CHAPTER 5. Tax and economic terms in land

5.A.1 Annual value

The annual value of land is based on how much the land will rent for on an annual basis.

Property taxation systems used to generate annual taxes are usually based on one of:

> Rental/annual value
> Existing use/capital value
> Highest and best use/capital value
> Unimproved capital value, or
> Artificial bases

The annual value is used in many countries and is based on the rental value as defined in the relevant legislation. This will provide statutorily specified assumptions as to who, landlord or tenant, will be responsible for certain of the running costs in relation to the property.

5.A.2 Arbitration

Arbitraje (E)

Arbitration is the formal process of weighing evidence in order to reach a settlement when the parties are unable to reach agreement on an issue in contention.

Arbitration is a possible solution in situations where two or more parties to a contract are unable to reach agreement. This might occur where a lease contract includes a clause allowing periodic review of the rent to market value. The role of the arbitrator is usually governed by legislation. Arbitrators have certain powers and responsibilities, and deliver decisions based both on the submissions of the parties and on their own expertise in the field.

An arbitrator is distinct from an independent expert. An arbitrator acts in much the same way as a judge, basing the decision only on evidence and arguments submitted to him by the parties. The arbitrator cannot reach a decision without receiving evidence from the parties, or just one of the parties when proceeding ex parte. Arbitrators weigh the evidence and arguments on the basis of their expertise. Their award must lie between the two extremes put forward by the parties. RICS, 2002

5.A.3 Assessment

An assessment is usually a term applied to forms of statutory valuation where a value has to be assessed, most commonly related to market value, but where the market will not itself operate to assess value. The most common instances where this is the case are in the assessments of value for property taxes and for compulsory purchase compensation.

In taxation valuations, assessments of the unimproved capital value not only make a similar assumption about a willing buyer and a willing seller, but also assume that none of the improvements to the land have actually been made. In systems of land taxation based on annual value, assumptions are made regarding the relationship between the hypothetical tenant and the hypothetical landlord, and the condition of the property.

In practice assessments are therefore often complex and contentious, with the result that they can generate large bodies of law. In many jurisdictions appeals from assessments will be to a specialist tribunal.

5.A.4 Assessor

Asesor / Tasador (E)

An assessor is a person nominated under a specific piece of legislation to make assessments of value for statutory purposes. These are usually in the context of the preparation of general valuation/assessment rolls for property taxation. An assessor may be a professionally qualified valuer.

5.B.1 Betterment

Valorisation foncière (F); Valorización (E)

“Betterment” is the increase in the value of property as the result of public decisions and intervention. Increases in value may result from, for example:

> Improvements in the utility of property resulting from changes in the use restrictions applying to a property, for example, through the grant of planning permission

> Improvements to the infrastructure increasing accessibility

In some instances the state or the community may be entitled to secure the benefit of any development value by requiring land to pass through public ownership prior to its development into a different use. The statutorily empowered authority in such circumstances is entitled to acquire land that is ripe for development at existing use value, and to sell it to developers for development value. In other cases a part of this increase in value is subject to special taxation.

5.B.2 Betterment levy

Betterment levy is the sum recovered by local authorities from the owners of properties where these properties have been improved by public schemes as contributions to the cost of those schemes.

5.B.3 Building lease

A building lease is a form of lease where the landowner leases land to be developed to a developer.

The building lease will usually be a long term lease, often 99 or 125 years, allowing the developer to amortise the investment in construction and make an appropriate return on the capital invested. The rent paid under the lease may be fixed, or it may be, for example, geared to the head rent paid by the tenant in occupation. The rent under a building lease is usually referred to as a ground rent.

5.C.1 Capital value

The capital value of a property is what a property will sell for.

Property taxation systems used to generate annual taxes are usually based on one of:

> Rental/annual value
> Existing use/capital value
> Highest and best use/capital value
> Unimproved capital value
> Artificial bases

The capital value is used in many countries and is usually based on existing use value, or on the highest and best use value. The relevant basis for valuation will be defined in the relevant legislation under specified assumptions.

5.C.2 Collateral (land)

Nantissement foncier (F)

Property used as collateral is pledged as a guarantee for the repayment of a loan. The most common form of use of collateral is the mortgage.

5.C.3 Commoditisation

Marchandisation (F);
Comercialización de tierras/ Negociaciones inmobiliarias (E)

“Commoditisation” describes the transformation of the land into a commodity that can be bought and sold.

The concept of commoditisation relates to the period of transition from one form of land rights to a market for land. It may thus legitimately be used for the period of transition from a feudal to a market economy, when the basis for access to land changes from feudal service to money. It can be used equally for the change from customary forms of tenure which may preclude in principle the possibility of sale. Access to land in such systems is often in return for fulfilling certain responsibilities to the community or the relevant chief. Commoditisation occurs when such a system moves to one where the land is sold and market relations take the place of customary relations.

A third instance of changing systems is in the transitional economies of the Former Soviet Union, Central and Eastern Europe and elsewhere. Here land is (more or less) moving from a system of state ownership to one of varying degrees of private ownership, with in most cases the intent of introducing normal market economy relationships with the land.

More recently the term commoditisation refers to the rapid innovation of increasingly sophisticated financial vehicles related to real estate. These are driven by the increasing internationalisation of capital and the consequent drive for standardisation. They are also a reaction by the market to try to resolve the perceived disadvantages of real estate as an investment; that it is bulky, costly to purchase, complex expensive to manage and deal with, and illiquid. Examples at the more everyday end of the spectrum include timeshare arrangements. More large scale innovations include single property unit trusts.

5.C.4 Compensation

Indemnización (E)

Compensation is the payment for property taken or adversely affected by another. The payment varies between jurisdictions and may take the form of money, bonds, or exchange with alternative land.

Interference with the rights of ownership of land, whether through compulsory acquisition of those rights or through planning restrictions, may result in a total or partial loss of value of the rights on the part of the owner. In most jurisdictions there are legislative provisions, sometimes enshrined in constitutional guarantees, providing for compensation in respect of such losses. These provisions, the procedures and assumptions that they include, and their relative generosity, vary between jurisdictions.

5.C.5 Condominium

Immeuble en copropriété (F); Propiedad horizontal (E)

Condominium ownership is a form of ownership in which parts of the property are owned individually and parts are owned jointly, as tenants in common. Condominium ownership is particularly common in situations where common ownership of parts of a property is an integral part of the design, as for instance is the case in apartment buildings.

Condominium ownership is distinct from a cooperative, where a corporation holds title to the whole property and individuals have exclusive rights to their units through a lease. It is further distinguished from a planned community where the individual owns the unit and the corporation owns the common parts.

A condominium association has a management committee to ensure that these jointly owned areas are properly maintained, and has powers to raise money from the condominium owners to pay for the costs.

5.C.6 Conflict of interest

A conflict of interest is a situation where an individual or corporate entity is invited to act on behalf of one party, but has an actual or potential relationship with or interest in the other party or parties.

Professional associations dealing with real estate generally include a statement of ethical practice which incorporates standards relating to conflicts of interest. These bind the membership to stated standards of practice and reassure clients of the standards of ethics that they can expect. FIG, 1998

5.D.1 Depreciated replacement cost

The depreciated replacement cost of a property is the value of the site in its existing use plus the gross replacement cost of the buildings after appropriate allowance has been made for depreciation.

The technical definition of valuation terms is increasingly the subject of national and international valuation standards and these are available from the International Valuation Standards Committee. IVSC, 2001.

5.D.2 Development

Land development is the application of resources to improve land that should enable it to be used more efficiently.

5.D.3 Development value

Development value is the value of a property under given assumptions about permitted development. Aproperty with development potential is likely therefore to have a different existing use value to its development value.

5.D.4 Dilapidations

Dilapidations are the claim by a landlord for compensation for the failure of a tenant to maintain and repair a property under the terms of a lease.

Dilapidations arise at the end of a lease and result from the tenant’s liabilities for maintenance and repair. The extent of any claim will therefore depend on the facts of what the tenant has been responsible for under the lease, and how well these obligations have been fulfilled. The usual practice is for a schedule of dilapidations to be drawn up by or on behalf of the landlord and for this to be served on the tenant prior to the expiry of the lease or tenancy. The tenant may, of course, contest this claim. Once agreed, the tenant may either undertake the identified works or reach an appropriate cash settlement with the landlord. FAO, 2001

5.D.5 Disturbance

Disturbance is a head of claim for compensation for losses resulting from the taking of land, other than the taking of the land itself, or the associated effects of the taking on land retained.

Disturbance claims may form a part of claims for compensation where a person vacates land as a result of being expropriated and dispossessed. This is likely to include in many jurisdictions a measure of additional compensation for loss of a home, and for loss of goodwill where businesses are forced to move. Disturbance is an accepted element of a compensation claim in many countries.

5.D.6 Duty of care

The duty of care defines the responsibilities of people to one another, and is particularly important for agents, valuers, landowners and those responsible for land and buildings.

The concept of a duty of care is a central part of the English common law concept of negligence. It is an important extension of the law as it identifies responsibilities of people to one another in specific cases, and has regard to standards of a defendant’s conduct; with the general requirement that such conduct should be that of the “reasonable person”. Although it is an area of continual development in the courts, in principle a duty of care will be recognised when:

> it is foreseeable by the defendant that negligence on his part will cause injury, damage or loss;
> there is a relationship of sufficient closeness between the parties; and,
> that it is just and reasonable to impose liability.

CARD, R., MURDOCH, J., SCHOFIELD, P., 1994

5.E.1 Environment

Environnement (F); Medio ambiente (E)

Environment is defined as: “The combined external conditions affecting life, development and survival of an organism or an ecosystem.” CHOUDHURY, K., and JANSEN, L. J. M., 1999

5.E.2 Estate management

Estate management is a term most frequently used in the United Kingdom. It is broadly included within land management. The estate manager undertakes management of urban and rural real estate, whether as an owner or adviser, and whether in the public or the private sector. He or she deals, therefore, with issues relating to:

> the achievement of an acceptable return from the land interests owned.
> the maintenance or enhancement of the value of the land interests owned.
> such returns and values are likely to include a mixture of financial/economic, social and environmental (including sustainability) qualities.

NIX, J., HILL, P., WILLIAMS, N., and BAUGH, J., 1998

5.E.3 Existing use value

The existing use value is the best price that a property can be sold for assuming its current use will continue. The technical definition of valuation terms is increasingly the subject of national and international valuation standards and these are available from the International Valuation Standards Committee. IVSC, 2001.

5.F.1 Fixtures

Accesorios (E)

Fixtures are things that have become part of the land in English legal terms by virtue of their attachment to the land.

Whether they are to be considered as fixtures or chattels depends upon the degree of annexation and the purpose of annexation. So, for example, cinema seats have been held to be fixtures and a part of the land, whereas tapestries fixed to a wall have been considered chattels. The distinction is significant because fixtures at the time of a mortgage are included in that mortgage, and at the time of the contract for sale are included in the conveyance, unless specifically excluded.

5.G.1 Ground rent

The ground rent is a rent payable to the landlord of a building lease.

Ground rent is also used as a general term for any long term rental that is significantly below full rental value created by the sale of a lease at a premium.

5.G.2 Guarantee

Caution (F); Caución / Fianza / Garantía / Aseguramiento (E)

A guarantee is an assurance provided by an individual or other entity that something, often a contract, will be fulfilled.

A guarantor may provide a guarantee that a person or company will fulfil a contract, and will thus frequently be included as a party to the contract.

5.H.1 Headlessee

A lease or tenancy of land is a contract entered into between a lessor or landlord, who leases the land to the lessee or tenant. It is possible in some cases for the lessee or tenant to sublease the property to one or more parties. In such a case the direct tenant of the landlord is the headlessee, and the tenants of the headlessee are subtenants.

5.I.1 Independent expert

An independent expert is a specialist appointed to decide a settlement when the parties are unable to reach agreement on an issue in contention.

Appointing an independent expert may be one solution in situations where two or more parties to a contract are unable to reach agreement, for example, where a lease contract includes a clause allowing periodic review of the rent to market value. The role of the independent expert is not governed by legislation. Independent experts decide on the basis of their own knowledge and experience, but may also receive evidence and, where agreed, submissions from the parties.

An independent expert is distinct from an arbitrator. An independent expert, in the context of a valuation dispute, acts as a valuer, with the duty to discover the facts and decide accordingly. Any submissions of the parties do not limit this award. There are no procedures laid down in legislation and enforcement of an award would have to be based on a separate action. An independent expert has liability for any negligence. RICS, 2002

5.I.2 Inheritance tax / Death duties

Inheritance tax or death duties are taxes on assets on the death of an owner, some jurisdictions generalise this as a tax on the transfer of assets.

Land and buildings will usually be subject to such taxes, although there may be exemptions for transfers between spouses, and in some jurisdictions there may be reduced rates of tax according to the closeness of the family relationship of the beneficiary. There may also be specific relief for certain types of asset, particularly for family owned businesses and farms.

5.I.3 Injurious affection

Injurious affection is the “... loss sustained to that part remaining, by the carrying out of some activity on the land which has been acquired.” WIDDICOMBE, D., and MOORE, V., 1975

5.L.1 Land capital

Capital foncier (F); Capital de tierras (E)

Land is viewed in economic terms as a factor of production. Land, as defined, including the land itself, buildings, plantations and other improvements, also has a capital value as an asset. This asset value has many uses, ranging for example, from security for mortgage loans to use as a tax base.

5.L.2 Land economy

Land economy has been defined as ‘the study of the management of resources of people and land and is concerned with the economic, legal and sociological factors which affect the ownership of land both at the private, local and national levels. In short it concerns the relationship of human society to the land through the institution of property ...’ ACQUAYE, E., 1980

5.L.3 Land loan

Prêt foncier (F)

Loans of land are distinct from a lease or tenancy of land, as there is normally no rent payable for the use of the land, although payments may be made as a sign of recognition of the loan by the borrower.

Land loans are common in West Africa with borrowing usually by recent arrivals in a village or by younger members of a family. Usually the village authorities or individuals will show the land to the potential borrower and arrangements will be made orally in front of witnesses. These would include those primarily involved and possibly other members of the community. Loans may be long or short term, and may in fact go on for generations. Where land is becoming more scarce, owners of land are less happy to lend good quality fields for more than a season because the statutory law in some countries may allow the user to appropriate the property rights in due course. VIERICH. H., and DRABO, M. G., 1987.

5.L.4 Land market

Marché foncier (F)

The land market is where buyers and sellers of interests in land meet.

Land and buildings typically comprise 50% to 75% of a country’s national wealth. The percentage varies according to the characteristics of the national economy. Countries with a lower degree of economic development and consequently fewer alternative investments, as is the case in most transitional and developing economies, could be expected to have a higher percentage of national wealth in land and buildings.

Land and the land market are critically important in economic development.Economically efficient use of real property results from:

> sound legal frameworks in relevant areas

> efficient markets promoted through confidence resulting from transparent market mechanisms, and the availability of specialist knowledge and advice

> positive management of the real property resource

Leaving market forces to determine the ownership, user and, usually subject to planning and environmental considerations, the use of land and buildings allows the price mechanism of the market to move the economic resource of land and buildings towards its highest and economically most efficient use. It is important to recognise that the functioning of the market must be transparent, soundly administered, diverse and flexible to achieve this end, conditions that are often not adequately achieved.

Actors in the market are usually only active infrequently during their lifetimes. Land transactions are, however, often the largest single transactions made by an individual and require specialist knowledge. It is therefore common practice for the vendor, and perhaps the purchaser, to use specialist advisers to assist in the transaction.

5.L.5 Land rent

Rente foncière (F); Renta / Renta de bines raíces / Renta de la tierra / Renat real / Renta del suelo (E)

In practical terms rent is the payment for the hire of land and buildings and is a function of the supply and demand for that particular type of property in that particular location.

Factors affecting the rental of land or buildings vary according to their use. With agricultural land, for example, the following characteristics are among those likely to be significant: location, access to services and communications, soil quality, drainage, aspect, slope, improvements on the land including buildings, etc.

There are many rent related terms in current use, including:

> rack rent (full market rental value)
> rent passing (the rent payable under a lease)
> ground rent (the rent payable under a ground lease)
> peppercorn rent (a nominal rent payable under a ground lease)

5.L.6 Land speculation

Spéculation foncière (F);
Especulación de tierras / Especulación de bienes raíces (E)

Land speculation is the purchase of land with the intention of selling it, generally quickly, at a substantial profit.

Speculation in most commodities, but particularly in land, is typically thought to be undesirable, based on the argument that it increases the cost of the resource to those who will actually use it. There have, as a result, been efforts in several jurisdictions to reduce the return to speculators, usually following periods of rapid increase in land prices. An example of such an approach is the Land Sales Act, 1974, in Fiji, where a law was introduced to regulate speculative and other dealings in land and taxation on the profits thereon.

Alternative views would be that, unless there is a real capacity to control supply of land, a purchaser in a speculative situation is making a risky investment, and accordingly can expect a commensurate return in the event of it proving successful

5.L.7 Lease-back

Cession-bail (F); Cesión de arrendamiento / Transpaso (E)

A sale and lease-back is where an owner-occupier agrees to sell the freehold or equivalent to an investment owner. The investment owner agrees to enter simultaneously into a lease with the existing owner-occupier who then becomes the tenant of the investment owner.

Leasebacks generally take place because the owner wishes to raise capital, and it is a relatively cheap way of doing so particularly when interest rates are high. It is commonly used with commercial property and in development property in the UK, and has even been a feature of the agricultural land market during periods when agricultural land was an attractive investment.

5.L.7 Lien

Embargo preventivo / Derecho de retención (E)

A lien is a charge placed over an asset that is used as a security for a loan. It is common practice for example for banks to take out a lien over a farmer’s crops or other specified assets as security for a loan, thus reducing their risk and enabling them to charge lower rates of interest. Liens are often registered at a statutorily enabled agency.

A lien is also a charge on property for the payment of a debt not associated with a loan secured against the property. Some jurisdictions file a tax lien against the property owner and property if property taxes are not paid. The owner cannot sell or refinance the property without first paying off the lien.

5.M.1 Mass appraisal

Mass appraisal is the process of valuing a large number of properties at the same time using standardized procedures.

Computer assisted mass appraisal (CAMA) refers to the automation of the process. The approaches to large-scale valuations are well suited to the application of computerised techniques. They are particularly associated with the use of computers to analyse markets using multiple regression techniques, and with the application of this data in the valuation process. FAO 2002.

5.M.2 Mortgage

Garantie foncière (F); Hipoteca (E)

A mortgage of land is a transfer of an interest in the land as security for a debt.

The mortgagee (creditor) can use the mortgaged land to settle the debt in the event of the mortgagor (debtor) not being willing or able to repay the debt. The most common approach to this is by the sale of the land, with the creditor taking the debt, including costs, etc, out of the proceeds of the sale. Mortgages form a very important part of an economy, and particularly so of developed market economies.

5.M.3 Mortgage bank

Crédit immobilier (F); Crédito inmobiliario (E)

A mortgage bank is a bank that specialises in granting credits for the purchase of property where the credit is secured against the real estate by a mortgage. Credit is generally granted by the lender in return for the borrower undertaking to repay the loaned capital, in addition to interest incurred, over the life of the loan.

The amount of interest charged reflects the risk of the lender defaulting on payments, and the specific market conditions in which the lending takes place. The common approach used by mortgage banks to reduce the risk, and hence the rate of interest payable, is for the lender to take some security for the loan, often as a lien or a mortgage.

5.O.1 Open market value

The open market value is the best price that a property can be sold for.

The technical definition of valuation terms is increasingly the subject of national and international valuation standards and these are available from the International Valuation Standards Committee. IVSC, 2001.

5.P.1 Premium

A premium is a capital sum paid at the outset of a lease in consideration of a reduction in the property’s rental.

5.P.2 Professional indemnity insurance

Professional indemnity insurance is insurance that will cover losses sustained by clients as a result of negligent advice.

Professional institutions representing professional advisers, such as surveyors or valuers, usually require their members to accept responsibility to their clients for their advice. This position of a duty of care is supported through the law of negligence.

5.P.3 Profit rent

A profit rent arises where tenants pay less to their landlord than the rent they receive from their subtenant.

Where there is no subtenant, the profit rent is the difference between the rent paid to the landlord and the market rental value or rack rent. If there is no such difference there is no profit rent.

5.R.1 Rack rent

The rack rent of a property is its full market rental value.

5.R.2 Rating

Rating is a term commonly used in the United Kingdom and in countries influenced by English Common Law to refer to raising of an annual property tax based on market related value. Originally the term referred to taxes based on the annual value of the property, but it is now quite common for the term to be used generally whether the tax is based on annual or capital value.

5.R.3 Real estate

Immeuble / Immobilier (F); Inmueble / Inmobiliario (E)

Real estate is distinct from personal property. It is the same as land in the English Common Law understanding.

5.S.1 Security / Guarantee

Gage (F); Prenda / Prenda agraria / Pignoración (E)

A security is an asset that is used to secure a loan.

A security may be either a real estate asset, in which case the security is generally referred to as a mortgage, or personal property such as agricultural products where the security would generally be in the form of a lien. It may also be used in the context of loans to government which are often referred to as government bonds, stocks, or securities. In the event of the debtor defaulting on the loan, where it is secured by a mortgage or a lien, the creditor has the right to sell the asset and to satisfy the debt out of the sum realised.

5.S.2 Severance

Severance is the “... loss sustained from the acquisition of part only of an owner’s land, where the value of the part remaining with him is reduced disproportionately to the value of the whole.” WIDDICOMBE, D., and MOORE, V., 1975

5.S.3 Site value

The site value is a form of unimproved capital value. Site value is sometimes used as the basis for a property tax.

5.S.4 Stamp duty

Stamp duty is a tax on the transfer of property.

The tax is called stamp duty as it is based on the stamping of the document executing the transfer. Stamp duty regimes vary according to the jurisdiction. Stamp duty is usually based on the value of the property in question, although this value is, in some cases, set at official prices which are often significantly different from market values.

5.S.5 Standards of measurement

Standard bases of measurement are important to ensure uniformity and accuracy. Standards are legislated in some jurisdictions and dealt with by codes of practice in others. The UK based professional institution dealing with property related matters, The Royal Institution of Chartered Surveyors, publishes the Code of Measuring Practice. The Code provides core definitions and examples for the measurement of different types of buildings and land parcels for various purposes. RICS, 2001.

5.T.1 Tax base

Base d’imposition (F);
Base gravable / Gravamen / Impuesto predial (E)

The tax base is the value basis on which a property tax is levied. There are several different approaches in use around the world. The most common approaches used are based on:

> capital values, with improvements, whether existing use value, or highest and best use (open market) value

> rental (annual) values, on the basis of existing use

> capital values, unimproved, whether existing use value, or highest and best use (open market) value

There are also instances where just the value of the improvements are used as the basis, usually on a depreciated replacement cost of the buildings basis as in Ghana, or where an artificial or non-market value base is used. These last include taxes based on a per square metre basis for buildings, and a per hectare basis for land. FAO, 2002.

5.U.1 Unimproved capital value

The unimproved capital value of land is a statutorily defined tax value based on the price of the land without any buildings or other improvements.

Property taxation systems used to generate annual taxes are usually based on one of:

> Rental/annual value
> Existing use/capital value
> Highest and best use/capital value
> Unimproved capital value
> Artificial bases

The unimproved capital value of a property is used in several jurisdictions as the basis for annual taxation. It has virtually no uses other than for taxation and is an artificial value that has no direct market quotient, although it is market value based. The concept of using the unimproved capital value was developed in the writings of Henry George, a 19^th century American economist who advocated that all tax should be based on a single property tax based on the value of the land less improvements.

Although the unimproved capital value is defined differently in different jurisdictions, the definitions revolve around a common core that the land is assumed to be in its natural condition, but that it has the benefit of all of the real world infrastructural and locational advantages enjoyed by the land. These include roads, railways, public services and amenities, the potential use, and any other attributes not due to improvements on the property.

The unimproved capital value is used fairly widely, for example, in Australia, New Zealand and the Pacific region.

5.V.1 Valuation standards

Standard bases of valuation are important to ensure uniformity and accuracy. Standards are legislated in some jurisdictions and dealt with by codes of practice in others.

The development and adoption of valuation standards is increasingly seen as a critical issue for economic development, in a similar way to accounting standards. The development of appropriate standards in both fields follows a similar pattern, with an overall international committee, regional groupings often to prepare regional equivalents and stimulate professional and practice development, and national committees producing national standards tailored to the individual country’s circumstances.

5.V.2 Valuer

A valuer is someone qualified to undertake a valuation.

The question of whether the state should regulate real estate appraisal or valuation activity is answered differently in different jurisdictions around the world. Some have statutory regulation and licensing regimes, for example, various states in Australia, Fiji, and Malaysia. Others, such as the UK leave regulation and licensing/qualification to self-regulating professional associations.

5.W.1 Willing seller

A willing seller is one who is “neither eager nor reluctant to sell.”

Definitions of market value include the assumption that there is a willing seller. This term is generally the subject of further explanation in the commentaries attaching to the valuation standards. The assumption of a willing seller is critical to defining open market value. This is because the vendor should be taken as a hypothetical owner who is “neither eager nor reluctant” to sell. The real owner’s actual situation is irrelevant in this assessment.

5.Y.1 Years’ purchase

The years’ purchase is the present value of the right to receive an annual income.

The years’purchase comprises a formula for use in property valuations which discounts the value of future income by an appropriate yield or interest rate. This interest rate reflects the market’s perception of the risk attaching to the income.

REFERENCES CHAPTER 5

ACQUAYE, E., Education for the Land Economy Profession in Developing Countries, The Role of the CASLE (Commonwealth Association of Surveying and Land Economy) Professions in Rural Development Programmes in the South Pacific, Conference Proceedings, CASLE, Papua New Guinea, 1980

CARD, R., MURDOCH, J., SCHOFIELD, P., Law for Estate Management Students, 4^th Ed, Butterworths, London, 1994

CHOUDHURY, K., and JANSEN, L. J. M., Eds.,Terminology for Integrated Resources Management and Planning, FAO/UNEP, Rome, 1999

FAO, Good Practice Guidelines for Agricultural Leasing Arrangements.

FAO Land Tenure Studies No. 2. Rome. 2001

FAO, Rural property tax systems in Central and Eastern Europe. FAO Land Tenure Studies No. 5. Rome 2002

IVSC, International Valuation Standards, International Valuation Standards Committee, London, 2001

FIG, Constituting Professional Associations, International Federation of Surveyors, FIG publication number 16, Copenhagen, 1998

NIX, J., HILL, P., WILLIAMS, N., and BAUGH, J., Land and Estate Management, Packard Publishing, Chichester, UK, 1998

RICS, Guidance Notes for Surveyors Acting as Arbitrators or as Independent Experts in Rent Reviews. Royal Institution of Chartered Surveyors, London, 2002

RICS, Code of Measuring Practice. Royal Institution of Chartered Surveyors, London, 2001

VIERICH. H., and DRABO, M. G., ICRISAT village reports: Land use and tenure, International Crops Research Institute for the Semi-Arid Tropics, Patancheru, India, 1987

WIDDICOMBE, D., and MOORE, V., AGeneral Survey of English Law, in GARNER, J. F., Ed., Compensation for Compulsory Purchase: A Comparative Study, UK National Committee of Comparative Law, London, 1975