildings must be examined during comparision.

i. Specification o f building, workmanship, Structural and Engineering Aspects.
ii. Architectural aspects, planning o f rooms and passages , elevation features and
aesthetics.
iii. Age o f building and its upkeep/maintenance.
iv. Ownership history o f building and stages of construction.

v. Income fetching capacity o f building and occupancy. In case o f rented building
annual yield to be considered. In case o f vacant or owner occupied building,
m arket rent and long term capital appreciation o f building has to be
considered.
vi. Present condition. Structural soundness and repair works.

vii. Amenities: Lift, security system, parking facilities, communication system,
Gymnasium, society meeting hall etc.
viii. Environmental aspects: Garden, Swimming pool, Landscaping, Jogging Track.
In considering specification difference between 2 sales, appropriate weightage
should be proportionate to cost difference between superior and inferior
specification. In case o f considering age factor, weightage o f at least 1.50%/year of
age difference may be considered on replacement cost o f building. Some valuers
however work out actual depreciations for both buildings and then adopt difference
as weightage.
Valuer must however know that in actual field i.e. Real Estate Market, many a
times we come across great price difference of side by side old and new building
and this difference is much higher than depreciation difference due to engineering
aspects.
The reason behind this peculiar feature could be buyers craze for new product
or new building as against second hand product or old building. There will be more
buyers for new building and less buyers for old premises. Buyers of new premises
may perhaps be thinking that it would give them more prestige in the society.
Obviously it will satisfy their ego. We may call this factor as Novelty Philea of buyers
or Novelty factor.
After discussing general attributes we can now discuss specific attributes for
residential, commercial and industrial premises.
24
5.4.6 Weightages for ownership flats (residential user)
Following attributes should be considered for comparision o f sale instances of
the ownership flats and appropriate weightages should be allowed while comparing
two sales i.e. sale instance premises with subject premises.
Specification: There can not be exact classification of specification o f building
but from laym an’s point o f view we can have four groups'.
Ordinary: Economic and cheap finishings are used.

Standard: Average (moderate) finishings are provided which is similar to the
m ost o f the buildings in the locality.
Delux: Superiors finishings like marble flooring, concealed electric and

plumbing works are provided.
Super Delux: Best available finishings in the m arket are used in every aspect
o f building including best team for planning, design and execution.
Services: Premises served with various services like water supply, sewerage
and underground drainage system. Electricity. Solid waste disposed system, Dish
antenna, Solar system for heating etc. fetch higher price in the market. Building
provided with lift, safety precautions like fire fighting system and stand by
generator, intercom system and good security system also fetch higher price.
Society or managing body should manage common areas very well as such upkeep
also enhances, value of property.
Interior planning: If interior planning o f rooms in a flat is good with ideal
circulation o f movement and proper placement of rooms, such flat fetches better
price. Interior planning should be economic with minimum wastage in passages
and lobby area. Light and ventilation for all rooms should be maintained in
planning.
Proxim ity o f Civic Amenity. Like land values, value of ownership flats also
increases if civic amenities like shops, market, school, garden, cinema, railway
stations are available close by.
Floor levels: Ground floor location o f flat is less preferred due to lack of
privacy, less light and ventilation and more nuisance o f dust, noise and visitors.
Some Developers consider 1/2 % /floor as positive weightage for upper floor flats.
Orientation: Flat overlooking road side are more preferred than flats in rear
side o f building. Similarly flats on west side (windward side) are more preferred
than flats which are not in direction of flow o f wind.
Age o f Building: Flats in new buildings are more preferred as compared to

flats in old building.
Size o f flats: Larger area flats fetch little lower rate as compared to the rate
of flat having smaller area. This may be due to less demand for large size flats.
25
Amenities: Building provided with maximum amenities fetch higher price. Lift,
swim ming pool, parking in stilt-basement-podium, garden/children’s play area,
security system.
Neighbourhood: Slums, cremation ground, cinema, school in vicinity or on

next plot are less preferred.
Prestige Aspect: Certain buildings are considered prestigious in area say

World Trade Centre Building in Mumbai. Obviously prices will be at premium. If
well known film star stays in building, higher rate can be adopted. Celebrity staying
next door enhances value o f the property.
Condition o f Flat: If interior upkeep and maintenance o f flat is bad and if
there are signs o f leakages from top slab and walls ,it fetches less price in the
market. Spoiled painting and white ant nuisance also reduces value. *
Maintenance charges: Flats in building which have low society maintenance
charge fetch better price as compared to flats which has very high society
maintenance charges. High land lease payment also some times increases society
charges o f the flat at prohibitive level.
Litigation: If a flat is involved in any type o f litigation or ownership disputes,
its price reduces in the market. Flat mortgaged to Bank fetch low price in public
auction.
Weightages f o r ownership shops : (Commercial) :

Locality: Shop in posh locality has high price. Shop in middle class locality
fetch lesser price. Shop in poor class locality has least price.
Pedestrian Traffic: For shopping user, this is extrem ely important factor. If
pedestrian traffic is high, such shop fetch high price in the m arket due to high
exposure to customer traffic. Shops near railway station, bus stand and market
area, due to this reason fetch high price. Shops in dead end lane, will hardly have
any weightage for commercial user.
Counter space and Display width: Frontage of shop along road is another
important criteria. More the width of shop along road, higher is its value. It
provides better display value for goods and greater exposure of sale counter to
public. Deep shops with narrow frontage are less preferred due to lesser scope for
showcase display.
Placem ent in building: Shop on ground floor overlooking road side is best.
Shops opening on side open space of building fetch lesser price than in front. Shops
opening up in central corridor of building fetch least value. Some building do have
shops on first floor overlooking road side but customers are less inclined to climb
stairs to reach such shop and hence such independent shops are less preferred and
hence its value will be less. However first floor shop inter connected and part of
ground floor shop does not have such low value.
Storage facility: Loft area in the shop has substantial value as ii provides
storage facility. Normally more than 50% of the shop area is not permitted as loft
26
area in the shop by the local authority. Shop with attached basement store fetch
high price. Shop with rear store also have good price. However such storage space
may fetch hardly 40% to 60% price of shop rate as they are not much useful for
providing sales counter and display of goods.
Car parking facility: Shopping centre having plenty of car parking space in
the compound or in basement will attract high customer traffic of rich strata. Shops
in such building will therefore fetch better price. Shopping malls with basement
parking facility is one such example. Some shops provide valet parking facility
which does attract rich customers who patronise such shops.
Am enities: Building having group of shops and provided with Air-conditioning
facility, children play area, drinking water facility, common toilet facilities and good
parking area fetch better price in the market. These amenities are therefore
generally provided for shopping centre, department store, retail chain store, malls
and super market.
Eating House facility: Shopping with eating house facility in proximity goes
well with shoppers. Planners o f New shopping mall design the building o f the mall
so as to provides for such an amenity. Mall also have entertainment facilities.
Weightages f o r Industrial Galas (Units):

Floor level: Ground floor is preferred more than upper floor units due to easy
handling of raw materials and finished goods .
Power/Water/Labour. If cheap labour is available in proximate areas, such
units are more preferred. Continuous power and water supply also gets high
preference than galas in area where power supply is intermittent.
Amenities: Goods lift in building, proximity o f weigh bridge and availability of
transport agents offices in the vicinity are preferred.
Highway: If industrial unit is close to highway, goods transport ( Raw
materials as well as finished products) to and fro becomes quick and hence more
preferred by entrepreneurs.
Parking: Truck parking facility in the compound is very essential for good
industrial building. Loading unloading platform will facilitate easy loading
unloading of raw materials and finished goods.
The various weightages required to be applied to sale instance rates for various
attributes, have to be adopted in a very prudent manner better supported by
evidence and not in any reckless manner. You can not go on adding all negative
weightages and allow 100% deduction for adverse factors. The adoption of
weightages and adjustment in rates has to be done just in the manner as a man of
ordinary prudence would do. A man of super intelligence is not considered and
man with speculative intent is also not considered. Approach of a common man
with ordinary prudence is to be adopted. In fact Courts consider both willing buyer
and willing seller as man of ordinary prudence and not as highly intellectual
persons.
27
Before we study other method of comparision, we must learn how these
weightages for different attributes could be scientifically worked out. This is done
by what is known as Value Ranking Technique.
This method o f finding out weightage for an attribute is quite simple. First four
to six genuine sales are collected from the same locality. Then each one is given a
Rank on the basis of quality o f particular attribute. Poorest quality is given rank 1
and sale with Richest quality of said attribute is given higher rank
Say 6. The sale rates of these sales are compared in isolation of all other attributes,
assuming that other attributes of all these sales have same quality.
Following example will make it ve iy clear.
Example-6: Following sales of flat are collected for current year.

Sale ‘A ’ : Ordinary or poor quality specification.
Sale rate Rs.9,000/SM.
Sale ‘B’ : Standard specification. Sale rate Rs. 12,000/SM.
Sale ‘C ’ : Delux specification. Sale rate Rs. 15,000/SM.
Sale ‘O ’ : Super Delux specification.
Sale rate Rs.l8,000/SM .
Find out weightage for ‘Specification’ factor in said locality. Also calculate rate
of flat having specifications quality between sale ‘C’ and sale ‘D ’.
Solution: Sale ‘A ’ is given Rank 1 and sales ‘B ’, ‘C ’ & ‘D ’ are given ranks 2,3 &
4 respectively.
We find that quality of specification of subject flat is between Rank 3 & 4, we
can therefore easily interpret that its fair rate should be between Rs. 15,000/SM. to
R s.l8,000/SM . Say Rs. 16,000/SM. This rate can also be found by drawing graph
with specification grade vis-a-vis rate of flats.
To find out weightage for specification factor, we must work out difference %
between two grades of specifications. Difference is as under.
Sale ‘B ’ has 33.33% higher rate than sale rate ‘A
Sale ‘C ’ has 66.66% higher rate than sale rate ‘A ’.
Sale ‘D ’ has 99.99% higher rate than sale rate A ’.
Hence weightages for specification factor can be adopted at 33.33%.
Weightages for other factors could be evaluated similarly.
5.5 Adjustment Grid Model

Evaluation of rate under this model is also similar to approach under Hedonic
Model. However under this model working is less adhoc and more scientific.
In this method also 4 to 6 comparable and genuine sales are first selected out
of several sales collected by valuer in a locality.
For comparision with subject property, 4 or more major attributes are decided
by the valuer.
There after for each attribute ranks are given.

Rank (5) for Best Quality attribute.
Rank (3) for Medium Quality attribute.
Rank (1) for Poor Quality attribute.

If sale instance flat has best specification Rank (5) is given where as flat
having medium quality or poor specification are given Rank(3) or (1) respectively.
Let us see how ranks are given for different attributes of the properties.
Location Factor. Rank (5) if civic amenities are closeby.
Rank (3) if amenities are at moderate distance.

Rank (1) if amenities are far off say at 1 KM distance.
Size Factor : Rank (5) if flat area is 75 sq.mts. or less.
Rank (3) if flat area is 75 sq.mts. to 150 sq.mts.

Rank (1) if flat area is 150 sq.mts. or more.
Age Factor. Rank (5) Building less than 10 years age.
Rank (3) Building having age 1 0 - 3 0 years period.

Rank (1) Building having age 30 years or more.
Specification Factor. Rank (5) Delux specification.
Rank (3) Standard specification.
Rank (1) Poor specification.

There couid be many mure factors or attribute of property which can be
considered by the valuer for comparision and adjustment.
Having selected sales, major attributes and having <*iven ranks, now all sales
are placed in adjustm ent grid in tabular form.
Now ranks o f each attribute of sale instance premises is compared with rank of
said attribute of the subject property. Appropriate weightage is given for higher or
lower rank. The beauty of comparing each selected attribute of sale instance
properties with subject property lies in the fact that each attribute is compared in
isolation of all other attributes. If we compare size factor of these sales with subject
property, for that particular moment we ignore effect due to variations in
specification or its location angle. Entire comparision and weightage factor is
adopted in exclusion of effect of all othe* attributes. Only rank of each sale in
respect o f said attribute alone is considered. Positive and negative weightages are
given looking to inferior (Rank-1) or superior rank (Rank-5) of sale instance
property.
29
In short, we can say that this system of ranking and comparision is a notional
process o f bringing sale instance Hat to the level o f quality or attribute o f subject
property. If attribute of sale instance property is superior to quality o f attribute of
subject property, a negative weightage is considered for adjustment to sale instance
rate so that sale instance property quality is brought down to level o f quality of
subject property. In case of inferior quality sale instance, positive weightage is
considered to bring up said quality to level of subject property. It is like making
Rich man poor by tax (- ve) and making poor man rich by grant or subsidy (+ ve) so
that all are equal.
These individual weightages are ultimately totaled up to find out overall effect
on basic sale instance rate.
Finally derived adjusted rate in case of each sale instance is then computed
and than final comparision is done.
Having done this entire balance sheet process, an opinion is formed about fair
rate for subject property. Following example will explain the whole adjustment
process.
Example-7: A residential flat (subject property) is in 4 years old building. The

building is in middle class locality on road parallel to main road. Building is 4 years
old with good specification and good aesthetics. Area of flat is 85 sq.mts. Marble
flooring is provided. Value the flat as on 31-3-2010 based on following 3 sale
instances which are readily available for comparision.
Sale ‘A*: 120 sq.mts. flat sold on 31-8-2010 at Rs.8000/Sq.Mt rate. Building
is 22 years old and abuts on main road. Good specification and marble floor are
provided. Building is with garden and swimming pool.
Sale *£*: 80 sq.mts. flat sold on 31-1-2010 at Rs.5600/Sq.Mt rate. It is in by

lane but it is closer to market and school as compar-;-'! to subject flat. Building is 18
years old and specification is average with mosaic tiles flooring.
Sale ‘C ’: 45 sq.mts. flat sold on 30-10-2009 at Rs.4000/Sq.Mt rate. It is at

kilometer distance from the market and station. It is in poor class locality. Building
is 30 years old with poor specification.
Solution:
Grid Table given below is as per Adjustm ent Grid Model.

(It is a Balance Sheet of weighted values).
30
GRID TABLE
Sr. Details of Subject flat Sale ‘A ’ Sale ‘B ’ Sale‘C’

Rmks
No factors 85 Sq.Mts. 120 SM. 80 SM. 45 S.M.
1. Sale Rate To Find 8,000 5,600 4,000 Rs./SM.
2. Time Factor March 2010 -5 +2 +5
months months months
3. Adjustment - - 5% + 2% + 5% Weightage
for time. - 400 + 112 + 200 1%/month.
4. Adjusted Rate - 7,600 5712 4,200 Rs./SM.
Rs./Sq.Mt.
5. Location Factor 5 3 1
Ranks .... 3 - 15% - 5% + 25% *
Weightage....
6. Size Factor 1 3 5
Ranks 3 + 5% Nil - 5%
Weightage
7. Age Factor 1 3 1 22-4=18
Rank 5 + 9% + 7% + 13% 18-4=14
Weightage 1%/2 years 30-4=26
8. Specification Factor 5 3 1
Ranks 3 - 10% + 15% + 25%
Weightage
9. Overall Weightage -11% + 17% +58%
Above item-4 -Rs.836 +RS.971 +Rs.2436
10. Adjusted 6,700 6,764 6,683 6,636
Rate Rs/Sq.Mt
Rate estimated for subject flat = Rs.6700/- Per Sq.Mt.

Value o f subject flat on 31-3-2010
85 S M .@ Rs.6700/SM. = Rs.569,500/- Say Rs.570,000/-
It will be seen from above solution o f the example that the sequence of
adjustment ( Basic rule) starts with applying weightage for the time factor first on
the basic rates o f the sales. Weightages for the other attributes are considered
thereafter on the overall basis and applied to already time adjusted rates and not
on basic rate of the sale instances.
It will also be seen that before adjustment of ja te s , difference in rate between

highest and lowest rate in locality was Rs.4000/Sq.Mt. (100% difference). However
after making notional adjustments by giving weightages for different attributes,
difference between highest and lowest rates is reduced to only Rs. 128/Sq.Mt,
(Hardly 2%) difference. This reduced difference makes valuer’s job very easy in
selecting appropriate rate for subject property.
Another important point to be noticed is the Rule that for ihe inferior quality
attribute (Lower rank), positive weightage is considered where as for superior
31
attribute (Higher rank) negative weightage is considered. However for equal rank
the weightage could be +ve or -ve or N i l , as the case may be.
This exercise can be done in exactly similar manner by selecting more that 3
sale instances for comparision. Valuer can also adopt as many more attributes as
he thinks fit for comparision instead of selecting merely five m ajor attributes as
done in above example.
This adjustm ent grid model can be adopted for comparision o f not only
ownership flats but also for open plots, shops and industrial units ( Galas).
Example-8: An open plot in residential zone (subject property) has an area of

600 sq.mts. Plot abuts on 27 m. wide major link road o f the town and all civic
amenities are available close by. Shops are not permitted on the plot. Value the plot
as on 31-8-2010 if details o f three instances of sales, which are available, are as
under.
Sale ‘A ': 2500 sq.mts. plot is sold on 4-4-2010 at Rs.3800/SM rate. It is a

corner plot on 18 meter wide main road. Permitted user is shops on ground floor
and residence on upper floor. Civic amenities are at 10 minutes walk.
Sale *B *: 1000 sq.mts. plot is sold on 1-10-2009 at Rs.3000/SM rate. It is in

12 m. wide by-lane. Plot has single frontage. Civic amenities are available within
20 minutes walking distance.
Sale ‘C'\ 400 sq.mts. plot is sold on 25-11-2009 for Rs.2400/SM. It is

Vyagram ukhi shape plot abutting on 9 m. wide dead end lane. Shops are not
permitted on the plot. Neighbourhood is poor class locality.
Solution: After scrutinizing all the three instances o f sales we can conclude
that in the present working we can select four attributes for the purpose of
comparision.
Details of ranking given for each attribute and the weightages adopted for
each attribute are given in the following Grid Table. As usual weightage for time
factor is first estimated and rate adjustment for the time factor is first done before
applying weightages for the other attributes. Sale instance details arc also given in
the tabular form given below.
32
Grid Table (Balance Sheet of weighted Values)
Subject Sale-B
Sr. Details o f Sale-A Sale-C
plot 1000 Rmks.
No. factors 2500 SM. 400 SM
vlOO Sm. SM
1 Sale rate To find 3800 3000 2400 Rs/SM.
2 Time August +5 + 11 +9
Factor 2010 Months Months Months
3 Adjustment for time.
Weightage + 10% + 22% + 18%
2% /month. + 380 + 660 + 432
4 Adjusted rate - 4180 3660 2832 Rs/S.M.
Rs./SM.
5 Location Rank 5 5 3 1 Sale-A
Weightage - 10% + 5% + 15% Corner Plot
+ 10% + 5% + 10%
6 Size Factor Sale-C is.
Rank 5 1 3 5 Vyagramukhi
Weightage + 10 % +5% + 10 %
7 User Factor Sale
Rank 3 5 5 3 ‘A’/’B’ are
Weightage - 15 % - 15% Nil With shops
8 Road width
Ranks 5 5 3 1
Weightage + 5% + 10% + 10%
9 Overall % -10% + 5% + 35%
Weightage Rate -418 + 183 + 991
Adjustment
10 Adjusted Estimated 3762 3843 3823 Rs./SM.
values. 3850
Rate estimated for subject plot = Rs.3850/- Per Sq.Mt.

Value o f subject plot as on 31-08-2010
600 SM. @ Rs.3850/SM. = Rs.23,10,000/-
Say Rs. 23,00,0007-
N o te : Adjustm ent for time in this land valuation example is estimated at
2%/month vis-a-vis 1%/month estimated in previous example for valuation o f flat.
This may be perhaps because valuer thinks that appreciation in land values is
much higher than appreciation in rates of flat during same period of time.
5.6 Price Quality Regression Technique
Under Sales Comparision Method of market approach, this is yet another
refined technique of comparision of sale instances. However this technique will be
more useful in the cases where valuer has more details from the market about
correct weightages for different attributes of the property. Adopting adhoc or
arbitrary weightages without any market survey or market findings and applying it
under this price quality regression technique is likely to result in less accurate
d'iiustments instead of precise adjustment.
Under this technique values are determined by the formula
y = a + bx
y = Estimated sale price o f property
a = Market price factor or time factor,
b = Quality factor or regression coefficient,
x = Ranking factor.
Market price factor “a” is a constant coefficient worked out from several sale
instances executed at different period o f times at different rates.
Quality factor “b” is another constant coefficient worked out from several sales
having innumerable different qualit}' aspects like age, Specifications, Location,
Services, Prominence, Neighbourhood, Topography etc.
Ranking factor “x ” is fixed ranks given to the subject property in respect of
various attributes (Quality factors) affecting market and requiring adjustments in
the value. Normally ranks given for attributes are 1-3-5 for poor-medium and best
quality of attributes respectively.
To find out m arket price factor constant “a” and quality factor constant “b”,
following two formula derived by solving summation equations has to be adopted.
a = y 7 x2 - x y xv b = Sxy-n x y
£ x2 - n x 2 J x 2 - n x2
X Represents Sigma : Summession
y = Sale price o f subject property.

£ x = Total of Rank factor of all sales.
X y = Total of price rate o f all sales.
X = Average rank factor = X x + No. of sales.
Y = Average of sale prices per unit area
Z Y No. o f sale instances,

n = Number of sales.
Following example will make it clear how to derive “a” and “b” coefficients and
final sale price value “y" of subject property.
Example-9: A residential flat having 95 sq.mts. area is required to be valued
as on March 2010. Building is in by-lane and it is 7 years old. Specification is fairly
good. Following 3 sales are available in the locality.
Sale ‘A ’: Flat 55 sq.mts. in area sold on August 2010 at rate of Rs.6500/SM.

It is in 30 years old building and which abuts on main road. Specification is very
good. Flat can fetch high rental.
Sale (B y\ Flat 70 sq.mts. in area sold on January 2010 at Rs.5800/SM.

Building is 15 years old. Standard specification is provided. Rental value is
medium. Ir is not on prominent road.
34
Sale ‘C Flat 150 sq.mts. in area sold on Oct. 2009 at Rs.3800/SM. It is in
poor class locality with low rental expected. Specification is poor and building is 25
years old. Assum e adjustment for time factor at 1%/month.
Solution:
Price Quality Regression Analysis

Sr. Details of Subject flat Sale-A Sale-B Sale-C
Rmks
No. Factors 95 SM. 55 SM. 70 SM 150 SM.
1 Sale rate To find 6500 5800 3800 Rs./SM.
2 Time Facto March - 5 months +2 +5
2010 months months
3 Adjustment -5% + 2% + 5% Weightage
for time. -325 + 116 + 190 1%/Month
4 Adjusted ‘y ‘ 6175 5916 3990

rates.
Total of adjusted rates ^ y = 16081
In the following rows words RK and FAC are used.

RK = Rank Number FAC = Factor figure
Weightage Sub. Flat Sale-A Sale-B Sale-C
RK FAC RK FAC RK FAC RK FAC
5 Location 3 0.90 5 1.50 3 0.90 1 0.30
Factor 30%
6 Size factor 3 0.45 5 ‘ 0.75 3 0.45 1 0.15
15%
7 Age factor 5 0.50 1 0.10 3 0.30 1 0.10
10%
8 Specification 3 0.75 5 1.25 3 0.75 1 0.25
factor. 25%
9 Income 3 0.60 5 1.00 3 0.60 1 0.20
factor 20%
Quality Fac. 100% x 3.20 4.60 3.00 1.00

Summession of Rank factor of Sales A-B-C = 4.60+3.00+1.00
( Sub.Flat factor not included) = X x = 8.60

n = 3
* x = Ix / n = 8.60 / 3 = 2.86
* Xy = 16081 n= 3 x = 3.20
* y = ly / n = 16081 / 3 = 5360
y = a + bx
a = y yx2- x 7x v = 5360 x 8.602 - 2.86 x 8.60 v = 8022 - 0.49 y

X x2 - n x2 8.602 - 3 x 2 862
b = yXv - n x v = 8.60 v - 3x2.86 x 5380 = 0 17 y - 934

X x2- n X2 8.602 - 3 x 2.862
35
Rate of subject flat = y = a + b x
= 8022 - 0.49 v + (0.17V- 934) x 3.20
y + 0.49y -0.544y = 8022 -2989 or 0.946 y = 5,033
Hence y = Rs.5320/SM.
Fair Sale Price subject flat = 95 SM. @ Rs.5,320/SM. = Rs.505,400/-

Say Rs.505,000/-
5.6.1 Weightage Score System
This is yet another method o f comparing sale instance properties with subject
property to arrive at Fair Market Value based on m arket data. In this method, 50 to
60 factors are identified and they are grouped in sevQn categories 'viz. Land,
Building (Enginerring and Architectural aspects), Location, Locality Services,
Economic legal and social factors. Four or five level o f each factor are also
identified.
The principle aim o f this method is to ensure that the subjective element in
comparision of the properties is estimated as far as possible and thereby ensure
that the comparision is as objective and practical as possible. In view of this aims
ascertaining the relative importance of all the relevant factors/aspects and their
levels felt by the local population in respect of residential/or commercial properties
in a locality concerned and also ascertaining the properties given by them to all the
relvant factors of comparision and their levels and assigning appropriate weightage
to all the relevant factors o f comparision and their levels in accordance with such
importance and priorities is the m ost important and crucial step in this method.
The efficiency and usefulness o f this method in practice depends on assigning

appropriate weightages to all the factors of comparision and their levels strictly
according to the importance and priorities given to the factors o f comparision and
to their levels by the people of the concerned locality/area. In this method all
relevant factors o f comparision and their levels are duly considered without
excluding any of the factors. Therefore it is the most practicable method without
involving any assumptions and adhocism.
Im portant steps in the method:
The important steps in this method are
1. Identifying relevant factors of comparision and their levels.
2. Assigning appropriate weightages to relevant factors o f comparision and their
levels.
3. Preparing weightage Criteria Table.
4. Working out total weightage score for each of the properties rented/let out
and/or sold, and that of the property to be valued.
5. Comparing the propertievS on the basis of total weightage score, areas and the
dates o f transaction and estimating fair market value.
36'
Identifying Relevant Factors of Comparision
The 50 to 60 factors of comparision grouped into four broad categories have
been discussed in details in the earlier chapters. The criteria or tests for deciding
which factor is relevant and which factors is not relevant for comparision of
properties has been also discussed herein before.
Each o f the factor have five or six level of ranking ranging from highest to
lowest level. These preferences and levels are to be identified by the valuer by
m aking local inquiry with the residents of the locality. The sample details of levels
for some factors are given below.
In case o f size factor (Plot area) levels may vary from 300 Sq.Mts. to 500
Sq.Mts. ( Highest level ), 1000 Sq.Mts.,2000 Sq.Mts., and 5000, Sq.Mts. (Lowest
level)
In case o f location factor, levels could be decided on the basis o f distance from
the civic amenities,school,market or work place.
250 rri distance (Highest level), 500m, 1 K.M.,2 K.M., and above 2 K.M.
distance (Lowest level).
In case o f utility service factor say water supply, the levels could be based on
say 24 hours water supply (Highest level),2hours in morning and 2 hours in
evening supply, 2 hours supply once in the whole day, no supply by tap water
inside residence but supply through community water tap (Lowest level).
The levels for the other factors could be decided similarly .The relevant factors
of comparision and the levels at which those factors are available or provided
should be identified on the lines of these discussions.
Assigning Weightages
This is the most important steps in this method. In order to ensure that the
weightages assigned to each and every factor or comparision and to each of its
levels are appropriate and practical, a valuer is expected to inquire, during his
inspection of site, about the relative importance given by the local population to all
the relevant factors o f comparision and their level, ascertain local preferences in
respect o f those factors and their levels and assign weightages to the relevant
factors of comparision and their levels strictly in accordance with such relevant
importance and preferences indicated by local people. The weightages so assigned
may and normally will vary from locality to locality in one and the same
urban/rural area according to local circumstances prevailing in a locality and
according to availability of facilities, amenities, services etc. Assigning weightages,
to the relevant factors of comparision and to their levels subjectively only on the
basis o f knowledge and experience o f a valuer needs to be avoided in any case.
Weightage Criteria Table
Once the appropriate and reasonable weightages are assigned to the relevant
factors of comparision and their levels, the next step is to prepare a weightage
criteria table which normally varies from locality to locality. The relevant factors of
37
comparision are arranged in the top horizontal row in a logical systematic order
with respective weightages assigned to them shown below each o f the factors. The
levels of the factors to be considered are arranged in vertical columns, from the
highest level with higher weightage in the top row and the lowest level with lowest
weightage in bottom row. The weightages assigned to the levels of each o f the
factors are shown in the respective column of each of the factor.
Total weightage score of properties:

Having assigned appropriate weightages according to local relative importance
and preference to each o f the relevant and their levels, the next step to compute or
workout total weightage scrore of the properties to be valued, and total weightage
score of the properties involved in the instance of and sales. The multiplications o f
the weightage assigned to the relevant factor o f comparision and the .weightage
assigned to the level o f that factor available to a particular property, gives
weightage scrore o f that factor in respect o f that particular property. For example,
weightage score for specification o f a building and for the water supply are say 5
and 6 respectively and the weightages assigned to the level o f these factors in
respect of a particular property are say 4 and 3 respectively, then the weightage
scores of these two factors will be 20 ( 5 x 4 ) for the specifications and 1 8 ( 6 x 3 )
for the water supply in respect of that particular property .
The summation o f weightage scores o f all the factors o f comparision in respect
o f a property gives the total weightage score of that particular property. The total
weightage scores o f all the relevant factors of comparision and their levels can be
worked out in respect of the property to be valued and the properties involved in
the instance o f rentals and sales.
It is advisable to prepare a table showing total weightage scores of the

properties involved in the instance of rentals and sales and the property to be
valued.
Estimating Fair Market Rent/Value by Comparision

While assigning appropriate weightages if it is found to assign proper
weightage for any particular factor say Area o f land or flat , appropriate weightages
can be reasonably assigned on the basis o f ranking and levels of other factors
selected for the comparision and for which details are available.
The area of a property has considerable and major effect on the demand for a
property and hence on its market value. The relationship between the change in the
area o f a property and corresponding change in its market value can be found out
by careful and thorough study of the real estate market in a locality after which
appropriate weightage for the factor ‘Area* can be reasonably assigned. Till such
time comparision between the properties will be required to be carried out on the
basis of total weightage score (indicating combined effect o f all the relevant factors
of comparision and their levels).
5,7 Development Method (Residual Technique)
Under market approach there are two main methods. Sales Comparision
Method and Development Method. We have already discussed in detail sub
methods (Technique) under sales comparision method. We can now discuss
developm ent method and its four sub methods (techniques).
Development Method or residual technique is an indirect manner of deriving
land rate from sale transaction. Like direct sale comparision method discussed
before, in this technique there is no direct comparision. The land value is derived
indirectly from sale instance of developed property. Such developed property may
have fully developed F.S.I. or may have under utilised F.S.I. Some times on developed
land inferior user is existing on the plot instead of highest and best use of the
property. All these situations calls for use of development method, because such
situation will bring in higher monetary7returns from the property in case of sale.
Another circumstance for applicability o f this method is the total unavailability
of^sale instances o f similar open plot o f land in the locality for direct comparision
purpose to find out land rate. Invariably-in C.B.D. area o f town, such situation
always exists. There are no open plots left and hence sale instances for such open
lands are not available for relevant year. Sales of even prior or post periods o f such
relevant year are also not available. However sales o f developed property would be
available. Under such circumstances this indirect method provides probable land
value in locality, which is derived by residual technique from sale instance of
developed property. Such builtup properties may be either vacant or owner
occupied. Such properties coiila also be tenanted properties. Land value can be
derived by residual technique in both types of such occupancy.
5.7.1 Residual Technique (Owner occupied properties)
Under this method, from sale price amount, depreciated cost of building or
scrap value of building is deducted , to find out net land value. This concept of
deriving land value from the Sale price and Building value is established by a
formula: .
A
R = Rate of land/Unit area.
C = Sale consideration amount.
S = Scrap value or depreciated cost of building.
A = Total area of plot.
There could be three or more different situations of owner occupied or vacant

properties.
i. Sale of land could be with vacant house in corner of the plot.

ii. Sale of land could be with owner occupied house centrally placed in the small
plot.
iii. Sale may be of ownership flat/shop/olfice with vacant or owners possession.
Land value can be derived in each o f these situations by residual technique.
Following examples will explain its working.
39
Example-10: A 1550 sq.mts. land is sold on May 2010, with 120 sq.mts.
bungalow built in corner of the plot. Sale consideration is Rs.314,00,000/-.
Bungalow is 20 years old and replacem ent cost is Rs.8500/SM. Calculate land rate
in 2010 by Residual Technique.
Solution: In this case bungalow is not very old. Again its placement is in corner of
the plot. Hence development is possible by retaining it.
Present value o f bungalow = R.C. - Drepreciation.
Replacement Cost = 120 SM. @ Rs.8500/SM.
= Rs. 10,20,000/-
Depreciation = .9 x 1020,000 x 20/60
= Rs.306,000/-
Net Present Value (S) = 10,20,000 - 306,000
= Rs.7,14,000/-
C = 314,00,000/- A =1 5 5 0
Land Rate : R = C - S = 314,00,000 - 714,000
A 1550
= Rs. 19,7 9 7 /-Per Sq.Mt.

Land rate in 2010 = Say Rs. 19,800/- Per Sq.Mt.
Example-11: 500 sq.mts. land is sold in October 2010 with 250 sq.mts. single
storey vacant house in centre of the plot. Sale price is Rs. 142,00,000/-. Bungalow
is 40 years old. Calculate land rate by Residual Technique.
Solution: Bungalow is centrally placed and hence full developm ent is not possible
without demolishing it. Again bungalow is 40 years old. Hence it is
valued as scrap. If replacem ent cost in 2010 is Rs.8500/SM., scrap
value would be 10% i.e. Rs.850/SM.
Scrap value P = 250 x 850
= Rs.212,500/-
Land Rate R=^ _ 142,00,000 - 212,500

A 500
Land rate in Oct 2010 = Rs.27,975/- Per Sq.Mt.
Deriving land rate from sale rates of ownership premises is little difficult task
due to indirect method of working. Sale price of ownership flat comprises of several
factors like land component price, building component price, developers profit,
interest on capital invested, effects of different attributes o f land and building on
sale price, effects o f other market forces etc. However broadly speaking land value
C-S
can be worked out by same formula i.e. R = ------
40
However here S is not scrap value or depreciated cost only but it includes all
types o f outgoings including depreciation as shown below.
i. Developer’s profit on sale price.
ii. Cost o f construction if building is new. Depreciated cost of construction
if building is old.
iii. Interest expenses for 1/2 period o f construction.

iv. Professional charges of Architects and Structural Engineers.
There could be many more outgoings like municipal scrutiny fees, municipal
land tax, water charges, supervision and security charges, management and
administrative expenses etc. The list is endless. Some valuer therefore club together
m ost o f these outgoings in 1 or 2 groups only. Professional charges of Architects,
Engineers and Consultants, Supervision charge and water charges are grouped
with cost of construction. Management and security expenses, municipal taxes and
interest on loan capital are all clubbed together and included in gross profit of
developers.
(i) These aspects can be explained as under:

If valuer adopts cost o f construction at Rs. 10,000/Sq.Mt. the breakup could be
as under:
Actual building cost Rs. 8,750/SM.
Architects/Const. Fees at 4% Rs. 350/SM.

Municipal charges 3% of cost Rs. 262/SM.
Manage.& contingency @ 5% Rs. 438/SM.

Other expenses Rs. 200/SM.
Total Cost Rs. 10,000/SM.

(ii) Similarely developers profit if it is adopted at 25% o f sale price by valuer, break
up could be as under:
* Developer’s profit 15% 15 %

* Interest burden on finance. (1/2 period of construction) 8 %
* Other outgoings like Brokerage, legal exp.etc. 2 %
Total 25 %
In low cost ownership premises, developers profit could be as low as 5% to 7%
where as high cost ownership premises, developers profit could be as high as 30%
to 40%. For high turnover, profit % is less. If project is quickly completed then also
profit margin is less. It also depends on town and competition in the market.
Exam ple-12: A developer sold 200 sq.mts. flat in new building for a price of
Rs. 160 lacs in June 2010. Building cost in 2010 is Rs. 10,000/SM. Derive land rate
by residual technique. F.S.I. of the area is 1.33.
41
0 14.-
Solution: id 4
- o rf nflat* = ----
Rate 160,00,000
-— -—
200
= R s.80,000/-Per Sq.Mt.
Assum ing developers profit including interest expenses at 20% o f saleprice,
we get,
Sale price rate = Rs.80,000/SM.
Less: 20% profit = R s .l6 ,0 0 0 /SM.
Net Rate = Rs.64,000/SM.

Less: Building cost = R s.10,000/SM.
Land com ponent in rate = Rs.54,000/SM.

As F.S.I. is 1.33, only 0.752 Sq.Mts. land area is utilised/Each Sq.Mt. area
o f flat.
Prevalent land rate = Rs.54,000 x 1.33

= R s.7 1 ,82 0 /-Per Sq.Mt.
Say R s.71,800/- Per Sq.Mt.
E xam ple-13: An industrial gala admeasuring 250 sq.mts. in 30 years old
building is sold in January 2010 for a price of Rs.45,00,000/-. In new building on
adjoining plot an industrial gala is available at the rate o f Rs.22,000/SM. Cost of
construction is Rs.8500/SM. in 2010. Adopt developers profit at 15%. Calculate
derived land rate for both plots if F.S.I. of zone is 1.00.
Solution: S a le ‘A ’ Rate =- - = r s. 18,000/ SM

250
Sale ‘A ’ Rate = Rs.l8,000/SM

Less : 15% profit = Rs. 2,700/SM
Net rate = Rs.l5,300/SM
Less : Depreciated cost of bldg.
(8500 - 8500 „ .9 x 30/60) = Rs. 4,675/SM
Land component in sale price=RslO,625/SM ... (a)
Sale ‘B ’ rate = Rs.22,000/SM
Less : 15% profit = Rs. 3,300/SM
Net Rate = R s.l8,700/SM
Less : Building cost = Rs. 8,500/SM
Land com ponent in sale price= R s l0,200/SM ...(b)
It will be seen that land rate under Sale ‘A ’ plot with 30 years old building,
gives more rate of plot whereas under sale ‘B ’ on which new building is constructed,
land rate as worked out isless . If we see developers profit in sale ‘A ’ it is
Rs.2700/SM. and under sale ‘B’ it is Rs.3300/SM. Hence land rateis low in sale -
B.In reality developer’s profit factor deducted is only notional aspect for sale ‘A ’ as
the building is old. If this is not allowed, land rate will be still higher. These type of
discrepancies may invariably occur in actual market. This difference may not be in
land rate as is seen in the above example.This difference could be ascribed to some
other factors or m arket forces like better location aspect or extra price paid for low
maintenance charged by society for the galas in old building (Low property taxes in
old buildings as compared to the taxes in new building). Purchaser is also likely to
pay higher price due to sanctioned power in old unit which has to be obtained in
new unit. So difference can be ascribed to such other factors or demand and supply
factor rather than towards land component. There could be some other factor also
responsible for such difference. This is the reason why residual method which is
indirect way o f deriving land rate is considered less accurate than direct sale
comparision method o f open plots o f land.
5.7 ? Residual Technique (Tenant Occupied Properties)

W holly tenanted building in the plot may be placed in com er, so that new
building in the plot can be easily built without disturbing tenanted building and
retaining it as it is. It is very likely that tenanted building in the plot is so built that
upper floor can be easily raised without disturbing tenanted premises.. From sale of
both these type of buildings with plot, we can derive land rate easily by Residual
Method. However if tenanted building is centrally placed in the plot, then we have
to take recourse to hypothetical building scheme under development method. Now
we shall see how from sale o f rented property, land rate can be derived.
Example-14: A property with 1400 sq.mts. plot area and with three storeyed
rented building in corner o f the plot is sold in Feb. 2010 for Rs.45,00,000/-.
Builtup area o f rented building is 200 SM/floor. F.S.I. o f zone is 1.00. Net total rent
from 12 tenants o f building is Rs.4000/- per month. Calculate derived rate of land
from this sale by Residual Technique.
Solution: Value of tenanted building by rental method.
Rs.4000 x 12 x — = Rs.6,00,000
8
Total Sale price = Rs.45,00,000
Less : Bldg. Value = Rs. 6,00,000
Net Sale value = Rs.39,00,000
Unutilised balance F.S.I. available in the plot = 1400 - 3 x 200
= 800 Sq.Mts.
Rate of land = --^ -QQ’QQ° = R s.4875/-Per Sq.Mt.

800 ' M
In this example land value for the portion o f land appurtenant to tenanted
building ( 600 Sq.Mts) is taken as nil value.
Example-15: A property with 1200 sq.mts. plot area with tenanted building is
sold in September 2009 for a price o f Rs.56,00,000/-. Two storeyed tenanted
building has builtup area of 300 SM/floor. Building is strong to take 2 more floors
without external pillars. F.S.I. of zone is 1.00. Total net rent from 2 floors is
Rs.2500/month. Calculate land rote by Residual Technique
43
„„ 100
Solution: Value of rented building = 2500 x 12 x ~
= Rs.3,75,000/-
Total Sale price = Rs.56,00,000
Less :Value o f tenanted Building. = Rs. 3,75.000
Net Land Value = Rs.52,25,000

Unutilised balance F.S.I. available in the plot = 1200 - 2 x 300
= 600 sq.mts.
52,25,000
Rate o f land
600
= R s.8708/-Per Sq.Mt.
Say Rs.8700/- Per Sq.Mt.

5.7.3 Hypothetical Building Scheme (Ownership Concept)
This technique o f land valuation is also indirect method of deriving land rate
by residual technique and not by direct comparision of open land sales. This
technique involves preparation of a hypothetical building project scheme first. Then
valuer is required to work out sale value o f flats/shops designed and planned
under hypothetical building scheme. After deducting for profits, cost of
construction, management expenses and other outgoings in implementing project
are worked out ,the same are deducted from sale price to arrive at final net
proceeds. Said amount is taken as value of the land com ponent and rate is
derived there from.
This hypothetical building schemc should not be confused with hypothetical

plotting scheme which is used to value large open plot o f land. Hypothetical
building scheme is normally used for under utilised property with existing
structures on the plot. Either F.S.I. is under utilized or the user aspect is not
highest and best. This method is most commonly used and very popular method
with most o f the developers operating in various cities o f India. This working
enables developer to offer fair and reasonable land price to the owners of partially
developed or under utilised properties. Some times high price is offered for probable
commercial use of land vis-a-vis existing residential use.
The process under this method consists o f following steps.
1) In this method best possible plan of the hypothetical building scheme is first
prepared visualizing new building in the plot as per municipal rules.It is
assumed that old existing structure in the plot will be demolished. Highest and
Best user o f the plot is considered for redevelopment i.e. for new building in the
plot.
2) Encumbrances on trie plot in form of existing tenanted building are determined.

Builtup area in occupation o f tenants is worked out and probable cost of
rehousing each tenant in new building on the plot or else where in the locality is
44
found out. There are four or five possibility or options available lor tenant and
case of each tenant may differ. The possibilities could be any one o f the following.
i. Tenant may agree to take some lump-sum amount for surrender of tenancy
right and he may go away else where on his own.
ii. Tenant may want free of cost flat o f equal area in new building on same plot
on ownership basis instead o f tenancy basis.
iii. Tenant may accept free of cost alternate accommodation else where in the
locality and may ask for some additional sum over and above free flat.
iv. If it is a small town and prices o f flats are not veiy nigh, to make the project
viable, the tenants may agree to pay some cost, say cost o f construction of
flat, to acquire flat in new building on the plot on ownership) basis.
v. There may also be a tenant who will not accept any of these proposals and
may prefer to go to Court to obtain stay against redevelopment project to
protect his tenancy rights. Developer has to assess all possibilities and
arrive at total cost of removing encumbrances from the plot.
3) Now developer should conduct market survey to find out probable sale price of
all flats, shops, garages proposed under the hypothetical building scheme as per
prevalent rate of such ownership premises in the locality. Area of flats for
rehousing tenants, should be excluded from total area.
4) Developer should also estimate total likely expenses for construction of new
building on the plot. Apart from building cost, these expenses should also
include for professional charges for Architects, Engineers and other
Consultants, municipal taxes, water charges, development expenses like filling
in plot, compound wall cost, providing amenities, if any, etc.
5) In other outgoings, developer should deduct for interest on borrowed capital,
brokerage charges, advertisement charges and legal charges.
6) Developer should also deduct for his profit for management of entire project.
7) Final land values are determined by deducting total expenses from total
realisable amount.
We find two types o f developers in the real estate market.
a) One group of developers carry out only administrative work of project and sale
the property without undertaking building construction. Such persons get plans
and designs made from Architects and Consultants, negotiate with sitting
tenants and remove encumbrances and get approval for building scheme from
local authority. These persons complete this 1st stage and sale the property to
other developers at profit. They do not erect the building or sale flats/shops in
proposed new building.
b) Other group of developers are doing both activities .1st stag>j of planning, removal
of encumbrances and approval part also and 2nd stage work of execution of
building and sale of ownership premises to the prospective buyers. Some
developers undertake only 2nd stage work to save time.
E xam ple-16:
a 45
A developer desires to purchase a property having following details.
Area o f plot 1800 sq.mts. old tenanted building o f ground floor existing in the
plot and it has 500 sq.mts. builtup floor area. Total rent is Rs.2500/month. F.S.I.
of zone is 1.00. Replacement cost o f building is Rs.8500/SM. Present sale price of
flats in the locality is Rs.50,000/SM. Expected developers profit is 15% on sale
value. Interest on borrowed capital is 12% on 50% o f sale value for 1.50 year
period. Assum e settlement period with tenants at 2 years and legal cost at
100,000/-. Scrap value at Rs.600/SM. Advice on fair price for land purchase to be
offered to vendor.
Solution: Total builtup area under hypothetical building scheme is 1800
sq.mts. Tenants rehousing will take up 500 sq.mts. builtup floor area.
Hence Net salable area = 1800 - 500 = 1300 sq.mts.

(For the sake of convenience, additional area available for free balcony and
other free or paid areas in construction are not included) Net realisable sale value
= 1300 SM. @ Rs.50,000/SM.
= Rs.6,50,00,000/- ........................... (a-1)

This sum will not be realised immediately. Project of this magnitude may take
say 2 years time for sale of all flats in the project and full realization of estimated
sale value. It is assumed that the developer will have to borrow capital 'of 50 % of
realization sum (325 Lacs ) for a period of 1.50 year.
It is therefore proposed to defer the value at 12% for 1 year i.e. Vi period of
realization of total sum.
Deferring value at 12% for 1 year, wo get net present value of realisable sum:
Rs.650,00,000 x 0.892 = Rs.579,80,000/- .......... (a-2)
Total expenses and outgoings.
i) Building c o s t : 1800 SM. @ Rs.8500/SM. = Rs. 153,00,000
ii) Developers profit at 15% o f 650 lacs = Rs. 97,50,000
iii) Interest at 12% on 325 lacs for 1.50 year = Rs. 58,50,000
iv) Legal expenses. = Rs. 1.00.000
Total expenses = Rs.310,00,000 (b)
Net. income in project = Rs.579,80,000/ - Rs.310,00^000
= Rs.269,80,000/- Say Rs. 270,00,000/-

Total income = Rs.270,00,000 + Scrap value
Scrap Value = 500 SM. @ Rs.600/SM.
= Rs.300,000/-
Total Income = 270,00,000 + 300.000 = 273,00,000/-
46
Rate of land = — 3>QQ>QQQ
1800
= Rs.15,166/- Per Sq.Mts.
The developer may offer total price of not more than Rs.273 lacs for this property.
Example-17: A developer is offered a property having 1200 sq.mts. plot with

300 sq.mts. tenanted structure. F.S.I. is 1.00. Rehousing cost for tenants is Rs
16000/SM. Settlement period with tenants is 1 year. Legal cost Rs.50,000/-.
Interest on borrowed capital is 12%. Developers profit is 15%. Scrap value
Rs.400/SM. Rate o f open plot of land in locality is Rs.SOOO/SM. Advice on fair
purchase price o f property that could be offered to plot owner if developer intends to
sale the property after removal o f tenants encumbrance and before constructing
new building on the plot.
Solution: Sale value of plot as if open.
= 1200 Sq.Mts. @ R s.8000/-Per Sq.Mts. = Rs.96,00,000

Add : Scrap value o f shed : 300 SM @ 400/SM. = Rs. 1.20.000
Total receivable sale income = Rs.97,20,000 ... (a)
Expenses prior to development.
(1) Cost of rehousing tenants elsewhere
300 SM at Rs. 16,000/S.M. = Rs.48,00,000
(2) Legal expenses. ' = Rs. 50,000
(4) Developers profit @ 15% Sale price 97.20 lacs = Rs. 14,58,000
(5) Interest on borrowed capital @ 12% for 1st year
on 50% of sale value i.e. 48.60 lacs. = Rs 5.83,200
Total expenses = Rs 68,91,200
Say = Rs 68,91,000 (b)
Total receivable income = Rs.97,20,000
Less Expenses = Rs.68,91,000

Net residue value for land = Rs 28,29,000
This is realisable afier 1 years. Hence Deferring value at 12% for 1 years,we get
Net Present Value = 28,29,000 x 0 .892
= Rs.25,* 3,468 ................ (c)

9 S 9*3 4/SR
Rate of land = — = R s.2103/-Per Sq.Mt.
1200
It will be seen that though prevalent rate of land in the locality is

Rs.8000/SM., due to tenants encumbrance, land rate has fallen down to
R s.2 100/Sq.Mts. i.e. by about 74%. Developer is advised to offer a price of not more
than Rs.25,23,000/- to the land owner, if he intends to sale the property at Stage I
viz. after removal of tenants encumbrance.
47
E xam p le-18: A developer proposes to purchase a plot admeasuring 12,000
sq.mts. area with 10 tenants in old chawl building admeasuring 500 sq.mts.
Perm issible F.S.I. is 1.00 and 15% garden area is to be left open. A hypothetical
building scheme is proposed under which 170 residential flats (Area 9500 SM.) and
30 shops (Area 700 SM) could be proposed. Rate of flats in locality is Rs.8500/SM.
and for shops the rate is R s .l6,000/SM. Cost o f construction is Rs.4750/SM. and
developm ent cost o f plot filling, sub-station and compound wall is estimated at 35
lacs. Adopt developers profit at 15% and finance charges at 18% on construction
cost. Adopt legal charges at Rs.200,000/-. Advice on fair land price that could be
offered to owner o f property.
Solution: It is assumed that 10 tenants will be rehoused in new building on
the plot. F.S.I. o f 15% garden area will not be available for development.’ Hence total
construction area in the plot =0.85 x 12,000 = 10.200 SM. After providing 500
sq.mts. area for 10- tenants, net salable area available will be : 10,200 - 500 =
9,700 S.M. Architect has proposed total 170 flats with total area o f 9500 S.M. Out
of this total, area o f 10 flats for the tenants would be 500 S.M. and rest of 9000
S.M. area would be for 160 salable flats. Total 30 shops will have total area of 700
SM. Balance Sheet of Income & Expenses of project under hypothetical building
scheme works out as under:
Income Expenses
1. 160 flats. (10 flats for tenants ) *Building construction.
9000 SM @ 8500/SM = Rs. 10,200 SM @ 4750/SM = Rs. 484,50,000
765,00,000
2. 30 shops *Development cost. Filling sub station/ C.wall
700 SM @ 16000/SM = 112,00,000 = Rs. 35,00,000
3. Scrap value chawl *Finance cost 1 year 18% of 519.50 lacs. = Rs.
500 SM @ 40/SM.= 20,000 93,51,000
*Architects/Structural Engineers fees @ 3% of
- building cost of 519.50 lacs = Rs. 15,58,500
*Developers profit. 15% of 877 lacs sale value =
Rs. 131,55,000
* Total Income Rs.877,20,000 *Brokerage charges including advertisement. 1
% of sale value. = Rs. 8,77,000
*Legal expenses.Rs. 2,00,000
* Overheads 2.5% of building cost.
= Rs. 12,98,750
Contingencies 1 % of Bldg. cost = Rs 5,19,500
Total Income Rs.877,20,000 Total Expenses Rs.789,09,750
Rs X = Land price that could be offered to property owner.

.-. Rs. x = Rs.877,20,000 - Rs.789,09,750 = Rs.88,10,250/-
Say = Rs.88,00,000/-
Thus developer should be advised to offer a price of not more than Rs.88 lacs
for the property.
Exam ple 19: A developer intends to redevelop the property of society having
10 members occupying total area o f 400 sq.mts. Total area o f plot is 600 S.M.
Permissible F.S.I. o f zone is 1.00 and after using additional 1.00 T.D.R. on the plot,
total F.S.I. permitted on plot will be 2.00. Cost o f construction is 7500/SM.
T.D.R. is available in the m arket at Rs.8000/SM. Sale price o f flats in the
m arket is Rs.40,000/SM. Sale price for shops is Rs.50,000/SM: Adopt the
developer’s profit at 20% of sale price. As per hypothetical building scheme, total 20
flats (1120 sq.mts.) and 4 shops (80 sq.mts.) can be built on the plot. Calculate the
am ount that could be offered to the society to acquire redevelopment rights and
right to sale 10 flats and 4 shops after rehousing 10 members free of cost in the
building.
Solution: The land is not sold by the society but only right for redevelopment
is given. Hence price to be offered to the society will be royally value of iand for use
o f T.D.R. on the plot and not sale price consideration for the plot. Ownership of
land remains to continue with the society. Out o f total 20 flats having 1120 sq.mts.
builtup area, 10 flats of 400 sq.mts.* area is to be given free of cost to old members
of the society. Net salable area for the balance 10 flats will be 1120 - 400 = 720
sq.mts. Again as per development agreement, developer has to bear cost of
temporary accommodation for 10 members for 1 year. Rental value for 10 members
for 1 year will be about Rs.720,000/- at the rate of rent of Rs.6000/month/flat.
The Balance Sheet of Income and expenses figures works out as under:
Total Income Total Expenses
1 Sale of 10 flats. 720 SM @ *Building construction. 1200 SM @
Rs.40,000/SM = Rs.288,00,000 Rs.8500/SM.= Rs. 102,00,000
2. Sale of 4 shops 80 SM @ *T.D.R. purchase 600 SM @
Rs.50,000/SM. Rs. 40,00,000 Rs.8000/SM Rs. 48,00,000
3. Scrap value of old building. 400 SM ‘ Temporary accommodation Rental
@ Rs.800/SM Rs. 3,20,000 value 10 flats Rs. 7,20,000
‘ Developer’s Profit at 20 % of 328 lacs
sale price Rs.65,60,000
‘ Architects/Engineers fees3% of 102
lacs cost Rs.3,06,000
‘ Brokerage charges 2% of 328 lacs
.Rs. 6,55,000
‘ Finance cost 18% of 102 Lacs cost. 1
yr Rsl8,36,000
‘ B.M.C. taxes/premium for use of
T.D.R. Rs. 15,00,000
‘ Legal expenses Rs. 2,00,000
‘ Adm. and Supervision 2% of 102 lacs
= Rs. 2,04,000
‘ Contingencies 1% of 102 Lacs
- Rs . 102,000
Total Income 3.31,20,000 Total Expenses Rs.270,84,000
49
* Royalty value that could be paid to the society. = Rs. x
R sx = R s.331,20,000 - Rs.270,84,000
= Rs.60,36,0007-
Developer can offer a Royalty value o f about Rs.60,36,000/- to the society to
acquire the developm ent rights o f the property.
5.7.4 Hypothetical Building Scheme (Income Concept)

This technique is not much in use in India as in m ost o f the cities o f India,
Rent Control A ct is applicable. Rental Income can not increase or decrease due to
this Rent Act which results in controlled income from the property. However in
foreign countries this is widely used method to find out. probable land price that
could be offered to land owner on the basis o f probable rental income from
hypothetical new building. Profitability o f developm ent project is based on probable
income receivable from the redeveloped property. Rental rates prevalent in the
locality are found out by m arket survey o f instances at rentals and probable
expenses are estimated. Capital value o f hypothetical building project is worked out
as if completed.
From the total capital value of the hypothetical building, estimated cost of
construction and other expenses except developer’s profit are deducted and surplus
is offered to the properly owner. The entire scheme is based on the Investment
Theory viz. on the basis o f fair rate of returns (Expected rate of return) on invested
funds. Developer expects profit as return in ownership scheme. However in
Investment Scheme , the investor gets return in form of rental income. Like
developer, investor does not expect 15% returns by way o f one time payment in
form of sale value o f flats. Investor expects return in form o f regular continued
income (rent) from the property for his entrepreneurship o f undertaking this
building project. Following example will explain the process.
Example-20: An Investor desires to purchase a property by undertaking
building project for regular rental income. Relevant details of the property are as
under. Area o f plot = 2500 sq.mts. Permissible F.S.I. = 1.00. Zoning o f plot is
commercial. Prevalent rental value for builtup area o f offices in the locality is
Rs.200/SM/month. Property taxes are Rs.60/SM/month. Building construction
cost is Rs.8000/SM. Expected rate of return on investment is 12%. Adopt
Insurance at Vi% of rent, collection and repair and maintenance expenses at 5% of
Rent. Calculate land price that could be offered to the land owner by residue
method.
Solution: Totai builtup area o f offices = 2500 sq.mts.
Total Annual Receivable Income = 2500 x 200 x 12
= Rs.60,00,000/Year
Less: Probable outgoings.
Property taxes : 2500 x 60 x 12 = Rs. 18,00,000

Repairs 5% o f G.R. = Rs. 3,00,000
Insurance V-2% o f G.R. =Rs. 30,000

Collection & Management 3% o f G .R .=Rs. 1,80,000
= Rs 23,10.000
Net Receivable Income = Rs.36,90,000/year
Investor desires 12% yield on his investment. Capitalising net income at 12%
in perpetuity, we get capital value o f land and building (Total sale price) :
= 36,90,000 x 100/12 = Rs.307,50,000/- ....... (a-1)
Full ental income is not likely to start atleast for 2 years period. About one
year w ill be required for construction and one year to find all tenants for premises
available in building. The value is therefore deferred at 12% for 1 year (1/2 period
o f com mencem ent o f full income).
Net present value :-Rs.307,50,000 x 0.892
=Rs.274,29,000/- ... (a-2)

Expenses for completing project:
i) Building c o s t : 2500 SM @ Rs.8000/SM. = Rs.200,00,000
ii) Architects & Consultants fees 3% of cost = Rs. 6,00,000

iii) Advertisem ent and brokerage 1% of probable annual rental. = Rs. 60,000
iv) Legal and administrative cost 2% o f building value. = Rs. 4,00.000
v) Total expenses = Rs.210,60,000/- ..(b)
Net Present Value today = Rs.274,29,000

Less : Expenses = Rs.210.60,000
Land price that could be offered =Rs. 63,69,000 .... (c)
The Investor could offer towards land price a sum not exceeding
Rs.63,00,000/-
It should be noted that interest on borrowed capital is not considered in the

working. The investor proposes to invest his own funds in the project for-monetary
gain. Hence question of borrowing out side funds and pay interest on same does
not arise. However if investor borrows fund from market, interest should be allowed
and corresponding price to be offered will reduce.
However there are certain other aspects which should also be considered in
this working.
i) There is a risk of rental yield falling at future date depending upon demand and
supply condition in the locality, money market situation and financial or
economic policies of the country.
51
ii) There may be vacancies in offices which may result in fall of forecasted rental
yield. Appropriate weightages should be considered for these aspects.
5.8 Limitations of Market Approach
Methods under market approach have following limitations.
1) Sales comparision method has its own limitation due to comparision of
properties. Like human beings, there are no two exactly identical properties
available in the market. Valuer has therefore to identify number of attributes of
each property which do not compare well but differ. Valuer has to make
adjustments for this difference and this task is ve iy difficult.
2) Due to lack o f scientific and correct market data, it is very difficult to assess and
arrive at correct and precise positive or negative weightages for difference in
attributes o f two sales under comparision. Market study and statistical results
o f study o f sales, are necessary for accuracy of weightages.
3) Wide range of rate difference is noticed in same locality during same year. This
disparity in rates offers great difficulty in selecting correct sale instances for
comparision. It is difficult to find out distress sales or special price sales from
the sale data list of several sales that has taken place in the locality during
relevant period o f time.
4) This method o f comparision o f sales is not useful for non marketable properties
like school, college, temple etc.
5 )The sales available in the locality may net only differ in land characteristics but
it may also differ from view point of time angle and situation angle calling for
further adjustments in the rate.
6) Intentions of transacting parties and circumstances prevalent at the time of sale

are never knovrn unless valuer knows seller or purchaser personally .
7) Some times there are no sales available in the concerned locality or ward for
the required year of valuation. Valuer has to then adopt sales on adjoining
wards of same year or adopt sales of prior period or later period of relevant year
of valuation. These variations also make adjustment of rates more difficult.
8) Many sale instances are found unreliable or obscured due to presence of black
m oney in the deal. Consideration shown and declared in docum ent may be 40%
or 60% of the total actual price paid to the vendor. Difference in amount is paid
in cash by unaccounted money. These sales give untrue picture of actual
market.
9) Great field experience and assessment expertise of the valuer is needed to

analyse sales and to find out overall effect of all attributes of sale property on
the market rates prevalent in the locality.
10) Many a times due to inadequate description and lack of property plan in sale
deed or transfer deed , it is difficult to locate the property physically on site.
This makes comparision difficult as characteristics of sale instance property are
not known.
52 '
11) Under all hypothetical building scheme, there are too many assumptions. In fact
entire method is based on assumption and surmises. Probable sale price or rent
is estimated, building plans and layout are assumed to be best possible solution,
property taxes and other outgoings are estimated and building specifications and
cost are also estimated. Developer’s profit, time for projects etc. are all assumed.
There are hardly any factual data except area of the plot. There is therefore great
risk in adopting final values derived under this method. Supreme Court has
therefore advised to adopt Hypothetical Scheme Method as LAST RESORT.
12) Under hypothetical building scheme (ownership concept ) also there are many
assumptions. It is assumed that all existing tenants in the plot would readily
accept the proposal of developer for alternative and free accommodation in the
new building.
13) In case o f sales with plot and under utilised building construction, some times
help o f land and building method of valuation is necessary.
14) Use o f Sale Comparision Method for rental property is very difficult due to
frozen rent (Rent Act provision) o f premises in m ost o f the urban areas o f India.
15) In case o f large property with isolated tenanted building in com er, help of
Income Approach (Rental Method) is required along with Sale Comparision
Method to arrive at its true market value.
5. 9 Summary
Types o f Market, Various methods under m arket approach, Factors affecting
value o f property by different methods and their comparison are discussed with
suitable examples. Adjustment grid model and developm ent methods are also
explained.
5.10 Keywords
Market - Factors affecting - Comparison - Model - Technique - Hypothetical
scheme.

1) W hat is the difference between Buyers Market m d Sellers market ?
2) Explain giving reasons why it is called that “Market is Supreme”?
3) Explain with the help o f demand and supply curve how equilibrium price is
determined in the market ?
4) Explain with the help of Bell curve when the deal takes place between willing
buyer and willing seller in the market and when such a deal does not takes place,
5) Which are the four basic groups under which various factors affecting value of
real estate in the open m aiket can be classified ?
6) Give at least, ten major factors which affect the value of the property in open
market. Also state in which group the said factor can be classified ?
7) Explain with the help of formula, the Hedonic Met hod of valuation under m arket
approach.
8) Value the plot adm easuring 600 Sq.Mts. area on the main road from following
sale instances.
Sale-A: 1200 Sq.Mts. plot recently sold for Rs. 10,00,000/-.

' Plot is in by-lane.
Sale-B: 500 Sq.Mts. plot recently sold for Rs.600,000/-.

Plot abuts on same Main road as subject plot.
9) Which are the methods available under direct m arket comparision method of
the Market Approach ?
10) Which are the methods available under indirect m anner o f working o f land
values under M arket Approach ?
11) Explain in brief procedure o f undertaking sale com parision to arrive at fair
market value under Market Approach ?
12) Which are the sources to obtain sale instances in the locality ?
13) Mention atleast five major attributes of land sales which affect market value of
land. Also mention adhoc weightages normally adopted for such variations of
the land attributes.
14) Which are the factors for consideration while com paring one industrial gala with
sale instance industrial unit ?
15) Value a land having 1250 Sq.Mts. area in the residential locality falling in the
bylane. Following 2 sales are available.
Sale ‘A\ 500 Sq.Mts. plot on main road sold 6 months back for Rs.40,00,000/-
Sale ‘B ’: 1800 Sq.Mts. plot in bylane sold 2 months back for Rs. 100,00,000/-.
Civic amenities are close to Sale ;A ’ as well as to the subject plot but are
much away from Sale ‘B ’ plot.
16)A plot (subject property) has an area of 750 Sq.Mi.%. It abuts on 40 M. wide road
of town. Civic amenities are at 5 minutes walking distance. It has single
frontage. Shops are not permitted on plot. Value the property as on 31-8-2010
from following Data. Price rise in market for land rates is observed at rate of
2%/ month.
Sale ‘A ’: Plot 2400 Sq.Mts.in area sold on 28 March 2010 at rate of

Rs. 4000/- per Sq.Mt. It is a plot abutting on 20 M. wide road, civic Amenities are
at 5 minutes walking distance. Shops are permitted on plot.
Sale ‘B’: Plot 1200 Sq.Mts. sold on 5 September 2009 at the rate of Rs.3500/-
Per Sq.Mt. It is in bylane having 10 M. width. Civic Am enities at 20 minutes walk.
No shops are allowed on plot.
Sale ‘C ’: Plot 550 Sq.Mts. sold on 5th June 2010 at Rs.4600/- per Sq.mt. It is a
corner plot on 13 M. wide roads. Civic Amenities are at 10 minutes walking distance.
PART - 5
PART - 5
69. Methods of Cost Estimates for Buildings - 1 mark
70. Life of Building: Economic / Physical / Legal - 1 mark
Factors affecting life of the building.
Total Life, Age, Estimating Future Life
71. Various methods of Computation of Depreciation, Functional, - 1 mark

Technological and Economic Obsolescence
72. Reproduction Cost / Replacement cost, Depreciated Replacement - 1 mark

Cost (DRC) working, adopting DRC as Value subject to Demand
and Supply aspect
73. Land Value by Market Approach and Building Value by Cost - 1 mark
Estimation Method for Owner Occupied Bungalows, Factories,
Public Buildings.
Compiled by
B. KANAGA SABAPATHY
Tiruchirappalli
NOT FOR SALE
1
__________________ _________________ C O S T A P P R O A C H O F V A L U A T IO N
Objectives
By the end of this chapter student will learn about Book Value method, Flat
Rate Method, Building Cost Index Method and Quantity Survey. Method of
estimating cost of construction of a building. Student will' also learn various land
characteristics affecting land value in the open market. Other aspects under this
chapter are as under. . •’ "
© Various factors causing depreciation and type of depreciation. •
® Methods to work out depreciation such as Direct Appraisal, Written Down Value,. .
Straight Line, Constant Percentage, Sinking Fund, Sum of the Digit, Declining
Balance and Statutory Depreciation Method.
e Examples to estimate depreciation by different methods. • . .

e Economic Life, Physical Life, Life of building due to obsolescence and legal
constrains. Various factors affecting life of building.
° Economic life of different types of buildings and total life, of some of the machines.
® Land characteristics and methods of land valuation. - .
Contents of this chapter
4.0 Methods under Cost Approach.
4.1.1 Land Characteristics
4.1.2 Situation
4.1.3 Location
4.1.4 Infrastructure Amenities
4.1.5 Neighbourhood . '
4.1.6 Size •
4.1.7 Frontage/Depth •
4.1.8 Road width
4.1.9 Accessibility.
4.1.10 Land use
4.1.11 Shape •
4.1.12 Orientations
4.1.13 Soil conditions
4.1.14' Topography •
.. 4.1.15 Prestige Aspect
4.1.16 Vista
• 4.1.17 View Aspect
4.1.18 Tenures of Land
4.1.19 Covenants
4.1.20 State (or) Central Laws
4.1.21 Building by Laws
2
4.1.22 Status of Land
4.1.23 Climatic Condition
4.1.24 Encumbrance
4.1.25 Natural Forces
4.1.26 Ownership Pattern
4.1.27 Environment Aspect
4.1.28 Stigma Effect
4.1.29 Vasthu Shashtra Aspect
4.1.30 Feng Shiu Aspect
4.1.31 Community Aspect
4.1.32 T.D.R. Aspect
4.1.33 Latent Aspect
4.2 Theories of Land Valuation
4.2.1 Recessed Land Concept
4.2.2 Land Locked Land Concept
4.2.3 Belting Theory
4.2.4 Hypothetical Plotting Scheme •
4.2.5 Front Foot Value Concept
4.2.6 T.D.R. Concept
4.2.7 Originating Plot
4.2.8 Receiving Plot
4.2.9 Development Right Certificate (D.R.C.)
4.2.10 Development Right (D.R.)
4.2.11 Types of T.D.R.
4.2.12 Norms for use of T.D.R.
4.2.13 Valuation of T.D.R.
4.3 Various Land Measures
4.4 Building cost methods
4.4.1 Historic Cost
4.4.2 Original Cost
4.4.3 Replacement Cost
4.4.4 Reproduction Cost
4.4.5 Depriciation
4.4.6 Net Present Value
4.4.7 Types of Estimating Cost of Construction
4.4.7.1 Book Value Method
4.4.7.2 Flat Rate Method
4.4.7.3 Cost Index Method
4.4.7.4 Detiled Quantity Method
4.4.7.5 Reinstatement Method
4.5 Depreciation methods
4.5.1 Physical Depriciation
4.5.2 Economic Obsolescence
3
4.5.3 Functional Obsolescence
4.5.4 Technological Obsolescence
4.6 Some of the Important Methods of Depriciation
4.6.1 Direct Appraisal Method [Lump sum method]
4.6.2 Written Down Value Method
4.6.3 Straight Line Method
4.6.4 Constant Percentage Method
4.6.5 Sinking Fund Method
4.6.6 Sum of the Digit Method
4.6.7 Declining Balance Method
4.6.8 Statutory Depreciation Method
4.7 Life of different types of assets-
4.7.1 Economic Life
■ 4.7.2 Physical Life
4.7.3 Life due to Obsolescence
4.7.4 Life due to Legal Constrains
4.8 Land and Building Method of Valuation .
4.9 Limitation of Cost approach
4.9.1 The Case Laws referred in this chapter
4.10 Summary
4.11 Keywords
4.12 Intext Questions .
4.0 Introduction
Cost approach is very much useful in evaluating non marketable-properties in
Real Estate. It is also useful in estimating values of assets for financial statements
of an enterprise. This method is invariably adopted in determining cost of
construction of a building, viz investments done by the assessee in the real estate,
for the purposes of Income Tax Act.
Cost approach is also adopted by the valuers while estimating cost of
construction of the building under construction, and for which the owner has asked
for loan from the financial institution. Even for valuation of the owner occupied
bungalows, offered as security to the banks for mortgage, this method is used.
Cost approach is one of the basic approach of valuation, with the help of which
we can work out ‘cost’ as well as Value' of certain types of assets.
There are mainly two methods under this approach.
i. Book Value Method.-
ii. Land and Building Method. (Depreciated cost method)
In Book Value Method, historic cost of the asset in the year of acquisition is
taken as basis and with the help of cost index figures (Multiplying factors for
different years, indicating price rise in the market due to inflation and other factors
like variation in cost of materials and labour), replacement costs and value of the
asset are determined for the relevant year of valuation.
Land and Building Method is also known as Contractors method, Physical
method or Depreciated cost method. This method is useful to estimate cost or value
of the structures like Temple, Chi.«rrh, Museum, School and College buildings.
Bungalows and factories can also be valued by this method. This depreciated cost
method of valuation is also used to estimate present day value of the plant and
machineries. •
This method basically consists of estimating value of land- and value of
building,separately and then adding these two values to arrive at fair market value
of the property in relevant year of valuation.
Present day value of land is determined by finding out cost of acquiring similar
land from the market in the year of valuation. Such land should be having similar
characteristics as of subject land. In case of variations, adjustment in cost of land
should be made to arrive at final value of the land.
Present day value of the building is determined by first finding out present day
replacement cost of the building. Replacement cost of the building is the cost of
construction of similar building (Same specification having similar amenities) as if
new today on the date of valuation. After having determined replacement cost of the
building, depreciation is allowed for the age of the building, to finally arrive at the
net present day value of the building.
In this chapter we shall learn land characteristics and methods of land
valuation.
We shall also learn in this chapter various methods of cost estimation as well
as various methods of depreciation to arrive at net present worth of the asset by
cost approach.
4.1 Land Characteristics
Earlier Economists Adam Smith and David Recardo talked about basic land
characteristics and theory of rent . Land was considered then as fixed supply
commodity having mainly agricultural use. These theories are now outdated. Land
can now be generated in vertical form by use of F:S.I. and T.D.R. concepts. More
over Land use is not restricted to only agricultural use.
According to eastern cultures, there are five basic elements of nature. These
are land (earth) water, air, fire and space. All civilization and cultures are
developed along river banks having plenty of fertile land and enough water.
All empires were land oriented in the past due to agricultural activities. Even
after industrial revolution, demand for land never ceased, on the contrary demand
for land increased. More and more control and legislations on .land in each country
is the proof o f this high demand.
In new millennium and even thereafter, mother land will continue to exert
prime influence on economic and cultural activities of mankind because with ever
increasing population, land will remain to be scarce even with vertical usage of
land .The fact remains that land can not be created or produced easily like
buildings and other commodities.‘This is the great importance of land .
Before we undertake study of iand characteristics, we must first understand
what does the .‘property’ actually means and what are the types of property.
Property means Things and Assets. There are two types of properties.
(i) Tangible properties.
(ii) Intangible properties.
Tangible Assets are those which can be physically seen and touched like land,
buildings, jewellery, car, machineries etc. Intangible Assets are those which can not
be seen or touched but its effect can be notionally seen and felt. It can be called a
notional asset. Intangible Assets gives legal right of ownership to the owner over
non material assets. The examples of such, assets are Goodwill, Brand right, Copy
rights, Easement rights, Intellectual property rights, Life interest , Transfer of
Development Rights etc. Tangible properties are again subdivided into two parts,
(i) Movable properties and (ii) Immovable properties
Plant and machineries, cars, trucks, aircraft, jewellery are movable properties.
Land and buildings are immovable properties.
These immovable properties are also called Real Estate or Real Properly. '
The ownership rights in an immovable property i.e. land or land with building
as per Transfer of Property Act comprises of following five major rights.
i. Right of possession in exclusion of whole world.
ii. Right to user and enjoy the property permanently.
iii. Right to alienate and destroy the property. (Land can be alienated and the
building could be destroyed.)
iv. Right to lease, rent, sale, transfer or assignment, gift or give away under will.
v. Right to develop.
All these rights are popularly known as bundle or rights. Absolute ownership
of Real Estate means that the owner holds each and every right described above.
However owner may not hold all rights but may be holding only partial rights in the
real estate. He can part with some of these rights for consideration or otherwise
and still continue to own the property. He'can rent, lease or create life interest. He
can also permit development on the plot by third party, on condition, by giving
power of attorney.
Thus valuation of real estate does not mean valuation of actual physical form
of land and buildings but valuation of rights of the owner in land and buildings'.
Valuation of Real Estate therefore requires proper assessment of value of rights of
the owner, in the tangible property (Physical form of land and buildings). These
rights could be absolute or partial like right to receive house rent or land lease rent
without physical possession of the property. These rights could be in form of an
intangible property, like Life Interest in Real Estate. Valuer should examine rights
of owner and value these rights on relevant date of valuation.
The values of land depends on innumerable characteristics of land which may
be categorized into four basic groups.
(i) Economic Aspect. (iii) Legal Aspect. . '
(ii) Technical Aspects. (iv) Social Aspect.
Details of each of these aspects shall be discussed insubsequent chapter.
4.1.1 Land Characteristics
Land possesses innumerable characteristics. Some attributes of land are good
and it enhances value of land in the open market. Some attributes of land ure ’bad
in nature and it reduces the value of the land in the property market.
Due to these innumerable characteristics of land, estimation of land value has
become very difficult task even for expert valuer. Out of these many many
characteristics of land, we shall study only some main attributes of land and shall
study how it tends to increase or decrease value of land in real estate market. Some
of these attributes are inherent qualities of land itself where as some other
attributes of land are artificial or implanted attributes like land use laws, building
byelaws, F.S.I. norms, social beliefs, tenure laws etc.
In present study, we shall study only the following attributes of land. The
study is restricted mainly to non agricultural use of land. The- effects of' these
attributes could be better understood, if each attribute is considered in isolation of
other attributes of land. .
Situation. Orientation
Location. • Tenure of land.
Infrastructure amenities. Covenants in title.
Neighbourhood. State & Central Laws on land.
Frontage. . Building Bylaws
. Depth. Status of land.
Accessibility. Encumbrance.
Size (Plot area). Soil condition.
Shape. Climatic condition.
Road width. Natural forces.
Land use (Zoning).' Ownership pattern
Topography. Environmental aspects .
Vista/View aspect. • Prestige Aspect
Stigma Effect T.D.R.
4.1.2 Situation (Economic Angle)
The situation of land or its placement in town is an important factor for
consideration. If land is situated in Central Business District area of the town, it
fetches high rental and high land values in the market. If land is situated in mid
town area, wnich is fairly developed it would generate less income and less land
M
value. Land could be in out-skirts of the town in suburban area which is still
under-developed and it lacks basic amenities as well as infrastructure facilities.
Land values and rentals in this area will be less.
There is more demand of land in CBD area and less demand in suburban
area or the outskirts area of the town. Economic activities are also more in CBD
area as compared to the activities in outskirts area of the town. Values of land are
determined on the basis of these facts. Highest land value is therefore observed in
CBD area and lowest in the outskirts area. Land having no potentiality for
development will have least value.
Thus , economic angle of prospective buyers and likely sellers, on situation
and location of the property, determines its price in the market.
Another point of economic angle for consideration of the valuer is the Life
style and living standards of the residents in the concerned locality of the ward.
Living standard of the residents of posh area of the ward will be high and hence
land values and rental values will be high in such posh area. Some other areas of
the same ward which are considered as middle class locality, the prices are likely to
be moderate. Some areas which are developed as poor class locality in same ward
will have minimum land values due to least paying capacity of local residents and
unwillingness of richer class persons to reside in such area. Thus economic angle
decides the land values of the different localities of the same ward.
4.1.3* Location (Social Angle)
A successful. Real Estate Investor was once asked to state three important
“Criteria” for selection of best land in the town. He replied location-location-location
Thus in determination of land values, location criteria of the plot plays highest role
next to demand and supply aspect. Three times repeating importance of ‘locational
angle’ by said investor, could be well understood by following three aspects of
locational factor of. the property.
i. Location from point of view of placement of the property in the town. If located
closer to center of economic activity of town, better will be the location and
higher the price. .
ii. Location from point of view .of importance and prominence of site within the
ward. Such location could be on major link road in posh locality or in
commercial hub of the ward.
iii. Location from point of view of availability of civic and infrastructure amenities.
Most of the purchasers of land for the residential use and purchasers of flats
look for basic civic amenities like school, shops, market, garden, temple, cinema
h osp ital, community hall etc. Such purchasers also look for availability of water
supply, good road net work, railway station, electric supply, drainage facilities
and such other infrastructures amenities in the area. Calm and. quiet areas are
also more preferred to noisy location. Property proximate to facilities meeting
daily needs is also preferred.
8
Purchasers of land for the commercial use and the purchasers of the offices ,
mainly look for easy communication system, Banking facilities, eating houses,
hotels> Business centres, Trade centres and proximity of Govt, offices.in the locality.
Purchasers of land for the industrial use and factory units purchasers , look
for ware housing facility, goods transport agents, goods terminal facility, availability
of cheap labour in vicinity as well as facility of hotels, weigh bridge and good
communication system in the area; Easy and proximate availability of raw
materials and easy access to market are also preferred by purchasers,
In every town certain ward or certain suburban area is considered to be
number one or Best suburb of city. This is. because said suburban area satisfies all
three above stated locational aspects. It is good from economic angle, ideal from
social angle and also from amenities aspects, as said area is provided with best
civic and infrastructure amenities.
4.1.4 Infrastructure Amenities
If land is located in areas where certain infrastructure amenities like water or
power supply or civic amenities are lacking, such land are valued at lower rate than
land having full facilities. For land marked for residential use, following
infrastructure facilities are anticipated by the prospective buyers.
a. Utility Infrastructures (Services) : Water supply system, sewerage and drainage
mains, electrical and power supply systems, Tele communication links.
b. Transportation Infrastructure : Good net work, of roads, proximate railway
stations or bus terminals, city bus, public transport facility, other forms of
vehicular facility like taxis and auto rickshaws.
c. Social Infrastructure : Schools and colleges, Hospital, Nursing home, Health
center, Gymnasium, Clubs, Community Hall, Temples and place of worship,
Parks and playground, Banks and Post office, Swimming pool, Sports stadium,
Burial ground, Cremation ground.
d. Commercial Infrastructure : Shops and market, Malls and Shopping centers,
Cinema and drama theatre, Trade centers.
Utility infrastructure and transportation infrastructures are required even for
land marked for commercial and industrial use.
4.1.5 Neighbourhood
The neighbourhood and surroundings of land also changes the land values.
Nearness of airport or railway track causes sound pollution. Even. State or National
Highways, as well as major road links ,cause great smoke and. noise pollution.
Cremation ground or burial ground near the plot also have.adverse effect on land
values. School or college on next adjoining plot is also considered as nuisance due
to excessive vehicular traffic, noise and students nuisance. Factory operation in
vicinity'causes smoke pollution as well as noise and fire hazards. Slum on next
adjoining plot also depreciates land value due to health hazard and criminal or
illegal activities of some slum dwellers. Community Hall or Cinema on next plot
9 '
also depresses land value due to nuisance of traffic and noise pollution. On the
other hand, location of Garden, Lake or Sea beach in neighbourhood enhances land
prices in the market. Proximity of Hindu temples, Jain Derasar are also likely to
enhance the value of flats and residential: use land.
4.1.8 Size (Land area)
Size of the plot is another important factor for consideration, as size of the plot
increases or reduces value of land considerably.
It is common experience that in consumer product market,- wholesale prices
are much lower than the retail prices. When a product is purchased in bulk
quantity, consumer or purchaser gets quantity discount in whole sale market. But
when same product is purchased in retail market, the purchaser pays much higher
price per piece or per unit of said commodity.
- Similarly when area of land to be purchased is very large (Say 30,000 sq.mts.
area) its rate per unit area in the market falls in comparision with rate of small size
plot (Say 800 sq.mts. area). The main reason for this reduction in rate is that there
are fewer buyers in the market for large size plot as compared to buyers for small
size plots. Again investment in purchase of large size plot is also very high which
also reduces number of prospective buyers of such large plots. Thus demand is less
than supply and hence rate for large size plots falls in the open market.
There are other factors also, why larger plot fetch lower rate in the market as
compared to rate of "land for small size plot. These factors would decide’how much
should be variation in rate of large size plot and small size plot in same locality.
These factors are as under.
i) For large size plots, generally demand is less except for plots for industrial
users.
ii) Investment in large size plots is very high and hence depending upon locality
there will be lesser number of buyers.
iii) For large size residential user plots, internal layout roads and certain garden
areas (Amenity space) are required to be kept open and unbuilt upon, as per
development control rules of respective areas. The quantum of loss of land area
for these amenities ( Road and Garden) will decide variation percentage in land
rates.
iv) Large land for residential use requires infrastructure facilities within the layout.
Such large size, land is generally divided in small size plots and then sold for
individual development. Cost of laying water mains, sewer line, cost of
construction of layout roads , cost of garden developments, street lights and
storm water drains , provision of sub-station and such other land development
costs would correspondingly reduce the rate of large size plot.
v) Availability of number of large size plots in the locality and overall development
in the area ,also contributes to rate difference. . In land acquisition cases ,
courts have invariably stated that * The value fetched for a. small plot of land can
•- 10
not be applied to lands covering a very large area. The large area of land can not
possibly fetch a price at the same rate, as is possible in the case of sale of small
plots.’ Again the term large size and small size are all relative terms. In some
area, 2000 S.M. plot may be considered as.large plot and 200 S.M. as small
plot. In some other area 20,000 S.M. is called as large plot and 500 S.M. size
plot is considered as small size plot.
In case of Collector Lakhimpur l , Supreme Court held that - “The plot which
is to be considered as large and the plot which could be treated as small plot, would
again depend on factors such as user of plot and area where plot is situated.”
In certain areas of town, 200 sq.mts. plot is considered as medium size plot
whereas in same town in other locality 200 sq.mts. plot is considered as small size
plot. Valuer should therefore decide his own range of areas to distinguish between
small size plots and large size plot depending upon development centre, rules
applicable in town. .
Plots could be broadly grouped into 3 categories viz. small size plot, medium
size plot and large size plot. Obviously, there could not be any rigid or fixed
parameters to distinguish these three types of plots. However we may consider
following range of plot.areas for size variations.
Residential User :
Small size plots : 150 sq.mts. to 450 sq.mts.
Medium size plots : 1000 sq.mts. to 3000 sq.mts.
Large size plots : 5000 sq.mts. to 30,000 sq.mts.
Plots falling in range between 450 sq.mts. to 1000 sq.mts. area could be
considered either in small size group or in mediur$ size groupdepending upon
locality and class of town. Similarly plots falling in range of 3000 sq.mt. to 5000
S.M. area ,• could be either considered medium size plot or large size plot
depending upon market trend and locality. Area rar.j- thus would differ from place
to place and would depend on town, locality and paying capacity of residents. Too
small size plots and too large size plots have to be valued with other consideration
also , like its utility and optimum usage of the plot for development.
Range of areas for small size plots and large size plots , for industrial user,
could be quite different.
Industrial Use :
Small size plot : 1000 sq.mts. to 3,000 sq.mts.
Medium size plot : 5,000 sq.mts. to 15,000 sq.mts.
Large size plot : 20,000 sq.mts. to 60,000 sq.mts.
Size for commercial and public user plots can be grouped on similar lines
considering the requirements of a particular' user. For College user, or stadium
user, even 10,000 sq:mts. plot area may be considered as small size plot.
11
For residential user plot , small size plot may fetch 5 % to 10% higher land
rate.or no rate difference at all/ as compared to the rate of medium size plots ,in
well developed locality of the metropolitan cities. However' In less developed towns
or under developed locality in the outskirts of the town , this variation may be 10 %
to 15 % or even more. Large size plots may fetch 30% to 50% lower rate as
compared to rate of small'size plots. Appropriate weightage for the reduction has to
be worked out by considering hypothetical plotting scheme on such large size plot
of land. For industrial user plots , this variation could be as low as 5 % to 10% or
no difference at all. However cost of providing infrastructure amenities in large size
plot will also materially reduce land rate in the market.
Supreme Court has considered 60% discount on retail price land rate (small
size plot rate) to arrive at whole sale price land rate (large size plot rate), in case
reported at A.I.R. 1988 S.C. 943. In another case reported at A.I.R. .1982 S.C. 940.,
Supreme Court has considered 53% discount, to derive rate of large size plot from
land rate of small size plots.
With due respect to the court it is submitted that the deductions approved in
both these cases are adhoc and are not based' on any scientific working. If
deduction of rate is based on actual working out of hypothetical plotting scheme for
large size plot and working out of cost of infrastructures required in such plot, such
deduction would be more reliable and scientific. However comparision of large size
plot with sale of another large size plot is ideal and best guide, for. correct land rate
of large size plot. But such sales of large size plots in the locality may be very rarely
available for the relevant year of valuation and hence the valuer may have to
normally rely on sale rate of small size plots in the locality.
No general principle could be laid down for variation of land rates of large size
plot vis-a-vis land rate of small size plot. It all depends on location, development
rules, market condition and such other factors. It is very likely that in fully
developed area , like CBD area of the city, 20,000 sq.mts. land may perhaps fetch
same land rate as fetched by owner of 4000 sq.mts. size plot. There may be no need
for plotting scheme or layout of roads. Only single tower building in the plot, could
utilise full permissible F.S.I. on the large size plot. Permissible F.S.I. and its
utilisation possibility on the plot will be deciding factor in fixation of land prices in
the open market.
4.1.7 Frontage/Depth
Frontage of plot along the road is another factor contributing to the
enhancement of the value of land. Wider • frontage of plot is more preferred
particularly where commercial and shopping user is proposed.
For industrial user also land with wider frontage is good as it gives prominence
to the factory building. Long length of factory along road would give greater
exposure to the public using the road. It will be an indirect form of publicity of the
company. Eveiy passerby and road user will unknowingly register the importance
of the building. The company’s presence in the locality will be automatically felt by
the residents.' Wider frontage also enables better planning of industrial layout.
J >•
Similarly for residential user plots also , wider frontage is more preferred than
narrow frontage. Long frontage of building offers, greater opportunity for elevation
treatment. The aesthetics of building will improve due to such treatment. Greater
exposure of building to passers by public, gives importance and prominence to the
property. This greater prominence commands greater land value. If wider frontage
on road is on windward side, the land would fetch even greater value due to
improved possibility of providing better planning of residential tenements in the
building. Planner can design maximum number of rooms on road side, which is
located in the direction of wind. Even otherwise flats overlooking the road are more
preferred and hence wider frontage of plot along the road would enable the planner
to design more flats on road side increasing the value of flats..
Depending upon town and different localities, road frontage could be divided
into following four groups.
*Plots with wide frontage. ' **
*Plots having medium frontage.
*Plot with narrow frontage
*Plot with very narrow frontage or point access
Depending upon permissible user of the plot, for residential, commercial or
industrial, these plot widths would vary. These groups are also notional and
changeable and not rigid divisions.
For residential individual plots (Not row house plots), less than 15 meters
width (Road Frontage), is considered narrow plot. Less than 9 meters, width is
taken as too narrow plot. Plot with 20 meters to 30 meters width along the road , is
considered normal or ideal width of the plot. Plot width , greater than 30. meters
may be considered as wider frontage. Very narrow and narrow width plots fetch
lower price in the market as compared to normal and wider frontage plots due to
restricted developments in narrow width plots. Plot width standards for commercial
and industrial, plots would be quite different.
■ • Width of plot, normally, should, not be considered in. isolation, of depth of plot.
Both width and depth and their proportion determines land value in the market.
Plot with 10. meter width and 70 meters depth will fetch low price in the market.
Similarly plot with 70 meters frontage with only 10 meters depth will also fetch low
price in the market in spite of long road frontage.
. Small frontage plots or small depth plots are both considered narrow plots.
Generally such plots offers restricted planning possibility. Planner can not provide
requisite open spaces due to small frontage or small depth. Building in plot will, also
have too narrow width or too narrow depth as the case may be. There will be hardly
any scope for providing parking facilities and other amenities in such plots. Again
some local authority have special norms for development of such narrow plots.
13 .
There is height restriction of single storey or two storey structure in the plot. This
results in under utilisation of land from point of view of F.S.I. permitted-on plot or
zone. Such plots therefore fetch low-price in the market.
Like too narrow depth of plot , too deep plots are also less preferred by
prospective buyers. Too deep plots requires separate access road for rear side
buildings. Again rear side building would lack prominence and road side view. It
may perhaps lack wind if road is on wind-ward side. This reduces value of too deep
plot.
In case of commercial user land, having great dep'h, shops will have to be
planned with greater depth. This will not enhance value of shop but on the contrary
will reduce its value due to reduced display area and reduced advertisement value
for commercial establishment. Again rear portion will be useful only for storage
and not for sales counter or display of goods. The customers would hesitate to move
too deep inside the deep shops. Rental of such shop also will be therefore low.
Some valuers apply belting theory for estimating fair, rentals of deep shops.
However this has to be applied with great caution. Similarly too deep plots, if valued
by belting theory, weightage for several other factors like F.S.I, width and size of
plot, town, locality, demand for commercial user land, commercial development in
area should also be considered.
Ideal proportion of width to depth of plot could be 1 : 1.50 or 1 : 2. For 20
* meters wide plot ,30 or 40 meters depth could be ideal for medium size residential
plot.
Different authorities have devised different norms to value land by considering
width to depth proportion. These are based on actual study and experience. This
concept is called “Front foot value”. It is more in use in U.S.A.Value of land under
this concept is based on linear coefficient and area coefficient which are in turn
dependant on depth of the plot.
There is also ‘Square Foot/ basis norm practiced in U.S.A. to value the land.
Front foot rule basis norm as well as Square foot area basis norms are both
recognized methods of valuing land. In India, however, Front foot rule is not so
much in use and generally the valuers prefer to value the land by Land Area rate
basis i.e. by adopting the rate of land per Square meters (Area of land basis).
• Depending upon the type of frontage of the plot along the road, the plots are
grouped into following three types of plots. The plot may have different types of
road frontage as detailed below.
i) Single frontage:
ii) Return frontage
iii) Double frontage.
The different type of frontages of plots are shown in the following figure.(Vide
‘ fig 1.) '
14
FIG U RE- 1 -
PLCT A : SINGLE FRONTAGE . PLOT C : DOUBLE FRONTAGE
PLOT B : RETURN FRONTAGE PLOD D : NO FRONTAGE
(LAND LOCKED LAND)
Single Frontage : Plots with single frontage are. those which have only one
side road i.e. on front side of the plot. This frontage could be narrow, medium or too
wide which will govern its utility and value.
Return Frontage : These plots are commonly known as corner plots. These
plots have road on two adjoining sides of the plots , and hence called plot with
return'frontage. Such corner plots normally fetch higher price in the market as
compared to single frontage plot. This is because of greater open view along the
streets on two sides of the building , to be erected on the plot. Such plots
command greater prominence due to greater exposure of the building to the
pedestrians £.nd general public. Due to corner location, better planning of rooms
and better light and ventilation for rooms is possible. View from rooms is also
better. There is also a possibility of shopping user on ground floor of the building
along both road sides. All these contributes to the enhancement of the value of
corner plots.
Generally 10% to 15%. higher value of land is considered fair for corner plot
location as compared to the rate of single frontage plot. But this can not be adopted
blindly or rigidly. Valuer must first consider general development of locality around
the plot. If there are not much development around the plot, it may hardly fetch 5%
extra value or perhaps no extra value than the rate of single frontage plot. Similarly
corner plot in residential locality of small towns and corner plots abutting on
internal layout roads of the colony layout or plotting scheme, may or may not
fetch higher rate in the market.
If one side road is of greater ,width and is major link road of the locality, but
side road is hardly of 10 meters width or said lane is not having much importance,
extra price for the corner plot may be 10% or even less.
On. the other hand, if both side roads are main roads and locality -is fully
developed residential zone, the plot would command greater prominence and is
.. • 15 ' i:
likely to fetch 15% higher price in the market as compared to rate of single frontage
plot in the said locality. In the prime commercial locality, corner plot location may
fetch 20% or even 25 % higher price depending upon its prominence and placement
in the commercial zone. Instead of adopting percentage price rise in rate, some
valuers prefer adhoc or lumpsum increase in land rate for corner plot location. If
single frontage plot is available in the locality, say at the rate of Rs.'500/Sq.Mt.,
land rate for the corner plot is adopted at the rate say Rs.535/Sq.Mt. or
Rs515/Sq.Mt. Both these approaches are adhoc. Rate should be based on study of
land market in the area.
Double Frontage: The plots having road along front boundary as well as rear
boundary are called plots with double frontage. These are not corner plots as two
roads are not at right angles or along two adjoining boundaries of plot, but are
located along two opposite boundaries of the plot. 'Such plots do not command as
high price as corner plot. But advantages and disadvantages of its location decides
land price. Let us assume a plot having main road on front and small by-lane along
rear boundary. The residents of back side neighbourhood area are likely to tress
pass through this plot by entering, from back side to reach main road in front. It is
very difficult to regulate this illegal pedestrian traffic through the plot. Short cut is
always preferred by the pedestrians. Hence such plots fetch low price due to
nuisance of outside public. On the other hand if both side roads and both sides
areas are equally developed and there is a possibility of subdividing main plot into
two plots, it will fetch higher price in the market due to better development
possibility and increased utility of the plot.
4.1.8 Road Width
Road widths are decided by the regulating authority (Planning/Development
/Local Municipal Authority) on the basis of the locality and inner areas served by
the said road. Roads • connecting and passing through different States or Towns
also , helps planners to decide' its road width. Inter State "National Highways” are
60 meters or more in width. Inter city “State Highway” within the state may be 45
meters or more in width. These widths indicate its importance as well as indicates
the traffic carried by such roads.
Inner major link road within the town connecting city and suburban areas or
CBD area and out-skirts areas of the town may be of 30 meters to 40 meters in
width. Inner roads within the ward are 24 meters wide and other roads of ward
may be of 12 to 18 meters in width depending on traffic volume they are expected
to carry. Some less important by-lanes are having hardly 9 meters width. Thus
road width decides the importance of the locality. Plot of land along major link road
will be more valuable due.to its greater demand whereas plots in narrow by-lane or
dead end roads would fetch less price in the market, due to lack of its importance
and interior location. Plots on main road may fetch 15% to 20% higher price than
the rate of land in by-lane or back side parallel lane. Some municipalities permit
higher F.S.I. on plots abutting on greater width roads and permit lesser F.SJ. on
plots abutting on narrow lanes in the same locality. This is to regulate population
16
in the area served by smaller width roads. This rule will obviously increase value of
plots on roads having greater width. The rate difference, i.e. higher land rate on
wider road, in such case, would generally. correspond to the additional F.S.I.
permitted on the wider roads as compared to F.S.I. permitted on the plot in small
width back side lane.
It is generally believed that, when small width roads are widened by acquiring
road set back land from 'plots on both sides, value of the plots on such widened
roads increases. This can not be however accepted as axiom. Prices may increase or
prices m a y not increase. It all depends on locality and.road w idths‘and permitted
F.S.I. In short, if widening of roads benefits residents, e.g. introduction of new bus
route, which was not existing before due to narrow road width, prices will increase ,
otherwise price may not increase.- Similarly, widening of narrow lane serving
interior less important small area, may not result in increase of land rate of plots
abutting said lane. However it can not be denied that wider roads offer more light
and ventilation, more parking facility, greater prominence and improved visibility.
Some times we find high land values even for plots abutting on roads having ■
narrow or small width. This is due to importance of the locality and established old
market area. Such situations we find in old town areas where commercial activity of
great importance had established since last several decades. Zaveri Bazar area or
Metal market area or established office area in old town locality are examples of
such case. Hence local conditions and neighbourhood is also important apart from
road width.
4.1.9 Accessibility
The plot may or may not abut on any access road. The plot not having any
legal access is known as “land locked land” because it is surrounded on all four
sides by the land owned by some other plot owners.
Plots may directly abut on municipal or public road. Such plots directly
deriving access are considered better plots than plots away from public road.
Plots may abut on private access road or on private internal layout road of the
colony which starts from public road and leads upto the plot which is at some
distance from such public or municipal road. Invariably such interior plots fetch
less price in the market as compared to the rate for plots abutting the municipal
road. ..
Private streets are generally not found in good condition. .On some private
roads adequate street lights and road side storm water drains are not provided.
Moreover such plot owners have to bear the cost of laying electrical cable, water
main, sewer mains, etc. in such private roads from public street up to the plot. Even
maintenance of such private street is difficult due to. common ownership. This
liability is also another reason for having depressing effect on land values of plots
abutting such private roads. =
Sometimes plots derive an access through right of way from front plot. The
right o f way may be permanent or may be for some specified period. Some times
. £ ? ■ .
{ <
right of way land is purchased out-right with right to use F.S.I. Such access road
merges with plot and becomes part of the plot. In some other case, right of way is
given on annual rental basis. In such case right- of use of F.SJ. or development
rights are retained by the owner who has granted right of way. Under such
agreements, right only to pass and repass, right to lay cable, water mains, drain
lines etc. are granted. Such access road are not part of the plot area.
Depending upon such conditions, rights and liability, value of plot on rear side
is determined. In case of rental right of way, capitalised value of annual rental,
should be deducted from the land value to account for rental liability. •
13.40mWIDE ROAD
§ 13.40m W I D E ROAD
T __________ 'f 6 -0C
Tandem Plot
------- 30.00---------
TANDEM
PART FRONTAGE OF PLOT PLOT
FIGURE-2 * ^ FIGURE-3
Some times accessibility of the plot is limited along- the road. Full width of the
plot do not abut on the road but only part width of the plot in front touches the
road. Remaining portion of plot width do not touch road.(vide fig-2)
Some times only access road portion of the plot abuts oil main road and said
access leads from main road to the main portion.of the plot which is in the rear,
(vide fig-3) . Such plots are called Tandem plots. Such plots are valued at 15% to
20% discount than the rate of the plot directly abutting on the main road or the
municipal road.
Plots with restricted frontage (Fig. 2) ,creates problem of entry and exit after
construction of the building in the plot. Such plots also lack prominence as the
building in the plot has to be erected at further away distance from the road,
similar t o ' the construction of the building in the tandem plot. Hence view or
visibility of the building from the street is restricted. Such plots may also fetch
little lesser price as compared to the plot having full frontage abutting along the
road. However reduction in value would be marginal if the building planning and
the amenities inside the plot are not much affected due to such small frontage.
Plot having no frontage on any road ,i.e. Land locked .land (vide plot P in
fig-1), generally , no' development is permitted by the local authority, for want of
access road upto the plot. Such plots are normally valued at 1/4 to 1/.5 of the
normal land rate prevalent in the locality i.e. at discount of 75% to 80% in land
values. •
18
However before adopting such adhoc discount, valuer should, investigate on
following points in an attempt to find out possibility :of having access to the plot as
detailed below.
i) How far the plot is away from the public: street? If there is only one plot gap
between land .locked land and municipal road, there may be a chance of
obtaining right of way from side plot owner , to convert land locked land into
plot with access. Discount value in such a case would be quite less and it may
perhaps correspond to the cost.of acquiring right of way. However such reduced •
discount can be considered only after obtaining written, willingness, of such plot
owner to grant right of way. • .. '• • .
Plot located at much greater distance from public road and having
several plots in between and'held by different owners ■would have lesser
chance of obtaining right of way from several plot owners. Such plots are
likely to remain landlocked for many years. However enquiry should also be •
made regarding any road proposal in a Development Plan giving access in
such land.
ii) Valuer should find out whether any of the owners of'next adjoining plots on all
four sides, are ready and willing to purchase this land locked land or.not ?
There is eveiy possibility that one of the adjoining plot owner may be willing to
buy the plot at 50% price of prevalent land rate.
4.1.10 Land Use: (ZoningJRules)
For most of the towns, local authority prepares a development plan ,under
provisions of the Town Planning Act. This development plan prescribes users of
plots in different localities and wards. It also proposes new roads or widening of
roads in the ward as well as reservations for public, purposes like market, .school,
garden, stadium, cinema, hospital, fire station etc. Such plans help in orderly and
planned development of a town. Under this plan,.land use and zoning of areas for
residential commercial and industrial use are also r •;lced. Factory building is not
allowed in Residential Zone and residential building ii< not permitted in Industrial
Zone. Depending upon'permitted land use, value of land varies.
Land m arked. for :commercial use is smaller in area as compared to area
marked for residential use. Lands earmarked as commercial use are wholly located
at focal points or at prominent location having better accessibility. Land for
commercial use is greater in demand than supply and hence such plots fetch
higher price, as compared to rate of land for plot marked for residential use.
Industrial user also feteh less than commercial use. However rate of land for
industrial use in promine:: \industrial area may or may not be less than land rate
for residential user plot in O', me locality.
u
Land marked for pubh reservations looses its value considerably Because
such plots are not permitted be developed by the owner and it will be acquired .
by local authority for public pu'ôse. There are hardly any buyers for. such property
and hence the value of such plo .s goes down. Such reserved sites, if acquired under
19
the Land Acquisition Act, are paid compensation at full fair market value,
considering their potential as per surrounding area, as if they are not reserved. But
the fact remains that in actual open. market it fetches low value due to
unbuildabilily and less demand. However recently, some o f• the Municipal
Corporations have come out with the provisions to grant Transfer of Development
Rights to the owner of such plots. If such lands'are handed over to Municipal
Corporation free of cost and free of encumbrance, T.D.R. is granted by the local
authority to the land owners. In such cases, value of such plots would correspond
with the T.D.R. rates prevalent in the market in the concerned locality. Some local
authority also permit development of land reserved for the public purpose on
certain conditions. Value of such land will depend on policy and conditions for
grant of such permission for development. Some times under Development Plan,
D.P. road is proposed passing through the plot which would divide the original plot
into two parts. Such division may also reduce land values if proposed D.P. road
cuts the original plot at odd angle.
4.1.11 Shape
Shape of the plot also has its own effect on land values. Irregular shape plots
like triangular shape, curved shape or plot with several offsets and notches, fetch
less rate as compared to rate of land for the regular shaped plots. Plots in well
planned Town Planning Schemes, are invariably having regular shapes. However
in less developed area , this is not always possible. We find all types of irregular
shape plots also if they are not part of private layout. This is because originally all
these plots were in use as agricultural fields where roads and regular shape were
not must but fertility of soil and availability of well or irrigated water supply, were
important. Square and rectangular shape plots with no offsets or minimum offsets
are more preferred by prospective buyers. The main reason for choice of regular
shape plots is the possibility of orderly building development in such plots.
Minimum offsets in building with minimum wastage of builtup areas combined with
ideal internal planning of rooms in building is possible due to regular shape ,plots.
Even there are better prospects of achieving balanced aesthetic treatment for the
buildings ,in such regular shaped plots.
. In case of irregular shape, say triangular shape plot, building with several
offsets has to be planned to keep adequate open space all round the building from
plot boundaries. Building with many such offsets would be more expensive as
compared to regular shape building. Similarly if the plot is having, small notches,
such portions of plot may become unbuildable. However sometimes such notches
or offsets in the plot could be fruitfully utilised to provide amenities like Garden,
Children play area, Car parking areas, Swimming pool Jogging Track etc.' Thus
shape aspect of plot needs careful consideration of valuer from all angles. We may
consider 5% lesser rate for triangular shape plot as compared to rate of rectangular
or .regular shape plot. However if irregular shape plot is pretty large in size and if
orderly planning- is possible in the plot without any wastage of land space, the
valuer may not consider ary reduction in rate of land to account for “shape” factor.
- . 2 0 ; . ;
Land value of irregular shape plot would mainly depend on possibility of proper
planning of the building in the plot and availability of adequate open spaces
around the building and beneficial use of the odd shape of the plot in providing
amenities within such plot.
In town out-skirt areas and less developed areas also, this “shape” factor may
not be of much importance, if optimum permissible built up area in the plot is
possible. Even otherwise, slightly irregular shape of plot is of no consequence
particularly in the town areas where F.S.I. concept is in fore front.for the purpose of
development in the plot..
4.1.12 Orientation
The orientation of plot in context of wind direction is an important feature for
consideration for land value assessment. In western region of India, flow of wind is
from west or south west direction. Hence in these areas, plots having road on west
are more preferred than plots having roads on east. Western cool breeze from west
side would benefit residents of the building and hence plots having west side
orientation, in these areas, would fetch little more price than the plot having
eastern aspect.
However wind direction in north east part of India, like West Bengal, is from
south east direction and hence in such region east frontage and south frontage of
plots are considered more valuable than west front, plots. In Chennai area wind
direction is from East and hence East facing plots -fetch better price in the market.
Plots having orientation on windward direction are more valuable than plots facing
leeward direction.
4.1.13 Soil Conditions
Nature of soil also changes value. For agricultural land, fertility of soil and its
usefulness for different types of crops are the important criteria for its value.
However for Non agricultural land use, bearing capacity of soil is the main criteria
or deciding factor for estimating land values. Land having poor bearing capacity of
soil , like reclaimed land or filled ground , marshy land or land with sandy soil,
would fetch low land rate as compared to rate of land having high bearing capacity
like rocky land. Poor soil requires heavy and extensive foundation for the building
like piling work or raft footings. These are expensive as compared to normal open
foundations. On the other hand rocky land requires lesser foundation cost even for
multistoried building due to high bearing capacity of soil.
Black cotton soil also requires special foundation which increases foundation
cost. Sandy soil, Black Cotton soil, clay type muddy soil, water logged land and
filled up or reclaimed.creek land have low land value as compared to nearby land
which is having murum strata or rocky ground at low depths. Similarly land of salt
pans and land affected by salt efflorescence will fetch low price in the market due to
increased cost of foundation and increased cost of providing special damp proof
course for the building, to prevent salt efflorescence of walls of the building.
21
4.1.14 Topography '
The plot may have level ground or sloping ground or uneven ground, The plots
with uneven topography require special consideration by the valuer. Piet may be on
hill top or it may be a valley plot along hill slope. We may also have a low lying plot
which may require earth filling because it is lower than the road level. Plot may be
low lying as compared to surrounding ground and adjoining plots..?,1*0. All such
plots • have higher value or lower value depending upon its advantages or
disadvantage. ..• ■ •
A plot on hill top would fetch higher va‘ s.>e due to • •vmmanding sccnic view
and maximum light and ventilation and better environment. Simiiaiiy plo't alorig'hill
slope above road level would fetch higher land rate due to unobstructed view or
scenic aspect. But valley plots may or may not fetch higher value.' If the plot has a
regular motorable road upto the plot and it commands'good view and free building
with all side open spaces is possible on the p lo t, such plot will fetch higher price
even if it is lower than road, and with extra cost on retaining walls.
However if the plot'is having an en':ry at terrace level from the road instead of
ground level , such property would obviously be considered as less preferable and
less attractive by the prospective purchasers.
Entry from terrace instead of ground itself is unconventional. and less

preferred. In such property ,on all the floors, most of the rooms on valley slope side
are either having small windows Which are too close to the valley slopes or no
windows are provided at all on this valley slope side as building walls would be
almost touching the valley slopes. £Uch plots would fetch low price .due to extra
building cost and veiy odd and inferior ’ planning of rooms in the building.
(Vide fig-4) .There are several buildings of this type in Simla belt: Buildings are built
along valley slopes with entry directly from main road to the terrace. In some
buildings shops are provided dri top floor i.e. at road level and residential rooms are
provided on lower floors.
Building construction on land along hill slope invariably calls for cutting and
filling in the plot to create level ground for construction. It also calls for
construction of costly earth retaining walls along hill slope or valley slopes sides of
the plot. (Vide fig 4). If cost of cutting, filling and retaining wall construction are
prohibitive and plot size is too small, positive weight&ge due to advantage may turn
into negative weightage due to prohibitive cost and such land will have low value. .
If plot is lower than road level and is low lying a^ compared to surrounding plots
also, it would call for earth filling in the plot to bring in level with road level, and
avoid flooding in the plot in monsoon. Such plots can be valued by estimating cost of
filling in the plot and giving corresponding discount in total land value arrived at by
adopting land rate of level ground plot sold in the vicinity. In such low lying plots,
owner has to take deeper d \tion upto hard soil ignoring .tilled ground. This extra
cost of deeper foundation will also reduce the value of such low lying land. If the plot
is too much below road level Say 2 M. to 5 M. depth, it will ca.ll for special design of
building iwith basement and also arrangements for pumping out rain water from plot
and also-pump out sewerage waste water from the building. All these liabilities would
correspondingly reduce the value of such low lying plot.
However lo w lying plot below road level along valley land may or may not
depreciate so much because such plots do not have flooding problem due to
sloping ground and rain water drains off automatically due to valley or hill slopes.
Such plots on the contrary may fetch higher price if it enjoys excellent valley view.
In Hill Resort station,' we find many such plots. However if such plots have danger
of rock fall or land slides in monsoon, from upper level ground, such plots would
have low value. Valuer should therefore critically examine all these aspects before
adopting land rate for the plot in hill area :
4.1.15 Prestige Aspect
Every person in the modern society crave for importance and prestige in the
society. That is why rich persons prefer to stay in posh areas even though land
values are very high in posh locality. If a great national leader or a famous film star
or a well known spc rtsman or any such known celebrity is staying next door i.e. in
'immediate neighbourhood or on next adjoining plot, value of such adjoining land
and flat shoots up'in the market due to prestige aspect. To be a neighbour of a
great person or a celebrity is considered as status symbol iri the- society. Owner of
such plot commands'high prestige value in the •society- and hence such plot
invariably fetch higher land values in the market. We may say that the purchaser
pays extra price to acquire ‘Snob Value’ or ‘Pride Value’ attached to such land.
However, as soon as such celebrity moves out from the adjoining plot, prestige
attached to the plot vanishes and.land value; immediately falls.
4.1.16 Vista
The open unobstructed view in front of the building••is known as Vista.
'Building having Vista im p re s ts its viewers. Rashtrapati Bhavan in New Delhi, is
an excellent example of building enjoying excellent Vista. Every one is greatly
impressed b y the view of this building even from a very long distance. Apart from
23
good architecture and excellent aesthetic of this building, unobstructed view all
along the frontage viz. VISTA also plays its own role in creating pleasing effect on
the viewer. Vista also helps in better environment.
T ’ junction plots are another example of plots having a Vista. The building can
be seen from a lon j distance. If the cross road making T ’ junction, is on windward
side, and if building is residential, Vista’ will have much greater value, say 15%
higher land value as compared to the adjoining plots lacking Vista. On the other
hand if such a plot is not on wind direction, it may have hardly 5% higher land rate
due to Vista. It should however be noted, that such T* junction plots in certain
areas of India like Andhra Pradesh, Tamilnadu are considered inauspicious. Hence
in such areas, positive extra price due to vista effect will be nil. On the other hand
there, will be discount value for such plots in such areas, due to plot being
considered inauspicious by the majority of the purchasers in the locality. Personr
who are not superstitious are in minority and hence have little effect on the market.
Plots, with commercial or industrial buildings enjoying Vista, will fetch higher
rates depending upon advertisement value or prominence effect due to Vista rather
than wind aspect.
In less developed area, or outskirts area of the town, where plenty of all round
open land exists, Vista looses its lir.poi tance. Plots having Vista or prominence due
to view, can be valued 5% to 15% higher value depending upon locality and
advantage. Valuer may also consider adding some lumpsum amount in prevalent
land rate instead of percentage increase in base value, to account for this factor,
depending on study of local real estate market. .
4.1.17 View Aspect
This is also similar attribute like Vista”. Plot overlooking public garden or a
river or a lake or a hill or sea command some extra price in the market due to
pleasing view aspect. Even if garden or river is not on next adjoining land but
across the road or beyond adjoining unbuilt land, such Fand will fetch higher price
due to uninterrupted view. Water front property (Directly abutting sea or river )
sometimes fetch as high as 30% higher land rate as compared to rate of back side
land. This craze for water front properties may perhaps be existing through out the
world. Latent desire of every human being , perhaps, is to stay close to the nature.
4.1.18 Tenures of Land
This attribute is not natural attribute of land but it is artificially created quality
of land imposed by man to suit to his working system. “Tenure” comes from Greek
word “Teno” meaning “I hold” and hence “Tenure” denotes or means condition of
holding land.
Basically there are two types of tenures of land.
(i) ‘Fee Simple’ or freehold land. '
(ii) Leasehold land.
In free hold land tenure, the owner has absolute and permanent ownership of
land. He is holding all the rights ( 100 % rights) that are available under Transfer of
property Act. The owner of freehold land ,enjoys unrestricted use of land, except
laws governing land use and land development ( Restrictions under Town Planning
Act/Building Bye Laws, Urban Land Ceiling Act). He is however responsible for
payment of Land Revenue to Government for Agricultural or Non Agricultural use of
land. This land assessment (Land Revenue) arises from the principle that “All land
belongs to Crown/Nation” and is given to individuals for specific use on payment of
specific amount of rent called “Assessment” or land revenue. This is quite different
from land tax or land assessment levied by Municipal Corporation or local
authority.
In leasehold land tenure, the freehold owner of lrnd .callcd ‘Lessor”, gives away
some of his rights to the tenant occupant , called ‘Lessee’ , for specific period ,on
mutually agreed terries, conditions and lease rent.
Obviously, therefore, value of land having freehold tenure will be higher in the
market than the value of land having leasehold tenure.
In addition to these two basic types of land tenures, there were some other
special land tenures (leasehold type) also existing in the past , in city of Mumbai.
Other towns also have different land tenures which are quite different from those
described below. Valuer must therefore study the background and rights of the
occupants under all these tenures before valuing the land.
i. Toka Tenure: All waste land and uncultivated land in city, given for cultivation
on fixed ground rent, by the then governing authority, East India Co, was called
land with Toka Tenure.
ii. Foras Tenure: These lands were also waste land but these lands were
occasionally submerged under salt water. Lands were given out by the
government on nominal lease rent with condition to reclaim land and use it for
agricultural works.
iii. Inami Tenure: These foras land were given as ‘gift’ to certain persons in
appreciation of their services to the then governing authority. These Inamdar’s
(owners and their successors) were exempt from payment of land revenue.
iv. Pension & Tax Tenure: Ownership of these lands were doubtful or defective at
one time a*, id the then Governing Authority made the land freehold by charging
ground rer: c. Said authority also charged to owners tax for deference.
v. Fazandari Tenure: It is similar to Pension and Tax Tenure land held in
perpetuity, but in this case owners of land rented out land to Fazandari tenant
,for yearly rent ,and said tenant could not be evicted so long as he paid rent
regularly.
vi.. Quit, and Ground Rent Tenure: These land were developed land in old town area
on which special quit rent was charged by the then governing authority, in
addition to the regular ground rent on the land.
vii. Sanadi Tenure: These land are given on regular sanad by the government for
construction of houses by charging fixed ground rent.
25 ,
All these seven types of land tenure existing in Bombay city were abolished in
1969 by introduction of Bombay City (Iriami and Special Tenures) Abolition and
Maharashtra Land Revenue Code (Amendment) Act 1969. This act was made
effective from 1-8-1971.
Following types of tenures are also common in some States of India.
a) New Tenure (Navi Sharat) : This tenure is in Gujrat State. It is for waste land
given by Government for Agricultural use at very nominal rate. However when it
is desired to be converted for N.A. use' by the land occupant it is first required to
be transferred to Old Tenure (Juni Sharat) by payment of premium for
conversion of New Tenure to Old Tenure. Land with n'ew' tenure is not
transferable into old .tenure unless payment is made to government .This
premium is fixed on the basis of percentage of the -difference between land
value as freehold land and land value paid at the time of grant' by' the state
government for new tenure land.
b) Service Inarri : Like Inami Tenure this land is given for specific' services to be
rendered to the society. Land is'n o t transferable. This land is held till the
services are rendered. ‘ ' '
c) Devsthan Inam : This land is given for maintenance of Devsthan. It may be
Temple, Durgah etc. This land is also not transferable.
There would be similar or different types of special tenures of land prevalent
in the other states or the towns of India. In Tamilnadu , one of the tenure of land
is. called Porombok land. This, land is government land and no construction is
permitted on this landiln the Chennai area, ‘Chatram Zaari’ tenure of land was
existing in which-only occupancy enjoyment right was available to the land
occupant. Thus each tenure had its 6wn restrictions and the occupant-of the land
held rights corresponding to the rules prescribed under such special tenures by the
concerned government.
The owner' Of freehold land may grant lease of land by lease deed in favour of
another person i.e. ‘Lessee’ for certain period. Lessors freehold rights and Lessees
leasehold rights both exist simultaneously in the same land. On expiry of lease
period, the land reverts back-to Lessor, and thus leasehold interest, is terminated.
As there are no conditions attached to freehold land, it fetches highest value as
compared to land subjected to other types of tenures.
Value of leasehold land gets divided into two interests.
(i) Value of Lessors interest in land
(ii) Value of Lessees interest in land.
Students have already studied these interests and methods of estimating value
of these interests in the previous chapter.'
4.1.19 Covenants
There are some lands which are subjected to direct or indirect restrictions in
form of covenants. These covenants are created by the predecessors in title and the
same are attached to land and hence they pass with the title of land. These
restrictions are binding not only to present land owner but also to his successors
and to all those deriving title from him. Some land owners create covenant in form
of keeping a Garden space or unbuilt open land on certain portion of the plot while
selling such plot. Such covenant .not only permits unobstructed view from building
in rear side plot of such seller but it also enables permanent enjoyment of light and
ventilation through such front plot to the rear side plot owners.
Another type of restrictive covenant generally found , is in form of height
restriction of building on plot. To maintain orderly development in. the. layout or
within the colony and to retain a fixed and orderly skyline, society creates a
covenant, while granting lease to the members, In such society, there is a
restriction of height of the building to be constructed on the plot, say building not
exceeding two or three storeys or height of building not exceeding 7 meters or 10
meters. Some society while granting lease to its members .create a covenant that
on leased plot only specified F.S.I. could be used , even though local authority
permits much higher F-.S.I.
All these covenants substantially reduce the value of land corresponding to
the effect of restrictions, on the development on the plot.
4.1.20 State or Central Laws
There are some State laws or Central laws which restricts or regulates
development on land and sometimes -regulates even holdings of land. These
restriction, in turn, reduces value of the land in the open market.
Urban Land Ceiling Act of. 1976 is the classic example of the iaw made by the
Central Government and adopted and implemented by the various State
Governments, restricting holdings of land in urban areas. This act restricted and put
up a ceiling on ownership of ‘urban land’ held by land owner. Land ceiling limit for.
‘A ’ class cities was fixed at 500 sq.mts. Ceiling limits for ‘B’/C’ and TV class cities
were fixed at 1000 sq.mts., 1500 sq.mts. and 2000 sq.mts. respectively. This act gave
rise to novel concept of two tier rating of land values ,for different land portions in
the same plot. Portion of the plot falling within ceiling limit, was to be valued at
market rate, whereas remaining portion of the land in the same plot, which formed
an excess vacant land as per U.L.C.Act, was required to be valued at very low rate
prescribed under the Act. This act is abolished by the several states of the country
but it is still in force in states like Andhra Pradesh and state of West Bengal.
Rent Control Act is another act • which artificially reduced the value of
properties to a very low level. In some cases land value, would be almost zero. As per
provisions of Rent Control Act of Maharashtra, rent of tenants in the buildings
constructed on land, falling in rent controlled area, is frozen at its standard rent
level and the same can not be normally increased. Under this act tenants can not
be normally evicted from premises. Tenants would as if get perpetual protection
under Rent Act against eviction. Tenancy rights-do. not .extinguish even after the
collapse of th e . building. Tenant could claim tenancy in the rebuilt, building
27
constructed on the plot. Thus landlord will not get back land, once building on
land is let out. There are ;no reversionary rights available to the landlord and
hence land is valued at nil. Land will never revert back to landlord till existence of
Rent Control Act. . .
Different States have enacted different Rent Control Acts to suit to the
conditions prevalent in the respective States. However provisional of freezing of rent
and protection against eviction are common for all Acts. ■ .
Normally residential, commercial and even industrial lettings are covered in
Rent Act. However premises given on leave and license oasis are not protected
under Rent act. ** '
National Highway Act and Railway Act regulates development in' the plot by
prescribing restrictions of ‘no construction zone’ for a certain distance inside the
plot from Highway center/Highway boundary. For a small plot this restriction may
result into an unbuildable plot and in turn its value for the'non agricultural
purpose will reduce drastically. .
Civil Aviation Authority regulates and restricts height of buildings on the plots
in vicinity of Air ports. This height restriction will result in low consumption of
-F.S.I. on plot and ultimately low value of the land.
Coastal Regulations restricts and regulates development on all lands falling
within 500 meters distance from high tide line along the sea coasts. This act
reduces value of sea front proberty, falling within-500 meters distance from High
tide line, rather than increasing its value.
Some times clearance is required .rom irrigation canals and also nallah
passing through the plot. This reduces buildabilit * in the plot. If optimum use' of
land is not possible because of these rest’ >.:iohs yvalue of land falls substantially.
Indian Electricity Act regulates development on land falling under power
transmission lines. If high tension power transmission line passes through the plot,
no construction is permitted under the said transmission line. On 2 sides of such a
line also no development is .permitted for certain prescribed safety distance. The
portion of land affected (No development area) depreciates the value of land. If such
a plot is too small in area, it may have greater loss in value due to such restriction
as compared to the erosion in value of the large size plot.
All such restrictions under different laws depreciates the value of the land.
4.1.21 Building Bylaws
Every local authority and municipal corporation prescribes rules and bylaws
for developments and constructions within the lands under its jurisdiction. These
building bylaws or development control rules also affects value of the land..
Important provisions of these bylaws affecting value of land are F.S.I. (Flopr Space
Index) provisions, open space rules and height restrictions. Users permitted on the
plot under these rules also materially affect value of the land. Rate of land marked
for residential user would be less than the rate of land marked for commercial user
,<n the same locality. If F.S.I. of certain area is fixed at 1.00 and in next adjoining
area in same locality if permitted F.S • is restricted- to 0 .7 5 'only, land values in
lower F.S.I. areas goes down even though both lands may be quite proximate and
perhaps enjoying similar civic amenities. Similarly when local authority increase or
decrease the F.S.I. of the'zone, while undertaking, review of earlier D.C. Rules’, iand
values in such locality correspondingly increases or decreases with immediate'
effect.-In some municipality, F.S.I. is termed as F.A.R. (Floor Area Ratio). ;
For certain narrow plots, only ground floor or ground and first floor are
allowed to be built on plot as per provisions of Development control rules. 'Many a
times such restriction results in lesser utilisation of F.S.I. as compared, to the
permissible limits for the locality. This restriction therefore reduces the? land value.
In same way, minimum open space required to be provided all round the building,
also some times results in less development in the plct and hence less value for the:
land. • .’ • . • :
Development rules of some' mnnicip; Ji:.v , requires 10% or 15% of plot area',
of the large size plots,, to be provided ior A'.nenity Space (Garden area). F.S.I. of this
amenity area, is not permitted in cons ".ruction. This rule also reduces the land
value. • •
Some times plots are reconstituted under Town Planning Schemes prepared
under the Town Planning Act. Owners of original plot may loose certain part, of
original plot and may get some areas of land of adjoining plot owner, under final
proposals of the reconstitution of the plots in such' case, area of original plot is not
relevant but area of final plot 'allotted under the Town .Planning Scheme is to be
adopted for construction . Hence land values also depend on final plot area instead
of original area of the plot held by the owner.-If final plot is allotted else where in
the scheme, original plot is valued as ner right to receive final plot in the said Town
Planning Scheme, Thus different bye laws have different effects on land values;
4.1.22 Status of Land
There are two types of status of land. Virgin /:**r.*ti‘s of land and Married status
of land. This is also culled Land without • :;'..urovements • and land with
improvements. The word Improvements means erection of structure (Construction'
of any kind on the plot, i ii.r.t status of land is generally identified as open plot m
land. Such open plot of land is called as virgin land. It is without any construction
whatsoever. Second s'.atus of land is with partial or full improvements on the .plot
These improvements are in form of building constructions for various type of users.
Such land is therefore called developed land or land married with the structure.
In the matrimonial market of human beings, virgin status is more attractivr
than married status. Likewise, in real estate market also virgin land is considered
more valuable thar* the land married to the structure. In Manisingh’s case
Punjab and Kar>i nk Court upheld this phenomena and stated that builtup laj: ‘I
has lesser late ,i; Und rate of open plot of land on which purchaser has wide
choice of dev:; opments in the plot ::.s well as freedom available for,alternative users
of land and r canning as per wL-iher, arid taste of the owner.
4.1.23 Climatic Condition
In the different parts of our country, different weather conditions are existing.
Certain' areas have extreme climatic conditions. Land values in such region are
normally low due to less demand as compared to region having, moderate or
pleasant climate where demand of plots are bound to be higher.
Rajasthan has extreme, heat and veiy little rain where as Assam has heavy
rain and dense forests. As compared to such extreme weather conditions, climatic
condition of Bangalore is considered ideal and pleasant. Many persons will be
inclined to invest in such areas having good climate and hence demand of land is
more and land value increases. In desert areas, value is bound to be pretty low due
to lack of demand.
4.1.24 Encumbrance
Land may be subjected to different types of encumbrances or impediments. It
may be mortgage or any other encumbrance on land . Encumbrance may be in
form of litigation in court about land ownership dispute and there may be stay of
the court against sale of the property.
The impediments could also be in form of encroachments by tress-passers or
slum lords who by force erect slum hutments on the land. Removal of such
encumbrance is very difficult even with due process of law. Mortgaged, litigated or
encroached land invariably fetch low price in the market".
The • reduction in land value in case of mortgaged- property would be
corresponding to the mortgage debt and cost of clearing mortgage encumbrance.
In case of litigated property, value of land should be deferred for anticipated
period of final settlement of legal dispute through Court. This is to account for
reduction in value of litigated property.
In case of encroachment or slum hutments on plot, land value would get
reduced corresponding to ihe cost of removal of encroachment or tress-pass.
Encumbrance of slum on plot would also reduce the value of land. Reduction will
depend on development possibility on plot which will be as per slum clearance
policy of Government for permitting construction on such land.
Some times land is subjected to easement rights. It is also some type of
encumbrance on property which will reduce the value of the property affected by
easement. ' •
If owner of property (A) owns easement right of light over adjoining property
(B), owner of property (A) has Dominent right and owner of property (B) has
subservient right. Value of property (B) will reduce due to right of light of owner of
the property (A). *
. There may be easement in form of right of way 'ver front plot (A) by owner of
rear plot (B). It will to a certain extent reduce value of subservient plot (A).
4.1.25 Natural Forces
There are certain areas of land which are considered prone to recurring
damage to the land arid buildings due to various natural forces. Kutch area is
prone to recurrence of earth-quacks. Another natural force if land erosion due to
sea. Certain areas of Saurashtra sea coast , land has become less fertile due to sea
water penetrating in sub soil thereby, making land salty and useless or.
uncultivable. Such land- is less in demand even for building use ,due to salt
efflorescence in the land and reduced developments in the locality.
On eastern coast, Orissa and part of Andhra Pradesh are well known for
cyclone and high tide of sea. Invariably, these forces singly or jointly, cause great
damage to land and land improvements.- There will be obviously less demand for
such land in such areas and land values would remain low.
‘Tsunami’ floods in Tamilnadu eastern coast is also one such natural force
which damages land and land improvements. It reduces land value.
Land erosion due to sea waves is yet another factor for consideration for land
values. Severe sea waves not only break' open earth retaining sea side walls but it
also drains off subsoil earth from the ground due to its under currents, thereby
damaging foundations of sea side structures. All such lands have to be valued after
considering cost for remedial safety measures to protect land and improvements.
4.1.26 Ownership Pattern
Land may be owned by a single person or there may be several joint owners of
the property. Jointly owned property i.e. property owned by several co-owners are
difficult to be sold easily and quickly. It takes time to achieve consensus amongst
co-owners on fair sale price and on terms and conditions of sale. Sale of ancestral
property involving consent and signature of 20 to 30 or even more co-owners is; not
uncommon in India. Such land deals take much more time to effect the sale as
compared to deal by single individual owner. Price obtainable in the market for
such property owned by many co-owners is therefore less attractive than the single
owner property. Courts have not considered this aspect in its proper perspective.
Courts have however allowed discount in land values only for sale of undivided
share of co-owners and not for collective sale by all co-owners.
In case of J.N. Bose 3, Calcutta High Court allowed 10% rebate on property
value for notional sale of undivided share in the market. Similar view was upheld
in case of Ashima Sinha 4 by the Calcutta High Court.
If the plot is divisible by metes and bounds (Physical subdivision) between co
owners, value of property may not depreciate much in value. However if jointly
owned property is not divisible by metes and bounds amongst co-owners, property
value falls in open market. Sale of property ov/ned by a co-operative society, a
limited company, a public trust or association of persons also suffer from drawback
of delay in decision on account of process of obtaining consensus of several persons
and also due to procedural delays in completing administrative and legal formalities
of sale.
31
4.1.27 Environmental Aspect
The property may be close to obnoxious industries like chemical or cement
factories, slaughter house and tanneries , textile mill or a cigarette factory. Lands
proximate to su ch ' obnoxious industries invariably fetch low value due to
permanent nuisance of air pollution and health hazards. Similarly value of land too
close to Atomic Reactors or Atomic power station would reduce, due to likely danger
of radio active leakage and mal functions of units.
Bhopal tragedy has made people highly conscious about environmental
aspects. Air pollution and water pollution laws are made by states and centre to
maintain ecological balance within' the state. Land affected, by environmental
hazards fetch iess price in the market. Reduction. of land value may be in
pro-p -^tion to cost of curing the. damages due to such industries or hazards.
Garbage dumping ground of municipality or dumping yard of chemical wastes
are yet another example of cause of ecological imbalance. Similarly stone quarry'"''
operations causing blast noise and stone dust create air and noise pollution whicli^
would reduce the land value in surrounding areas.
4.1.28 Stigma Effect : '
Many a times there is a ‘stigma' attached to land or a property. Land .may have •
been used as burial ground or it was an atomic reactor.site in the past or some
crime or murder story is linked with' such land or property. Even Ghost stories
connected with land or building is not uncommon in India.In all such cases local
residents desist from purchasing such property due to stigma of unpleasant usage
of land in the past. This reduces its value in the market. This ‘stigma' may be for
short.duration or for long duration. Certain rumors like haunted house or murder
story linked land, regains its original character as the years pass by. People forget
old stories and stigma effect wears out. • '
4.1.29 ‘Vastu Shashtra” Aspect
Vastu Shashtra’ is a very old Indian science having concepts and norms for an
ideal iand and ideal house. It prescribes certain norms for good land qualities and
ideal planning principles for rooms in a building. Several persons in our country
religiously and some of chem blindly believe in these principles and norms. They
may be superstitious or may not be superstitious, but majority of them honestly
believe that purchase of land which meets with Vastu Shashtra norms would bririg
peace and happiness to their family. Such persons also believe that purchase of land
having features contrary to Vastu principles will bring bad omen and disaster for
their families. Plot with adverse “Vastu” therefore will have low value.
As per Vastu Shashtra norms, land having road on east side or north side are
considered good but land having road on south side or west side are considered poor.
Some of these norms consider T ’ junction plots as inauspicious. Plot situated at the
dead end of the road or near cul-de-sac are also considered to have poor Vastu.
As per Vastu norms, plot having higher ground level in south west comer as
compared to the ground level of north east corner of p lo t', is considered as ideal,
' 32
i.e. good vastu. However reverse slope in plot is considered as poor and defective
“Vastu”. Existence of well or a water body- (Tank/Pond) in this N.E.corner of the
p lo t, is also considered good.
Extension of plot in North East corner (North or East projections) is considered
Good for the Growth and progress of the resident However extension of the plot in
south west corner is considered bad because as per vastushashtra, it would bring
financial loss ,mental ill health & accidental injury to the plot owner. Plot extensions
on North West and South east are also similarly considered poor vastu.
Vyagramukhi (Tiger mouth) shape plot is considered ,inauspicious. These type
of plot have wider frontage along road side(front boundary) but narrow width of the
plot on the rear side boundary. (Vide fig-5). It is believed that such plots bring
economic disaster and death of family members. ;
On the other hand, Gaumuklii ( Cow mouth) shaped plot is considered as an
auspicious plot. Such plots have narrow front width along the road and wider
width on the rear side boundary of the plot (Vide fig-5A). It is believed that such
plots bring peace, family progress and prosperity.
VYAGRA MUKHI . GAUMUKHI

PLOT • PL^ T
FI GURE- 5 F I G U R E - 5A
Value of Vyagramukhi plot fetch less price in the market and value of
Gaumukhi plot fetch more price in the market as compared to the prevalent rate of,
rectangular or regular shaped plot of land in the locality. Z'
However mainly only Hindus believe in this science. Mohmedan and Christians
do not pay much attention on Vyagramukhi or Gaumukhi shapeôf plots while
purchasing the land. This aspect will therefore loose its effect on land values in the
localities which are dominated by Muslims or Christians. Similarly in urban-area
where majority persons and developers do not believe in this science, the Vastu
factor would loose its effect on land values. However in rural areas and in the
locality where majority of the local population believe in this science ,' value of plot
with bad vastu will certainly fetch less, price in the market. Valuer should therefore
inquire in the local market about this aspect before arriving at final land values.
Valuers should always bear in mind that these are personal factors and not
rnmmnn fnr all having universal application.
4.1.30‘Feng Shui’ Aspect
Like Vastu Shashtra, this system is also a science of wellbeing. This is a
Chinese science based on equilibrium of wind (Feng) and water (Shui) for happiness
of the family of the property owner. Under this system, it is believed that there are
two prime energies existing in universe. Yin (Female force) and Yang (Male force).
Balance ofyin-yang results in welfare and happiness. This system also believes that
each individual has his own ‘personal trigren* based on his birth date. Similarly
Feng Shui norms states that each land-house has its own Tlouse Trigram’
depending upon road position. Plot with road oh west has ‘Chen trigram’ and plot
with road on east has Tui-Trigram. For peace','happiness and prosperity, ‘Personal
Trigram of owner of the house and ‘House Trigram'* must match and must be of
same group. But if both Trigram do not match , it brings misfortunes and evil
influences or disaster for the property owner and his family'members. This aspect
does not have effect so much on land values in India because very few persons
know and believe in this theory or system. However in certain cities, flat values do
have effect Of Feng Shui iri a small way. . . •
4.1.31 Comrriuriity Aspect
It is seen that certain persons prefer to stay with their own community or in
the neighbourhood of persons of same religious groups. We therefore find Parsi
colony, Hindu colony, Brahmanwada, Harijanwas^ Catholic society, Mohmedan
locality etc. Land values in such locality falls because number of buyers will be
restricted only to certain class of buyers.of Said community or religious groups. It is
like a sale in closed market or restricted market. Obviously d u e ' to restricted
demand and unwillingness of buyers of other community to invest in such areas,
sellers are forced to sale their properties to .the person of the same community, even
at lower rate than its real worth.
Proximity of Church, Masjid, Jain Temple (Derasar), Gurudwara is another
religious factor which should be considered by a valuer while estimating land
values in such community based localities. A Jain buyer would be pleased to pay
higher price for land if Jain Temple (Derasar) is closeby. They prefer to be close to
place of worship. This phenomena is observed even in areas which- are not
predominantly community orêligious based settlements.
Some times the covenant in the title document of the plot in .such colonies
prohibits sale of property to persons belonging to the other religious faith or cult.
In case of St. Anthony's Society- Bombay High Court held that the restriction of
society membership only for the Roman Catholics , was contrary to the ‘open
membership’ principle under societies laws. However subsequently, in case of
Zorastrian Radih Society, Supreme Court held that it is legal to have society
confined to persons of a particular persuasion, belief, trade, way of life or a religion.
S.C. also held that - It. is open to that community to try to preserve its culture and
way of life and in tha.t process, to work for the advancement of members of that
community by enabling them to acquire membership in a society and allotments of
lands or building in one’s capacity as a member of that society, to preserve its
object of advancement of the community. Thus society bye- law restricting transfer
34
of flat only to the persons who are professing Zorastrian religion was approved by
the Supreme Court.
Now with supreme court’s decision, the public at large will continue to follow
and observe such restrictions. Hence the fact remains that due to such restrictions
and covenant, number of buyers of such properties will be very few and hence
value of land in such closed or restricted market would fall.
\y
In Amdavad city of Gujrat State, there is a law which requires Government
permission for sale of property to other community person. If Hindu residing in
predominantly Mohmedan locality, desires to sale the property to a Mohmedan,
prior Government permission is necessary for fair market price. Vice v.ersa, if the
Mohmedan residing in Hindu locality desires to sale the property to a Hindu, he
has to obtain Government, permission. These restrictions also reduces land values
in such locality, though they are framed with an idea to prevent distress sale. The
idea of the act is also to prevent communal pressures in sale and to maintain
communal harmony in the locality.
4.1.32 T.D.R. Aspect _
Full form of words T.D.R.’ is Transfer of Development Rights’. TDR is the
concept of floating or transferable right for development of the land . TDR is evolved
from one plot (Originating plot) and the said right is usable on some other- plot
(Receiving plot), elsewhere in the town. Right for the development of land of the
Originating plot gets extinguished and in turn equivalent right of land developm entin'
form of use of TDR is made available to the receiving property owner. This is in brief
the principle of T.D.R. Originating plot is generally one but receiving plot could be
one or many plots. When this T.D.R. gets attached to the receiving plot, value of the
said plot increases. With this attachment of TDR, the original permissible area of
construction in the receiving plot increases and hence the value of the plot also
increases. Similarly when the T.D.R. _ gets detached from the plot, its value
diminishes. Another interesting feature of this T.D.R. concept is that plots on which
T.D.R. can be beneficially utilised i.e. plots eligible as receiving plot, also increases in
the m arket, even before the T.D.R. actually gets attached to the plot Merely future
possibility of utilisation of T.D.R. on the plot as eligible receiving plot, increases its
value. This T.D.R. concept and value of rights held by different persons, in
connection with the use of TDR,are discussed in greater details later in this chapter.
4.1.33 Latent Aspects
Sometimes land value increases or decreases suddenly but reasons for these
changes in land values are not obvious, or direct but they are hidden or latent.
These latent effects on land values may be indication of some future events which
will enhance or reduce the value of land. We may therefore say that these latent
effect are anticipatory in nature, and they indicate likely increase or decrease of
future demand and future trend. These are indirect effect of certain Government
Policy or certain development programme.
When Reliance Industries proposed to undertake construction of large Refinery
Complex in Jamnagar, land prices in entire town suddenly rose. Similarly rental
values of all existing houses in Jamnagar also witnessed sudden rise in values.
When Central Government declared construction of Rail/Road bridge on
Thane Creek between Old Mumbai and Navi Mumbai, rates of flats in Navi Mumbai
witnessed sudden rise in prices of flats over night, even though Bridges were
actually commenced afterwards and they were commissioned after 3 years. This
price rise was due to future possibility of increased demand of flats in New Mumbai.
Right of Royalty payment to the owners of receiving plot owners, over and
above land price, for permitting use of.T.D.R. on the plot, is also payment for such
latent aspect or right, which increases value of the land. The extra price paid by
the developer is in anticipation of use of T.D.R. on said plot at future date after
purchase of TDR from the market.
There could be many such latent factors which are not directly visible but they
indirectly bring about changes in land values.
4.2 THEORIES OF LAND VALUATION
Having studied various characteristics of land, it is necessary to study some
theories or concepts of land valuation. These theories are established over a period of
last several years. Some are still in use whereas some others are out dated concepts.
But we must study all these theories and reasons given for land valuation. '
Some of the theories and concepts are as under:
i. Recessed Land Concept.
ii. Land locked land concept.
iii. Belting Theory.
iv. Hypothetical plotting scheme.
v. Front foot value concept. .
vi. T .D.R. concept.
4.2.1 Recessed Land Concept
This is an age old concept of valuing odd shape plot or plot having an offset in
the rear. Offsets or portion of plot not abutting on road is called recessed land.
(Vide figure-6 ).
PART A = RECESSED LAND

FIGURE - 6
36
As per this concept, plot of land is valued in two'parts. Portion of plot fully
abutting on road (Shown as Parr. ‘B’ of the plot in Fig-6) is valued at 100% of
prevalent land rate in the locality. On the other hand , recessed land portion of the
same plot (Shown as part ‘A’ .of the piot in Fig-'b) is valued at 3/4 rate i.e. with
25% discount in the land rate.
This concept was introduced in olden days , perhaps, thinking that recessed
land has lesser utility than main plot. However with introduction of F.S.I. concept
and possibility of full Utilisation of land development in form of high rise
constructions, this concept has become almost obsolete. Full utilisation, of recessed
land is now possible even keeping it unbuilt upon. Even after its full utilisation,'
said portion of land could be fruitfully used to develop garden, children’s play area,
parking facility, swimming pool purposes. Thus reduction in value for recessed land
is uncalled for and said portion should be valued at par with remaining portion of
land. •
4.2.2 Land locked land concept
When the. plot of land does not abut on any municipal or any private road,
and when legal right of way is also not existing to approach the plot, such land is
known as land iocked land. A person has to pass through other plot owners land to
reach such a plot. This, has already been explained earlier in this chapter. : Local
authority do not approve any construction on such plots and hence such land
fetch low price in the market. Such land is useful to adjoining plot owners or to
investors who foresee possibility of d riv in g access road to the plot in future, under
development plan or otherwise say by obtaining ‘Right of way’.
ROAD
(b)
©
© . © ©
Figure 7-a • • • Figure 7-b Figure 7-c
Note : In the above figures, Plots marked ‘A ’ are the Land locked plots.
The land iocked situation may exist under three situations.(Vide fig-7a-7b -7c)
i. Regular municipal road may be hardly 5 to 10 meters away from such a. plot ‘A ’
(Vide fig-7 -a)
37
ii. Plot TV may be 20 to 30 meters away from the road. There may be a possibility of
having right of access road through any of the adjoining plots B-C-D-E.(Fig 7-b)
iii. The plot ‘A ’ may be very far off say at about 60 meters distance or more from
municipal road. In this case, right of access is required to be obtained from
owners of three plots B.C. & D. (Vide fig. 7-c) In fact plots B & C in figure 7(c)
are also landlocked plots.
Value of land locked land in all these 3 types of cases may differ in the market
depending on the cost of deriving lawful access. However under theory of
landlocked concept, such plot of land is valued at 1/4 to 1/5 th of the prevalent
rate (i.e. 75% to 80% less) in the locality. In case of M. Avchat &others7,Bombay
Court held - "Value of land locked land could be assessed at 75% less from the
value prevailing in the locality”. However facts and circumstances in each case will
be different and it will decide the method. A
Example-1: Owner of plot ‘A ’ (Fig-7a) desires to sale the plot having area of 800
sq.mts. Prevalent rate of land in the locality , for the plot abutting directly on the
road is Rs.lOOO/sq.mt. Owner of plot TB’ (20 m x 10 m) has shown willingness to
sale his plot to owner of plot ‘A ’(MOU signed) at the rate of Rs.l500/sq.mt.
Calculate fair sale value of land locked plot ‘A’.
Solution: Value o fp lo t:iB’ = 200 SM @ R s.l500/SM .
= Rs.300,000/-
Sale value of plot ‘A ’ and ‘B’ together (800+200)
= 1000 SM @Rs.l000/SM .. - Rs. 10,00,000/-
Net value of plot ‘A ’ = Rs. 10,00,000 - Rs.300,000
= Rs.7,00,000/-
i.e. Rs.875/SM. The discount in land-rate is hardly 12% instead of 75% rebate
normally considered. This is because M.O.U. is signed by owner of plot-B.
• Example-2: Owner of plot 'A’ (Fig-7b) desires to sale plot having area of 800
sq.mts. Prevalent land rate" along road is Rs.lOOO/sq.mt. Owner of plot ‘C’ has
agreed in writing to give permanent right of way (6 m x 60 m) to owner of plot ‘A ’ by
creating monthly lease and with lease rent of Rs.2000 per month. Calculate fair
sale price for plot *A\
Solution: Even with right of way, the plot will lack prominence and being on
inner side (It will become like tandem plot), it will fetch less price in the market.
Adopting 20% discount in rate , fair value of inner plot “A” could be Rs.800/sq.mt.
Value of plot ‘A ’ : 800 SM. @ Rs.800/SM. = Rs.640,000/- ... (a)
This land will be subject to liability of recurring expenses of Rs.2000/month or
Rs.24,000/year till perpetuity. This, liability has to be deducted from land value.
Capitalising annual lease rental of Rs. 24,000/Year at 8%, we get:
Lease rent liability value = 24,000 x 100/8
= Rs.300,000/- ... (b)
Net value of plot - Rs.640,000 - Rs.300,000 = Rs.340,000/- (c)
This gives rate.of land = • Rs.425/SM. i.e. 58% discount in ruling rate instead
of adhoc 75% rebate.
Example-3: Owner of plot ‘A ’. (Fig-7c) desires to sale plot having area of 800
sq.mts.. and rate of land along main road is Rs.lOOO/sq.mt. There is no possibility
of obtaining access through plots B-'C & D. Calculate market value of the plot ‘A\
Solution: As right of way (easement right) possibility is not existing, 75%
discount is fair and appropriate. Fair value of plot
= 800 SM .@Rs.250/SM . = Rs.200,000/- .
It will be seen that possibility of right of access and willingness of adjoining
plot owner to sale or purchase the plot will change land values of land locked land.
Valuer should therefore investigate such a possibility before adopting discount
rates for land locked land. It should however be remembered that only assumption
of possibility is not sufficient. Adjoining plot owner must commit it in writing, to
sale or give easement right of his land.
4.2.3 Belting Theory
Belting Theory (method) and Hypothetical Plotting Scheme (method) of valuing
land are corollaries of Market Approach/Sale Comparision Method. These methods
are useful in valuing large size, large area lands. These methods, should be used
only when sales of similar comparable large size lands are not available. In view of
number of assumption made in this theory. Courts have Observed that these
methods should be adopted as” Last resort”.
This theory is very old and it is very much useful in valuing large size plots,
falling in under developed portion of the town. In case of Mathura Prasad, Supreme
Court held - "Where a large area of land in an urban locality is sought to be
acquired in determining the market value, the method of belting is appropriate. It is
common knowledge that the lands having froix-. •?/’. on main roads in urban areas
are always more attractive than the lands which have no such frontage.” However
this Theory can not be said to have universal application for all large size plots.
There are some basic norms for the applicability of Belting Theory.
i. If there are no comparable sale instances in the locality of similar large size
plots, this method can be applied.
ii. Plot should be in underdeveloped area or out-skirts of the town where land is
ripe for developments for N.A. use..
iii. Depth of the plot should be considerably more as compared to frontage (width)
of the plot along the road. Full depth land should be under one ownership.
iv. Plot area should be sufficiently large so that it could be divided into different
belts, each belt having 25 m to 30 m depth minimum.
v. Instances of sales of small size plots are available in the locality for comparision •
of land rate.
vi. Road is only on one side of the plot and on the other side boundaries there is no
road. ;
v 39,,-,
vii. The land to be valued Must be in one/single ownership. Plots in different
ownership at different distances from road should not be clubbed together
single holding and valued by Belting Theoiy.
The belting theory is based on the principle that front portion of land is more
valuable than the rear portion of land. Hence under this method, total plot is
divided into three belts.(Vide Fig-8 below)
' FIGURE-8
These belts are called front belt ,middle belt and rear belt. They are also
known as first belt, second belt and the third belt of the plot. These are notional
divisions made for convenience in valuation.
Front Belt: This belt is assumed to be of 25 to 30 meters depth. It is
advisable if the depth is same as depth of the comparable sale instance plot.
Middle Belt: This belt.is 1.5 times the depth of front belt.i.e.38 Mt to 45Mts.
Rear B e lt: The depth of this belt is the remaining balance depth of plot.
Land area falling in each belt is valued at different rates.
After finding out prevalent rate of land values in the locality for small size
plots, the valuer assigns 100% value to the land area falling in front b e lt. Rate of
middle belt land area is adopted at 2/3 (33% rebate) of the rate of land adopted for
front belt. Rear belt land area is valued at 1/2 (50% rebate) of the rate of land
adopted for front belt. If ruling rate of land ( Small size plot) in the locality is Rs
100/S.M., rate of front belt is adopted at Rs.lOO/Sq.Mts.Rate of middle belt is
adopted at Rs66/S.M. and rate of rear belt is adopted at Rs.50/Sq.Mts.
The depth of each belt and discounted rates adopted for each belt are .not fixed
and rigid norms. Depending upon facts and circumstances in each case,, valuer
may increase or decrease depth of each belt and also vary discount percentages for
each belt.
For land marked for commercial user ,depth could be less than that suggested
above. For land marked for industrial user , depth of each belt could be much
more than the above norms. However belting theory as far as possible should not
be used for land marked for Industrial user. Plotting Scheme method would be
more appropriate. For residential user land also , plotting scheme method of
v *.** ; •; is more preferable.
While adopting discounted rates for rear side belts, valuer should take care
that rate of land for 3rd belt (Rear belt) is not lower than the minimum rate of land
prevalent in the locality. If range of rates of plots in the locality- is from
Rs.200/sq.mt.' to Rs.600/S.M., and if Rs.350/sq.mt. rate is estimated for 1st belt,
rate for 3rd belt should not be adopted at Rs.l75/sq.mt. but at Rs.200/sq.mt.
Example-4: A large size plot having 150 meters road frontage and 400 meters
depth is required to be valued for purchase. Work out the value of plot by Belting
Theoiy, if nearby small size plots are available at the rate of Rs.300/sq.mt.
Solution: Depths of 1st, 2nd and 3rd belts are adopted at 30 m., 45 m. and 325
m. respectively. Rates of these belts are adopted at Rs.300/sq.mt., Rs.200/sq.mt. &
Rs.l50/sq.mt. respectively.
Value of 1st belt = 150 x 30 x 300 = Rs. 13,50,000
Value of 2nd belt = 150 x 45 x 200 = Rs. 13,50,000
Value of 3rd belt = 150x325 x 150 = Rs. 73,12,500
Total value = Rs. 100,12,500
. There are many many controversies connected with this belting theoiy. Some
valuers adopt this theory to value small/ and medium size plots also. Say plot with
30 meters frontage and 100 meters depth. Some valuers adopt this theory to
estimate rental values of shops having greater depths. Say shop having 10 meters
frontage and 40 meters depth. How far the result of application of belting theoiy in
such cases match with actual market rates prevalent for such type of premises is a
matter requiring full study and investigation. Unless such results are proved, it is
advisable not to adopc belting theoiy for small size plots and for rental valuation.
There are other approaches available to the valuer to value such types of
properties. Valuer can consider area of more useful portion of such shop and area
of less useful portion of premises and arrive at overall reduction in rate applicable
to entire area. Say in case of shop having 10 m x 40 m size , only front 10 m depth
is useful as shop with advantage of goods display area. Remaining 30 m depth is
less useful or say usable as only counter space or storage purposes. Valuer can
fc-opt two sets of rates, one for shopping user and another for godown (storage)
' ■■'.or. Valuer can also alternatively adopt an overall discounted rate , to account for
i^jrgeness of the shop. This shop having four times larger area than normal size
shops .in Lne locality, discount'in rate would be just and fair.
belting theory was evolved at the time when there were hardly any building
by-laws and development rules. The concept of Floor Space Index (F.S.I.) and
c v.wtruction of high rise buildings in the plot came up much later. Now a days it is
41
possible that on a very large plot of land (say 30,000 sq.mts. area) , only one or two
tower type buildings are constructed and entire remaining land area surrounding
these towers is kept open for amenities like garden, children’s play area, jogging
track, swimming pool, recreation club, health' center etc. In such an area, to value
land by belting theory would be an absurd proposition.
In some of the court judgements, courts have shown less inclination to adopt
belting theory. Plotting scheme is given more preference by courts to value large
size plots.
In case of Fabric Pvt. Ltd.9, Gujrat high court held “The method of valuation
by belts is arbitrary and artificial”.
In case of Collector of Jabalpur10,M.P.High court held “Where .large area of
land is. acquired, for being laid out in the smaller plots as house sites, allowance
will have to be made for the space which will be taken up for roads and also for
costs of laying roads and for providing other amenities”.
In case of Shersingh11, Supreme Court has held “We can not reject belting
theory on the grounds that belting theory is not normally adopted” .
In the subsequent case of Calcutta Metropolitan Development Authority12,
Supreme Court held “Adoption of belting theory method by High Court was not
proper” .
These judgements of Supreme Court cautions us that this theory can not be
blindly rejected or blindly adopted. We must therefore consider each case on merits.
In less developed area of small towns, with agricultural surroundings, where land
is ripe for development but demand for housing sites is not very high, perhaps
belting theory could be adopted in preference to plotting scheme method.
4.2.4 Hypothetical Plotting Scheme
This is more' scientific and rational method of valuing very large size plots in
one ownership. Like belting theory, there are certain preconditions for applicability
of this scheme also.
i. If sales of large size plots in the locality are not available then and then only this
scheme can be applied.
ii. Plot should be in developing area of town where demand for housing site exists.
It should not be in fully developed C.B.D. area of town nor should it be in area
where there is no demand for housing plots.
iii. The plot should be of sufficiently large size area so that it could be divided into
several small size plots, similar to plots in sale instances. Small plots made will
be with access from internal layout road of the scheme.
iv. Depth of the original plot should be considerably more as compared to road
frontage (Width). •'
It will be seen that large size plots outside town area have value as agricultural
land rather than potential N.A. use. Similarly large size plots in C.B.D. area will be
developed into tower structures rather than development of land by dividing plots
into small size plots. .
In case of Sp. Land Acq. Officer Elura13,Supreme :Court held - “Value fetched
by sale of small extent land can not be adopted for large extent land. Loss of land
for road and park, expenses for development should be deducted”-.
Thus plotting scheme involve planning housing sites in plots, laying out of
internal roads and other utility services in the plot and providing requisite amenity
area (Garden or Recreation Space) in the plot.
The manner of working out values of large plot, by Hypothetical Plotting
Scheme, is given below. . . .
In a large size plot, a valuer should first prepare a. hypothetical layout,
subdividing the large land into small size plots as house sites. Such hypothetical
layout (selected from many alternative layouts) should be best possible layout with
maximum area in saleable plots after observing D.C. Rules.
The internal road network and amenity space should also be planned in the
layout as per provisions of development control rules applicable to the town.
Wasteful planning by several internal cross roads should be avoided. Normally
15% to 20% of total plot area for internal layout roads is considered normal but
planning should be so economical which would consume minimum area of land in
the road: Similarly amenity space(Garden ) should be centrally provided so as to
benefit maximum number of plots in the layout. Generally as per D.O.rules, 10% or
15% of the total area is required to be provided for Garden space.
Area o f the small plots(House sites) in the layout should be as per general
demand in the area. In small size towns 1000 sq.mts. plots may be in demand and
in large size city 500 sq.mts. plot may be in demand. It may be vice versa also. If
plots for societies are in greater demand, larger size plots will be required. Plots for
personal bungalows could be as small as. 200 sq.mts.. for Row houses and 400
sq.mts. for independent bungalow sites. It all depends on local conditions and need
of persons in the concerned locality and market trend. In this hypothetical layout,
valuer may also plan a combination of small size plots and medium size plots. Say
medium size plots along main road and small size plots in interior. Valuer should
also see that all these plots also confirm to the standards prescribed, under D.C.
rules of the local authority, for layout and subdivisions.'
Having prepared a layout plan, a Valuer should find out and consider
prevalent rates of small size, plots in the locality.
' Valuer should then estimate values of each of the subdivided plots in the
layout scheme, depending upon advantages and disadvantages of each of these
subdivided plots in the layout by comparing them with lands/plots involved in.
instances o f sale.. Plot along main road may have full value. Plots abutting on-
internal layout roads may be 15% less in value than the rate of land estimated for
plots along main road. Some of the internal plots, in some cases, may even fetch
same rate as main road plots. The plots overlooking large central garden area of the
colony, may fetch such higher price. Generally corner plots inside the cck.iiy layout,
abutting on the colony layout roads, may or may not fetch higher raie , in spite
of return frontage. •.• . • '
All these rates have to be determined keeping in view general demand and
preferences given by prospective buyers of the locality, to various internal plots in
the proposed scheme. Plots over-looking garden may or may not fetch higher rate, if
demand in locality is not much or garden is not on wind ward side but on leeward
side. If topography of large plot is uneven; internal plots in low lying plots may sale
at greater discount than plots having level ground or higher ground. All these land
characteristics have to be considered while estimating land rates for plots in
hypothetical layout. . ; •
All these plots in the planned scheme may not sale immediately. Depending
upon, number of plots in the colony and general demand and competition by other
developers, sale of all plots may take 2 .to 4 years period. Investor and developer
undertaking such a scheme is' required to discount his offer for land, to account for
this delay in getting back his capital investment in the land. Some plots will be sold
initially and some in last year. Hence total receivable sum is generally deferred for
half the period of anticipated total sale period. This deferment of value is for-locking
in period of the capital investment in land, during which return on investment is
not likely to be fully available. This deferment would give ^present worth of full
receivable sum (Total realisation) by sale of all the plots. /
t * $ .
\
The Developer/investor undertaking such, layout development will be required

to incur expenses for providing infrastructure amenities .in such a layout. All these
expenses must be deducted from total receivable amount from sale of subdivided
plots. Such development works can be completed in stages slightly ahead of sale
plots. The period for completing development works can be considered, say ,one
year less than the period for sale of all plots and the cost of development works be
deferred for the average period for completing the development works.
Most of local authority insists for providing following amenities and the valuer
must assess its cost and deduct, the same from total receivable sum. • .
1. To construct internal layout road of required width as per norms. •
2. To provide road side storm water gutters to drain off rain water in monsoon and
avoid flooding in the plots and the layout area.
3. To provide street lights on internal roads as per prescribed norms.
4: To lay water mains in layout roads upto each of subdivided plots for supply of
water. •• •' • • •' ■
5. To lay Underground sewerage mains in road to drain waste water from each
building on the plot up to municipal sewer main laid under main road. In case
of unsewered area, this need not be provided as each plot will be having its own
septic tank and soak pit. If central septic tank is planned, its cost should be
considered.
6. To lay electric cable in roads and provide sub-station for electric supply to each
plot. . ’ !'............ ..............'.
7. To construct wall forgarden plot and to develop;garden for the use of the
residents. ' * > • " • ’■ ‘4
8. In addition to cost of providing above amenities, the valuer should also deduct
for the cost of Architects and Consultants fees .for planningand getting approval
of layout as well as for survey and demarcation of plots on site:and execution of
above stated amenities under his supervision.- •' •'
From the total amount receivable by sale of .all plots, valuer, should also deduct .
for following expenses. ■ -> ;.
i. Developer’s profit at 10% to 15% of total sale proceeds, i <
ii. Interest on borrowed capital, if any. . . .. . *. :
iii. Developers own remuneration, for spending his time and; energy in project. (In
addition to developer’s profit) ■.•! . : • -
iv. Advertisements; and brokerage charges which may be 1% to 2%of the sale price
of plots. •
v. Sale documents charges and solicitors fees for conveyances of plots.. These fees
- are usually adopted at about 1% to 2% of sale price. If cost is to be borne 50%
by the purchaser, as per the prevalent trend in the ..locality, lesser amount c a n .
be deducted. . ; ■» '■ r
vi. Registration and stamp duty ch;arges; Normally this is borne by the purchasers
but in some areas .50°/o of this charge-is borne by Seller/Developer.
Following example will explain how the value of large sizeplot is estimated
with the help of Hypothetical plotting scheme.- .............. ■• '•..........
.
Plan o f hypothetical, plotting scheme is also shown with the solution.

PLOTTING SCHEME LAYOUT PLAN
Figure-9
Example-5: An investor desires to purchase a plot sadmeasuring’

150m x 225m. size in out-skirts area of a town. Prevalent rate of small size plots
(400 S.M. to 600 S.M. plot area), in the locality, abutting main road, is
Rs. 1000/S.M. Garden area required to be provided is 10% of total plot area. Adopt
road width at 14 meter and 10 meters. Sale of all plots is likely to take 2 years.
Adopt road cost at Rs.200/SM, cost of laying services at Rs.20/SM. Architects fees
at 6% of cost of amenities. Assume Developer’s profit at 12% and expected rate of
return 9%. Ignore legal and stamp charges and adopt brokerage and advertisement
charges at 2% of sale price. Advice on fair purchase price of the plot b}' adopting
plotting scheme method of valuation . Also work out value of the plot by Belting
theoiy.
46-
Solution: A hypothetical layout is first prepared for the plot (Vide Fig-9 From
the fig-9 on the previous page, relevant details works out as under.
' * TOTAL AREA OF PLOT = . 150m X'225m = 33750 SQ.MT. .
* 10% GARDEN AREA = 97m X 35m ■ = 3395 SQ.MT.
* INTERNAL ROAD AREA = (AS PER Fig 9) = 6196 SQ.MT.
* GROUP ‘A’ PLOTS: PLOT NOS. (1) TO (8) = (8 NOS.)
* GROUP *B’ PLOTS PLOT NOS. (9) TO (26) = (18 NOS.)
* GROUP ‘C’ PLOTS: PLOT NOS. (27) TO (42) = (16 NOS.)
• In the above layout, Central garden of 97 m. x 35 m. with 3395 SM. area is
proposed. 14 meters and 10 meters wide internal layout roads are also proposed.
Total 42 plots are proposed which could be divided into'3 groups for value purpose.
Group ‘A ’ Plots : Along main road.
8 Nos. Plots each with size of 17 m. x 32 m. = 4,352 Sq.Mts.
Group ‘B’ Plots : (Overlooking Garden):
12 Nos. x 17 m. x 32 m. = 6528 Sq.Mts.
4 Nos. x 17 m x 42 m. = 2856 Sq.Mts.
2 Nos. x 16.5 m. x 35 m. =1155Sq.M ts.
- 10,539 Sq.Mts.
Group ‘C’ Plots : (Last zone 6 Nos. x 17 m. x 32 m. = 3264 Sq.Mts.
2 Nos. x 24 m. x 32 m .'' = 1536 Sq.Yds.
4 plots x 53.1 sq.mts. = 2124 Sq.Yds.
4 plots x 586 sq.mts = 2344 Sq.Mts.
= 9,268 Sq.Mts.
_ Total area of all 42 plots = 24,159 Sq.Mts.
Area of internal roads.
2 Nos. x 14 m x 64 m = 1792 Sq.Mts,
2 Nos. x 10 m x 117 m = 2340 Sq.Mts.
2 Nos. x 10 m x 35 m = 700 Sq.Mts.
1 No. x 10 m x 101 m = 1010 Sq.Mts..
2 Nos. 0.785 x 152 = 354 Sq.Mts.
• Total .road area = 6,196 Sq.Mts.-
. (18.36 % of total plot).
As plots with main.road frontage have value of Rs.lOOO/sq.mt., rate for ‘A ’
group plots is estimated at Rs.lOOO/sq.mt. Rate of T3’ group plots is estimated at
Rs.900/sq.mt., and rate of ‘C’ group plots is estimated at Rs.800/sq.mt. This
discount.of 10% and 20% is not a fixed percentage and it could vary depending
upon town, locality, demand and market trend, evidenced by instances of sale of
similar comparable plots.
>
tp)
Value of plots:
‘A ’ Group = 4352 sq.mts. @ Rs.lOOO/sq.mt. = Rs. 43,52,000
‘B’ Group = 10,539 sq.mts. @ Rs.900/sq.mt. = Rs. 94,85,100
‘C’ Group = 9268 sq.mts. @ Rs.800/sq.mt. = Rs. 74.14.400 •
Total realisation. Rs.212,51,500/-
As sale of all plots will take 2 years period, value is deferred for 1 year at 9% yield.
Present Value (deferred value) of land: •
= 212,51,500 x 0.917 = Rs.194,87,625/- .
• .Say Rs.194,88,000/- :••• (a) •
From this receivable value following expenses are deducted.
Cost of road construction : 6196 SM @ Rs.200/SM. =Rs. 12,39,200
Cost of amenity water 85 lig h t: 24,159 SM @ Rs.20/SM. =Rs; 4,83,180 '•
Cost of Garden development: 3395, SM @ Rs.l0/SM.. =Rs. 33,950 :
Cost of Architects fees 6% of Developer’s c o s t: Rs. 1756,330/- =-Rs. 1,05,380
Developer’s profit @ 12% of 194,88,000 Land value = Rs.23,38,560
Cost of advertisement & brokerage 2% land value. = Rs. 3,89,760
. Total ... . = Rs.45,90,030
•. ' Say Rs.45,90,000/- ...:(b)''
Net Realisable Value’ = Rs.194,88,000 - Rs.45,90,000
= Rs.148,98,000/- • ...(c )
The investor/developer can be advised to offer a sum of Rs.148 Lacsfor the
plot. ■'
Value of above plot can also be estimated by belting theory.We would take 1st
belt o f 30 m.depth, 2nd belt 45 m.deep and 3rd belt 150 m. deep. :
Land rate of 1st belt is adopted at Rs.lOOO/Sq.Mt. w
Land rate of 2nd belt is adopted at Rs. 666/Sq.Mt.
Land rate of 3rd belt is adopted at Rs. 500/Sq.Mt.
Value ofland: 1st Belt = 150 x 30 = 4500 S.M. @ Rs.l000/SM.=Rs. 45,00,000
2nd belt = 150 x 45 = 6750 S.M. @ Rs.666/SM. =Rs. 44,95,500
3rd belt = 150 x 150 = 2250 S.M. @ Rs.500/SM.. = R s.l 12,50,000
Total = Rs.202,45,500 '
• . Say Rs.202,46,000/- • I.(d) . '
It will be seen that value by belting theoiy is about 36% higher than the price
receivable in the market as worked out by Hypothetical Plotting Scheme Method.
Following points emerges out of comparision of working of above two methods.
i. No value of garden land and road land are adopted in plotting scheme but in
belting theory value of these portions of land is considered. In market no
developer pays any value for road and garden area as its F.S.I. is not available
for construction on the remaining land.
ii. Cost of infrastructure in plot is wholly ignored in belting theory.
iii. Developer cum investor’s profit is not considered in belting theory.
iv. Middle belt and rear belt plots are discounted at 33% and 50% under the
belting theoiy but in actual market, discount may not be so high and it could
range between 10% to 30% only.
4.2.5 Front foot value concept
In land valuation, various methods of valuation are adopted depending upon
situation, purpose and circumstances. Many a times State Govt, undertakes
developments of large areas of certain region or town portions, to give a boost to
economic activities in such areas Or to provide housing sites for LIG/MIG persons
in the society. After laying out of plots, infrastructure facilities are provided and
then plots are sold to the public. Land values are required to be fixed for various
factors of such area. Various authorities have evolved different norms and
coefficients to value plots based on road frontage, of plot interlinked with depth of
such plots. This concept is known as front foot rule.
Depth modification coefficients are prescribed in tables by different authors,
based on their experiences. Some of these authors are Somers, Harper, Hostman
and Jurrett. Most commonly used tables are Somers Front Foot Value Table. In
preparing this table 100’ depth is taken as unit: Front foot unit along the road is
taken as Linear unit say one foot. Then depth and area coefficients are applied to
work out value of plot having different width and depths to keep some uniformity in
land values in same, locality. Land rate working is done with the help of appropriate
table of the concerned author.
4.2.6 T.D.R. Concept
The T.D.R. concept, •which originated in U.S.A., has been adopted in India
under Development Plans of cities and towns and in.Development Control Rules
mainly with a view to enable. Municipal Authority to .acquire lands needed.for
public purposes without payment of compensation (in view of inadequacy of fund),
in. lieu of which T.D.R., is granted. T.D.R. is the short form .o f: “Transferable
Developments Rights”. Normally the owner o f . the plot holds the right of
development which is attached to the plot of land owned by him. But under this
T;D.R. concept, owner of the plot retains right for development which is detached
from the plot owned by him. This right is transferable and it-can be attached b y 1
sale to the other plots located in prescribed area (Receiving Zone) not belonging to
the owner. The only condition is that‘the land reserved for public purposes or roads
has to be handed over free of cost and free from any. type of encumbrances, to the
local authority and in lieu of the free surrender of the land, local authority would
award TDR rights which are tradable in the open market. Thus owner looses
ownership of the land ,yet he continues to hold development right of die
surrendered land which are transferable only to lands in receiving zone and
salable in the market:.
. 49,
This concept was first introduced in America. One of the town authority
wanted to develop certain undeveloped area of the town across the river passing
through the town. The local authority had1no funds for acquiring land and for
providing infrastructure amenities in said area. Group of builders came forward
and suggested that land required for public amenities could be made available free
of cost to the local authority, provided special extra incentive is given to the
builders in form of extra F.S.I. on their othe.r land. This is how concept of T.D.R.
was evolved. This concept was first introduced in India in 1991 in city of Mumbai
when new D.C. Rules 1991 came in to force under which T.D.R. is granted in lieu of
compensation at the option of the land owner. Now said concept is being introduced
in other towns of India also. •
Certain terms connected to T.D.R. concept are as under:
4.2.7 Originating Plot
The plot of land which is reserved for the public purpose or .road under
development plan and which is surrendered free of cost and free of any
encumbrances, to the local authority,.by the owners of the said plot, is called
originating plot. The rights for development generates, or originates from such
surrendered plot and hence such plot is called originating plot. In case where
developer carries out development of slum plot as per norms of town authorities,
right for development (T.D.R. for Slum) is granted against such originating slum
plot. In short , plot of land which generate transferable right for development ,is
known as originating plot.
Chennai Metropolitan Development Authority have used' the words “Export
Site” instead of words originating Plot. Concept of T.D.R. however remains same.
4.2.8 Receiving Plot
The plot of land on which extra F.S.I. is permitted to be developed, by .use. of
T.D.R., is called “Receiving Plot”. The development rights which generate from
originating plot gets attached to this receiving plot situated in the prescribed
Receiving Zone. Development rights received in lieu of compensation for originating
plot may be utilised on a single receiving plot or number of separate receiving plots.
T.D.R. generated from originating plot may or may not get attached to single
receiving plot. Normally it gets attached to number of receiving plots due to various
norms and restrictions prescribed for use of T.D.R. on.receiving plot. Again owner of
T.D.R. or development right holder may not wish to sale all rights in a single block.
He may choose to sale it in several parts, at different period of time, to. derive
maximum financial benefit out of such T.D.R. .
C.M.D.Authority has used the word “Import site” instead of word ‘Receiving
plots. Meaning is-however same. " • . .
4.2.9 Development Right Certificate (D.R.C.)
Development Right Certificate is the document or instrument issued by the
local authority, to the' owner of originating plot , in lieu of free of cost and free of
encumbrances surrender of the said plot , to the local. authority, for public
purpose including roads. This D.R.C. document is negotiable like a share certificate
50
of any public limited company with restriction' that T.D.R. can be utilised only on
the lands situated in the receiving zones, as prescribed in D.C. Rules'. This
certificate is held in the physical form and it shows complete details of originating
plot such as plot No., village name, area of plot, user zone in which it was falling
(Residential/Commercial/Industrial)., F.S.I. that was permitted on said plot and
name of owners of said plot. Purpose for which plot was reserved and acquired is
also indicated on the D.R. Certificate.
This D.R.C. also has on its reverse side, space to record details of sale or
transfer endorsements. All sales of T.D.R. are recorded on reverse1 side of the
certificate, indicating how much plot area (T.D.R.) is sold under each sale
transaction .Said endorsement also indicates the plot on which said TDR is
proposed to be utilised and name of the purchaser. When full T.D.R. (Total area of
originating plot) are sold off to different, purchasers , and no surplus area is left,
value of D.R.C. becomes Nil value and D.R.C. has to be surrendered back to the
local authority. Originally T.D.R. was permitted to be sold in lots of 50 sq.mts. only
but subsequently odd lots or any areas were permitted to be sold to suit to the
requirements of the purchasers i.e. receiving plot owners. This D.R.C. is tradable
and transferable in the market, for lands in receiving zone , like any other
negotiable instrument and the share certificates (DRC) is held in physical form.
Prices of T.D.R. goes up or down depending upon supply and demand of T.D.R. in
the Real Estate Market.
4.2.10 Development Right (D.R.)
When part of the plot is affected by Reservation and Development Rights are
used by same plot owner on remaining adjacent portion of the said plot, is called
Development Right or D.R. There will be no need for transfer of said right as it
could be utilised on the same plot from which TDR is generated. In such case
,originating plot and the receiving plot are not different but the same. However if
the owner o f the plot does not intend to use said D.R. on his remaining plot, he can
obtain DRC after free surrender of the affected land to the local authority. This type
of D.R. is found generally in case of plots affected by road widening (Set back) lines.
T.D.R. are generally given to the owners of those plots which are under Public-'
Reservation under Development Plan of the town. Reservation may be for Roads,
Garden, Playground, •School, Market, Hospital, Fire station, Drama theatre etc. In
lieu of free of cost and free of encumbrances receipt of such plots, local authority
grants certificate of development rights (Development Right Certificate) to the owner
of the plot who is so dispossessed of such land. The rights under these certificate
are Transferable and Tradable in the m arket Hence these rights are called
Transferable Development Rights. In brief this is called T.D.R.
4.2.11 Types of T.D?R. V* .
Depending upon the user for which originating plot was acquired (Surrendered '•*
free by T.D.R. holder), T.D.R. are grouped into following four groups.
i. General T.D.R. : T.D.R. originated, out of free surrender of plot reserved for
public purposes like Garcten, School, pk$sground etc. is called General T.D.R.
51
ii. Road T.D.R. : .T.D.R. originated out of free surrender of plot or portion of plot
. affected by new D.P. Road or road widening of existing municipal road.^Such
development rights-are called Road'T.D.R.
iii. Slum T.D.R.- : T.D.R. granted to developers, in lieu of carrying out
• redevelopment work of "Slum Area” p lo t , as’ per Government policy and norms,
is called Slum TDR. •
iv.-Heritage T.D.R. : Owner of plot on which "Heritage” building exists and when
RS.I. of such plot is under utilised and when such owner is • prevented to use
such unutilised F.S.I. on his land, Heritage T.D.R. is granted to owner which
corresponds to unutilised F.S.I. area in the plot. • ’ • ’
• 4.2.12 Norms for use of T.D.R.
Development Control Rules .of each .town prescribes its own norms and
regulations for use of T.D.R. on receiving plots.
In city of Mumbai following norms are fixed. ■.
i. No T.D.R. is- permitted in old town area called “City Proper” or main land
area.(The area between Colaba to Mahim/Sion’ ).
ii. T.D.R. is usable only on those receiving plots which are towards north side of
the originating plot or in the prescribed respective receiving zones.
iii. F.S.I. of originating plot is converted into permissible F.S.I. in receiving zone. If
50 SM. of T.D.R. is purchased from plot in 1.33 zone,. 66.50 SM. F.S.I. would be
permitted in receiving zone having 1.00 F.S.I. .
iv. If originating T.D.R. is from residential zone, it can not be used on plot in .
industrial or commercial zone and vice versa... . • * ••
v. Use of “General T.D.R.” on receiving plot should not exceed 40% of total area of
receiving plot. Use of Road T.D.R. should not exceed 40% of plot area.
Balance 20% could be in form of Slum T.D.R.
Total use of T.D.R. on receiving plot (In-addition to permitted F.S.I.) should not
thus exceed 100% of area of receiving plot. However 100% Slum T.D.R. is permitted
to be used on plot and there is no limit of 40% like Road T.D.R. and General .T.D.R.
These norms go on changing from, time to time as per policy of the Municipal
Corporation and the State Government. •
Development regulations of C.M.D.A. prescribes norms for use of T.D.R. It aiso
prescribes norms and limits foruse of furth r F.S.I. on receiving plots on account of
• T.D.R.. ' • ’ • ■' "
4.2.13 Valuation of T.D.R, owned by originating plot owner, is very difficult
due to different- norms and several restrictions. The difficulty also arise due to the
fact that rates of'land 'prevalent in originating plot locality is of little help in
* i • • ’ * • . * ’**
valuation because T.D.R. is usabie on several other plots in different wards and
different locality where land rates would be quite different. It may be higher or lower
(usually lower] than rates of land in locality of the originating plot. ■' 1 •
52
There are basically 3 different personînterested in the T.D.R. value and
hence value of T.D.R. has to be divided amongst- these, three parties.
i. Owner of originating plot is interested to receive compensation for loss of
development rights for the plot surrendered free of cost to the local authority.
ii.. The developer is the investor who buys T.D.R. for the development and to make
profit. He is an entrepreneur w h o. undertakes all responsibility of investing
funds in .purchase of T.D.R., finding out suitable receiving plot and pay
compensation to owner of receiving plot for obtaining development permission
for use of T.D.R. on receiving plot to construct new building on plot or erect
upper floors on existing building and sale it in the market at profit. For all these
management works and for taking risk Of development project, he would expect
considerable share as profit in the value of T; D.R.
iii. Third person interested in value of T.D.R. is the owner of receiving plot. Due to
extra development on the plot by use of T.D.R., there would be more occupants
in the property. There would be greater load on water, drainage, electricity and
security services. Amenities like lift, garden, play . area, parking jfacility,
swimming pool would also be subjected to congestion and over crowding.
Even if use of T.D.R. is not by raising upper floor on existing construction but
by. total new construction on plot from ground,, even then some of these short
comings like higher density of tenements, and overcrowding in the plot does exist..
Payment is made to these owners to compensate for these short coming’s or
difficulties- W e' can .also' s'ay' that payment, to the owners of receiving p lo t is the
share in profit of the developer for obtaining permission and 'N.O.C. for use of
T.D.R. on the plot. Looking -from any angle^ the -fact..-remains that owners of
receiving plot are the interested person in the value of T.D.R. Payment made to
receiving ’ plot owners is many a times galled “Royalty Amount” and. not
compensation.
• Due to these three interested persons, valuer hns the tough task of assessing
share of each one in the valufe of T.D.R. •• ••
The share of each person in the value does not remain'same in eveiy case buf
differs in every case.,.The shares .are. decided from three a n g l e s *: ••
a)' Value of land in'locality where originating plot is situated. '• - • '• *.
b) Value of land in locality where receiving plot is situated.
c) Share o f profit expected by developer for undertaking such , a development
project. J f
. . Let us take normal .case .where originating p lot.has -higher land ,value and
receiving .plots have lower land value.. Taking land,, value of .re.ceiying.plot as basis,
T^D.R. valu.e could be.diyide.d as under. . ■. . ; • . r, Vo.-
•i .*(a-L)- \.:20.%:.share-in value .to‘Receiving plot owner; '•
'• • (Royalty-Value) ‘ 1 - •*'•j'-
53
(b-1) 55% share in value to Originating plot owner
(Compensation Value).
(c—1) 25% share in value to Developer cum investor
(Profit Value)
Here 25% share is considered which may be divided between developer and
investor. Some, broker cum investor buy T.D.R. and hold with sole motive of profit.
They sale T.D.R. at profit when there is scarcity in the market.
In such case, 55% share may appear to be too low compensation for
originating plot owner. But in fact owners are satisfied with this amount for several
reasons. Compensation under Land Acquisition cases are always too low even with
30% solatium. Claimant has to fight in Court for several years to prove higher value
and full price may come in his hand after 15 to 25 years lapse of legal fight. As
against this T.D.R. value is immediately receivable. Again sale of T.D.R. can be
deferred or made in installments to obtain high profit by later date sale which is not
possible in land acquisition cases where land rate is fixed or frozen on the date of
acquisition.
There are cases where originating plot has lower land value whereas receiving
plots have higher land value. In city of Mumbai, Chembur plot (O.P.j and Juhu
Scheme plot (R.P.) is one such example, Jogeshwari plot (O.P.) and Borivali plot
(R.P.) is another example of existence of such a feature.
In such cases also basis of T.D.R. value has to be value of Receiving plot only.
However share of three interested parties would change drastically as under :
(a-2) 20% share in value to Receiving plot owner
.(Royalty Value). ’
(b-2) 35% share in value to Originating plot owner
(Compensation Value).
(c-2) 45% share in value to Developer cum investor
(Profit Value).
These proportions are adhoc and approximate. It would work well in the
market only if value of land in receiving plot area is pretty high as compared to land
values in originating plot area. But in case it is not so, share of originating plot
owner would increase and correspondingly share of profit of dpveloper would fall as
shown in a-1 and c-1 above..
This is the reason why T.D.R. available for sale in different locality has
different rates. Ideally, share of profit of originating plot owner should not be lower
than its land value prevalent in said original locality. But it ‘s not possible in evely
case. Generally in the market T.D.R. rates are readily available and known, which
are based on demand and. supply. Thus valuer has to decide only distribution of
shares between developer and receiving plot owner. Depending upon need and
54
profitability and locality of receiving zones-.^’shares of receiving plot owner and
developer could be estimated. It could be in proportion of 20:25, 20:45 or even
15:50. If share of originating plot owner is less than 35% say 25% of total value,
shares of other two could be 20 % : 55%. Thus lot of variations are possible which
makes assessment difficult. Generally value of T.D.R. is always lower than rate of
virgin plot of land in the locality of receiving zone due to these 3 parties interests.
However in poor class locality receiving zone, T.D.R. rate and land rate may be
same because of very low land rate. In such case developers share could be as low
as 10% or nil. Best source to find out value of T.D.R. in a locality is to inquire in the
market at what price T.D.R. is actually sold or is offered in the locality. Value of
T.D.R. depends primarily on supply and demand. But there is one unique feature in
supply of T.D.R. available in the market. As flow of T.D.R. is from all directions,
T.D.R. from better locality (High land cost area) has to compete with T.D.R. from
poor locality. (Low land cost area). Both T.D.R. have exactly same utility and out
put on receiving plot and hence locality of originating plot becomes less important
or of no consequence.
Some examples of T.D.R. would explain how different values and .shares of the
concerned parties could be estimated.
Exam ple-6: Owner of plot at “Parer surrendered plot to local authority and
obtained T.D.R. for 1950 sq.mts. plot. F.S.I. of plot is 1.33 and plot is in Residential
Zone. .T.D.R. is usable northwards at .Bandra where prevalent land rate is
Rs.35,000/Sq.Mt. and F.S.I. is i.00. Land rate at Parel is Rs.78,000/Sq.Mt. Find
value of T.D.R. receivable by the originating plot owner.
Solution: Land value of Rs.35,000/Sq.Mt. (Receiving plot locality), is taken as
base and shares are proposed as under:
20% Receiving plot owner = Rs. 7,000/Sq;Mt.
55% Originating plot owner = Rs.l9,250/Sq.Mt.
25% Developer’s share = Rs. &,750/Sq.IVlt.
Value of T.D.R. to owner = 1950 x 1.33 x 19,250 ,
= Rs.499,24,875/- Say Rs.499,25,000/-
In the above case, it will be seen that even with 55% share, owner gets Only
19,250 x 1.33 = Rs.25,602/Sq.Mt. which is too low as compared to rate of
Rs.78,000/Sq.Mt. at Parel. It is for the plot owner to decide as to opt for
compensation under Land Acquisition Act or to take T.D.R. rights for the plot.
Exam ple-7:.Find out value of T.D.R. for a plot at Chembur usable at Juhu
scheme. Land rate, at Chembur is Rs.l2,000/Sq.Mt. and F.S.I. 1.00. Land rate, at
Juhu scheme is Rs.30,000/- per Sq.Mt. and F.S.I. is 1.00. Plot area is 2500 Sq.Mts.
and plot is residential. •
Solution: Land rate of Rs.30,000/Sq.Mt.( Receiving plot locality), is taken as
base and respective shares are adopted as under:
55
20% Receiving piot owner • = Rs. 6,000/Sq.Mt.
35% Originating plot owner = Rs.l0,500/Sq.Mt. “
45% Developer’s profit = Rs.l3,500/Sq.Mt, . •
• Value of T.D.R. = 2500 x. 1.00 -x ;10,500 '= Rs.262,50,000/- ... . ... - ..
4.3 Various Land Measures
Having studied various characteristics of land and land theories, the valuer
should also know different measures of land that where prevalent in India in the
past in different parts of the country. Old documents of property and land title will
show details of land in these old measures. In order to value land correctly-the
valuer must know its conversion in British Units i.e. Square Feet’ Square Yard,
Acres 'as'well as conversion of these old land measure units in terms Of its
equivalent Metric Units'-i.e. Square Meters or Hectares. ' . . . ' •• •
4.401 Metric unit land measures are as u n d e r ' •
1 PO (Prati) = 1 Sq.Mt. ... .
, :: : (1 PO is written as 01 and 10 .PO. is written as 1 PO.) . ,
1 Are = 100 Sq.Mts. . • .*■ • : ; ; ■ . ...
1 Hectare = 10,000 Sq.Mts: . . • . -• --•• '
Conversion Factors in British Units are : •• • . • -• •
: 1. Sq.Mt. . =1.196 Sq.Yds'. ' . ••
1 Sq.Mt. = 10.764 Sq.Ft. . • • , .... ....... • •
4.402 Old land measures -prevalent; in different parts of our county were as under:
Northern India (Simla/Himachal Pradesh) •:•• • • •-.
1 Biswas = 4'5 Sq.Yds.'(405 Sq.Ft.) .*/“ [■■• •
1 Bigha = 20 Biswas-(900 Sq.Yds.) •■••• :. •• •- • ». . - </■’ ‘
1 Acre = 1742 Sq.Yds.'(1.936 Bigha) " v; './ '• *' •’ "
Eastern India (West Bengal/Assam/Bihar) : •

1 Chittak ' = 45 Sq.Ft.
' :.,.l Kottah ..; '=. 720 Sq.Ft. (80. Sq,yds..), . . . /;
'1; * (Kottah is also called KATHA) •= •. - • *• \
20 Kottah . '=* 1- Bigha (1600 Sq.Yds-.) " : ' '“ ■
' "" 1; Acre = 4840 Sq.Yds. (60.50 Katha/Kottah)'
Central'India-(Maharashtra/Karnatak)r r • •'
1 Anna = 7.562 Sq.Yds. (1/16 Guntha)
1 Guntha = 121-Sq.Yds. (16 Arinas) . .
1 Acre = 4840 Sq.Yds. (40 Gunthas)
,r, r‘s*'’
w■
itr--
5 6 129
Western India. (Gujrat state) : • . •
North Gujrat/Saurashtra: '
1 Vigha ■ 1936 Sq.Yds. (1 6 Guntha)
l'G u n th a= 121 Sq.Yds. ■ • 1
.1 Acre. = •2.50 Vigha = 4840 Sq.Yds.
•South Guj rat/Vais ad : .• ••••

1 Vigha = 24 Guntlia = 2904 Sq.Yds. • .................
1 Guntha = 121 Sq.Yds. • ••
1 Acre = 40 Gunthas = 4840 Sq.Yds. -. •/ . ..
South India (Tamilnadu /Kerala) : . •

1 Ground = 2400 Sq.Ft. . . . . •
1 Cent=435.60 Sq.Ft. •
1 Acre = 100 cents = 4840 Sq.Yds.
. It is illegal in our country, now, to use any land measures other than metric
units, yet in many, parts of our country ,persons connected with Real Estate
business quote in British Units and some, times in old Indian. Units. There may be
different land-measures in Vogue in different villages or towns of some of the States.
• •It is therefore advisable for a valuer to make local inquiry in collectorate or
with lawyers dealing in conveyancing to know meaning o f old land measures and its
equivalent conversion factors for land area in Metric Units;' ' " ‘
4.4 BUILDING COST
After study of land valuation, we can now study building valuation. Building of
any type is considered as improvements on land. Value of building primarily
depends on its cost of replacement or reproduction. It also depends on amount of
depreciation and its usefulness on the date of valuation. Various terminology used
in connection with the determination of building value are as under.
4.4.1 Historic Cost
It is the actual cost of construction in terms of money as actually spent- by the
owner, in. erecting a building on the, plot. It is the first time cost of acquisition of
building as distinguished from cost to the subsequent purchasers. This actual cost
is inclusive of cost of labour and cost of building materials and it also includes cost
of all works and services like civil, plumbing and. electrical ..works. This actual cost
may or may •not include contractors profit.- If building is erected under-.self
supervision and by giving-labour contract, actual building cost does not include
contractors profit which varies from 10% to .25% or-even more in som e.of the
special projects. — . . . .. .
4.4.2 Original Cost
To distinguish between cost to first owner and' cost to subsequent owners ,
accountants have coined this word ‘Original, cost’. In fact both Historic Cost and
Original Cost are.actual.cost to the owner but both are not same. If cost of building
in 1990 is Rs.5 lacs to the first owner, and it is sold for Rs. 10 lacs in year 2000 to
the new (Second) owner, Rs.Five lacs is Historic Cost of the building and Rs.Ten
lacs is original cost to the second owner. To distinguish between the actual cost to
the first owner of building (Cost when first -constructed! and actual cost to the
second owner of building (Price paid for existing building), the words Historic Cost
aîd Original Cost are used respectively. Original cost in reality is the Depreciated
Replacement Cost of the building or market value of the building to the new owner
of the building. However for the purposes of taking the amounts on balance sheet,
word “Original Cost” is generally adopted by the accountants instead of “Actual
Cost” or “Historic Cost”.
4.4.3 Replacement Cost
It is the most commonly used term while doing valuation by Cost Approach. It
is the cost of construction or cost of creating the new asset (Building/Machine),
having identical utility and performing similar functions , as is being performed by
the existing old asset, which is assumed to be replaced. The replacement cost in
reality is “cost as if new” in the year of valuation.
New asset need not have exactly same specification. It may have improved
specification in accordance with latest technology in vogue in .the year of valuation.
If old timber frame structure with load bearing walls ,could be replaced at cheaper
cost, say by putting up an R..C.C. framed building, replacement cost of old
building has to be estimated by assuming as if it is replaced today by R.C.C. framed
building. However it should be seen that builtup floor area of new construction is
exactly same as old building so that it has identical utility and it will perform
similar functions .
4.4.4 Reproduction Cost
This is most mistaken term in valuation. Many valuers make a mistake in
considering Reproduction Cost to have same meaning as Replacement Cost. They
therefore loosely use this word without understanding difference between two terms
‘Reproduction Cost’ and ‘Replacement Cost’. In fact, reproduction cost is the cost to
produce exactly similar asset i.e. exact replica (Mirror image) of the old existing
asset to be valued. It has not only same utility and functions but it also have
exactly similar specification without taking into consideration improved technology
or present day trend. Building Insurance for a “heritage building” or a property
having Historical background and with Ornamental construction, may require
special mention in the. insurance policy, about risk for insurance for “Reproduction
Cost” as new for the building, instead of insuring asset for “Replacement Cost” as
is usually done. Even in land acquisition matters also if ornamental building is
acquired, its depreciated reproduction cost should be considered instead of
depreciated replacement cost of the building.
4.4.5 Depreciation
This is the term used to indicate loss in money value of the asset due to age
and usage. It may be due to normal wear and tear due to usage, or due to
deterioration .and decay on account of aging process since its creation. It could be
due to obsolescence and inadequacy of the asset. Depreciation and various
methods of working out depreciation will be discussed later in this chapter.
4.4.6 Net Present Value
58
This term is used to indicate current value of the asset in the market. It is
worked out by deducting depreciation from- Replacement Cost or Reproduction Cost
of the asset. It is also known as “Depreciated Cost” of the asset. N.P.V. is worked
out from the formula:
Net Present Value = Current Replacement Cost r- Depreciation for age.
Under Cost Approach, the market value of the building or plant and machinery
is estimated by use of this formula. •
This concept of deducting depreciation from Replacement Cost, as if new, in
year of valuation, is based on two basic assumptions.
i. It is assumed that prospective buyer, a man of ordinary prudence, would first
consider what would be the cost to him, if he acquires similar brand new asset
from the market. (Reproduction Cost new).
ii. Second assumption is that such a buyer would also consider “How much less
he should pay” for the old asset (Depreciation) which he is actually getting
instead o f brand new asset.
In these assumptions, time taken for erection of a building or time taken in
installation of machine and going into production is not considered.
Another point to be kept in view is the fact that in these workings, Historical
Cost (Actual cost) of asset is not considered but Replacement Cost and in some
cases Reproduction cost is taken as base to deduct depreciation.
4.4.7 Types of Estimating Cost of Construction
There are five different methods o f‘estimating cost of construction.
i. Book Value Method.
ii. Flat Rate Method.
iii. Cost Index Method.
iv. Detailed Quantity Method.
v. Reinstatement Method.
Detailed quantity method is the most reliable method but it is very much
cumbersome and time consuming. Hence generally valuers prefer and adopt Flub
Rate Method or Cost Index Method of working out cost . of construction
i.e. Replacement Cost as new in the year of valuation. However Courts consider
detailed quantity method as more accurate method. In making a claim under Land
Acquisition Act for non marketable buildings like Temple, Museum reinstatement
method is always used.
4.4.7.1 Book value Method '
p u t of several methods of cost estimation, book value method is simplest. In
book value method, it is very essential to have correct and reliable Historic Cost of
the building. Some owners do not maintain proper books of account .Records of
historic cost of the buildings are also not very clear because phase wise, year wise
and building wise building costs are not indicated separately but are all clubbed
together in to one single figure. In all such cases, Replacement cost estimation by
59
this method will give erroneous result. Some factory owners include in the building
cost, machinery foundation cost also. Some others, club interest cost on borrowed
capital also with the actual building cost. Such figures are not useful in working
out replacement cost of building by book value method.
This method ,however ,is very much useful to arrive at present day cost of
special type of structures like Air-craft Hangers, Customised factory buildings -
designed for special industrial requirements , ornamental structures or public
utility buildings whose Historical Cost is known.
Following examples will explain how replacement cost (present day cost) of the
asset can be worked out with the help of Book value cost and Cost Index figures.
Example -7
A machine was purchased in year 1993 at the cost of Rs. 1,20,000/-. Cost
Index factor for year 1993 was 37.50 with base year 1960 as 1.00. Calculate
replacement cost of machine in year 2003 if Cost Index Factor for year 2003 is
87.50 with same base year.
Solution:
Replacement cost = Book Value x Cost Index Factor ^
= 1,20,000 x 87.50/37.50
= Rs.280,000/- \ ‘
It should be noted that this method of cost estimation as if new, should be
adopted only if price of similar new machine is not readily available from the
market. Some times when particular model of machine is no more manufactured or
imported machine is not available in the market, this method is very much useful.
This method of finding out Replacement Cost is also sometimes useful to cross
check reasonableness of the quotation for a new machine.
Example ^ 3
A factory building was constructed in the year 1985 at the total cost of
Rs.25,50,000/-. Work out replacement cost of said factory building in year 2005 if
Building Cost Index in year 1985 and 2005 were 14.16 and 96.25 respectively with
base year 1960 at 1.00. ■ . . . \ .
Solution,
Replacement cost of factory in year 2005 %//7
= Book Value Cost x Cost Index Factor'
= 25,50,000 x 96.25/14.16 ’ *
• = Rs.1,73,33,156/-
SayRs. 1,73,00,000/- ••
Sometimes some factories have special design criteria with heavy design load
consideration with long spans and excessive height. In such cases, working out
replacement cost from quantity survey method is difficult due to want of actual
structural design drawings. In such case this method is very useful. This method is
also useful to cross check replacement cost arrived at by other cost estimation
methods.
Example - 9
Boing Aircraft hanger was constructed at Mumbai in year 1998 at total cost of
68 crores. Dimensions of hanger was 121 M. x 88 M. Hanger height was 22
meters. Government now intends to build similar hanger today in 2005. Estimate
present day cost for proposed hanger by book value method if Building Cost Index
for year 1998 was 62.50 and for year 2005 it was 96.25 with 1960 base year at
1.00. •
Solution:
Replacement Cost of Hanger in the year 2005
= Book Value Cost x Cost Index Factor
= 68,00,00,000 x 96.25/62.50
= Rs. 1,04,72,00,000/
. Cost of construction rate for Hanger in 2005 :
= 1,04,72,00,000 • "
121X88 .
= Rs.98,347/- per Sq.Mt

4.4.7.2 Flat Rate Method: Flat Rate Method involves estimating the building
cost on the basis of unit rate of building area or volume and adopting flat rate of
'similar construction. The unit of the. area of the building, could be net carpet area
basis or total builtup floor area basis. It could also be based on the volume of
construction. Let us take a Building which has got following data.
Total Carpet Area of building = 500 Sq,Mts.'
Total Built up area of building - 650 Sq.Mts.
Total Cubic content of building- = 2000 Cubic Meter.
Cost of construction can be estimated by. adopting flat rate method by
adopting any one of the above three units as the barr of estimation. Result will be
same as under. . . .
Carpet area rate say Rs. 1000/S.M. Bldg. Cost . .
= 500S.M . @ Rs.l000= Rs.500,000/--
Builtup area flat rate of Rs.770/S.M.Bldg.Cost
=• 650 S.M. @Rs.770 = Rs.500,500/-
Volume content rate Rs.250/Cubic meter.Cost
= 2000 C.M. @Rs250-.Rs.500,000/- ■ •
The important aspect in coasidering and adopting tiiis flat rate is the
correctness of basic rates of construction, cost, which has to .be duly modified .to
arrive at flat rate applicable to the building under valuation. The basic rate of-
construction cost can'be derived from valuers own data bank, and compilations or
the rate could be collected from local Contractors or Architects by making inquiries.
61
Prevalent rates of building cost in urban area and nearby rural area will be
quite different. If a residential building costs at the flat rate of Rs.8000/Sq.Mt.
(Buiitup area basis) during relevant period of time in an urban area, it is very
likely that exactly similar building would cost hardly Rs.5000/Sq.Mt.,during same
period, in adjoining rural area. Thus not only specification of the building but the
locality of the buiiding is also equally iiriportant in fixing flat rate.
Before finally adopting flat rate, the vaiuer has to modify basic rate after
considering several factors of variation. The basic rate under data bank may have
some fixed specifications and standard design. The buildin j to be valued may have
superior or inferior specification which will call for suitable adjustment in the basic
flat rate. •
Adjustment is also required for other factors like shape and design of the
building. The building to be valued may have several offsets or having curved
shape, which will involve extra cost than rectangular shaped building. Adjustment
may also be necessary for design and elevation aspects. The building with heavy
architectural features would cost more than the standard type of design. Floor
placements are also required to be considered. Only ground floor building would
have much higher flat rate of cost as compared to the rate of cost for two or three
storied building. Floor Height variation also requires adjustment in flat rate.
If separate Data Bank of cost is not maintained for residence and factory
building, the valuer will have to make adjustment for the user of the building also.
Factory building do not have small size rooms like residential building. Number of
partition walls are very few and doors and windows are also less. Plumbing cost is
also much less in factory building; Building height is more for factory building. All
these calls fo r .adjustment in basic rate , if it is for reridential building. It is
extremely difficult to modify rate in such a manner. An experienced valuer is also
likely to commit an error if several adjustments are required to be made in basic
rate. It is better to -aôid such complex adjustment. Data Bank for factory
construction should be separate so that several adjustments are not required.
However adjustment for specification and shape variations are of minor nature and
it can be precisely done by an experienced valuer. ’ ." '
Exam ple-10: A low rise residential building (Area 600 Sq.Mts) is provided with
marble floors in all rooms. Plumbing and electrification works of the building are o f
concealed type. As per data bank of the valuer cost of standard residential building
in year 2010, in said locality was Rs.8000/Sq.Mt. Standard building will have
mosaic tiles floor and open plumbing and •electrification' works.Cjalculate
Replacement Cost of building in year 2010, if marble floor was costing
Rs.500/Sq.Mt. extra over cost of mosaic tiles flooring.
SolutiorirBasic Replacement Cost = Rs.8000/Sq.Mt.
Add :Extra cost for marble flooring = Rs. 500/Sq.Mt.
Total = Rs.8500/Sq.Mt.
• : 62
Add ; Extra cost at 10% of basic rate for concealed
Plumbing and electrification works. (25% - 15%) •= Rs. 800/Sq.Mt.
Adjusted Flat Rate . = Rs.9300/Sq.Mt.
Replacement cost in 2010 = 600 Sq.Mts. @ Rs.93bo/Sq.Mt.
= Rs.55,80,000/-
. The process of working out Replacement Cost of building is as under:
i. First the building is inspected and surveyed by the valuer. Overall
measurements of the building and dimensions of ail the offsets of the building
are taken and recorded. Measurements, of all the floors are also taken.
Projections or setbacks on upper floors are also meticulously recorded.
ii. Detailed specifications (Civil, Plumbing and Electrical) of the building is
recorded. Finishing of different rooms including toilets are also recorded.
iii. Actual buiit-up floor area of the building is worked out and then the same is
compared with municipal approved plan. If any unauthorised work is executed
•on site, the same is considered or ignored depending upon requirements of the
. assignment. If work is for cost of construction under Income Tax Act, actual
area is adopted. If it is for sale purpose, unauthorized area is normally ignored.
However valuer can also consider some discounted value for the
unauthorised portion of the building ,if the same can be regularised by the
authority as per policy of the local approving authority . Some government
have norms fixed to regularize such unauthorised works by charging' some
Im pact fee’. Some government have one cutoff date fixed to identify old
unauthorised constructions. Building built before such cut-off date are calied
'tolerated structures’ and the same can not be demolished by the authority. In
all such cases, some token value could be assigned even for such
unauthorised area. ;' .
iv. Having fixed total built up area, valuer can refer to his Data Bank to find out
Replacement Cost rate, for the similar building, for the relevant' year of
valuation.
v. If Data Bank for such building is not available, local inquiry is made with local
• contractors and Architects to find out prevalent cost of construction for such a
building. . .
vi. Adjustment in basic rate is then made for variations in .specification and type of .
design and aesthetics of the building.
vii. If development works cost is not included in basic building rate, cost of •
compound wall, pavements etc. should be separately added.. -
viii. Final replacement cost is worked out as if new in relevant year of valuation.
ix. Depreciation is then allowed for past age of the building.
x. Net final value = Replacement cost - Depreciation.
63
Compilation for cost of construction ( Sample of Data Bank) ,for a standard
residential building , should be prepared by eveiy valuer, for his own personal use ,
for the area (Town or City) in which he is practicing. Cost Index multiplier factors
for the different years can also be worked out from this data bank with respect to
one fixed base year. However all these figures will be specific only for the valuer
who prepared it and it- will change from person to person and town to town.
However the multiplier factor worked out from cost rates would certainly indicate
price rise or fall (trend) in cost of building materials and it would also include
variations in the labour rates , in the said locality, from year to year.
4.4.7.3 Cost Index Method
This method is mainly devised and adopted by Central P.W.DS Engineers, for
working out quickly, the cost estimates of a building proposed to be constructed
by the Central Government, in different parts of the country. These block estimates
are not very precise and the same are prepared only for the purpose of obtaining
administrative approval of the project and for budgetary sanctions of the project.
For tendering and actual execution of the building, detailed quantities of the
building are worked out and fairly accurate estimates are prepared.
In cost index method, for the preparation of the basic Cost Index as well as
subsequent Cost Indices following procedure is adopted. First one base year is
selected . Then standard building design as per government norms is selected.
Detailed quantity of said building , is worked out as per .standard Government
specification. The cost per unit area rate for the said building is worked out for said
building ,for the said base year ,as per the rates of various building items prevalent
at that time in Delhi. This rate is taken as the base rate of the building , for the said
base year having Cost Index of 100. Say for base year 1-1-1992,with Cost Index
100, building cost for an R.C.C. framed building is fixed at Rs.2810/Sq.Mt. for
residential building up to. 6 storeys, for the Delhi city .. This rate is arrived at by
adopting prevalent rate of building materials and labour in Delhi City, in the year
1-1-1992.
In building cost index method, Replacement Cost .is worked out from.some
fixed base year as determined by C.P.W.D. At present, C.P.W.D. has adopted 1-10-
2007- as base year with Building Cost Index at 100 for city of Delhi. By this
method, cost index of any place in India can be worked out for any year by
comparing cost of building materials and labour in subject town with rates of
building materials and labour in Delhi in year 2007. This difference with
appropriate weightages for the different materials, could give cost index for relevant
year subsequent to year 2007.
Previous base years norms adopted by CPWD were 1-10-1976 , 1-1-1992 and
1-9-1999 with cost index at Delhi in the said years as 100. This method is mainly
used for cost estimation of Government buildings with government- style
specifications. On going through norms and basis adopted for the base year 2007 it
is felt that it is advisable to use 1999 basis or 1992 basis for examples.
64
•\<>
Replacement cost on the similar lines can be worked out by adopting- 1-10-
2007 as base year. Building cost for the residential building in Delhi, as per 1-1-
1992 cost index aslOO, was Rs.2810/Sq.Mt. Now if Cost Index of Mumbai in 2005
was 250 as compared to 1992 base index 100, Building cost for residential house in
Mumbai, in year 2005
= 2810x2.50 = Rs.7025/Sq.Mt. . . .
. In the end annexure, CPWD norms for 1992 base year are given for study.
Cost of framed construction in Delhi as per 1992 year as base was
Rs.2810/Sq.Mts. Said replacement cost rate is now fixed at Rs. 9000/Sq.
Mts.under base year Oct. 2007 C.P.W.D. norms .
Cost Index for the years subsequent to 2007, are worked out by considering
price rise in the market in building materials as well as in labour, in Delhi area, in
the year of valuation. Cost Index is then worked out by comparing rates of material
and labour in base year 2007 vis-a-vis rates in year of valuation say 2010. If cost
index for Delhi works out to 124 in 2010 against base year 2007 as 100, then cost
of building in 2010 will be estimated at 9000 x 1.24 =11,160/ Sq.Mts. Basic Cost
Index as well as subsequent Cost Indices ,for the other cities of the country , are
also worked out in the similar manner by considering price variations in building
material rates and labour cost in the base year at Delhi, vis-a-vis cost of materials
and the labour , in the year of valuation, in the town or city of the subject property
' under valuation.
• As stated above, the basic rate for cost of residential building, i.e. Rate of
Rs.9000/Sq.Mt. , for the city of Delhi, is based on cost of building materials and
cost of labour as prevalent in Delhi, on 1-10-2007. Hence if rate of residential
building in Chennai is required to be found out, for the year say 2010, the valuer
has to find out cost of materials and labour in Chennai in year 2010 and then
compare it with rates of materials in Delhi in base year 2007. By this comparision
process, valuer can find out cost of residential buildings in Chennai for year 2010
in comparision of Delhi rate of 2007. If cost index of 2007 is taken as 100 and i f
rates of building materials in Chennai in 2010 are 35% higher, as compared to the
building materials rates in Delhi .in year 2007, Cost Index of Chennai will be
considered at 135 for the year 2010 with 2007 as base year..
Rate of cost of residential building in Chennai in year 2010 will be worked out as:
Rs.9000 x 135/100 = Rs.l2,150/Sq.Mt. in year 2010.
Though this, method prima facie appears to be absurd, it does give some idea
of comparable costs, in different years, in different areas, because basis adopted is
building material rates and labour rates in different areas during different period.
This method invariably calls for adjustment in basic rate arrived at’,from cost
index working. The reason" is that basic rate as per C.P.W.D. Data Bank for year
2007 is for some fixed and standard specification. The proposed building in
Chennai may not have similar specification. This will call for adjustments in
Indexed Building Cost Rate for the purpose of replacement cost.
In this method, C.P.W.D. Data Bank( viz. plinth area rate memorandum with
four annexures), gives different basic rates for office building, schools, Hostels and
residential building for relevant base year. It also gives norms for factors of
adjustment for variation in floor heights, plinth heights, foundation depth etc.
C.P.W.D. changes this Data Bank figures after certain period say 10 to 15 years.
The above referre4 CPWD memorandum (Data Bank) along with annexure I
and annexure IV are in Table given at the end of this chapter. For details of
annexure II and annexure III of the memorandum ,which are not included in this
table ,a reference is requested to the Director General (Works) CPWD, Nirman
Bhavan, New Delhi. For 2007 norms also same authority may be contacted.
Normally different district Superintendents publish Cost Index of their '
respective areas, from time to time, with 1999 or 2007 as the base year. However
this Cost Index of specific town or village area can also be worked out directly , by
collecting rates of building materials and the labour in the concerned locality and
by using cost weightages given in the Annexure IV of this C.P.W.D. memorandum.
In this annexure, method of working out Cost Index is given. There are nine items
of building materials and labour which are considered for working out new Cost
Index. Appropriate weightage of these 9 items are also fixed. The technique of
working out new cost index lies in comparing building material and labour rates at
Delhi in base year , with the prevalent rate of building materials and labour in
required town area, in the valuation year. Following example will explain the cost
index working .1992 is 'taken as base year for the working.
It will be appropriate to mention that this Cost Index has to be worked out as
laid down in proforma Annexure JV of CPWD memorandum reproduced in the Table
at the encj. of this chapter. . *
Example-11:'Calculate Cost Index of a small town Vallabh Vidya Nagar in
Gujrat for the year 1997 , by adopting 1992 as the base year. Rates o f all 9 items at
Vallabh Vidyanagar for the year January 1997 are also given as under.
Solution:
Rates of 1992 at Delhi and weightages are adopted as per Annexure-IV
(a) (b) (c) (d) (e) (0
Weightage of New Cost Index
Rate as on Rate on Jan.
Items of Units of Mat &
1-1-92 At 1997 ff = —xe
d
Material/ Labour. Items Labour
Deihi . V.V.Nagar c-
Bricks 1000 Nos 800.00 850 16.00 17.00
Sand C.M. 146.00 124 4.00 3.40
Aggregate C.M. 185.00 247 4.50 6.00
Cement 100 Kgm. 213.28 250 19.00 22.27
Timber C.M. 12334.00 31752 9.50 24.45
Steel 100 Kgm. 1342.50 1350 23.50 ' 23.63
Mason Each 55.71 130 8.00 18.67 .
Carpenter Each 55.71 130 3.50 8.16
Beldar Each 34.30 45 12.00 . 15.74
100.00 139.32 '
From the above working of the costs ,we can conclude that the Cost Index at
V'.V. Nagar in January 1997 = 139 as compared to the cost indeix o f 100 at Delhi
in January 1992.
Following example will show how this Cost index figures are used to find out
cost of building in different'years at Delhi as well .as other "towns of our country.
Example-12:- An R.C.C. framed building at Delhi, in 1-1-92 would cost
Rs.2&10/Sq.Mt. If Cost Index of V.V. Nagar is 139 in 1997, calculate rate of cost of
construction for similar R.C.C. building at V.V. Nagar for the year-1997.'.
Solution: Rate of cost of construction in 1997 at VvV. Nagar: • •*
• • ' = 2810 x 139/100 = R s’3905.96 Per Sq.Mt. \
Say Rs.3906/- PerS.M.
* ’ *
There are different views on the'correctness of.this method.
i. First of all, the plinth area rates and weightages are for Government buildings
having special type of economic planning and economic specifications as
stated in Annex.II of CPWD .memorandum. Buildings ini private sector are
having quite different specification and this will call for many many
adjustments in plinth area" rates derived from Cost Index calculations. So many
adjustments in basic rate will defeat the very purpose of Cost Index Method!
ii. The weightages adopted for 9 items under Cost Index proforma (Annexure IV)
may also be true for Government buildings and not for private sector buildings.
If we look at these weightages, we will find that for R.C.C. framed building
weightage for bricks is adopted at 16%. This is too high. It will not be more
than 5% for framed building. Timber is taken at 9.50% weightage because
wooden windows and doors are not permitted for Govt, buildings. In fact in
private buildings, use of wood is as high as 18%. Most important item viz. floor
tiles in rooms and toilet block is totally ignored in this working. In actual
private construction buildings , cost of floor tiles and dado is as high as 8%.
Even if we consider October.2007 C.P.W.D. norms and weightages, we
will find that there are 13 items taken for weightages-which includes tiles and
paint. But surprisingly important item of tiles is given weightage of 3 ., same as .
paint weightage 3. Tiles cost in any modern building in private sector can not
. be less than 8 % of civil work cost. Similarly weightage for. wood items is
further reduced to .5 % . More over instead of restricting to only civil work items •
they have included items like pipes, lamps and .fans, wires and cables-and
motors and pumps in the weightage list of 13 items. Obviously this base can
•never reflect true civil work cost of the building. •.■•••
Thus basis of arriving at New Cost Index viz. weightages adopted for
buildings itself is not beyond doubt and needs Correction.
iii. The same weightages are adopted and used for all types of buildings i.e. load
bearing structure, R.C.C. framed building, residential building, school building
etc. Weightages of building materials for all these types of buildings vary
•substantially. Atleast weightages for R.t£.C. framed and load bearing structures
should be prescribed separately. ’
iv. Another limitation of this method is the fact that it does not provide for
adjustments for different type o f . building materials adopted in building
construction in different parts of the country. In some parts like Assam, wood
is extensively used in building construction ,as said. material is readily
available very cheap, locally. Similarly in the other parts like Maharashtra,
Rubbles and stone are extensively used in construction, as it is available very
cheap locally. In Rajasthan, large stone slabs are used as floor and ceiling
materials instead of R.C.C.slabs. These aspects are not' considered, in the
CPWD-annexure IV and basic rate costing. . *.
v. Again concept of arriving at building cost for year 2010, in any town of this vast
country, from basic cost of building at Delhi in year 2007, itself prima facie
appears illogical and unscientific. State wise basis would be more appropriate.
vi. This method is adopted by C.P.W.D. Engineers for cost estimation purpose
before construction and not for arriving at fair cost, of completed buildings. In
valuers practice, this method is adopted to fin d . out . actual cost, of the
completed buildings for Income Tax purpose or to find out replacement cost of
such existing building for sale or Bank mortgage purpose.
For approximate cost estimation of building which is yet to b e .constructed,
this method may be appropriate .Some approximation In such cost estimates will
not materially damage budget provision. But for actual cost of building estimation
or for sale and purchase and mortgage purposes, where higher precision in cost
estimation and higher degree of accuracy is required in estimation process,
adoption of this cost index method may not be proper. It may not completely satisfy
expectations of valuers and users of valuation report. In all such cases , adoption of
detailed quantity method of working out building c o s t, would be more appropriate.
With all these limitations also, this method can not be totally ruled out as a
useless method. What is required is suitable modifications to remove its limitations.
This Building Cost Index for any locality can be worked out from prevalent
rates of building materials and labour, in the locality, in respective years. C.P.W.D.
publishes for their departmental use, such indices fo r. different towns-in India.
Several practicing valuers have their own data bank ,of cost of construction for past
several years, for the locality where they practice. These details are compiled by
them on the basis of their personal experience during *-heir practice. Some, other
valuers ,who do not plan and supervise buildings themselves , collect relevant data
from their friends who are practicing as Architects,’ Engineers or Contractors. With
the help of this data , Data Bank of Building Cost Indices for the different year can
be compiled and updated from time .to time.
A valuer can make his own proforma with his own weightages as found by him
in his area or state. Even rates of building materials and labour for base year, could
be as prevalent in his own state instead of Delhi rates. This will give more
authenticity to this method. However while doing such drastic changes , care must
68 .
be taken by the valuer to work out in great detail basic quantities of building
materials and labor required for standard type of building in his area.
' ■a
Even detailed quantity of all building items and market rates of all such items
including cost of plumbing .and electrification works for the base year will have to '
be worked out and preserved for proving or for evidence at later date. Only then
adoption o f such a modified Cost Index calculations and weightages will be
acceptable by the concerned authority or the Court.
The example given below shows the method how Cost Index Method could be
favourably used with any base year , if valuer has authentic data of prevalent
material rates for base year and current year and also correct weightages of
building materials used in construction.
Example-13: A valuer practicing in Mumbai has worked out following
weightages for low-rise R.C.C. framed building (G + 3) in suburban areas o f
Mumbai for the base year 1980. Rates of building materials and labour in the
locality as in 1980 are also given. Cost of R.C.C. framed building as per these
weightages and rates as in 1980 was Rs.75/Sft. excluding cost of plumbing and
electrification works. *
Calculate Cost Index for same locality for year 2004 from cost of building
materials and labour given below. Also calculate total cost of 10,000 Sq.Ft. R.C.C.
framed building for the year 2004 if plumbing and electrification cost is 18% of civil
cost. ' .
Solution
Item o f Rate at Mumbai Rate at Mumbai Weightage New Cost

Unit of
Material/ 1-1-1980 1-1-2004 Index
Material = — xC
Labour A B C A
Bricks 1000 Nos. 300 2000 ' 4.80 32.00’ ' .
Sand • CM 85 530 5.80 36.00
Aggregate CM 88 714 . .. '3.20 •• •* 26.00 •
Cement 100 Kgm 54 . 300 • 20.70 • 115.00
Timber- CM 550.0 • : . 44100- - • 18.40 147.50 • .
Steel •100 Kgm 442 2200 ,18.10 90.00 • ••
Tiles 10 Sq.Mt. 350 ...1200 9.10 31.20 .
Mason Each 40. .. 150 :,6.22
Carpenter Each 35 • • •: 150. .4.14 18.00 . ••••.. • .
Coolie , Each .8 . 60 ■ 9.54 ,72.00 •
%• .• 100.00 591.00 ••••
Cost of construction, {civil works) in 2004 = 75 x 591/100
• •" •, = Rs.443.25/SQ.Ft.
Add : 18% for plumbing and electrification = Rs. 79,78/ Sq.Ft.
Total cost = Rs.523.03/Sq.Ft.
•’ Say Rs.523/-Per Sq.Ft. ' ‘ l ; "‘ '
Total cost of building in 2004 = 10,000 x 523 = . Rs.52,23,000/- ,
4.4.7.4 Detailed Quantity Method
This, is most reliable and accurate method of valuation fo*; cost estimation
purpose for a building. This is therefore most favourable method of CourtslaTso. (i)
In this method, detailed quantities of all civil work items, carried out in the
completed building , are worked out.
(ii) Then prevalent .rates of such civil works items, as quoted in market in year
of valuation ,are adopted. These details will give correct cost estimate of the
building. '
. .. Normally current scheduled rates of P.W.D. of the concerned locality, for
relevant.year of valuation, are adopted. However some valuers adopt C.P.W.D. •
scheduled rates and some valuers, adopt quoted or tendered rates of civil work
contractors for the concerned year for construction works in private sector. Any one
of these rates can. be adopted , provided, the valuer is able to prove and justify
that said rates did prevail in the market, iii the concerned locality, at the., relevant
period pf time. Valuer can also prove correctness of these rates by independently
deriving item rate working, from Rate Analysis of particular civil work items which
would be based on the prevalent rates of the building materials and labour rate, in
the locality, in the relevant year. . ••••..•
Though quantity surveying methods are outside the scope of this study
material, it is considered proper to atleast appraise the student of the various
important civil work items of the building for which he is required to work out
quantities and c o s t, to arrive at total cost of the building. •
Major civil work items.for R.C.C.. framed residential building with its working
units are given below in brief. Detailed specification ;of these items are not given for
obvious reason.
CM = Cubic Meter SM = Square Meter R.M. = Running Meter
Excavation in soil/rock ... CM R.C.C. floor beam < ' CM-- .
Foundation concrete(Mix) . ~ ; CM R.C.C,. columns •• . CM- •'
R.C.C. footings ( M200) ••• -.CM 22.5 cm Brick work • .SM ..
R.C.C. plinth beams. •. CM 15.0 .Cm..Brick w ork-•• . . • SM • •! .
Plinth brick work SM Niru finish plaster .. SM
Murum filling in plinth ::-.CM Sand finishplaster • SM
Rubble soling plinth : . SM Teak wood panelled door SM
Plinth bedding confcrete ‘.-‘.SM T.W. flush door fr & shutter SM-
R.C.C. staircase steps • Nos T.W.glazed window /shutter SM
R.C.C. slab : . SM. T.W. louver.ed. windows- .- . . • SM/
R.C.C. chhajas ... .SM Terrace waterproof coba SM
R.C.C. lofts “ . SM Cooking platfqnn No.'
Steel grills in window open: SM Oil paint wood work SM
Alu.-Glazed sliding window SM Lime wash’’ SM
Mosaic tiles flooring SM Cement paint * ■' SM
Kotah tiles flooring • SM • Grooves and patta work :: .• RM
Ceremic tiles flooring SM *
Glazed tile flooring/ dado sm '
Marble stone flooring SM
70
.The above list is not exhaustive and there could* be many more such items in a
building. .
. Some Architects/Engineers pay separately' for concrete work and steel work.
Some others specify kilogram/CM of concrete work and include steel and concrete
in single item. Similarly some, architects/engineers pay separate for door, frame
and separate for shutter. All these variations are bound to exist. Valuer can ^dopt
any methodology or style prevalent in his area, ,but he must not miss any civil work
item of the subject building , in the total quantity'list.-'
Massive work is generally done in parts. So instead of explaining quantity
working of the whole building, we will do a miniature sample study of quantity
working of a small compound wall as stated in example given below. • •
Example-14: 30 m x 30 m size plot was having one side fencing and on other
3 sides brick wall of 22.5 cm thick brick was existing. Brick wall'has 1.60 M height
above ground and with .0.80 M. depth of excavation. Calculate cost of. erecting brick
wall in piace of fencing for year 2010.
Solution: It is proper to work out cost of 1 meter length of compound wall
first. •. '
(A) Quantities of civil work items are worked out as under:
(1) Excavation 1 m. x 0.80 x 0.50 = 0.40 CM
(2) Plain cement concrete 1.00 x 0.50.x 0.15 = 0.08 CM
(3) Brick wall. Below ground 1.00 x 0.65 = 0,65
Above ground 1.00 x 1.45 = 1.45 = 2.10 SM
(4)i Concrete coping 1 .0 0 x 0 .3 5 x 0 .1 5 = 0.05 CM
(5) Cement plaster - Wall 1.00 x 1.45 x 2 = 2.90
Coping 1.00x0.78 = 0.78 = 3.68 SM
(B) Cost o f 1 meter of compound wall (Rates of items as per market rates in relevant
year of valuation). * •.
i. Excavation • 0.40 cm @ Rs.220/CM = Rs. 88.00
ii. P.C.C. ' 0.08 cm @ Rs.3400/CM = Rs. 272.00
iii. 22.5 cm. Brick wall 2.10 sm @ Rs.600/SM = Rs.1260.00
iv. Concrete coping 0.05 cm @ Rs.3400/CM = Rs. 170.00
v. Cement plaster 3.68 sm @Rs.280/SM = Rs.1030.00
Rate per R.M. • =Rs.2820.00. ,
Total cost of new.compound wall = 30 R.M. at Rs. 2820/R.M.
. = Rs.84,600/--- •
•\ Say Rs.85,000/- .
71
After working out civil work cost estimate of the building by any of- the
aforesaid method, the valuer has to add for cost of amenities and development
works as well as cost of services of professionals, to arrive at final cost of
construction of the building. These items are listed below as: .
a) Internal amenities . ■
b) External amenities * •
c) Cost of professional fees of the consultants & cost of providing special services.
(A) Internal amenities o f the building:
1) Internal electrification and wiring works, fixtures and fittings and electrical
ELCB on each floor.
2) Internal plumbing pipe works, fixtures (W.C.pan ,Washbasin & Geyser) and
fittings. •
3) Overhead and underground water storage, tanks.
4) Passenger lifts, if provided. ...
5) Intercom system from security post to each flat in the building.
6) Protective fire fighting dry or wet rising mains provided with fire fighting water
storage tanks, pumps and fire extinguisher equipments..
(B) External amenities o f the building.
1) Main electric cable and main water pipe connection for the ^building.
2) Internal roads and drive ways in the plot. .
3) Garden development, landscaping and children’s play, area development costs.
4) Compound wall with gates for the plot. .. • ••
5) Cost of watchman’s cabin/security, post hear entrance.
6) Pump room with pumps cost.. : •
7) Plinth protection concrete pavement for the building. '.
8) Servants quarters and servant’s toilet block if built separately. " :
9) Swimming pool, if provided.
10) Sauna bath/Health club/Gymnasium, if provided: -
11) Septic tank and soak pit cost ,in cases where no under groundsewersystem is
provided by the local authority. . . . ;
12) In society or condominium buildings, Dish Antenna or • central . cable
connection, Jogging track, if provided.
13) Electric sub-station and such other external amenities.
(C) Cost o f various services and professional fees o f the consultants should be
considered and added to the civil work cost:
i. Pest Cohtrol*and Anti Termite treatment done for the building.
ii. . Cost of structural engineer’s professional fees.
iii. Cost of Architects professional fees. ' * •
iv. Cost o f' services of other consultants like landscape Architect, elevation
consultant and Vastu consultant, Air Conditioning Experts, electrical and
plumbing consultants for tower type buildings.
v. In case of society building or condominium, total cost of the building should
also include for common services. like society office, cost of car parking, stilt
area or separate garages, entrance hall area and podium area, refuge area or
the refuge floor, for the fire escape of residents.
vi. Some of the office buildings.are having in built central A/c. system. Its.cost
should also be added in the total building cost. •:
4.4.7.5 Reinstatement Method
. This method of estimating cost is similar to Detailed Quantity Method of cost
estimating, with a difference that depreciation is not deducted. from reproduction
cost. As stated earlier this is normally used while filing clairn^ under Land
Acquisition act for the non marketable properties like Temple, Masjid etc.
Even while insuring House or factory, some owners insure the building for
Reinstatement value and not for the Depreciated Cost basis. Here also full
reproduction cost is considered without, deducting depreciation.
When any religious building (Temple/Masjid) is required to be shifted due to
land acquisition or road widening, government or local authority reinstates the said
structure elsewhere or gives full compensation for reinstatement by owners.-.
In order to reinstate such building, suitable alternative and equivalent open
land in the same or nearby locality is granted and building providing similar/same
facilities, amenities etc. required for purpose as provided in existing structure but
without any. extravagance and ornamentation is constructed where such original
purpose can be served or activities performed. The cost of purchasing such
equivalent open land and cost of construction of such building is wholly considered
as value for reinstating such religious or public building.
Since the original purpose is to be reinstated in newly constructed building,
NO DEPRECIATION is allowed or deducted. .
In addition to above costs, the cost of shifting of articles, objects etc.-in the
original building e.g. cost of Religious Functions for reinstating the Deity etc. are
included in the total value of such building, estimated by Reinstatement Method.
This method is usually required to be followed in acquisition of such religious or
special public buildings . (which are rare cases) under the provisions. of -Land
Acquisition Act.
4.5 Depreciation Methods
As stated before, it is necessary to allow depreciation from -the replacement
cost of the building to arrive at net present value of the asset. It is therefore
necessary to first learn the meaning of word depreciation and also learn various
methods o f depreciation as discussed below.
Depreciation is an important concept, which enables a person to find out
wearing out of the capital value of an asset whether it is a movable asset like
machineries, vehicles or an immovable asset like buildings. Land is considered to
be an undepreciable asset, though some land do depreciate in value because of
erosion or damage to land due to natural forces like earthquake and Tsunami. All
businessmen, industrial entrepreneurs, tax experts and financial institutions are
seriously concerned about this vital factor which erodes the value of capital
invested in immovable or movable asset (Buildings/Plant & Machinery).
It is common experience that physical objects are subject to wear and tear and
deterioration whether in use or not. Depreciation can be therefore defined as “loss
in service value due to usage of an asset and passage of time”. This loss in value
cannot be restored back by current maintenance.
In case of Workmen N.G. Bank V/s. N.G. Bank (A.I.R. 1976 S.C. 611)14,
Supreme Court of India defined “Depreciation” as “Decrease in value of the property
through wear, deterioration and obsolescence”. ' '
There are four types of depreciations.
i. Physical depreciation.
ii. Depreciation due to economic obsolescence.
iii. Depreciation due to functional obsolescence.
iv. Depreciation 'due to technological obsolescence.
4.5.1 Physical depreciation
; This is very common! The physical depreciation occurs due to usage of the
asset. It is the normal wear and tear of the asset. All similar objects do not observe
similar depreciation. Quantum of this depreciation depends on several factors.
i. Manner of usage: If the property is properly used it will observe normal
depreciation but if property is roughly used ignoring basic principles for its
usage, higher depreciation will be observed. We find that well maintained
building has longer life span than the building which is subjected to neglected
repairs for years. Similarly machine used for 1 shift/day lasts longer than
machine used for 3 shifts/day.
i : «
ii. Environmental aspect: A building along sea shore may deteriorate faster than
the building away from sea shore. Similarly a factory building in chemical zone
would wear out faster than the factory in engineering zone.
iii. Natural Force Aspects: The buildings which are located in areas, which are
frequently subjected to natural forces like earthquakes, cyclone, Tsunami or
monsoon flooding ôbserve sudden damage to property due to such forces. Even
otherwise these forces contribute to higher depreciation and higher wear and
tear to the buildings.
iv. Accidental Aspects: Sometimes due to fire, building is partly or wholly damaged.
Similarly, due to structural design defects in the building frame or foundations,
serious damage to the building is caused and sometimes even collapse:of the
structure ialso takes place. Some, times due to War or Riot or Bombing on the
-. structures ,serious damage to the building is caused.
4.5.2 Economic obsolescence:
These type of'assets are under utilised. Optimum economic benefit of the land
and building is not achieved.
A residential building existing on the plot which is placed in commercial zone
is glaring example of economic obsolescence. Highest and Best use of land and
building not made. The asset is put to inferior usage of residence instead of
commercial user resulting in an economic loss. Higher depreciation in such case
will not be unreasonable^ "
Similarly due to legislative enactment and policies also property may remain
under utilised. The policy of government to protect slums and not to permit removal
of unauthorized hutments in the plot without providing' free alternate
accommodation to dwellers is yet another example of economic obsolescence..'
Policy of government to permit 100% T.D.R. over and above permissible F.S.I.
on the plot, resulted in severe economic obsolescence of the buildings. Several
developers demolished even 20 years old good building for optimum use of the plot.
Dilapidation of building or heavy structural repair cost for the building is also
economic obsolescence. The structure becomes uneconomic to maintain.: Due to
dilapidation, repair costs becomes prohibitive. Similar situation arises when rental
value of the premises in a particular locality, falls .severely either due to bad
neighbourhood or due to migration of the population to the buildings in newly
developed town centres having better amenities.
4.5.3 Functional obsolescence
These types of assets are out dated and their planning and designing are of
types which are contrary to the present-day requirements of its users. An old palace
becomes obsolete for usage as there.is no demand for.3uch palaces.in the market
though they are in good structural condition. Due to this functional obsolescence
many palaces are converted for hotel users for which there is high demand and
usage in the market. • * •
Old chawl buildings with common toilet blocks is yet another example of
functional obsolescence. No one prefers such out dated planning and design. Every
one now requires self contained'tenements and flats. Today’s trend of constructing
new- shopping Molls and Multiplex theaters would make present shopping centers
and single screen theaters obsolete in few years time.
A brand new machine or a computer may suffer from functional obsolescence
hardly within two or.three years period if more advanced technologies introduce
much superior product at much lesser cost. A new machine may become
functionally obsolete, if product manufactured by said machine do not have any
demand whatsoever in the market.
75
4.5.4 Technological Obsolescence
Old load bearing structures with thick walls are not preferred now in the city
areas. Every one now desires to stay in. high rise R.C.C. framed structures having
thin partition and external walls. This is now possible due to technological
advancements. Timber structures' are also now replaced by R.C.C. framed or steel
framed constructions. Wooden windows are replaced by aluminium windows. Now
modern technologies and planning concepts have made it possible to design and
erect even an intelligent building. .
There are several methods of working out depreciation of an asset. Depending
upon the purpose and requirement, the depreciation is based either oh historic cost
or on replacement cost. Again selection of the method is also based on the purpose
,and requirement of the user. An accountant may adopt written down value method
of depreciation for buildings and machineries to prepare financial statement or
balance sheet of a company. A valuer wishing to arrive at market value of the same
factory and machineries may adopt straight-line method of depreciation or Sinking
Fund Method of depreciation.
4.6 Some of the important methods of depreciations are as under :
i. Direct Appraisal Method (Lump sum depreciation).
ii. Written down Value Method, (Accountant’s Method).
iii. Straight Line Method. (More preferred for machineries)
iv. Constant Percentage Method .
(This linear method is preferred by P.W.D. Engineers):
v. Sinking Fund Method
(This interest based method is used for buildings).
vi. Sum of the digit method. ‘
vii. Declining Balance Method. (Accounts method).
viii. Statutory Depreciation Method. (Taxation purpose) \
ix. Other modern methods of depreciation.
An asset suffering from severe economic or functional obsolescence may have
very high depreciation. Perhaps such an asset may be worth as scrap(Say 90%
depr.), even if it is not very old. '
4.6.1 Direct Appraisal Method: (Lump sum method)
In this method of estimating depreciation, the valuer decides and adopts lump
sum depreciation for the asset by physical inspection of actual deterioration of the
asset. An experienced valuer could arrive at an adhoc % of depreciation based on
his own experience. There is no process or reasoning but it is absolutely arbitrary
method based on experience. It may be useful in ca.se of machines and for small
structures like compound wall, wells, roads where wear and tear are unpredictable
and even repairs and restoration costs are beyond calculations.
Example-15
76
If replacement cost of the compound wall for a plot is Rs. 1,20,000/- and wall
is built 30 years ago, find out net present value by adopting observed depreciation.
Solution:
40% depreciation is adopted by visual inspection.
Net present value = Rs.1,20,000 - 0.40 x 120,000
= Rs.72,000/-
Example-16 . •• •■ V.1 '•*

If replacement cost of 5 years old machine is Rs.2,80,000/-, find out its net
present value (Depreciated value) by observed depreciation.
Solution:
Lump sum depreciation of Rs. 1,20,000/- is considered by visual inspection.
Net present value = Rs.2,80,000 - Rs. 1,20,000
= Rs.1,60,000/-. ‘•'•
4.6.2 Written down Value Method -
This is generally adopted by Chartered Accountants for preparation of balance
sheet of a company or firms for use of the company or for taxation purposes or for
use of financial institutions.
Depreciation is allowed at uniform and fixed percentage. But it- is ‘not on
original actual capital cost (Historic cost) but on reduced depreciated values of the
: ;.-.previous>ye&r.■v.-. ■>.v . ^ •'
Written down value ( Vn ) is denoted by formula: .. •
Vn • = C ( 1 - P)n
Vn Value in the year.
C = Original Capital Cost (Historical cost).
P = % of rate of depreciation.
n = Number of year in which value is required.
Example-17
What would be the W.D.Value of a machine purchased at the cost of
Rs.30,000/- after 3 years of service life at 5% rate of depreciation;
Solution:
J ' , Vn = 30,000 (1 -0.05)3 •
30,000 x 0 .8573
= , Rs.25,721/-. - '
This working can also be done in 3 stages as under :-
•Purchase price Rs.30,000
- 5%' - • Rs. 1.500
W.D.V. after 1st year • Rs.28,500 . ' ' ' •.
Rs.28,500
- 5% Rs. 1.425
77,.
W.D.V. after 2nd year Rs.27,025 •
Rs.27,025 :
- 5% Rs! 1,354
W.D.V. after 3rd year Rs.25,721
On.W.D.V., method,, final depreciated value, of the asset, after several years of
its useful life, .is not shown at zero but it is shown at token value of Re.l/- till it is
sold or transferred.
... .. ;• w M.'-'l'.. '•
4.6.3 Straight Line Method
• , This method ;o f working :out depreciation, is used for the ^machines as well as
for the buildings. In this method, equal % of depreciation is allowed on its original
capital cost for .each, year of life. This is more common for assets like plants and
machineries. Depreciation amount for each year is exactly same till full cost is
written off. . •
The formula is D = ---—

N •
D = Annual depreciation.
C = Original capital cost.
F = Final value or salvage value at the end of the life.
N = Total number of year of asset i.e. total life.
Example-18
A machine is purchased 2 years before at cost of Rs.4,00,000/-. Total life of
machine is 20 years. Work out depreciated present value after 2 years age if salvage
value of machine is 10% of original cost.
Solution: _
~ . .. 4,00,000-40,000 _ —
Depreciation amount/year = = —— -— — --- ------ = Rs. 18,000/year
Net present value after .2. years = Rs.4,00,000 - 2 x 18,000 = Rs.3,64,000/-

You will find that under this method, full original capital cost o f machine is
recouped back in 20 years period as under : • •
Annual depreciation x years of total life + salvage value of machine
i.e. Rs.18,000 x 20 + Rs.40,000/-
= Rs.3,60,000 + 40,000
= Rs.4,00,000/-
Example-19
Work out N.P.V. of a building having 20 years age and 60 years total life. Its
replacement cost as on today is Rs.4,30,000/-. Adopt straight-line method of
depreciation and assume 10% as salvage value of tl.j structure.
78
Solution:
_ 4,30,00.0. *43,000 • 1
60.
= Rs.6450/Year.
Total depreciation for 20 years = 6,450 x 20
= Rs.1,29,000/-
!• •• ‘ >1 ' *' ! '' • f\> •• * - •.
Net present value = Rs.4,30,000 - Rs.1,29,000.
. ' • , .' =R s .3,01,000/- ' '

i. Drawback of this method is. that it gives higher depreciations in initial- years, of
.. the asset when actual wear ..and !tear or deterioration is minimum. It .gives
exactly same depreciation .amount for each year, .even, for the later, period of life
of the asset, when physical or actual deterioration per year is very high.
ii. In this method, interest .amount that would; be available, on the set aside fund
(Depreciation Fund) for recoupment of capital is not considered.
iii. This method is.therefore; good for asset having short life span like machines and'
semi-permanent structure.
4.6A Constant Percentage Metjiocl... . . ... j.
In t±iis method, rate ,of depreciation is first assumed and instead rof working
out,depreciation separately, .the formula straight away gives tiie net.pre.sent value
i.e. depreciated value. The formula for working of depreciation in this method is:
,, WlOO - rdj” . . . .
• {100} . .
D = Depreciated value (Net present value).

P = Present day Replacement Cost.
rd = .Rate of depreciation.
N = Number of years since construction(Age)
‘Rd’ is 1% for 100 years life and 1/2 % for 50 years life. T^d’ -is determined by
dividing 100 by total estimated life 100/50 = 0.50%, 100/60 = 1.66 % and so on.
Example-20
Work out Net Present Value of a building by use of constant percentage
method of depreciation, if Replacement Cost of the building is Rs.3,50,000/-., total
V life of building is 75 years and age of the building is 15 years as on today.
Solution:
rd ’ = 100/75 = 1.33 %■
n = 15 years,
p = * 3,50,000
79
NPV = Rs.3,50,000 x-& °-y~1-33^ 5-
. • (100)
= Rs.3,50,000 >J 9f 67)

•(100)
350,000 x ( 0.9867)15
•Rs.3,50,000 x 0.818
Rs.2,86,300/- ’ •
In this case Rs.63,700'/- depreciation is considered which is .about 18% of the
replacement cost. This method is commonly used by P.W.D. Engineers and other
Government Agencies. In this method scrap price of the asset and interest aspect
are not considered.
4.6.5 Sinking Fund Method •
This method of depreciation is widely used for estimating N.P.V. of the
buildings. It is more preferred by valuers because it gives lower, depreciation per
year in initial years of life, span of the asset and higher depreciation per year in later
period of life of the asset or building. This is more in concurrence with the actual
physical deterioration pattern of most of the buildings. Again it takes into account
interest income available on set aside fund (Sinking Fund). It is therefore
considered more appropriate method and more scientific for working out
depreciation of the permanent type of buildings which has pretty long life span..
There are 4 stages of finding out % depreciation and net present value by this
method.
(i) To first work out Annual Sinking Fund by formula : „ '
s _____ « —
(1 + R)n -1
R = Rate of interest
n = Total life span in number of years
(ii) Next step is to find out accrued sum ‘A ’ for R e.l/- in number of years age by
use of formula: .
. (l + R)m -1 ■
. ' ' R :
m = Age of building :
R = Rate of interest
(iii) Then total depreciation is found out by formula:
% Depreciation = 100 x S x A
(iv) Finally N.P.V. is found out by the use of formula: ••
JT
Net Present Value = Replacement Cost - % Depreciation for age
>■- 80
It should be remembered that the rate of interest ‘R’ should be so selected that
below said rate, interest rate, is not likely to fall in next 60 years. Interest, rate is
thus minimum because life span of the buildings is 60 to 80 years. 3% could be
fair rate for redemption of the capital sum if on Savings Bank A/c. similar 3% yield
is available.
Example-21
Work out N.P.V. of building if total life of building is 60 years.‘ Replacement
Cost is Rs.250,000/-, Age is 10 years and rate of interest is 4-1/2%.
Solution:
S= °-045
(l - 0.045)60 -1
• = 0.0034-
A J l + Q-045)10 - 1 . 1-55-1.00
0.045 0.045
% Depreciation: 100 x .0034 x 12.288 = 4.178%
Total Depreciation . = 4.178 % of R.C.
4 17R
_ 2 i £12.x 2,50,’000’
100
= Rs.10,445/- .
. - /.N.P.V. = Rs.2,50,000 - Rs. 10,445
= Rs.2,39,555/-
Example-22
Work out N.P.V. of the building with same data as in Example 21 but by
considering scrap value of the building at 10% of replacement cost. .
Solution:
Annual Sinking Fund Factor, S = 0.0034
Value of amount of Re. 1 (10 Yrs) A = 12.288
% Deipreciation for 10 years period •
. = 100 x 0.0034 x 12.288
= 4.178% of R.C.
Depreciation with 10% salvage ’
4 178
= 0.9 x x 2,50,000
100
= Rs. 10,445/-■
/.N.P.V. • = Rs.2,50,000 - Rs.9,400

= Rs.2,40,600/-
4.6.6 Sum of the Digit Method
This metiiod is riot much in use. It is based on “Digit” derived by summation of
years of total life span of. the asset. Then depreciation is worked out for age of the
asset. ' .
Digit of. asset is found by formula: Digit = ■■* - x L

* * * '•**'.! 2 ,
L Total life span in years. . .
£ = Sigm a' (Summation) . .
If total life of building is 60 years. Digit £ 60 = * x 60
' , =• 1830
Total depreciation is divided for these 60 years by using the digit as under. If
age of the'asset is 5 years, depreciation is worked out by form ula':
•Depreciation = —-— xEn.

, •. - Digit ••;
N =• Number years of age of asset
Jn .= summation o f all years ..
Depreciation = — i — xS5
• 1830
1 x 15 = 0.0082%
1830
Detailed breakup is as under: •
' 1' 2 .3 -4 5
E5 = —: 1----- : 1------------ H---—■+'
100 1830 1830 1830 1830 .•;•••;
= 0.00054. + 0.0011 +0.0016 +,0.00i22 + 0.0027
= 0.00814 '■ ' . • ' • • .
Say 0.0082 % '
This method also gives lower rate of depreciation in earlier years and more rate
of depreciation in later period of years. . . t.
4.6.7 Declining Balance Method . . v•
' This is' modified forrii of W.D.V. method used by accountants. It. is more
acceptable under modern methods of accounting system.
. ‘ Formula for rate of annual depreciation “D” . .
. D = ,-M n
(B) • :
D = Rate of Depreciation/year'
VS = Salvage Value • : •
B - Original Cost of asset ..
n = Total life span of asset
Exkmple-23 •
if the original cost of machine is.Rs.i5,000/- and salvage value is 20%, work
out present value after 8 years fciy Declining Balance Method. . •
Solution:
l - ÔOQ)1^ v s = — x i5 ,000 = 3000 • •. . .

(15000) 100
D = 1 - 0 .8166 = 0.1834/yeiar
If D = 0.i834/yeaf i.e. i8.34 %, . ' •
N.P.V. after i st year = 15,00(3 - i.5,bb0 x i8.34/100
= 15,000 - 2i75l
= ^s.iî249/-
N.P.V. after 2nd year =1^-249 - 12,249 x 18.34/ i'ob .
= 12,549 -2,246 . . • •
= Rs. 10,003/- ‘
• ■ ' And N.P.V. after 8^ year = Rs.36321 - Rs.666
= Rs.2,966/-. •
4.6.8 Statutory Depreciatibh Method
In this method rate of depreciation is adopted as prescribed in Income Tax Act.
This i^ also W.b.V: method arid for accounting and tax purposes only. However in
this method there is no scope to fix rate of depreciation as per condition of the asset
but it is a fixed rdte of depreciation as. per statute. Under Indian Income Tax Act,
rate of depreciation for different types of assets are fixed. As per sec.32 of I.T. Act ,
following rates of depreciation are permissible. This however goes on changing from
time to time as per budget proposals Of finance minister.
i. Residential building 5 % per year.-
ii. Non residential building 10% per year. "• ‘:
iii. Hotel building 20 % per year.
iv. Temporaiy erections. 100 % pier 'year.-
v. Motor Car .. .20 % per year
vi. Plant and machineries 15% per year.
vii. Computer . 60 % per year.
viii. Furniture 10% per year.
After allowing for depreciation for the building- or any asset it may be
necessary to separately provide for different types .of obsolescence.
Obsolescence are of two types.-
(i) Curable obsolescence.
t
(ii) Incurable obsolescence.
83 , . .
In case of curable obsolescence the valuer must try to find out “Cost to Cure”.
If there is functional obsolescence of say chawl type building with common toilets.
The valuer can work out cost of providing toilet blocks inside each tenement.- Total
cost of providing such amenity can be then deducted to account for obsolescence
aspect of the building.
Similarly if a building suffers from economic obsolescence due to dilapidation,
the valuer can find out cost to cure i.e. structural repair cost of the building. Cost
of such heavy repair can be deducted from value to account for economic
obsolescence. .
It is veiy likely that obsolescence may be incurable. Let us say technological
obsolescence of an old .building with load bearing walls and jack arch type
construction and with very high ceiling for all rooms. The building may be good for
another 30 - 40 years. In such a case, separate allowance or deduction can be
made in form of overall percentage rebate to account for incurable .technological
obsolescence. .* '
Sometimes valuer may have to first work out depreciation by two methods in
order to select correct method which would give fair amount of depreciation
corresponding to actual depreciation found on site.- This is discussed in following
example.The use of this depreciation working is more useful in land and building
method as can be seen from following example. . ••• .
Example-24
Find out net present value of the building by Sinking Fund Method and also by
Straight Line Method if replacement cost of the building is 1,00,000/-. Age is 55.
years and total life of building is 65 years. Adopt 4-1/2% rate.of interest.
Solution:
(A) By Sinking Fund method. • '
Depreciation =0.9 x 1,00,000 x .0027 x 227.918 . ■ , .
-Rs.55,384/-
N.P.V. • =Rs. 1,00,000 - Rs.55,384
=Rs.44',616/- ...... (A)
(B) By Straight Line Method. '
. C -F 1,00,000-10,000
Depreciation = ------ = —— ----------------
K N 65 •
= Rs. 1384.61/year.
Total depreciation for 55 years
= .138^ 61 x 55 • .
‘ = Rs.76,153/- . •'
Say Rs;76,000/-
N.P.V.= Rs.1,00,000 - Rs.76,000
= Rs. 24,000/- .......... (B)
f 8'4
It will be seen that straight-line method gives higher depreciation. For a
structure with only 10 years future life, higher depreciation, is more appropriate.
The value of structure at scrap .at 10% of Replacement Cost ,i.e.0.10 x 100,000
= Rs.10,000/- could also be considered fair for such an old building. However
actual physical condition of the building will be deciding factor.
Example-25:
Work out value of an owner .occupied property as on 1-4-1981 from following
data. . . . . • .
Building area •' = 120 Sq.Mts. * ■
P lotarea = . 500 Sq.Mts.
Replacement cost rate in 1981 = Rs.900/Sq.Mt.
Land rate in 1981 = Rs.lOOO/Sq.Mt. •
Age of building in 1981 : 25 years and . ,
Total life of building : 70 years.
Adopt 4-1/2% rate of interest and adopt Sinking Fund Method of depreciation.
Solution:-
Replacement cost in 1981 = 120x900
= Rs.i08,000/- ’’
Depreciation for 25 years age
= 0.9 x .1,08,000 x 0.0022 x 44.565 •
= Rs.9,529.77
Net Value of building =Rs.1,08,000 - Rs.9,530
= Rs.98,470/- . ........... (A)
Land value 1981 = 500 Sq.Mts. @ Rs.lOOO/Sq.Mt.
.. = Rs.5,00,000/- ...... :... (B) '• •
Total value of property= Rs.98,470 + Rs.5,00,000
= Rs.5,98,470/-.
Say Rs.5,98,000/- .•
Example-26:
Estimate fair market value of the property as on* 31-3-10 from, following data:.
Building area : • Ground floor = 200 Sq.Mts.
. First floor =100 Sq.Mts. .
Plot area . * . . . = 600 Sq.Mts. •
Replacement cost rate in .2010 .= Rs.7,000/-PerSq.Mt.
Land rate in 2010 • . . • = Rs.2,000/- PerSq.Mt. ■
Age of building • • :• = 20 years.
Assume total life of building 60 years and interest rate 4-1/2%. •
Solution:
Land : 600 sq.mts. @ Rs.2ppQ/S.M. = Rs.l2,0Q,00p/- ' .... (A)

Building Replacement C o s t: 300 sq.mts. @ Rs.70Q0/sq.mt.
= Rs.21,00,00P/-
Depreciation 20 years - 0.9 x 21,00,000 x 0.0034 x 31.371
=Rs. 201,590/-’
N.jP.V. = Rs.21,00,000 - Rs.2,01,590 = Rs.18,98,410/- ....... (B)
Total value = Rs. 12,00,000 + Rs. 18,98,41.Q
=Rs.30,98,410/-
• ‘ . Say. $s.3Q,9§,QQQ/- ' ...... (C)
In building value estimation. We have to study four basic aspects of the building..
i. Specifications and Amenities. *
ii. Life of building (Age and future life). ': •
iii. Depreciation Methods. • .
iv. Obsolescence.
We have already studied depreciation methods but its application depends on
total life of building i.e. age of building plus future life of building.
4.7 Life of Different types of Costs
There are four types of life of the building.
i. Economic Life. . . . .
ii. Physical Life. -
iii. Life due to obsolescence..
. iv. Life due to legal constrains.
4.7.1 Economic Life
Economic life is the .actual service life of the building or a machine. Well
maintained building or a machine has morq or less same years of economic life as
planned life for such an asset. It is therefore called planned life- or income yielding
life of the asset. However bad or neglected maintenance and excessive wear and
tear reduces economic life of the asset. In rental method, of valuation economic life
of the building is considered. Economic life of an R.C.C. framed building is normally
considered at 60 years. *' •
4-7.2 Physical Ljfe
Physical life of the building is the actual survival life of the building before
collapse. It may be more or in some cases even less than the planned life of the
building. In cost approach, some times total physical life of building is adopted. Bad
workmanship, use of inferior materials, careless alterations and over loading of
structures reduces physical life! In some cases accidents like fire, explosion, earth
quack, flood damage causes total collapse of the structure. On the other hand it is
not un common to see palaces having 200 years and temples made of stone having
400 years or even more physical life.
4-7.3 Life due to Obsolescence f
.................... \ f
Obsolescence life is the life of building by which building becomes obsolete due
to changes in life style in the society. Chawl with common toilet are fciest example of
obsolescence. In modern time people like self contained tenements and .not
premises w ith ‘ common toilet. This aspect ijs already discussed in this chapter
before. Individual small shops design may become obsolete in Metropolitantowns
having shppping malls. Residential buildings in Industrial Zone arid
building in Residential Zone becomes obsolete due to user restrictions though its
economic life as well as physical life may be more.- '■ ••
4 .7 4 Ljfe due to Legal Constrains
Life of building may depend on legal constrains .also. The building may be
erected on leasehold land which has only 30 years lease period. Income from building
would cease after 30 years. Valuer in such a case has to adopt total life of building as
30 years only even though its economic and physical life may be 60 years or more.
In determining total life of the building valuer should consider following
aspects viz. Materials used in construction, Workmanship, Usage of Bldg.,Soil
strata foundation depth, Weather conditions etc. as detailed hereinafter.
Materials used in building may increase or decrease total life of the building-
Building ma.de of stone la.sts longer than building with S t e e l or .timber. Steel
corrodes and reduces life. Wood is damaged by white ants. However in earthquake
prone zones, earthquake resistant. R.C.C. framed structure has longer life than-
stone bunt structure. . ' •
Good worlîanship enhances life of the structure. Poor workmanship and out
of plumb structure reduces life of the building.
Proper maintenance and good upkeep of the building and timely structural
repairs of the building enhances life of building.
Excessive usage of building increases wear and tear. Excessive wear and tear
reduces -the life of the building as well as life of plant and machinery.
Heavy vibrations within factory building reduces'its life: Vibrations close to
structure on account- of heavy railway traffic or trucks traffic also reduces life of the
building. .
Design and foundation criteria of building also would increase or decrease life.
Building foundations at shallow depth and in poor soil ' strata may cause
settlement of structure and reduce life of the building. High rise R.C.C. framed
buildings which are not designed with earthquake resistant features like shear
walls and special footings/ may have reduced life in earthquake prone areas. •
Weather conditions also affect life of the building. Building along sea shore has
high corrosion effect due to salty air and high humidity. Region having high rain fall
also have reduced life of the building.
Poor soil like muddy or creek land or black cotton soil calls for special design
foundation. If such foundations are not provided* .bu-ilding develops structural
cracks due to uneven settlement and life of building is reduced.
As stated above, if lease period expires say after 10. years, future life of
building can not be taken more than 10 years though its actual future life could be
30 years or more.
Generally economic life of buildings are taken as under: •
• s '
Type of building Total life
,i. R.C.C. framed/Steel framed building. 60 to 80 years.
ii. Stone or brick load bearing buildings. '• • 50 to 55 years.
iii. Semi permanent single storey structurewith brick walls anjd 30 years.
Asbestos cement sheet or Iron sheet or Mangalore tiled roof. • •
iv. Temporary-sheds with C.G.I. sheet wallsand C.G.I. roof. 10 years.
Different items of building have different life span. Some of them have less life
and hence if not replaced well in time it reduces overall life of the building. ’. . .
Terrace waterproofing. 10 to 15 years.

Water pipes and fittings. . 30 to 35 years. ■
A. C. soil and waste drainage pipes. 35 to 40 years. • ’ *;’
• Electrical wiring work. . • 20 to 25 years.
Lift in building. ; ■ 15 years. * ‘
Internal roads'. 15 to 20 years.
4.7.5 Plant and machineries also, like buildings , have four types of life.
Economic life is considered for rental approach. Leased machinery have life in
accordance with lease terms and conditions. For valuation under depreciated cost
method, economic life or the physical life of machines are considered depending
upon purpose and requirements. Obsolescence factor is also applied to arrive at
market value of obsolete machines. •
Economic o f planned life/life expectancy of some of the machineries are as under:
Aircraft/Helicopter 10 to 15 years.
Cement plant machinery 25 to 30 years.- •
Construction plants. 5 to 7 years.
Electronic equipments - 5 to 7 years.
Foundaries/Furnaces .. . 10 to 15yeai*s. ••
Computers and Accessories ■ 3 to 5 years.
Metal working machines & machines tools. 20 to 25 years.
Motors/buses •' 15 to 20 years.
Office furniture 10 to 15 years. •
Cold storage plant. • 10 to 15 years.
Steam Electrical plant. 25 to 30 years. '
Hydro electrical plant. 30 to 40 years.
Electrical transmission network. 35 to 40 years.
Pharmaceutical plants. .* . 15 to 20 years.
88:
Steel manufacturing plant. i 5 to 20 years.
Textile plants. • 15 to 20 years.
Cinema Theatre Machinery •* ^ 10 to 15 years
Chemical Glass lined Reactor 10 to 15 years.
Vacuum Dryer (Mild steel) 12 to 15 years.
Vacuum Dryer (Stainless steel) 18 to 20 years.
Heat Exchangers( Mild Steel) 8 to 10 years.'
Heat Exchangers (Stainless Steel) 12 to 15 years.
Note: This life expectancy chart is recorded based on empirical observation
and field survey. . " ”\ ' •
Though, total economic life ‘of a particular machinery is known,, based, on
overall field survey, future, life expectancy of machinery in each individual case is
different. Suitable adjustment in total life estimation is therefore necessary, based
on wear and tear and remaining life estimation.
There are certain analytical method to find out future life of a machinery.
These are called, survivor curve analysis. There are four types of survivor curves in
use in valuation of plant and machinery; ’
i. Iowa type curves.
ii. Weibull distribution curve.
iii. Gomptertz - Makeham curve.
iv. Polynomial equations.
However Iowa curve is most commonly used curve to estimate future life
expectancy of particular type of machine. • _
Having studied all aspects of cost approach, we can now proceed to study the
manner of working out value of the asset by this approach. '
4,8 LAND AND BUILDING METHOD OF VALUATION
As stated in the previous parts of this lesson , Cost approach mainly consists
of estimating value of land and building separately and adding values to. arrive at
total cost o f the property. ••
Characteristics of land and .land valuation as well as methods of building cost
estimation and methods of depreciations are already discussed. Now in this part we
shall discuss application of these methods and the manner of working out value of
the properly by this approach. We shall study with the help of examples.how
different components are evaluated and how final value of the property is arrived at
under cost approach. . . .
Example-27: Ground floor of a residential bungalow was constructed m 1985

at the cost of Rs.350,000/-. First floor was constructed in 1990 .at the cost of
Rs.600,000/-. Work out Replacement Cost of bungalow for .the year 2010, by Book
Value Method, if Building Cost multiplier factor with 1960 as base year, for year
1985, 1990 and 2010 were 14.16, 27.08 & 125.00 respectively.
89
Solution:
Gr. Fioor Replacement Cost. .= 350,000 x i 2 5 -*■ 14.i6 :

• / = Rs.30‘,89,689 '• •
Fr. Flbor Replacement Cost = 600,dOO x i25 + 127.08 • . '
= Rs.27;6^,5'7d . ,
to ta l R:C. in 2 0 id = ks.30,89,689 + 27,69,572 = Ms. 58,59,26i
S^y= RS.i58;S9;bbd/- * * " .
Example-28: A factory building having 1000 ^q.rrits: biiiitUp floor area is
cohstnicted in yeai* 139(5. Total area of plot is 5000 sq.riits. Replacement cost of
biiiidihg in March 20 ID is Rs.750d/sq.rrit. Land rate for industrial iiser is
Rs.lbbd/sq.m tih 2010. Value tti'e projperiy today for Bank ldaii purpose.
Solution:
Laild vû e =. 50dd ^.M ts@Rs.lbdd/sq.hit.
• =^.3d,bb,dod ... ......... (a) .
Building Replacement Cdst =ld0d Sq.Mts. @ Rs.7^00/- Per Scj.Mt.
= Rs.75.00,000
luV;0
Less : Depreciation for 14 years. = ,9 x 75;d0,000 x 14/60 . '
= Rs.l5,75,0Q0
. .Net Present Value = Rs.75,dd,dd0 - Rs.l5;75,0d0 • . ‘ /
= R s.59,25,000............ ■ .... (b) • . •

• Total Value Of factory = Rs.50,00,000 + ks.59;25,000 . .
• =• fes.i,d9,25,d00/-... (c) * '
Example-29: A residential load bearing structure havirig 280 sij.mts. builtup
floor area is constructed in 1965 at Delhi. Area, of plot is 650 sq.riits. Calculate
value of propei*ty ds Ori l-4-198i, if prevalent iarid rate in 198 i, in locality was
Rs.l20d/sq.mt. Cost Index for Delhi in l9 & i was 176 with base year 1-10-1976 as
100. Rate for bungalow , in i976 was Rs.325/sq.mt. Plumbing cost/unit Was
Rs.6000 arid electrificatioii cost was Rs.5700/unit as per C .P.îb. norths 1976.
Sbiiition
.\ Value of land ih 1^8i • ••
650 Sq'Mts. @ Rs.1200/- Pei: Sq.Mt.= Rs.7,8d,000 ... ( aj '
Building Replacement Cost aS on 1-10-1976
280 Sq.Mts @ Rs.325/Sq.rrit. ..= R’s . -.01,000 .’. ....... (b)
Add for plumbing cost = Rs. 6,000
Add for electrification cost • = ' Rs. • 5,700 •. ’ •
Total R.fa. in 1976 = Rs.102,700 . .
Replacement cost in 1981 = 102,700 x 176 +100
= Rs.'180,752 (b-1)
Allow depreciation for 20 years: = 0.9 x 180,752 x 20/60
• = Rs. 54,225 (b-2)
Net present value 1981 =Rs. 180,752 - Rs.54,225
. _ ' = Rs.126,527 (b-3) ‘
Total value of property in 1981 = Rs.780,000 + Rs. 126,527
= Rs.906,527
Say= Rs.907,000 •* *' ‘ ........■ (c)
Example-30: An R.C.C. framed residential family house was built in year 1969
at Nagpur. Builtup floor area is 200 sq.mts. on ground floor and 100 sq.mt./floor
on each of 1st and 2nd floor. Total plot area is 1200 sq.mts, Calculate sale'value of
property as in March 1989 if Buiiding Cost Index of Nagpur was 394 in 1989 with
Delhi Base year .1-10-1976 as 100. Building cost for base year. was. Rs.385/sq.mt.
and plumbing and electrification costs were. Rs.6000/unit and Rs.5700/unit
respectively. .Prevalent land rate in 1989 was Rs.800/sq.mt. Building is wholly
provided with marble floor. Marble cost was Rs.250/sq.mt. and mosaic tile cost was
Rs.60/sq.mt. in 1989. Allow depreciation by Sinking Fund Method! Adopt 3% rate
of redemption. ’ ' :
Solution: Value of land : = 1200 SM @ Rs.800/SM. . . . . . . .
= Rs. 960,000 ........ (a)
Replacement cost of building: • ' ••• ’' ' * •
200 S.M.+ 100 + 100 Sm = 400 SM @ Rs.385/SM.. ;
= Rs, 154,000 . , •
Plumbing cost in 1976 ; 3 x 6000 • = Rs. 18,000 *’
Electrification cost ■ 3 x 5700 .. = ^s. 17.100 . " . . ,
..... Total = Rs. 189,100
R.C. at Nagpur in 1989 = 189,100 x394/100 = Rs. 745i054 ... (b-1)
Aldd for cost difference of marble and mosaic flooring
Rs.250/SM. Rs.,60/SM. ... = Rs.l90/SM. ’. ...
Total 400 SM. builtup - 15%. • =340, SM. carpet. •.
Extra cost = ' 340 SM '@ Rs.l90/SM. = Rs. 64,600 ‘ ... (b-2)
Total building cost = Rs.745,05> + Rs.64,600
. = Rs. 809,654 Say Rs. .810,000 ...'.(b-3)
Depreciation @ 3% for 20 years = 0.9 x 810,000 x 0.0061 x 26.87
= R sl 19,488 ........................ (b-4)
91
Net Present Value 1989 = 810,000 - 119,488= Rs; 690,512.... (b-5)
Total sale value of property = Rs.960,000 + Rs.690,512
• ’• = Rs. 16 ,50,512
Say Rs.16,51,000/- ...................... (c)
Example-31: The owner of plot admeasuring 900 sq.mts. has constructed 2
storied building on plot in 1991. Area of each floor is 300 sq.mt. Ground floor is
rented to 4 tenants yielding total rent of Rs. 1600/month. First floor is owner
occupied. Property tax of ground floor is Rs.4500 per year.. Replacement cost of
building in 2010 is Rs.9000/sq.mt..Prevalent land cost is Rs.3000/SM. Advice on
fair sale value of property. N.A. tax for plot is Rs.600/year. House insurance is
Rs.2000 per year and F.S.I. zone is 1.00. Expected rate of return on investment is
9%. Redemption rate 3 1/2%. • • ’ •• •
Solution:
(A) 900 sq.mts. land is divided into 2 parts. : • . . . .
i. 300 SM. pertaining to tenanted portion and balance 600 S.M’. unencumbered. •
ii. Out of this 600 SM. land .,: 300 S .M .’ land is pertainmg to self occupied
premises on the first floor and balance 300 SM land is the unutilised surplus
'buildable land area (FSI Area) available in the plot. • • - -
Land appurtenant to tenanted portion is valued at Nil as its value will never be
' available to land owner due to Rent Control Act.
Balance 600 SM. land is valued at Rs.3000/SM.= Rs.l8,00,b06 ..i (a)
(B-1) Building value (Rented portion on ground floor):
Gross Annual Return : 1600 x 12 • =-Rs. 19,200 '• - .
Less: Property tax (Ground floor) ..= Rs.4500 .. .
Prorata N.A. /3 x 600 . = Rs. 200 • •
Prorata Insurance 1/2 x 2000 ,
Repairs 6% G.R. : = Rs.1152
. Collection & Managemerit 3% of G .R.;> = Rs. 5 7 6 .- • .•
' = Rs. 7,428
. >t.} Netyield ... . ... . . = Rs. 11,772. . r .• ••
Value of tenanted portion : 11,772 x 100/9r Rs. 130,800 ... (b-1)
(B-2) Building value (Owner occupied' 1st floor): ' .
Replacement cost 2010 : 300 x 9000 v’ -' =-Rs.27,00,000' '' •'
Less :. Depreciation-at;3-1/2% for 19 years age :
= 0.9 x 27,00,000 x 0.0051 x 26.357
' ‘ ‘ "r ’ * = Rs.3,26,642 / " ” '
Net Present Value 2004 • 1- = Rs. 27,00,600 -• Rs.3,26',642 •• '•■•••
' : . • •./’ ^ ' = ;Rs.23,73,358 ‘........ . (b-2) .
92
(C) Total value of property. 2010: ....
\ = Rs.18,00,000 + Rs.130,800 + Rs.23,73,358 •••■
= Rs.43,04,158 .. Say= Rs.43,04,000 .......... (c). •'
* N.A. tax is taken as 1/3 because land pertaining to tenanted, portion is 1/3 of
total. Insurance is taken as 1/2 because insurance is for 2 floors of building. .
* It will be seen that value of tenanted portion on ground floor is only 1.31 lacs
whereas owner occupied portion on 1st floor having exactly same area is worth
32.73 lacs including 9 lacs land cost. * ' ' •* • ' • ■
Example-32: An assessee has declared investment in new bungalow and land
at Thane at Rs.4,35,000./-,for year 1996/97 and Rs.l4,35,000/r for year 1997/98.
Compute fair investment in each accounting year from following data.
1. Plot admeasures 30 m x 30 m and it was purchased in May 1996. '
2. A corner plot.on. same road was sold at rate of Rs.l500/sq.mt. in August'1996.
3. Ground floor bungalow was 400 sq.mts. builtup area. It has. 5 toilet blocks. It
was started in December 1996 and completed in January 1998. 30% work;..was
done upto March 1997 and 70% before March 1998/ .’ ‘
4. Cost Index of Delhi :as on 1-1-1992 was 100 and C.I’ of Thane in 1997 was 140.
5 ;Plinth area-rate for Delhi for 1992 is Rs.2810/sq.mt. Adopt plumbing cost at
Rs.22,000/unit.and- electrification at'8% of civil cost. •• -
6. Bungalow has marble in all rooms. Rate of marble in' 1997 at Thane was
Rs.1500/- per sq.mt. and.rate of mosaic tiles was Rs.700/- per sq.mt* Cost of
1.5 m. high compound wall was Rs.1400/- per running,meter in 1997, : . , ;
7. Adopt consultants professional fees at Rs. 150,00.0/-. .. .; . .m .
Solution: •• ' 'r.. .•
(A)Investment during year ending 31-3-1997 *' * '
(i) Fair land value 1‘996 = 900 sq.mts. @ Rs.1200/- per SQ.Mts. . .
=RS.10,80,000- .. •. .• ... 1
(ii) Building cost at Delhi 1992: -s.
.= 400 SM @ Rs.2810/SM . =.RsJ 1,24,000 . . •,
Cost at Thane 1997 :.l 1,24,000.xl40/100, ... . . . .=^8,15,73,600.- . , -•
30% work done in, 1st year =0.30 x 15,73,600 = Rs. 4,72,000
(iii) Architects fees 30% of 150,000 .. _ • . ........ . .. = R s.. 45.000..:
T ota l.... , . ; r-. s* = Rs. 5,17,000 ...2
Total investment 1996/97= 1:0,80,000 + 5,17,000 = Rs.15,97,000 ...3
.,93 .
(B) Investment during year ending 31-3-1998. '
(i) Building civil work cost (70% of total) . = 0.70 x 15,73,600
= Rs.11,01,520
(ii) Plumbing c o s t: .22,000 x 5 Nos. x 140/100 = Rs. 1,54,000
(iii) Electrification work 8% of 15.73 lacs = Rs. 1.25,888
C/F Rs.13,81,408 •
• B/F Rs.13,81,408 \
(iv) Extra cost for marble 1500 - 7 0 0 '= Rs.800/sq.mt. . ’
Carpet is taken at 85% of builtup area. * «
Extra cost due to marble = 0.85 x 400x 800 =Rs. 2,72,000
(v) Cost of compound wall: = 4 x 3 0 = 120 RM. .. .
120 RM. @ RS.1400/RM. = Rs. 1,68,000
(vi) Architects fees 70% of Rs.150,000 = Rs. 1.05.000
Total investment 1997/98 = Rs. 19,26,408
Say Rs. 19,26,000/-
Concealed Income 1996/97 = Rs.15,97,000 - Rs.4,35,000
= Rs. 11,62,000/- (a)
• Concealed Income 1997/98 = Rs. 19,26,000 - Rs. 14,35,000
• •• = Rs.4,91,000/-’ ... (b)
First year concealment is more because most of cash funds are invested in
'land purchase which is well known fact in our country.
Example-33: A residential building is constructed in 1990. It has ground floor
having built up floor area of 200 sq.mts. First floor built up is 100 sq.mts:'' Total
plot area is 850 sq.mts. Work out present market value of bungalow as on 31-3-
2010 if Replacement Cost, of building in 2010 is Rs.8500/SM. and prevalent land
cost is Rs.2500/SM. Assume rate of redemption of capital at 3-1/2%. Adopt total
life of building at 60 years and adopt sinking' fund method of depreciation.
Solution:
Present market value of land: = 850 x 2500 = Rs.21,25,000/- ...(a)
Replacement cost of bungalow: = (200+ i00) x 8,500
' = Rs.25,50,000/- ' ... (b-1)
Depreciation by Sinking Fund Method for 20 years age:
=. 0*9 x 25,50,000 x 0.0051 x 28.28 * •
■= Rs.331,003/- ' ' ... (b-2)
Net present value of bungalow: = Rs.25,50,000 - Rs.331,003

• . = Rs.22,18,997/- .... (b-3)
Total value of property = Land value + Building value
= Rs.21,25,000 + Rs.22,18,997
= Rs.43,43,997/-
. Say Rs.43,44,000/- ...... (c)
In this example, 0.9 factor indicates 10% scrap value recoverable from
building. 0.0051 is Sinking Fund factor for 60 years life of building at 3-1/2% yield.
28.28 factor is value of amount of Re. 1 at 3-1/2% yield after 20 years.
4.9 LIMITATIONS OF COST APPROACH ‘
Methods under Cost Approach have following limitations.
1. This method is not helpful in estimating values of premises which are rented.
• Particular^ in India majority of rented premises have frozen rent i.e. controlled
Standard Rent. Value of such property by land and building method would be
many times more than its actual worth in the market, which would be based on
low rental yield. In such a case help of rental method of valuation is required to
. be taken to arrive at its real market worth, .
2. Under Cost Approach land is separately • valued from building. For land
valuation help of Market Approach is necessary. Again valuation of land is
extremely difficult due to innumerable characteristics and attributes possessed
by each piece of land.
3. Value by land and building method in certain areas is found to be much higher
than its actual-realisable value in the open market even if it is not tenanted but
vacant or owner occupied. Particularly in the less populated deserted region or
' in area where paying capacity of people in the region is vfery low, demand being
very low and supply being high, value fetched in market is much lower than its
actual cost. In such case, also help of rental method has to be resorted to by the
valuer , by estimating probable rental value of such premises.
4. Land with building will need adjustment in estimated total value because land
■ married with structure does not fetch same price in market as an open plot of
land or virgin land. '
5. In some cases building valuation is .required to be done by quantity survey
method which is very time consuming and involves very cumbersome and long
procedure. • •
6. The modern design planning ^specification and aesthetics of the building many
a times out-weighs age fa.ctor or depreciation aspect. This is the reason why
good old building fetch much less price in the market than its value worked out
by cost approach. Even if appropriate depreciation for age of the building is
allowed market worth does not correspond to worked out .vûe^ ' Thus
adjustment is needed for second hand phenomena or the craze for the brand
new asset, operating in the minds of prospective buyer.
7. If the property is not put to highest .and' best use (Full F.S.I. not consumed)
some times existing building in plot has to be. valued at scrap cost instead of
depreciated cost, even though its physical and economic life is more.
8. In the'areas where much sale transactions have not taken place land value
estimation becomes very difficult.
9.. Building cost estimated by Cost Index Method is controversial, There are too
many adjustments and additions required. Again adoption of Delhi base costing
for all towns of this vast country, pri'ma facie appears to be; illogical and
improper. Value arrived at will be thus quite different'than its actual market
worth. . '
10. EsLimating value of land separately and building separately and then adding the
value to arrive at final value does not appear to be proper method to many
valuers who prefer to value the premises as One single combined unit at single
rate on the basis of market trend i.e. by sales comparision method of market
approach.' ‘ .
4.9.1 The cases laws referred in this chapter arc as under
1. Collector Lakimpur V/s Bhubanchandr'a Dutta (A.I.R: 1971 S.C. 2015)
•2, Manisingh Avtarsingh V/s I.A.C. (acq) Ludhiana (1984) 151 ITR.233
3.J.N.Bose V/s C.W.T (1976) 1 0 4 1.T.R.83 ( Cal) • •• . -• -* = .
4.C.I.T..V/S. Ashima Sinha (1979) ’116 I.T.R.26 ( C al) • •-
5 .St.Anthony’s : C.H.S.Ltd. V/s Sec. Cooperation & Textile Dept. Mumbai W.P.
• 1357 of 2000 (Bom) or ( 2000) 4 Mh. L.J. 642 Mumbai H.C. •
6fZorastrian' Radih Society V/s Mrs. Parvin Nariman Jogina &'Anr. (2001) 2 All
Mh. 675. . ’ ' ‘ ' ' :
7.M.Avachat & others V/s Collector Nagpur (1990)BLR 348 Mumbai H.C. .
8. Matiiura Prasad V/s State of West Bengal (1970) 3SCC 730 (C al).-'- '
9 .Fabric.Pvt.Ltd. V/s SLAO (1975)2 Guj LR-319 (Gujrat High Court).. • :•
10. Collector Jabalpur V/s A.Y. Jehangir IChan (AIR 1971 M.P. 32) M.P.High Court
11.Sher singh V/s State of Haiyana (AIR 1991 'SC 2048) Supreme Court
12. Calcutta Metro Devp.Authority V/s Dominian Land & Industrial Ltd. (1995) AIR •
SC-W 2470 / 1995 ( SC-2) GJX - 608 - S.C.
13.Special Land Acquisition Officer Eluru V/s Jasti Rohini (1995) AIR SCW- 823
/ (1995). 1 SCC 7 i7 . Supreme Court.
14. Workmen N.G. Bank-V/s N.G.Bank (AIR.1976 S.C.611 ) .. ••
4.10 Summary • •*
... Theroies 'and methods of land valuation in different approaches are explained
in this chapter. Their limitations are. also’ discussed.'• • 1
4.11 Keywords
‘ • ' 96
Cost - T.D.R. - Laws - Aspect - Theories and Methods
1. State atleast five major characteristics of land and explain how each one affects
the value of land in Real Estate. Market ?
2.. Explain the terms Originating plot, Receiving plot and T.D.R. Who are the
interested parties in T.D.R. value and what could be probable share, of each
one ? . • 1 . . . .
3. Fill in the blanks :
i. 1 Cottah = ______ Sq.Yds. , *
1 Guntha = ______ Sq.Yds. .. ■•••.*
1 Cent = _______ Sq.Yds. . ... • .
ii. Vyagramukhi plot has ______ front width a n d ________rear width. -
iii. As per belting theory, rate of land under 3rd belt is adopted a t ______■_■% of
* the front belt land rate'. . .
iv. D.R.C. of land means __ ______ of land.
v. Plot with return frontage would fe tc h _______ value than the rate of plot
having single frontage.
4. A residential bungalow in Baroda is having 100 sq.mts. builtup area. It was
built in 1980. Plot area is 450 sq.mts. Value the property for sale purpose if
current land rate in-the locality is Rs.l800/Sq.Mt. and replacement cost of
similar building is Rs.8500/Sq.Mt.'Adopt Sinking Fund Method of depreciation
and assume recoupment rate of interest at 3%..
5. A bungalow is built at Nagpur in 1964 at the cost of Rs.32,250/-. Area of plot
is 800 Sq.Mts. and builtup area of the bungalow is 150 Sq.Mts. Building Cost
Index for year 1964 is 166 and for year 1981 it is 792 with base year 1960 as
100. Calculate fair sale price of property in 1981 if land rate prevalent in
locality in 1981 was Rs.350/Sq.Mt. Adopt straight line method of depreciation.
6. An investor desires to purchase a plot having an area of 40,000 Sq.Mts.
Average rate of small plots in the locality is Rs.600/Sq.Mt. Assume garden area
at 10% and internal road area at 20% of total plot area. Subdivided plots along
front row i.e. along road, are 15% of net area of plot. Small plots overlooking
Central Garden in the layout are 35% of net plot. Remaining plot have 50% of
net plot area and they fall in last row near rear plot boundary. Assume layout
development period at 2 years and sale of all plots in layout as 4 years. Adopt
road cost at Rs.l50/Sq.Mt. and cost of other services at Rs.lO/Sq.Mt. of net
plot area. Architects fees are 6% of development cost. Investor’s profit is 10%.
Expected rate of return is 9%. Legal charges are 1% and brokerage charges are
2% of sale value of plots. Advice on fair purchase price for this plot.
• ' :97
7. An assessee has constructed a bungalow at Coimbatore during year
2004/2005. Ground floor area is .90 Sq.Mts. and 1st floor area is 60 Sq.Mts.
Declared cost is Rs.155,000/- upto March 2004. and' further cost of
Rs.315,000/-is declared for the period upto March 2005. 30% work was done
iii year 2003/2004 and 70% during year 2004/2005. Marble is fixed in all
rooms and its cost was Rs.800/Sq.Mt. Plot was 20 M. x 30 M. size, and full
*• compound wall 1.5 M. high was constructed for .plot., in 2005. Cost of
compound wall was Rs.lOOO/R.M. Building Cost Index.of Coimbature was 185
in 2004 and 194 in 2005 with BCI of 100 at Delhi on 1-1-1992. Cost of R.C.C.
framed building as on 1-1-1992 was Rs.2810/SM. at Delhi: Work out fair cost
of construction for year 2004 and year 2005.: .
8. Explain giving example how post of construction can be estimated with the
help of Cost Index Method.
9. Narrate at-least four basic factors which causes depreciation in the building.
10. Write short notes on any two- method of working out depreciation of the
building by giving appropriate formuia under each method.
98
ANNEXURE-1
PLINTH AREA RATES AS ON 01.01.1992 AT DELHI
. ' . Page' of Memorandum

Office/ '
S.No ‘ Description CoHege/ Schoo Hostel Residen
Hospitals
. 1 2 3 4 5 6
1 ■ R.C.C. FRAMED STRUCTURE: Rates in Rs. per square meter
1.1 R.C.C. framed structure upto six storeys.
1.1.1 Floor Height 3.35 mt. 2920 2665 -
1.1.2 Floor Height 2.90 mt. - -■ 2740 . 2810
1.2 EXTRA FOR (RCC frame building)
1.2.1 Every additional storey over six storeys upto nine 50 50 50 50
storeys.
1.2.2 Every additional storey over nine storeys upto 75 75 • 75 75
twelve storeys
1.2.3 Every 0.3 mt. additional height of floor above 125 125 125 • 125 -
normal floor
1.2.4 Every 0.3 mt. higher plinth over normal plinth height 125 • 125 125 125. •
of 0.6 mt. (on G.F. area only).
1.2.5 Every. 0.30 mt. deeper foundations every normal 125 125 125 125 ,
depth of 1.20 (on G.F. area only).
1.2.6 Making stronger foundations to take load of one 365 365 365 • 365'
additional floor at a later date on area of additional
floor only.
1.2.7 Destrip foundations in poor soil having bearing 110 110 110 ■ 110
capacity less than 10 tonnes/sq.mt. •
1 2.8 Resisting Earthquake forces. • 250. . ■ . 250 . 250 250
1.29 R.C.C. Raft Foundations. 440 440 . 440 440
1.2.10 Pile foundations upto a depth of 15 mts. 615 615 • 615 615
1.2.11 . Stronger structural members to take heavy load 190 190 .. 190 ' 190
above 500 kgs/upto 1000 kg/sq.mt.
1.2.12 Larger modules over 35 sq.mt; 220 220 220 • 220 .
1.2.13 Termite Proof Treatment (On G.F. area) 75 / 75. • 75 •• 75
1.2.14 Fire fighting 185 185 . 185 185
1.2.15 Operation Theatre (OPD) (Extra provision) 475 \ . -
1.3 BASEMENTFLOOR.
Floor Height 3.25 mt. with normal water proofing 4020 . -- -
Treatment with Bituminous felt.

A •
1.4 Extra for Basements with
1.4:1 • MASTIC asphalt. W .P;i. •' 440'- - - ' ; - •
1.4.2 Every 0.3 mt. additional height;(above 3.35 mt.) 490 - - .
1,4,3 Reduction for every0:5 mt.less height of basement (-)280. - . - , -•
than .normal height 3.35 mt-
Non-
Residentia
residential Type
S.No Type l.ll.lll Type IV
Description Office/ School Hostel V
College/
& servant Quarters
Qrts.
Qrts;
Hospitals.
1 ’ .2 •3 4 . 5 6 7 8
2 LOAD BEARING (Rates in rupees per square meter)
CONSTRUCTION
2A Floor height 3.35 mt.
Single storeyed 2595 2265 - • - . - -
2.1.2 Double storeyed 2435 2120 - • - - -
2.1.3 Three storeyed 2595 2265 -* r - -

2.1.4 Four storeyed 2740 2375 - - - -
2.2- Floor height 2.90 mt- •
2.2.1 Single storeyed - - 2300 . 2010 2210 2375
2.2.2 Double storeyed - 2020 1950 2145 2265
2.2.3 Three storeyed - 2300 2010 2210 2375
2.2.4 Four storeyed - 2410 2120 2330 2485
2.3 Scooter & Cycle sheds - • - . - 1825 1825 1825
2.4 Garages - • - - .1715 1715 1715
—.
2.5 EXTRA FOR : (Load bearing building)
2.5.1 Every 0.3 mt. additional 75 75 • 75 ’ ’ 75 • 75 75
height above normal height
3.25 mt/2.90 mt.
2.5.2 Every 0.3 mt. height plinth • 75 75 • • 75 .7 5 75 75
over normal plinth height of
0.60 mt. (on ground floor
area only)
2.5,3 Every 0.3 mt. deeper •' ’ 90 • 90 90 90 ' 90 ‘ 90
foundation over normal
depth of 1.20 mt. (on
ground floor area only)
2.5.4 Making stronger 185 185 185- 185 185 . 185
foundations to take load of
one additional floor at a •
later date (On area of
additional floor only ).
2.5.5 Foundations.
2.5.5.1 Foundations on poor soils 110 110 HO 110 110 • 110
having bearing capacity
less than 10 T/Sq.mt.
2.5:5.2 Foundation on poor soils • 495 495 495 495 495 . 495
requiring under reamed pile
6 mt. long.
2.5.5.3 R.C.C. Raft Foundation 440 440 440 440 440 440
,,. ; log
V , 1{
* !! f
2.5.5.4 Pile foundations upto a 615 615 615 615 615 615
depth of 15 mts. • O* •S'
2.5.6 Extra for Resisting Earth Quake Forces
2.5.6.1 in Zone V 185 185 185 • 185 185 185
2.5.6.2 a) More than two storeyed 90 90 90 90 ’ • 90 90 •
building in Zone III & IV
With a design seismic co-
eff. greater than 0.60 mt.
b) Design seismic co-eff. 90 90 90 11 11 11
Equal to or less than 0.60
mt.'
(Extra cost covers full bearing of
R.C.C. slab only)
2.5.6.3 Resisting earth quake Nil Nil Nil Nil Nil •
forces in zone I & II and
less than two storey
building in Zone III & IV.
2.5.7 Stronger structural 190 • 190 . 190 . 190- •190 190
members to
take heavy loads above
500 Kg/
Sq.mt. upto 1000 Kg/Sq.mt.
•
2.5.8 Larger modules ever 55 • , 220' .- ■ 220 • ■ 220 : ■220 • 220 • 220 •
sq.m t.'
2.5.9 Termitec Proof treatment 65 '• 65 65 65 . . 65 . . 65 .
(On ground floor area only.)
2.5.10 Fire Fighting 185 185 ‘ 185 185 • 185... 185
2.5.11 O.P.D. Operation Theatre 475 - - -
etc.
Note: Rates for items are applicable ori entire plinth area except for items: 1.2.4, 1.2.5, 12.6,
.1.2.13,2.5.2,2.5.3,2 5.4,2.5.9 V • ....
101
CoIIeg
S.No. Description Office Hospital School Hostel Type of Residential Quarters.
e
I. II. III. IV.
1 2 3 3-A 4 5 6 7 8 9 10
3 Services
3.1 Internal water 43800
supply & sanitary 15400 18300/ 22000
4% 10% 5% .15% 14600/ 12
installations. /No No /1
No
(With attached toilets)
(10% if with common
Bath/ Type-
toilets)
W.C; 4
•( Percentage means
% of Building Cost)
3.2 External service
5% 5% 5% 5% 5% 5% 5% 5% 5%
connections.
3.3 Internal ejectric 21400
12.5% 12.5% 12.5% 12.5% 10600 12000 14100 17100
installation. ype-4
. Note : The above amount does not
include service connection charges &
electrification.
3.4 Internal electric
15% of
installations for - - - -
#- - Building - -
laboratories of
cost.
schools
3.6 Extra for
3.6.1 . Power wiring and ; - - - -
4% 4% - -
plugs
3.6.2 Central Call bell - - - -
1% - - -
system.
3.6.3 Lighting
conductors
a) Upto 4 storeyed
•0.5% 0.5%. 0.5% ' ' '
Bldg.
b) 5 to 8 storeyed
0.33% 0.33% 0.33%
Bldg.
°) Beyond 8
storeyed • 0.25% 0.25% 0.25%
buildings.
3.6.4 Telephone
' ' 0 : 5% 0.5% 0.5% ,
Conduits
102 '
Rate in Rupees
S.No. Description
(1992)
4 Water tanks (R.C.C. only)
4.1 Overhead tank without independent staging. 4.75 per litre
4.2 Overhead tank upto staging height 20 meters 8.05 per litre
4.3 . Overhead tank with staging height between 20 meters and upto 30 9.15 per litre
meters.
4.4 Overhead iank with staging height between 30 meters and 40 11.00, per litre
meters.
4.5 Underground sump 4.75 per litre
5 DEVELOPMENT OF SITE RATES in Rs.

5.1 Levelling (Adopt rate on total plot area) 10.§5'per sq.mt.
5.2 Internal roads and paths 33.95 per sqimt
5.3 Sewer 24.45 per sq.mt.
5.4 Filter Water supply
5.4.1 Distribution lines 10.0 mm dia and below 17.90 per sq.mt.
5.4.2 Peripheral grid 150 mm to 300 mm dia pipes 13.50 per sq.mt. '
5.4.3 Unfiiered water supply distribution lines 10.20 per sq.mt.
5.5 • Storm water drains * 1 29.20 per sq.mt.
5.6 Horticulture operations ( garden) 18.25 per sq.mt.
5.7 Street lighting
5.7.1. With fluorescent lamps 14.10 per sq.mt.
5.7.2 With HPMV Lamps 18.75 per sq.mt.
5.7.3 With HPSV Lamps • 22.65 per sq.mt.
Note: Cost of HT substation and LT distribution is not included in above rates.

Note'A. The rates are per sq.mt. and are to be applied on the entire areas of the plot to be
developed. \* ■■ ■ ''
Note:2. These rates will supply to normal conditions and normal layout plans. |f any extras are
required due to nature of layout Involving filling, cutting or bringing services from large distances,
then additional provision should be made. • ’ ' '
Note:3. Cost or bulk services (water supply e.g. Tube wells,pumps,open wells.head works at
water source and sewage disposal
e.g. Sewage pumps, sewage treatment plant, septic tanks , soak pits e tc.) are not included in
these rates. Extra provision " ' •'
Annexure-4
. • - ( Page 121 of Memorandum) '
• • CENTRAL PUBLIC WORKS DEPARTMENT
(STANDARDS & SPECIFICATIONS)
VIDE : CPWD MEMORANDUM : SE (S&S) EE II/289 Dated 29-6-92
(Proforma for calculation of Cost Index)- •
Mater.
Mater.
Rates NEW
Sr. . Rates
Description . Unit Revision WEIGHT COST
No. 1-1-92
index INDEX
Delhi
Town
(A) (B) (C) (D) (E) (F)
1. Brick (class 75 of CPWD 1000 800.00 16.00 DxE
specifications) C
2. Sand (66.67% coarse sand, Cum 146.00 4.00
33.33% fine sand of CPWD
specifications)
3. Course aggregate Cum 185.00 4.50
50%-20 mm nominal size
50% 1 mm nominal size.
4. Cement (ISI) marked OPC Quintal. 213.28 19.00
Store issue rate i/c cartage (100 Kgm)
Of 5 KM average lead.
5. Timber in scantling Cum 12334.00 9050
25% 2nd class teak wood
75% Kail/Holock/Bijasai.
6. Steel (store issue rate/i/c Quintal 1342.50 23.50
Cartage of 5 Km. Lead) (100 Kgm)
50% (Tor steel 8 mm & 10 mm)
50% (Tor steel 12 mm & 16
mm)
7. Mason (Average rate of Each 55.71 - 8.00 -
1st and 2nd class Mason)
8. Carpenter Each 55.71 - 3.50 -
9. Beldar Each 34.30 - 12.00 -
Total 100.00
Notes:' * Rates in column D should be filled up as per market rates of materials in
• the town, where New Cost Index is required to be worked out.in the year
of valuation. . ....
* New Cost index required will have to be worked out .in last column (F) by
multiplying figures in Col ‘D ’ & ‘E* and dividing it by figures in
column CC ’ . : .. '
PART - 6
PART - 6
74. Valuation of properties for purposes such as:Bank Finance, - 1 mark

Auction Reserve, Building Insurance, Sale, Purchase,
Valuation Disputes in Court, Probate, Partition,
75. Rent Fixation, Stamp Duty, Capital Gain Tax, Lease and - 1 mark
Mortgage of Property. Any other purposes not referred
above.
76. Asset Valuation under the SARFAESI Act 2002, the LARAR - 1 mark
Act 2013, the Companies Act 2013, the Insolvency and
Bankruptcy Code, 2016
77. Concept of Transferable Development Rights (TDR), Concept - 1 mark

of Time Share Interest in Real Property. Valuation of TDR, Time
Share Interest and Easement Rights.
78. Study of Indian Accounting Standards (Ind AS) as applicable to - 1 mark

Valuation of Real Estate. Study of International Valuation Standards
(IVS) as applicable to Valuation of Real Estate
Compiled by
B. KANAGA SABAPATHY
Tiruchirappalli
NOT FOR SALE
PART - 7
PART - 7
79. 1. K P Varghese vs ITO (1981) 131 ITR 597(SC) - 1 mark

2. Gold Coast Trust Ltd. vs Humphray (1949) 17 ITR 19
3. Rustam C Cooper vs Union of India AIR 1970 SC 564
4. Hays Will Trust vs Hays and Others (1971) 1WLR 758
5. V C Ramchandran vs CWT (1979) 126 ITR 157 Karnataka HC
6. Subh Karan Choudhury vs IAC (1979) 118 ITR 777 Kotkatta HC
(Special Value / FMV)
80. 7. Wenger & Co. vs DVO (1978) 115 ITR 648 Delhi HC - 1 mark
(Combination of Methods)
8. Sorab Talati vs Josheph Michem Appeal 101 0f 1949 - Vol. - 2
of SOC - page 162 (Bombay) (Invest Theory of Rent)
9. CWT vs P N Sikand (1977) 107 ITR 922 SC
10. SLAO (Eluru) vs Jasti Rohini (1995) 1SCC 717 SC
11. Shubh Ram and Others vs State of Haryana (2010) 1SCC 444
12. Jawaji Nagnathan vs REV. DIV. officer(1994) SCC -4 Page 595 SC
13. Chimanlal Hargovinddas vs SLAO- Pune, AIR 1988 SC 1652
81. • Valuer as an Expert witness in Court. - 1 mark

• Valuers’ functions & responsibilities, Error of judgement and
Professional negligence
• Code of conduct for valuers and Professional Ethics for valuers.
Compiled by
B. KANAGA SABAPATHY
Tiruchirappalli
NOT FOR SALE
PART - 8
PART - 8
i. Principles of Insurance and Loss assessment
82. Principles and legal concepts in relation to Insurance of - 1 mark

buildings. The Contract of Insurance. Insurable Interests
and Liability to Insure. Duties of the Insurer and the Insured.
83. The types of Fire Policies, Reinstatement Cost Policy and - 1 mark
policies for other perils, Terms and Conditions, Perils, Beneficial
and Restrictive Clauses.
84. Value at Risk, Sum Insured and Condition of Average, Over - 1 mark
and Under Insurance, Inflation Provisions, other contents,
Depreciation, Obsolescence and Betterment.
85. Preparation of Claim for Damages due to Insured Perils. - 1 mark
86. Obligations and Rights of Insurer and Insured. - 1 mark
Compiled by
B. KANAGA SABAPATHY
Tiruchirappalli
NOT FOR SALE
PART - 9
PART - 9
j. Report writing
87. Reports - Quality, Structure and Style - 1 mark
Report writing for various purposes of valuation-Sale,

Purchase, Purchase, Mortgage, Taxation, Insurance,
Liquidation
88. Contents of the report: Instruction of Clients, Valuation Date, - 1 mark

Site Inspection, Location, Ownership History, Data Collection
and Analysis, Type of Construction, Valuation Method, Value
Estimation, Conclusion
Compiled by
B. KANAGA SABAPATHY
Tiruchirappalli
NOT FOR SALE
j. REPORT WRITING
Q87, 88. Reports - Quality, structure and style

(C o u rte s y : Annam alai University)
REPORT WRITING - INTRODUCTION

OBJECTIVES
To know how to write a technical report.
CONTENT
1.1 Introduction
1.2 Type of Report
1.3 The Process
1.4 Essential attitude and Skill for Report Writing
1.5 Keywords
1.6 Summary
1.7 Intex Questions ^
1.8 References
1.1 INTRODUCTION
A valuation report originates with the instrucuon' given by the client in
response to which the task of writing a report is undertaken by a valuer. The terms
of reference given by the clients defines the nature, scope and limitation of the task
to be performed by the valuer.
A.s this subject is on report writing, emphasize is given only on, how to write a
valuation report. However, writing a valuation report requires both, technical as well
as communication skill. A valuation report leads the user or reader of the report from
the definition of the valuation problem through the information and data, their
analysis, reasoning and specific conclusion with opinion and/or advice, if required.
‘ A valuation should be communicated in a meaningfr ** d straightforward
manner which convinces the client about valuer’s professional. nion.
If we look at from other side that a valuation report is th-* arketing agent of
the valuer. Valuer’s technical skill, expertise, ability of logical thi. ing and ’analysis
are reflected in his valuation report. A valuati-" ' report a' expresses his
professional; attitude.
The valuation reports are written only after process of valuation is completed.
Writing a valuation report is often neglected or taken lightly by valuers and often left
for typist to write valuation report. Moreover, by and large the banks and financial
institutions insist on valuation reports in the prescribed performa. The valuers are,
therefore, accustomed to such format reports, which require answers to the points.
Such format reports hardly leaves any scope for explaining logical reasoning for
arriving at the conclusion and opinion. Many a times, use of ‘cut’, ‘copy’ and ‘paste’
functions in computer make valuers lazy about report writing and which may
sometimes result in to investigations by CBI due to negligent cut-copy-paste.
The valuer’s, therefore, need to be vigilant in writing a valuation report as well
as writing formatted reports. However, formatted reports are not exhaustive
therefore, they tend to be arbitrary.
The subject of report writing is very important for the valuers in developing
skills and attitude required for writing an effective valuation report, over 'and above
his knowledge of principles of valuation and other subject.
2
1.2 TYPE OF REPORT
Any narration, giving information about any fad or object or any event, is a
ii report. The report is a means of communication between two parties.
There are many.type's..of repots:
* A written report and a oral report “
• Technical and non-technical reports
Non-technical reports are news paper or mecjia.. reports: giving, only
information. They may be without expressing any opinion or advice, which is left to
the reader to make out.
On other hand, technical .report is.the exercise,, of ...technical expertise and
therefore gives all...the necessary information and data with their analysis and
expresses definite conclusion^ or opinion or provides specific advice, ii’ asked for.
The user of report, then takes appropriate decision based on content of report
A valuation report is one of the^ technical reports based on which a user of
report takes ms financial decisions concerning his property. It is, therefore,
necessary to acquire and develop the skill of expressing facts and opinion in the
best possible manner. A valuation report should not be in a'îgu ou s words, which
may confuse the user of the report in taking his decision.
The valuation reports of property are prepared for various fiscal; and non-fiscal
purposes. Where by the user normally desire to know market value of Iris property,
say for purchase or sale, etc.
1.3 THE PROCESS
Writing a report on valuation is the result of instruction from the client to
‘ carry qut_valuation_.Q.Lhis-property-forJris-intendccl purpose..
After carrying out valuation exercise, to communicate conclusion or opinion,
valuation report is required to be. pile pared.
It involves following steps:
(j.. • i. Identifying the task and objectivesN''
.«Wr./L.. After receiving instruction form the client, it is required-
o to identify the problem;
• o t<? define the purpose and objective of a report, and
^ o to understand the vital points involved
ii. Defining scope and limitations and adopting methodology
iii. Data collection - (a) and (b) above leads to the type and quantum of
data to be collected during exercise of valuation.
iv. Data analysis - this step is veiy important in preparation of a report.
Analysis of data should be systematic and logical whichrequires
application of expertise to the problem on hand.
Conclusion and opinion - the step (d) leads to conclusion and formation of
opinion and advice to be given to the client.
The result of the above process is required to be communicated to the client in
form of either oral or written report. The result of valuation exercise should be
expressed in clear arid unambiguous terms and in a convincing manner, so that,
the it helps the client to take appropriate decisions regarding management of his
financial affairs relating to property under consideration.
< r
3
1.4 ESSENTIAL ATTITUDE AND SKILL FOR REPORT WRITING
(Tin- valuer must develop certain attitudes and skills for writing valuation '
11 :ports. A report without such attitudes and skills might not be practical and useful. •
It. is necessary for valuer to establish and maintain direct contact and relation
with ihe clients. This would enable him to understand clearly and precisely the
problem faced by the client for which he is seeking expert professional opinion
mn<I / o r advice. The direct contact with client would also help to get the doubts
cleared and difficulties resolved which may arise during valuation exercise.
A written report casts high degree of accountability on the valuer as it acts asi
a formal record and become a document. It is, therefore, necessary to provide every
in.lormalion and..data in...report...in such, way that they can stand the judicial I
a:Mi tiny in the court of law. There should be a disclosure.o.f.what has been done in
form of scope and what has not been done in .form .of limitations. No attempt should
be made to hide any information or data, even though they are unfavorable to the
interest of the client. It is, therefore, absolutely necessary7 to verify personally, all
{lien; formation and data before they are included in a report.
The. technical, knowledge, and skills in the„ field, of valuation are. primarily
essential to produce a gppd„an.d..sound,.vaiUation report. They can be acquired by
academic qualification with practical training.
While writing a valuation report, a valuer should always bear in mind his
responsibilities and accountability for maintaining competence and integrity to the
profession. This could be achieved by a high degree of detachment with client and
property to be valued, which is prerequisite for an unbiased and balanced valuation
repori.
‘ <Mic may have sound technical knowledge and experience but. it may net of
practical use if he is unable to present and communicate information, dara and
analysis and to express his opinion and advice in a effective and convincing
manner. On other hand, one may have acquired communicative and presentation
skills Init his opinion and advice may be misleading and of no practical use if the
same is not based on sound technical knowledge and analytical approach.,
I'or producing sound and good valuation, report, technical knowledge and
experiences as well as communicative skill are essential.
1.5 KEYWORDS
<Vn] report - Non-technical report - Valuation report.
1.6 SUMMARY
The scope of this study material is mainly limited to writing valuation reports
relating lo real estate. It is basically presumed that the person writing a valuation
repori has already acquired necessary technical knowledge and experience in the
filed valuation, and has developed a sound analytical mind. The thrust is
therelore mainly on developing a good and effective communicative skill.
1.7 INTEXT QUESTIONS
1) Kxplain the process of report writing
2) Write short note on essential attitude and still for report writing.
1.8 REFERENCES
.1) -fne.eph C. Mancuso, Mastering Technical Writing.
□
4
CHAPTER- 2
GENERAL STRUCTURE AND PROCESS OF
__________________________________WRITING A VALUATION REPORT
OBJECTIVES
To know the general structure & analysis of data fro report writing.
CONTENTS
2.1 Introduction
2.2 The Purpose of Valuation
2.3 Collection of Information and Data
2.4 Analysis of Information and Data
2.5 Supporting Material
2.6 Keywords
2.7 Sum m ary
2.8.Intext Questions
2.9 References
2.1 INTRODUCTION
Every report on valuation should be comprised of following aspects:
1. Title of the report
2. Introduction/Identification of property
3. Description of property
4. Title and ownership
5. Locational and situation
6. Proced 11 re adopted
7. Presentation of data
8. Analysis of data
9. Conclusion
10. Supporting Material
In this chapter will discuss general structure and process for preparing a
valuation report along with guide lines for collection of information and data and
their sources from where it can be collected, art of making enquiries for collecting
information and data, presentation of data and its analysis, presentation of
supporting material in form of annexure, etc.
2.2 THE PURPOSES OF VALUATION
A valuer may be required to report on valuation of a property for various
purposes. A client may require a report on valuation of a property for the purpose of
1. Purchase for occupation or investment
2. Sale
3. Lease
4. Mortgage
5
5. Income Tax, Wealth Tax, Capital gains Tax, etc.
6. Compulsory acquisition including injurious affection
8. Matter relating to planning laws

lit this Chapter we will study the following parts of a valuation report
1. The forwarding letter duly signed by a valuer
2. The title of a report •
3. Collection of information and data
4. Analysis of information and data
5. The conclusion, opinion and advice as and whenneeded
6. Supporting material in form of statements, tables, charts, plans, maps,
photographs, etc.
The Forwarding Letter
A valuation report is usually sent to a client under a short forwarding letter.
The letter should briefly refer to the subject matter i.e. identification of the property
being valued and the purpose of valuation. The letter should include a concise
statement of conclusion about value and the date on which the value is estimated.
It may also indicate that the value estimated is subject to certain limiting
conditions, if any as mentioned in the valuation report. The letter should be signed
by the valuer or by the person duly authorized to sign such letter on behalf of the
valuation firm.
A forwarding letter should state -
a. the reference number comprising code number, if any, indicating type of
job, file or job number, year and serial outward number and
b. the date of sending the letter.
The letter should be addressed to the client, stating his postal address. If the
<lien I is a corporate company it is preferable to specify the name and designation of
i hr person dealing with the matter who will receive the letter and the valuation
i <•port. The forwarding letter may also repeat the caveats, if any as stated in the
■•■port regarding the use of valuation report, especially relating to judicial
pi *>ceedings.
I illc of Report
A report will begin with a title comprising
a. identification of the property being valued e.g. City Survey number or
Final Plot number, T.P.S.......... of City / Village etc., name of the
property, if any. and locality
b. the purpose of valuation and
c. The date on which value is estimated. The purpose and the date of
valuation both are very important and the title will be incomplete without
any one of these.
6
Sometimes legal interest valued e.g. ‘freehold property bearing C.S. No.... is
also mentioned in the title of a report. •
A typical title of a report may read as -
. Report on valuation of immovable property bearing F. P. No. 145,
T P S - 7, Navrangpura, Ahmedabad for the Purpose of Sale
Date of Valuation: As on 31st March 2007. .
2.3 COLLECTION OF INFORMATION AND DATA .
General
: A report should give sufficient information about the property to be valued so
as to be of assistance to a client and to those for whom a report is intended. It
should define exactly the subject matter of a report unci give all the relevant facts
including legal interest in the property which is being valued.
The information and data should be collected taking into consideration
<following aspects of.the instructions given by the clients.
a. Identification the property and thereby the type of property and interest-;
therein, to be valued.
•b. Purpose of valuation
c. Date of valuation and
d. Suggested scope and limitations, if any, of the task to be performed.
The information and data to be collected should bn in respect o f-
a. the property to be valued including interest therein to be valued
b: properties comparable to the property to be valued and involved in
recent instances of rentals and sales in the neighbourhood.
The type or nature as well as extent of details-lo be <«*11«r< led are determined by
a. the purpose of valuation
b. the objective, scope and limitations of the task i
c. the date of valuation
d. the method of valuation '
e. purpose of valuation • ...
f. use of report by the third parties
The data regarding the prevailing cost of const ruction <>1 buildings per unit (i.e
per sq. metre or per cubic meter) and recent instances «>l sale in respect ol
comparable open lands in the nearby area wi 11 be required in (he cost approach ti
valuation.
The market, approach to valuation will require the information and dat
regarding the transactions of sale of similar and comparable properties situated ij
the surrounding locality.
The income approach to valuation, information regarding instances of rentaf
i
as well as instances of sale in iaspect of similar comparable properties in tli
vicinity, will be necessary.
A simple rule for deciding which information and data and- the details there!
should be collected is that a valuer should consider or imagine himself to be in th
w
■ ■ .7 ' ■ ' :■
Ilusition of a client and think and decide about information arid data he would like
in I*.now lor logically and systematically arriving at the conclusion. Having done
tliir*. he ;;1rould consider, himself to be in the position of-a party on the other, side
,nmI d<-< ule about the information and data necessary for the purpose.
^• .* . - - fc\
l‘oi example in estimating fair market value of a property for sale, he should
i nnNidcr himself as a prospective buyer and then also as the owner (seller). While in
ihe case of valuation for mortgage,, a valuer should consider himself to be a
nun tgagor taking loan on mortgage of his property and thereafter consider from the
point of view of the mortgagee or bank or financial institution granting loan on
mortgage of that property. Such thinking from both sides would help in ensuring
that no important point of information and data has been missed or overlooked or
remains to be considered before arriving at a conclusion. !.
A valuer writing a report should be careful and must always bear in mind as to
how it will be used. He should particularly consider such cases where-information
a n d data will be wanted by and passed on to solicitors or other third parties.
Evidences
A valuer must give all relevant facts of the case to the client. He must also
satisfy himself that whatever he writes is true. It is, therefore," necessary that the
evidences given in a report should be first hand evidences. He must himself verify
and get satisfied that the evidence and facts stated in a.report are true and correct,
lie must also guard against and should never rely on hearsay evidence. Phrases
like “I am informed”, “It is learnt”, “A estate broker tells.me”, “It seems” or “it
appears”, etc. have no place in a valuation report. 1
The information, data and facts gathered by site inspection or from records,
journals and such other secondary sources should be verified before including it in
a report and should be attributed to its origin by quoting the source, so that it may
not crusi any additional responsibility on a valuer.
A valuer is doubtful about some facts which he may be unable to verify or may
not. have first hand knowledge, in such cases, he should advise his client to get it
investigated or verified by his solicitor. \
The information and data included in a report should be factual, true, precise
and definite.
Sources of Information and data '
Information and data can be collected from various sources. These sources are
m a in ly -- ■
i. public records i.e. Govt, and Municipal records
ii. publications and journals
iii. site inspection and
iv. certain specific inquiries on site.
Only such information and data which are relevant to the problem should be
<ollecled. Information and data which are not relevant to the problem often gives
ri.se* to confusion in which one may get lost and also results in wastage of time and
e n e rg y .
(i) Public Records -
a) City Survey / Tahsildar Office
Information regarding title (ownership) and tenure i.e. freehold, leasehold, Inam
tenure etc., are obtained from property register cards (P.R. Cards) from City Survey
Office in case of properties situated in Urban City svuveyed areas and from 7/12
extracts from Tahsil Office in case of properties situated in rural and non city-
surveyed areas. Sometimes encumbrances like mortgage, easement rights etc. are
recorded on P.R. Cards and 7/12 extracts. It is however advisable to conduct
enquiries in respect of any such encumbrances on a property during site inspection.
The City Survey maps or village maps showing location of the property and its
surroundings are also available from the concerned City Survey Office or Tahsildar/
Collector Office.
b) Registrar’s / Sub. Registrars Office : Land Records Department
The information regarding sale and lease transactions can i>e obtained from
the records maintained in the offices of Sub. Registrar / Registrar from Index-II
form, which gives information such as names of vendors and purchasers or lessors
and lessees in case of lease deeds, identification of land and a r e a sold, etc., amount
or prices at which it is sold, date of transaction, etc. In majority of cases recorded
prices are shown lower than the actual prices paid and the information regarding
actual price paid needs to be skillfully extracted from the vendor or the purchaser
during inquiries on site.
c) Office o f the Executive Engineer P.W.D. / Z.P. -
Information regarding District Schedule of Rates (D.S.Iv) as on relevant dates
and cost of construction can be collected from the offices of the Kxccutive Engineer,
Public Works or Roads and Buildings or Irrigation Department of concerned district
or from the office of the Executive Engineer of the concerned Xilla Parishad.
d) Municipal Records
Information about identification of the property, its aiea, rateable value,
annual municipal taxes etc. can be obtained from the office of the Assessor and
Collector of Taxes, of the concerned Municipal Council / C orporation.
e) Development Authority
Information about permissible and potential use of a property, permissible
intensity of use in terms of the permissible Floor Space Index or Plot Ratio etc.,
other Development Control Rules or Municipal Building By laws and Regulations
having effect on value of a property will be available from the office of City Engineer
or Development Plan Department of the concerned m u n i c i p a l authority. Similarly
information regarding Development Plan proposals or T o w n Planning Scheme
proposals or proposals regarding regular lines streets etc. affecting the property
bein6 valued will also be available from the office of the City Engineer or
Development Plant Department of the concerned Municipal Authority or the Special
Planning Authority / Development Authority if any, established for the area. The
information about the existing or proposed infrastructure development can also be
collected fro'm the office of the concerned local authority i.e. Municipal or
Development Authority.
9
The plan or part plan of the Development Plan showing location of the property
ht'tnj,' valued, its surroundings and proposals for development providing
mInistructure, amenities and facilities etc. can also be obtained from the Office of
the Local Planning Authority or the Development Authority.
(Ii) Publications and Economics Journals -
(a) Census Books
The Changes in population and in the number of household over last two or
three decades indicates trend of demand for residential accommodation while
figures of available houses gives information about the trend in supply of housing.
vSimilarly the number of workers engaged in trade and commerce over last two or
three decades indicate change in demand for commercial accommodation. The
change in employment in tertiary sector activities indicates growth of economic
activities and prosperity giving some idea about the level of property values.
(b) Economic Journals and Publications
Information and data regarding economic indices, which are indicators of national
economic conditions, such as capital market indices e.g. B.S.E. and N.S.E. (Bombay
and National Stock Exchanges), Foreign Exchange rates, wholesale price indices
(W.P.I.) consumer price indices, (C.P.I.), inflation rates, interest rates on Central and
State Govt, bonds etc are available in various economic journals and bulletins. These
are helpful in deciding appropriate rate of interest in comparison with those shown by
1ne study of the local real estate market by analysis of sale instances.
Similarly data regarding per capita income, domestic savings and its
investment in various forms viz shares, debentures, Govt, bonds, fixed deposits in
banks and financial institutions, assets etc, as well as the information regarding
Gross and Net Fixed Capital Formation (at national level) in the Real Estate sector
(generally indicating demand side) and the Construction sector (indicating supply
side) indicating trends in the real estate and construction sector of economic, are
also available in various economic journals and publications.
Some such economic journals and publications are Reserve Bank of India
Bulletins, Economic Intelligence Service (E.I.S.) of the Centre for Monitoring Indian
Economy (CMIE) Journals, Hand Book of Industrial Policy and Statistics published
by the office of the Economic A.dvisor, Ministry of Industries, Govt, of India,
Economic Times, Financial Express etc. etc.
(iii) Site Inspection
The following information and data can be collected and verified during site
inspection -
2) Situation of the property with reference to -
i. Access i.e. from main road or internal access road, corner plot or
intermediate plot, etc.,
ii. Proximity of amenities and facilities, recreational facilities like gardens,
playground, cinema halls etc. and utility services available in the
locality.
iii. development in the surrounding area i.e. commercial, higher, middle or
low income group residential, slums etc.
10
3) Land - area, size, shape, level, foundations, boundaries, etc.
4) Buildings (if any) :. . *'
Data regarding engineering and architectural aspects, sei-vices, maintenance
and repairs, etc. ..
5) Open spaces within the site or plot, garden, parking, etc.
6) Occupation: Owner occupied, occupied by tenants . protected under Rent
Control Laws and paying controlled / standard rent, non protected tenant,
lessee, sub-lessee, etc.
7) Gross annual rents, taxes and other outgoings like cost of maintenance and
repairs, insurance, etc. N
8) Encumbrances, easement rights dominant and servient * properties,
unauthorized constructions, encroachments, mortgage, etc.
9) Instances cf rentals of con’iparable properties in the surrounding areas and
their details regarding all comparison factors.
10) Verification of instances of sale collected from Registrr-/Sub-Registrar Office
by interviewing either vendor, purchaser or witnesses to transactions, >
inquiries, regarding documented/ Registered price and actual/price, factors of
comparison with reference to property under valuation and properties in rental
instances. Inquiries should also be made whether transactions are at arm’s
length or not.
Information and data gathered by site inspection should be definite and
precise.
'The owners/occupiers sometimes discourage the valuer from inspecting
certain areas or parts or prevent him from making proper inspection. In such cases
where a valuer is hindered in his inspection or prevented from making
investigations the same should be clearly reported.
Many a time owners/occupiers are eager to give inform;.lion not asked for or:
try to misguide. A valuer should guard against such eventualities during
inspecti.v... He should also guard against hearsay evidence.
of the information and data can be gathered mid verified during-
inspection of site and property by observations and enquiries.
(iv) Certain specific inquiries on site ,
During inspection of site / property, informat ion regarding vanous aspects can
be gathered by making inquiries with concerned persons and local residents.
Inquiries should be made especially in respect of the following aspects:
1) Leased properties: A copy of lease deed may be obtained or seen and terms
and conditions influencing net-income such as those regarding rent reserved,
revision of rent, renewal, restrictive covenants, covenants regarding external
and internal repairs, etc. should be noted. While reporting it is essential to
indicate those statutory provisions and terms and conditions of lease which
influence-
a. level and flow of rent,
b. obligations on the parties regarding management, financing and
attractiveness as investment, etc. influencing rent and net income.
\w
:f •' 11
:-i , • Instances of rentals of comparable properties in the locality are usually
not available on record. The information regarding the properties let
,■ . out, liabilities for maintenance, repairs and municipal and other taxes,
|J premium, etc- paid, if any, and the last date of fixing / revising rent etc.
fe . / • needs to be collected by interviewing owners, occupiers or tenants.
Instances of Sale of comparable properties in. the vicinity, available on record
do not reveal correct, information about the actual price paid, including
f % , unaccounted money needs to be skillfully extracted by interviewing vendors or
j.'if-rv ; purchasers. >“ • :-
j H ' k3) Latent Defects: Information about defects, if any, in the property to be valued,
which normally cannot be revealed by careful inspection of records and on
site, such as easements and other encumbrances* hidden defects etc. can
. .. sometimes be obtained by inquiries with occupiers.
4) Relative importance of. factors of comparison: The relative importance and
priorities given by local residents of the area for various factors of comparison
and their levels should -be ascertained by interviewing local residents,
occupants etc. Such information would be useful in comparing properties
involved in instances of rentals and sale transactions with the property to be
valued. ' . •
2.4 ANALYSIS OF INFORMATION AND DATA
General
Analysis of information and data collected involves arriving at the logical and
reasonable conclusions and findings relevant to and helpful in valuation of the
property under consideration. -
The process to be followed for analysis will depend on the method of valuation
adopted. '
. Land Value and Market Rent
. In cost approach land value is estimated by comparison of properties while in
Income approach market rents of properties involved in the instances of sale as also
of the property to be valued are estimated by comparison of properties let out with
the properties sold arid the property under valuation. In market approach property
to be valued is directly compared with the properties sold. Such comparison
between properties can be made directly considering various factors of comparison.
Rate of interest for capitalization
In income capitalization approach, the rate of interest and years purchase
(Y.P.) is estimated (i) by finding out Y.P. and the rate of interest yielded by
properties sold, dividing actual price paid (including unaccounted money) by net
annual income and (ii) by finding out relationship between rates of interest so
yielded by properties sold with return from other forms of investment.
Discussion of Instances of Rentals and Sales
In a valuation report discussion regarding comparison of properties involved in
the instances of rentals arid sales and the property to be valued is most important.
12
Such discussions should be short and to the point. It will help to form opinion
about market rents and market values of lands or properties.
In analyzing the information and data it should be kept in mind that the
purpose of such analysis is to provide logical reasoning leading to conclusions
about market rents / values.
The conclusion, opinion and advice as and when needed
Every report should end or conclude with opinion and advice, if needed, both
duly signed based on logical reasoning and justification. The opinion and advice
should be expressed in clear and unambiguous words so that no meaning other
than that intended can be drawn and there should be no scope for any
misinterpretation. The opinion “The property is worth ' 90 lakhs” has no meaning
and is ambiguous and indefinite. “The property is worth ' 90 lakhs for the purpose
of investment as on the date of valuation” is clear and definite opinion since it
defines the purpose and the date of valuation. Expressing fair market value as “in
the range o f or “varies between ' .... to ' .... ” or “about ' ......* is vague and
meaningless.
The opinion and advice should be given without any type of qualifying clauses,
conditions or riders and should be unequivocal and absolutely clear. Similarly, no
alternative solutions should be given since the client requires definite opinion and
definite advice of the expert.
2.5 SUPPORTING MATERIAL
General
Valuation of properties is subject to grater scrutiny and analysis. It has,
and data. A text alone is inadequate for the presentation and analysis of such data,
which contributes to formulation of professional opinion. The narrative part of a^
report is therefore supported by a wide range of technical papers such as
schedules, tables, diagrams, charts, maps, plans and photographs, etc. which are
appended to the main wirteûp of a report. Such supporting material complements
the text and can achieve the same effect as can be achieved by written words but
more economically and in clear and concise form. Schedules, tables, technical
papers about legal provisions, Development Control Rules etc. as also charts,
diagrams, maps, plans, photographs creating quick visual impact are decisive in
achieving effective communication.
Each of the supporting material must have the same title as that of the main
report so that it can be put back in its proper place if misplaced. It should also have
a sub-title clearly indicating its contents and should be arranged in a logical
sequence with annexure / appendix number. The annexure number, title and sub
title should be properly aligned at the top right, as far as possible, with job number
and date, etc at the bottom right. The annexure which may need folding should be
folded in such a manner that the annexure number, title, sub-title, job number etc.
could be seen easily and clearly.
\ <JC
13
It is advisable to write at the end of each of the supporting material, about its
findings or observations. Such statements, if arranged in logical sequence, may
make writing of the narrative report easier by including such, concise analysis in
the text. It is advantageous of making the written report as short as possible so that
it acts as a summary with all the details in the annexure. A reader is thus not
compelled to go through all the details but one who desires to know the details can
always refer to the annexure.
Schedules I Tables
Schedules statements or tables are normally used to summarise (i) Description
of accommodation and areas of rooms etc. (ii) Description of conditions of parts of
buildings and state of repairs with estimated cost of repairs (iii) Clauses in leases,
t. . . ......
tnr , - -- ------ ----- ------- ■
■■■—' ",J'1'-^
-
particularly those regarding rents, repairs, other covenants having effect on net
income, etc. (iv) Details
n' *
ofL -sales and rentalsiy - statements showing instances of sales
"**"**" ' ' 11 ...... ............ |
and rentals (v) characteristics of comparable properties (vi) Portfolio characteristics
(vii) Individual properties and market performance / market conditions etc. etc. The
statement showing instances of sale and rentals is the most important statement
and should accompany valuation report.
Schedules, statements and tables are in column form and the following
important points should be followed -
1) The information in columns should be arranged logically and comparable data
should be in the adjacent columns.
2) Each of the columns should have proper and appropriate heading and
appropriate unit of measurement for each element (e.g. sq. m., hectors, \ * per
month, etc).
3) Sufficient space should be left in the last column for brief notes or remarks if
any, for essential qualifications, changes in data base or any additional
information. A statement showing instances of sales is illustrated in the
annexure to this Chapter.
Charts
Where the contents of schedules or tables are solely numbers or figures then it
is possible and often advisable to present such information in charts, since this will
have much more immediate visual impact on the reader. Carefully prepared charts
achieve the presentation of considerable amount of data in an* easily and quickly
understandable or comprehensive form, enabling the reader to arrive at conclusions
which may not be possible for him by mere reading of numbers. A chart clearly
shows comparative changes in one or more variables, shown in carefully selected
colours or notations against: one variable, usually shown along horizontal or ‘X’
axis, other variables being shown along the vertical or T ’ axis.
In preparing charts, the scales are critical. It is necessary to satisfy two criteria
viz.
1) The scales must, be large enough to permit various lines to be distinguished
over the relevant period of time, and
2) The scales should not result in gradients which crcatc wrong or false
impressions as regards the relationship between two variables. This happens if
14 ■i'
; jj
disproportionate scales are chosen for variables shown along vertical, (Y) axis j1
and horizontal (X) axis. :
Plans and Maps
Location map, area descriptive map, site plan, building plans and floor plans
etc. are used for description of land and accommodation, and their use, all of which
help summarily to describe location, area, accommodation, etc. in the text and
simultaneously understand them clearly and quickly.
A plan showing instances of sale and rentals is the most important and should
accsssfsany every valuation report. It helps in:
a. Comparing various instances in respect of locational factors, of
prices or rents per unit area, dates of transaction etc., at a glance.
h. Thereby help in arriving at some conclusions.
Care should be taken to show such data in respect of all the instances o f safes p
and rentals very clearly, distinctly and without mixing or jumbling it* with % j
lines and arrows. Showing details of instances of rental and sales as nearer to the :
kscatkms of concerned properties on plan as possible would help in avoiding suds j|
jumbling.
MNtdanffa»tk>n of plans
It is necessary to have some standardization in the presentation of maps m d
plans. Margins should be adjusted about 3-4 cm on the left side and 2 to 2.5 cm <m
the other three sides. These margins should be marked by thicker lines. An e x ta |
space of about 10 cm to 15 cm, depending on the size of the plan / map, should be f
left on the right hand side, for writing the following .particulars -
1) Annexure number at the right hand top comer.
2) Title of the report and sub-title identifying the information and data shsswn k
the plan / map. These should be shown in about 1/3rd of space at the top.
3) In 1/4th of the space at the bottom of the said strip should be shown (a
reference number and date, name of the firm or valuer etc. and (b) Nor fini
and scale.
4) The legend or references, with colour code or notations etc., should be w r ite
in the central space of the strips. Colour coding or notation is shouki be usi^
to distinguish several interest in the land, various rights involved, differes
land uses, instances of rentals and instances of sale and the property to b
valued etc. etc. •
i
5) The findings or observations / conclusions, if any, of the plan / map should I ?■
written in the space below the plan / map.
Photographs
Photographs give dear idea about the property to be valued and i
~»~oundings and also about the state of maintenance and repairs, Photogr&pl
form permanent record of state of property to be valued as on the day of taking tJ
photographs. The caption on the photograph should identify what m shown is*
and should also identify the point from which the photograph is taken along wi
its direction. Care should be taken to ensure that the surroundings of the proper
• ■ V
15
with land marks if any, are seen in the photograph so as to avoid anydispute about
its identity. Many cameras have now the facility of recording the date and time of
the photograph.
Other Supgor^fig JtatemSs
These include copies of relevant public documents such as administrative
orders, planning permissions, valuation lists, Development Control Rules, Building
Preservation orders etc. as also private”noftces, legal documents relating to the
property_under valuation includinglease deeds,_andjtenancy coyaoants regarding
rent internal and external repairs, etc.
The reports of other experts, if any, should be appended to the report m they
have been received without making any ■'hange in them.
Documentation
^ ^ ^ veiyûpporting material including statements, tables, schedules, diagrams,
■' —........... 111 ~
charts, plans, maps other appendices, etc. should mention the source of
information in the foot note. The integrity of a report writer is proved with the use of
Footnotes and other documentation crediting the sources of information.
Format report
Many banks and financial institutes require valuation reports in formats
prescribed by them. Such formats hardly leave any scope for any explanation about
logical reasoning’ leading to conclusion and value estimate. It is, therefore,
advisable to append narrative report to such format report with a view to provide
protection to a valuer.
Important note
Many professional valuer advocate that (a) the definition of value (b|
assumptions and limitations and (c) method ofj/aluation adopted should be stated
in----
a report.
—-*—
As a general rule where no definition of ‘market value* is given in a report the
standard definition of market value‘held by the Supreme Court of India in its
judgement and also adopted in valuation standards prescribed by professional
institutions, is presumed to have been adopted in a report In cases where the
Value' estimated is other than this standard definition it should necessarily be
defined in a report.
A report should not be based on any assumptions, as far as possible, unless
by compulsion.
Limiting conditions will mostly arise in collection of information and data
where a valuer is prevented or obstructed in collecting and verifying them, either
due to physical circumstances or legal circumstances. In such cases the limitations
may be stated in the paragraphs relating to T)ata Collection*. In certain
circumstances value statement can also be subjected to qualifying clauses. Utmost
care should however be taken to ensure that such qualifying clauses shall not, in
any case, render value statement almost meaningless.
16
There may be limiting conditions regarding use of a report. These should' be
clearly stated in the form of caveats especially regarding leading expert evidence in
any legal proceedings.
A valuer can adopt any method of or approach to valuation. The method of I
valuation adopted will be evident from collection of information and, data and
analysis thereof leading to reasoning and ultimately to opinion. It may therefore be
redundant to make specific mention of the method of valuation adopted. Once a
particular method is adopted it is absolutely necessary that a valuer shall carefully
collect all the information and data required and analyze the same as may be
required for following the method adopted. On other hand, if a statement of j
if
adopting a particular method of valuation is made in the report then it must
include the reason for adopting the particular method.
I
TITLE REPORT ON VALUATION OF .... ANNEXURE....
FOR THE PURPOSE O F................ AS ON 00.00.0000
SUB TITLE STATEMENT SHOWING INSTANCES OF SALE
Date Property Consideration Gross m Y .P.

Sr. Area Rate of Annual Rate of
of identification or Rate Annual Annual (Col. 5 * Remarks
Ho. Sold Fair Rent Outgoings Interest
Sale Mo. ’ Price Rent Income Col. 10)
sq.m. ' ’ /sq.m ' /m2/month ' • •
1 2 3 4 5 6 7 8 9 10 11 12
Source: 1)
2)
*
Note: Y.P. in Column 11, may be Single rate or Duel rate, depending on perpf >■*
or terminable income. • \
2.8 KEYWORDS
Sources of information, Survey, inspection.
2.7 SUMMARY
In this chapter title, presentation of data, anafysisof data were discussed.
2.8 SMTEXT QUESTIONS
Explain supporting material for report writing.
2.9 REFERENCES
Matt Young, The Technical Writer’s handbook.
17
CHAPTER - 3
THE GENERALÔNTENn'S OF A VALUATION REPORT FOR

________________________ _______________ IMMOVABLE PROPERTY
OBJECTIVES
To understand the general contents of a valuation report for immovable property.
CONTENTS
3.1 Introduction
3.2 The General Structure of a Report on Valuation
3.3 Content of a Valuation Report
3.4 Income Approach
3.5 Valuation
3.6 Keyboard
3.7 Summary
3.9 Reference
3.1 INTRODUCTION
A valuation reports are prepared for various purpose and required to submit to
the client. It is for even different kinds of properties like residential, commercial,
industrial, etc.
The general structure of valuation reports remains the same irrespective of the
type of property or the purpose of valuation. The difference in valuation report
arises on the ground of information and data required to be collected and the
method of analysis thereof varies according to the purpose of valuation and the type
of property to be valued.
This Chapter is intended to make the students familiar with the general
content of a valuation report.
3.2 THE GENERAL STRUCTURE OPA REPORT ON VALUATION
There is always a general structure o f a vaTuaBofPreporf' in respect of a specific
property for a specific purpose but here it is not possible to give specific structure for
all type of properties and for all purposes of valuation. Once the general principles of
writing a report is understood there would not be any difficulty in making suitable
alterations in writing a valuation report as per particular requirement.
Every report on valuation should be comprised of following aspects:
1. Title of the report
2. Introduction/ Identification of property
3. Description of property
4. Title and ownership
5. Locational and situation
6. Procedure adopted
7. Presentation of data
8. Analysis of data
9. Conclusion
10. Supporting Material
18
3.3 CONTENT OF A VALUATION REPORT
Identification of Property and Rights
e Details of legal rights of the owner in the property
• Details of property to be valued
L Address of the property with City Survey No. R.S. No., Ward No. etc. -
precise identification of the property with exact location,
ii Tide: Freehold / Lease-hold - property rights valued
iii. Names of owners / occupants
hr. Nature of interest of the owner / occupant in property
v. Area of lam! / property
• Are occupants in the property different then owners? If yes, give details
with documentary evidence.
SnfonnatiGflofffieTown
• Growth of population in last decade and its projection
• Main economic activity and its growth and its projection especially
secondary aiid tertiary sector employment.
• Physical development - actual in recent past and proposed.
• Growth potential giving overall and general idea of property market.
Information about the area in which property is located
- Character and type of locality
• Housing: HIG, MIG, LIG, Professionals
or
• Commercial: City centre / District centre, Types of shops
or
• Industrial: Small, Medium, Large, availability of labour, raw material etc.
- Quantity and quality of infra-structure / utility services.
- Development trend and future potential
- Distance and direction from employment centre
- Proximity to shopping, schools, health services, parks,recreational areas,
source of nuisances.
- New construction activities in the neighbourhood
- Other beneficial or detrimental influences
Site plan showing location of the property under valuaiton/project site with
reference to important land marks in the town/city and access shall be enclosed
with report.
Property under valuation
- Area and shape of land as well as also state about discrepancy in land area.
- Dimension of each side of the plot
- Frontage on roads and widths of roads
- Demarcation of land
- Soil bearing capacity, foundation conditions, level of land and cost of leveling
if any
T>rmre of land Is it Freehold or Lease-hold land?
\>v ... ■ ••
jA
19
In case of lease-hold -
• Name of Lessor
• Name of Lessee
• Date of commencement of lease
• Period of lease
• Date of termination of lease and unexpired/remaining period of lease.
• Premium paid
• Ground rent per annum reserved under lease, outgoings to be borne by
lessee.
• Covenants of lease with regards to *
Termination of lease
■ Renewal of lease
■ Payment of unearned increase in the event of sale or transfer
■ Conditions of transfer
■ Repairs and maintenance
- Potential - Development plan proposals, Development Control Regulations.
- Is land affected by Land Reforms Act, Revenue Code of the State
Government? Furnish details
- Land Use Zoning as per Regional/Dist. Plan, Master Plan / Development
Plan, T.P. Scheme.
- Development plan / Master plan / T.P. Scheme proposals affecting or
benefiting the land such as reservation for public purpose like health
facilities, playgrounds, recreation garden, road widening, new road,
transport facilities etc. Give details, if any.
- What is permissible FSI / FAR? How much is it unutilized or balance?
Other D.C. rules, Bye-laws affecting land values.
- Is there any outstanding liability for property tax, income-tax or any other
taxes, levies which can,, be recovered by attachment of property, earlier
mortgage charges etc.?
- To collect data regarding sale transactions in the vicinity which have taken
place in nearby areas and compare the sale instances with property in
question with regard to following factors and prepare an analytical report:-
■ Date
8 Area / size, shape, frontage etc.
* Physical
° Location including proximity to amenities and facilities like
educational, health, shops and markets, transportation, municipal
services, etc.
B Social - including type and class of locality
B Economic
n Legal
H Utility and potential use
H Transferability
20
- Scaled plan showing land to be valued and instances of sales with rates of
land values, dates of sale of areas sold should accompany the valuation
report.
While valuing large plots of land on the basis of sale instances of small plots of
land, details of hypothetical layout and development schemes with estimated values
of plots1in layout and annual cash flows should be given taking into consideration
the court judgements in this regards.
If the sales of comparable lands with large areas are available, hypothetical
layout schemes should not be used.
Lease-hold land
Income approach to valuation can be used by keeping in mind terms and
condition of lease agreements and other relevant facts.
Valuation of built-up properties
Is the construction carried out as per plans approved by planning/
municipal/ local authority?
Is it owner occupied / vacant / rented / leased / given on leave and license
or any other manner permissible under the law? Specify if Jvjre is any other
occupancy.
Market Approach
Owner occupied single family residential building, owner occupied apartment
in a multi-storied building, owner occupied shop and office in a multi-storied
building may be valued by market approach or by income approach.
Statement showing sale transactions along with names of seller / purchaser /
dates of execution and registration, registration number, area (open and built up)
sold, consideration or price paid and plan/map showing property under valuation
as well as sale instances along with overall rate of consideration, area and date to
be included in report.
3.4 INCOME APPROACH A
All rented properties and properties capable of fetching rent may be valued by
income approach. Balance potential if any, to be valued separately.
Statement showing sale transactions and rental instances and plan showing
sales and rentals to be included in valuation report. Analysis of sales, finding rate
of interest yeilded and rentals for estimating market value of property be made.
Hotel and Nursing Home buildings to be valued by income approach.
These property are sold as fully operational business units and the valuation
of operational entity includes -
■ land and buildings
* trade fixtures, fittings, furniture, furnishings and equipment
■ market’s perception of the potential together with benefit of existing
approvals, licenses, permits contracted future bookings, existing
membership which are an important part of the ongoing business.
Valuev to report on following issues -
E Validity of various licenses, permits etc. required to cany on the
business
0 Sustainability of the business and possible future fluctuations
Q>
21
■If existing use is not likely to be sustainable due to change in demand
for particular trading activity or property likely to sell in the open
market for a use other than the existing use, then value on alternative
use also reported.
Valuer to furnish details about buildings, types of construction, etc. as under:
Building in general
Total built-up area, F.S.I. consumed and balance F.S.I., gross built up area,
common areas, carpet. Main building and its use, subsidiary buildings and their
use, etc.
Main building -
(a) Type of building
■ Private / Public
■ House / Bungalow / Flat / Factory
■ Detached / Semi-detached / Mid-terraced / End-terraced
■ Converted / purpose built
■ Number of units in block
■ Lift
■ Number of floors / storeys
■ Floor Level
(b) Engineering aspects
■ Type of construction and structural stability.
■ Structure - foundations, walls, roof, floor, doors, windows, fixtures etc.
specifications and class of construction.
* State of maintenance and repairs, annual cost of repairs, future
economic life expected.
■ Immediate repairs, if any, and estimated cost thereof.
In case of factory buildings only
■ Machine foundations and layout of machines
■ Loading capacity of floors
■ Trolleys, gantries etc.
* Usable heights
■ Roof, north light, lighting arrangements etc.
(c) Architectural aspects
■ Front elevation, facade, etc.
■ Design, arrangement of rooms and convenience. Areas and height of
rooms including bathrooms and toilets.
* Light and ventilation
B Common areas, staircase and lift, other facilities.
(d) Utility services
n Water Supply, plumbing, wash basins, etc., type and quality of fittings
and plumbing.
0 Sewerage.
.■ Electric supply, type and quality of wiring, fittings and fixtures like
fans, geysers, etc.
22
a Solid waste disposal arrangements
* Fire lighting and first aid - special importance in case of factories.
(e) Maintenance and repairs
■ Describe the state of maintenance and repairs. Immediate repairs, if
required, should be pointed out with cost thereof.
■ Defects and potential defects - rot, woodworm, dampness, cracking
settlement, subsidence, corrosion, etc)
Subsidiary buildings: out houses, garages, canteen, etc.
Details as per general aspects, engineering aspects and architectural aspects,
•services and maintenance and repairs but in brief.
Open spaces within the property
1) Garden, landscaping and open spaces around the main building.
2) Parking and other facilities like swimming pool, security guards, etc.
Economic aspects
Income: monthly rent, actual and fair estimated rent, gross annual rent.
Outgoings -
a. Annual cost of maintenance and repairs,
b. Municipal taxes ,
c. Service charges, if any
d. Vacancies and bad debts,
e. Cost of rent collection,
.
f. Insurance,
g. Other outgoing if any.
Net Annual Income: Statement showing net income
Traffic and transportation: (In case of Factories)
Facilities for transport of raw materials and finished goods by road and by rail j
Loading and unloading facilities, •
Parking, weigh bridge, etc.
Labour market (In case of factories)
Availability of skilled and unskilled labour, labour - tendencies i.e. cooperati\
or un-cooperative, frequency of strikes, etc.
Town planning
Use: Present use and permissible and potential use.
Planning proposals - Affected or benefited by proposals, if any, its nature ar
extent.
D.C. Rules - Permissible F.S.I., permissible ground coverage and heigh
marginal open spaces etc. and other factors influencing market value of a property
L jg g a ! Aspects
6 Tenure and unexpired period of lease, etc.
15 Easement rights : enjoyed by properly or enjoyed over property
a Tenancy rights and
» Restriction on use in view of various laws ;
■ Unearned increase payable in the event of sale
■ Other legal encum brances like mortgages and other charges.
* Restrictions due to any other reasons not covered above.
| | 1 VALUATION ■ '
Sjjjforket Studies
■ 1) 1. Consideration/Price ,
t l t Collection of Sale Instances
w — ------ . i
■ Open lands and built up areas •
■ Document as proof
* Comparison v •
■ Sale Instances should be genuine transaction, hence site Inspection
and local enquiry necessary and must
■ No averages ■ ;
■ Documents and actual price paid, if available and zonal values.
2) Net income •
1 Collection Of rental instances
■ Comparison of properties involved in transactions with property under
valuation and estimation of fair rent for property being valued (by
comparison)
■ Rentals - effect of laws and taxes
* Gross annual income less annual outgoing. It gives net annual income
3) Rate of Interest for Capitalization
Analysis of Sale Instances •
■ Net Income and Consideration .
* Rate of Interest = Net Income + Consideration x 1:00
(In case of perpetual, more than 60 years income)
Estimation of Market Value „
Fair market value of the property can be estimated by any of the three
approaches to valuation.
1) Income Approach:
Market Value = .Net Income x YP----------------------------------- — ---- —

Rate of Interest
(forperpetual income i.e. 60 years or more)
= Net Income x Y.P. at Dual Rate (from Valuation Tables)
(in case of Terminable income i.e. less than 60 years)
Note: Gross Income should be estimated by comparison with similar
comparable properties.
2) Market Approach: Market valueestimated by direct comparison with
properties sold and prices paid, with reference to dates of sale and transaction
and date of valuation.
3) Cost Approach: Land value + Depreciated cost of construction as on date of
valuation.
24
Conclusion, opinion and advice (if any)

Conclusion statement should be made about fair market value, along with
date of valuation and purpose of valuation. It should be without any qualifying
clause. If at all a valuer need to state qualifying clause then it should be with
reason or as limiting condition.
Caveats and any special assumptions
Caveats are usually mentioned in a report at one place, but can also be stated
in the relevant paragraphs in a report.
Caveats regarding:
■ Confidentiality of report
■ Latent defects
■ Information
Various types of data and information are required to be collected from various
sources.
In all circumstances it needs to be stated in a report that “In carrying ou-' e
work information has been obtained from public records and also collected from
concerned individuals during site inspection. Such information is considered to be
correct and reliable”.
Further it is advisable to quote the source of information such as public
records, census reports, publications, journals etc. in a report. Any information, if
attributed to its source .
Any property or its use, in contravention of any statutory requirements or
otherwise, any statutory notice served etc., is matters which usually affect value of ,
a property. Necessary enquiries can be made with the Local Planning Authority or !
Local Municipal and Govt, authorities, and copies of consents, licenses, certificates, j
permissions, etc. can be obtained to reduce the scale of caveats.
There is a need to state in report that due to peculiarity of real estate
transactions in our country oral information furnished by various agencies is relied 1
in good faith
Recommendations (if any or asked for)
Existence or non-existence of encumbrances like previous mortgage, legal
dues, unpaid taxes, etc
Advice as to take undertaking from borrower at the time of advancing loan i
that:
a. the property offered as security is owned by him,
b. it is in the exclusive possession of owner,
c. it is free from all encumbrances,
d. it is constructed as per approved plan,
e. not mortgaged to any other party and
f. there is no outstanding statutory liability.
g. Borrower shall not part with the possession by way of lease, tenancy, 01
any other mode without prior permission of the bank.
h. Borrower shall not carry out. any further construction without prio:
approval of the bank.
qp
25
Supporting Materials
a. Building Plans
b. Statement of accommodation/floor areas
c. Details of instances of sales and rentals
d. Statistical data
e. Statement showing instances of sale
f. Plan showing instances of sales and rentals
g. Graph showing economic indices and rates of interest yielded by
properties
h. Photographs
i. Any other material not listed above
In Additions • *
In addition to the minimum requirements as stated above, a report on
valuations of property interests shall include comment on following, as and when, it
is relevant to the purpose of the valuation:
• current activity and trends in the relevant market, - '
• historic, current and anticipated future demand for the property in the
market area, . •
• the potential and likely demand for alternative uses,
• the current marketability of the property and the probability of its change,
• any impact of foreseeable events on the value of the property,
• where the market value is provided subject to a special assumption, the
report should include:
- an explanation of the special assumption,
- a comment on any material difference between market value and the
market value subject to the special assumption
-a comment that such value may not be realisable at a future date
unless the factual position is as described in the special assumption.
3.7 KEYWORDS
Lease, Caveats, Valuation. *
3.8 SUMMARY
The final step in the valuation process lies in communicating the .value to the
commissioning party and any other intended users. It is essential that the
valuation report communicates the information necessary for proper understanding
of the valuation. A valuation report shall not be ambiguous or misleading and shall
provide the intended reader with a clear understanding of the valuation provided.
To provide comparability, relevance and credibility, the valuation report shall
set out a clear and accurate description of the scope of the assignment, its purpose
and intended use, confirmation of the basis of value used and disclosure of any
assumptions, special assumptions or limiting conditions that directly affect the
valuation.
3.9 INTEXT QUESTIONS
1) Explain income approach for hotel and nursing home buildings?
3.10 REFERENCE
1) Hardikkar, P.T., Report Writing, Academic Book Center, 2006. Ahamadabad.
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i) Elements of Valuation of Immovable properties - Mr. R.K. Gandhi

ii) Valuation Principles and Procedures - Dr. Ashok Nain

iii) Real estate valuation in practice - Mr. Kirit P. Budhbhatti

iv) Valuation of real property - Mr. Syamales Datta

v) Practical valuation - Vol. 1 to 20 - Mr. B. Kanaga sabapathy

Wish you all the best.

(B. Kanaga sabapathy)

REGISTERED VALUER EXAMINATION

STUDY MATERIALS - Q34 to 88 - 639 Pages

- Details of syllabus - - 10 pages

Part 1 - g. Law - Real estate Q 34 to 43 - 244 pages

Part 2 - h. Valuation of real estate Q 44 to 56 - 57 pages

Part 3 - h. Valuation of real estate Q 57 to 63 - 76 pages

Part 4 - h. Valuation of real estate Q 64 to 68 - 53 pages

Part 5 - h. Valuation of real estate Q 69 to 73 - 103 pages

Part 6 - h. Valuation of real estate Q 74 to 78 - 15 pages

Part 7 - h. Valuation of real estate Q 79 to 81 - 27 pages

Part 8 - i. Principles of insurance and Q 82 to 86 - 29 pages

Part 9 - j. Report writing Q 87 to 88 - 25 pages

Total pages - 639 pages

LET KNOWLEDGE SPREAD

I. NON - TECHNICAL SUBJECTS (33 marks)

TOTAL MARKS - 33 + 67 100

LAND & BUILDING

a Principles of Economics (10 marks)

1 Consumption: Indifference Curve, Consumer’s Surplus, Elasticity.

2 Price Mechanism: Determinants of Price Mechanism, Individual and Market Demand

5 Theory of Rent, Theory of Wages

Capital and Interest - Types of Capital, Gross Interest, Net Interest

Organisation and Profit - Functions of Entrepreneur, Meaning of Profit and Theories of

6 Functions & Role of Mone

7 Inflation: Types of Inflation, Causes, Effects, Inflationary Gap, Control of Inflation,

Deflation: Causes, Effects, Deflationary Gap, Measures to Control Deflation, Deficit

8 Savings and Investment: Savings and Types of Savings, Determinants of Savings,

9 Components of Economy: Primary Sector, Secondary Sector, Tertiary Sector, Informal

10 Concepts of GDP and GNP, Capital Formation

b. Book Keeping and Accountancy (5 marks)

14 Preparation of Balance Sheet for Individuals and Companies and Disclosure

Government: Executive, Legislature and Judiciary

19 Tort: General Principles of Tort, Tort affecting Valuation.

Law of Arbitration and Conciliation: Salient Features

Auction: Authority of Auctioneer, Duties of Vendor, Purchaser and Public, Mis-description

and Misrepresentation, Advertisements, Particulars and Catalogues, Statements on

Laws of Evidence: Burden of Proof, Presumptions, Conclusive Proof.

Salient Features of the Securitization and Reconstruction of Financial Assets and

d. Introduction to Statistics (4 marks)

22 Data Classifications and Processing, Graphical Representation of Data, Frequency

23 Measures of Central Tendency, Dispersion and Skewness.

24 Elementary Theory of Probability and Probability Distributions, Sampling and Sampling

Simple Test of Significance, Regression and Co-relation, Multiple Correlation Coefficient,

e. Environmental Issue in Valuation (4 marks)

f. Professional Ethics and Standards (4 marks)

33 Other Engagement Considerations

g. Law-Real Estate (10 marks)

Provisions for Acquisition of Land under the Municipal Laws

Transferable Development Rights.