Features of land rent, accrual and calculation format

Basic principles of land use

In accordance with the provisions of Article 1 of the Land Code of Russia, the use of land must be based exclusively on the following principles:

• Payment for use;
• Security at the state level;
• Availability of intended purpose;
• Recognition as a key element of life;
• The right of individuals and legal entities to participate in resolving land issues, etc.

The legislator places the protection of life and health of citizens in first place among the conditions of land use.

Ground rent: concept

The word “rent” comes from the Latin word reddita, which translated into Russian means “given back, returned.”

Rent is a regular income received by the owner of some property (financial or other asset) as a result of transferring the latter for use to third parties. Moreover, the receipt of such income is not directly related to the entrepreneurial activity of its recipient.

The term "rent" has two meanings: legal and economic. In jurisprudence, legal relations from a rent agreement (Article 583 of the Civil Code of the Russian Federation) boil down to the fact that a citizen transfers his property to another person for ownership, for which he receives regular income in the form of rent payments (and not necessarily in cash). Such legal relations are not related to the transfer of the property for rent or the provision of credit funds: the property is transferred into ownership. In the economic sense, rent is income or part of it associated with the use of property transferred (temporarily - for rent or credit) for the use of other entities.

Land rent is a type, a special case of a rent agreement. Land rent is a method of calculating the income received by the landowner from third parties to whom the land plot is transferred for temporary use. In addition to the land plot, natural resources, buildings, structures, buildings located on such a plot, which can also affect the amount of rent, can be transferred. Typically, such legal relations arise on the basis of a land lease agreement.

Further in the article we will talk specifically about land rent.

Basic information

Rent payments are different from interest, wages, profits and other types of income; they are part of the rent:

• if there are no structures, buildings or any other capital on the land that is being leased, then the rent, that is, a certain amount of money that the tenant will pay for the use of the land, will be equal to ground rent.
• if there are any production resources on the land (plants, factories, resource-extracting buildings), then the rent will include not only land rent, but also the loan interest for the use of the production potential located on the land.

Formula: Land price = (Rent/loan%) x 100, the formula also applies to shares.

Forms of receiving rent

Rent payments in their expression throughout the history of economic relations within society have changed in accordance with the characteristics and level of development of production relations in society. The pioneers of obtaining income from the natural resources they owned – feudal lords, depending on the priority of economic factors, received rent in three forms.

1. The format of working rent, better known in literature as corvée. Payment is expressed in the free forced labor of peasants staying in the feud or fortress. Labor functions are performed with the help of personal equipment and devices on the owner’s land. Corvee labor was expressed in temporary terms - days, weeks, and in warm climate zones, months. Somewhat less frequently, the volume of work performed was used as a basis for calculations.
2. Rent as quitrent or payment in kind. Duty imposed on serf farmers. The difference is the payment of tribute in the form of a part of the products received, the payment of money for what was sold on a day specified by the landowner.
3. The monetary format is accepted in modern society, when income from the exploitation of land by a legal entity or individual is determined on the basis of an expert assessment of the site, cadastral area and land plan, capital investments and the cost of measures to improve the quality of the usable area.

Land rent factors

Land rent factors influence the difference between rent and wages, profits and interest. Many economists, including D. Ricardo, K. Marx and A. Smith, worked on the issues of distinguishing the concept of rental payments from wages, business income and profits from securities transactions.

All cash payments presented relate to income, and the main factor that differentiates them is the source:

• Remuneration is the monetary equivalent of labor power, i.e. the source of wages is human labor;
• Profit is a type of income (absolute (normal) - i.e. without deducting costs, and net (economic) that a subject receives in the course of business activities;
• The source of interest is the provision of funds for use by third parties (individuals (for example, a loan issued by a bank) or legal (for example, depositing money in a banking institution);
• Rent is received as a result of the provision of land plots, natural resources, the quantity of which is limited and is not subject to man-made renewal, or other property for temporary use, i.e. ground rent is income from renting out land.

What it is?

Ground rent is the profit from renting out a plot of land.

As income, it can be extracted by several methods:

• The first is directly leasing the land.
• The second is leasing the site not as a production site, but as a natural resource. In this case, income is determined by the value of the area for specific purposes.
• The third is receiving interest in income from the tenant’s business activities.
• The fourth method is to receive a one-time income from the transfer of a plot of land to the tenant for rent.

You need to understand the difference between economic and land rent. The first concept is broader than the second. Economic income is obtained not only from land rent, but also from other resources. Its recipients include popular artists and famous athletes. Land rent is a special case of economic rent, since it is income from the use of land and other resources with limited supply, that is, it is a plan for the use of these resources.

We invite you to familiarize yourself with other types of such transactions. Our experts will talk about lifelong annuities that are beneficial for elderly people or the disabled, as well as permanent ones, the recipients of which can be not only citizens, but also commercial organizations.

Rent and land cost

In practical activities, rent relations are associated with the mechanism for the formation of land rent and land prices. Rent is actually the price for the use of land, the cost of the land user. If the leased land does not have any elements of fixed capital, then the rent and rent are quantitatively the same. If such elements are present, then the rent consists of rent, interest on capital and depreciation charges.

The price of land is capitalized ground rent. Because the sale of a land plot is at the same time the sale of the rights to receive income from it, then the price of a land plot can be presented in the form of the discounted value of future land rent:

Figure 1. Formula. Author24 - online exchange of student work

Where Pt is the price of a land plot, Rn is the rent received in the nth year, i is the current interest rate, N is the number of years during which the land can generate income.

Rent, standard cost of land and land tax

Payment for land use, established by the norms of the Land Code of the Russian Federation, is one of the fundamental components of the mechanism for economic regulation of relations in the field of land law. The legislation of the Russian Federation provides for the following forms of payment for land use:

• standard price of land;
• land tax;
• rent.

At the same time, the standard price for land acts as a category that characterizes the process of formation of such property, at the same time being the basis for calculations for compensation for damage associated with the forced conservation of lands and their alienation.

Land tax is an expression of the relationship between the owner and the state in the sphere of ownership of land as a public and state asset. Taxpayers are individuals and legal entities who own land with the following rights:

• permanent use;
• property;
• lifelong inheritable ownership.

Land rent reflects the relationship between tenants and owners of land plots in terms of their use. Its size is an important condition of the land lease agreement. The terms and procedure for making payments for land plots that are privately owned are regulated by the lease agreement, taking into account the provisions of the Civil Code of the Russian Federation.

Ground rent profit

Article 583 of the Civil Code of Russia indicates that the parties to rental legal relations have the right to independently determine the form of expression of the corresponding payments, the form of profit (monetary or otherwise - part 1 of Article 583 of the Civil Code of the Russian Federation). In accordance with the above, the following forms of profit from rent are distinguished:

Natural , i.e. expressed by goods (products). It is used primarily when using leased land for agricultural purposes (for example, when growing wheat on such land, the rent payment is part of the harvest);

Labor , in which a temporary user, as payment, undertakes to perform (perform over a certain period of time) specified work (provide a service) in favor of the land owner;

Monetary , in the conditions of application of which the rental payment is represented by a monetary amount agreed upon between the parties.

Land market

Among all factors of production, land and other natural resources, many of which are limited and irreplaceable, occupy a special place.

Natural resources act as a factor of production, used in kind, and as a space in which production activities are carried out.

All natural resources can be divided into renewable (forests, artificially created water basins) and non-renewable (land, minerals).

As non-renewable resources are depleted, the market conditions for production factors change and the cost of disappearing resources increases.

Land, which is a means of production, is a necessary material prerequisite for the labor process, the main material factor. The importance of land varies across different industries. Thus, in the manufacturing industry, land provides the site for the enterprise in which it is located, as well as the scope for the production process. In the extractive industry, land also provides an object of labor that turns into raw materials.

Pricing on the land market

Owning land is associated with known benefits and costs, the comparison of which will determine the advisability of maintaining the property or its alienation. Owning land, the owner does not use other possible options for generating income, for example, he could not buy land, but put money in the bank at interest.

In this regard, the landowner's income can be calculated as the ratio of the rent received to the market interest rate.

Land price = Annual rent / Interest rate

The price of land shows how much money needs to be deposited in the bank in order to receive an income equal to the given land rent at the current market interest rate.

The amount of land rent is formed as a result of the interaction of supply and demand on the land market.

The specificity of the land market is that within the national economy, the supply of land and natural resources is absolutely inelastic , since the amount of resources is a fixed quantity.

Demand for land shows how much land is willing to rent at various possible levels of payment for it. If rents are high, the amount of land available for rent will be less than if rents are low.

The demand curve for land is identical to the marginal revenue curve for land. The marginal income of land depends, in turn, on the productivity of the natural resource. When rents are high, only very productive land can be leased, since only a high marginal income can pay high rents and possibly provide a profit for the tenant. With a decrease in land rent, even less productive lands will be rented.

How are the land market and rent interconnected?

The land market is the relationship between buyers and sellers, the subject of which is land plots. Along with the labor and capital markets, it belongs to the resource market. The sellers are the owners of land plots (private individuals, the state). Buyers are persons purchasing them for mining, construction, agricultural users and others.

Like any other, the land market has the same functioning components:

• offer,
• demand,
• competition,
• price.

Changes in the price of land and demand for it upset the equilibrium in the land market. The lower the demand for it, the cheaper it is and vice versa. Equilibrium is governed solely by the price of land, since supply is constant.

You can determine the value of a plot of land upon sale using the formula:

Land price = land rent: interest rate x 100%

Thus, the determining values ​​in calculating the value are the interest rate and land rent. Changes in indicators significantly affect the formation of the market price, increasing or decreasing it accordingly. They, in turn, will be influenced by other factors that shape demand and other elements of the market mechanism.

Land rent will increase, other things being equal, if the demand for land increases. And, accordingly, vice versa - as it decreases, its value will fall.

Land rent is a type of economic rent from a factor of production such as land. The amount paid to the owner of a site for its use, in an amount exceeding the minimum payment required to maintain it in a usable condition, is economic rent.

It is worth keeping in mind that economic rent from the use of land services has its own characteristics, since land is a factor of production that has no alternative value for society as a whole. Taking into account the fact that the supply curve for land services is absolutely vertical, we conclude that the opportunity cost and opportunity cost of land services are equal to zero.

Types of land rent

Along with labor and capital, land is also a factor of production.

The “land” factor , like the “capital” factor (as opposed to the “labor” factor), is separable from the personality of its owner . For example, often the owner of land is one person, and another person is engaged in its use. The owner of the land, for a certain fee, transfers the right to exploit the land to the tenant, who produces agricultural products and pays the landowner from the proceeds from its sale. This payment for the factor of production “land” is called land rent.

Land rent is represented by two main types:

• differential rent;
• absolute rent.

Differential rent

The land plots are located in different natural and climatic zones: some in favorable, others in unfavorable, much worse conditions. The lands also differ in location: some are located near large cities and transport arteries, others lie in remote areas.

At the same time, it should be borne in mind that the country’s land fund is limited, i.e. There is a limited quantity of both all land in general and land plots of a certain quality.

Farms operating on the best land or geographically closest to the market are in an advantageous position compared to farms on poor or distant land, since their costs are significantly lower. This makes it possible to extract additional income, called differential rent.

(
natural fertility of the earth ).
In addition to the natural fertility of the land, there is economic fertility . It is associated with successive additional investments of capital into it and reflects the intensive path of development of agricultural production. Farms that effectively use capital investments and conduct intensive production receive differential rent

Absolute rent

Absolute rent is a consequence of the absolutely inelastic supply of land under conditions of private ownership. On the one hand, private ownership of land excludes the free migration of capital into agriculture. On the other hand, the amount of land suitable for agricultural use is limited. In these conditions, landowners demand rent for any plots of land, and tenants set inflated prices for agricultural products in order to be able to pay these rents.

Absolute land rent is an economic mechanism that ensures careful management of land.

The distribution of land rent between subjects of agricultural production depends on the type of rent.

• Differential rent belongs entirely to the landowner, since he sets the rent at a level that takes into account the quality of the land.
• Differential rent is the result of the efforts of the tenant and is completely appropriated by him.
• Absolute rent is assigned by the landowner in the form of rent for the possession of an absolutely limited resource.

Rent is remuneration for the use of land along with the buildings, equipment, and inventory located on it. Payment for these components is considered as interest because the factor “capital” is transferred for use, not land.

Rent acts as the market price for transferring the right to use land and has a decisive impact on the volume of supply and demand for land.

The supply of plots by landowners and the demand for them from tenants are shown in Fig. 1.

In the land market, not only rental transactions are carried out, but also the purchase and sale of land in ownership occurs. The price of a land plot is determined by two factors . Firstly, the price of land is directly proportional to the rent it brings. Secondly, the price of land is inversely proportional to the rate of interest. The use of interest rates is necessary because the right to receive regular income over a very long period of time is being purchased. The owner of a certain amount of money can put it in a bank and receive income in the form of interest. But he can also use this money to purchase a plot of land. Therefore, the price of land is the discounted value. It is calculated by analogy with the acquisition of physical capital that generates income, using the formula for determining the current value of future income:

As it approaches infinity, the discount factor becomes smaller and smaller as it grows. Thus, the price of land as a discounted value is determined by the formula:

• the present value of a future amount of money;
• annual land rent;
• market interest rate.

The economic meaning of this formula is that the landowner, having sold the land, will have income from the received amount of money in the form of bank interest equal to the land rent.

Rice. 1. Equilibrium in the land rental market:

• rent;
• demand for land plots;
• offer of land plots;
• number of land plots.

Reasons and conditions for formation

Additional income from the use of agricultural land is generated due to the presence of monopoly rights among owners or tenants. The plots are objects of management. Economic entities receive income from them in the form of land rent, while others do not have this opportunity.

The main conditions for the formation of differential rent of both forms are the following:

• limited land resources, global and local;
• significant differences in natural soil fertility levels;
• different distances of agricultural lands from markets and main transport routes.

The economic law of cost formation and pricing for agriculture has a number of features. The factor is also one of the reasons for the formation of differential rent. The withdrawal of additional profit occurs in the form of increased rent or rental payments, as well as due to low zonal prices for agricultural products.

The planet's land resources are limited, and it is impossible to create more of them.

The increasing demand for food and agricultural raw materials forces the use of not only the best, but also the average and worst areas for their production. The market or social value of a given product is determined based on the indicators of lands with low fertility, remote from sales markets. In the second case, there is an inevitable increase in transport costs for delivering the crop.

Absolute land rent

In countries where private ownership of land dominates and intersectoral competition operates, there is also absolute rent, which is created on all used lands, including the worst ones (Fig. 12.9). Its reason is the monopoly of private ownership of land, which secures a high rate of profit in agriculture - above the social average rate.

Absolute rent is formed on all land plots as the excess value of agricultural products over the social price of production (production costs plus average profit).

The existing monopoly of private land ownership prevents the free flow of capital from industry to agriculture, which is the reason for the lower technical level of labor in this area compared to industry.

In other sectors of the economy, due to the constant movement of capital from one sector to another, something similar to a general “cauldron of profit” is formed, from which

Entrepreneurs in different industries receive an average profit on equal capital. But agriculture does not take part in the process of equalizing individual profits to the average due to the existence of private ownership of land, which interferes with the free investment of capital in agriculture.

For this reason, agricultural products are sold not at the social price of production, but at their value, which contains a surplus over average profit, i.e. absolute rent. This surplus is appropriated by the landowner on the basis of private ownership of the land.

Some economists deny the existence of absolute land rent. The discussion on this issue has not stopped since the promulgation of the theory of absolute rent by the classical economic school. Economists justify their conclusion about the absence of absolute rent, especially in modern conditions, by the fact that in agriculture in developed countries the organic composition of capital is no lower than in industry.

The technical level of labor is also high here, the number of people employed in agriculture is declining, etc. Therefore, they believe, there cannot be a surplus of profit over the average profit.

Due to the fact that modern economic science does not study absolute rent, Marxist science does not study normal rent, and the current land legislation of Ukraine uses Marxist terminology, there is a need to consider the relationship between these categories. Between the categories “normal” and “absolute” rent there is general and special (different).

Their common features:

• 1) they have a common reason - the monopoly of private ownership of land;
• 2) they are formed on all plots of land, regardless of their quality and location;
• 3) they are part of the additional product in monetary terms.

The difference between absolute and normal rent is that absolute rent is defined as the difference between the cost and the social price of production, i.e. absolute rent is not included in production costs, but normal rent is equal to opportunity costs and is included in the economic costs of production.

The presence of two different approaches to understanding the economic nature of rent associated with the monopoly of private land ownership has historical roots. Understanding of these economic phenomena occurred in different historical eras.

IN THE 16th - 19th centuries. The structure of agriculture was represented by the presence of three classes: land owners, farmers (agricultural capitalists) and hired agricultural workers. Agricultural production was carried out by capitalist tenants (farmers) using hired labor.

This uniqueness of the social structure in rural areas is explained by the fact that, firstly, capitalism penetrates into agriculture after it has achieved significant development in industry. Secondly, penetrating into agriculture, capital encounters there forms of land ownership that existed before capitalism and transforms them in accordance with the conditions of capitalist production.

In modern conditions, both the land owner and the owner of physical capital can change places and coincide in one person. Accordingly, there is a struggle for the best use of physical and land capital, and therefore for obtaining a minimum land rent - normal rent.

In understanding the economic nature and mechanism of formation of differential rent, there are no significant differences between classical, Marxist and neoclassical theories.

Features of differential annuity II

Additional profit from investment in land became possible as a result of the use of innovative technologies in agricultural production. Differential rent II is the result of the process of agricultural intensification. The increase in its norm and size is determined by the level of productivity growth due to additional investments and overcoming the law of diminishing fertility of land.

This type of differential rent initially goes to the business entity. When the lease agreement is re-signed, part of the excess profit goes to the owner of the land plot. The latter, taking advantage of its monopoly right, increases the rent. As a result, there is a redistribution of additional income.

Monopoly land rent

Monopoly rent of a land plot occurs if the leased plot has specific qualities, as a result of which a temporary user has the opportunity to grow special types of crops on it with subsequent sale at a monopoly price. The amount of such land rent depends on the inflated cost of the products received and the corresponding percentage agreed upon between the parties to the land rent agreement.

What types of annuity exist?

Depending on the nature and reasons for its formation, rent can take different forms. Today the following types of land rent are known:

• absolute,
• differential,
• monopoly.

What is absolute rent

In connection with the active formation in the Russian Federation of the sector of peasant (farm) households and other types of landowners who actually have ownership rights to land, we can talk about the emergence of absolute rent, since it is associated exclusively with the presence of private property.

Absolute land rent is based on the fact that the tenant who has taken the plot for use is forced to ensure that from its use he receives not only an average profit, but also an excess profit. It will go to the lessor - the owner of the land, otherwise production will become unprofitable and the main requirement for effective management - profitability - will not be ensured.

Features of differential annuity

The formation of differential rent is based on the difference between plots in terms of their quality and the existence of a monopoly of management on them. The source of its formation is additional net income received from relatively more conveniently located and better-composed lands or from additional investments in them.

When assessing a plot, differential land rent is defined as differential income.

In theory, differential rent 1 and 2 are distinguished. The first is based on the unequal quality of plots and their location, the second - on the unequal efficiency of additional costs of capital and labor. In practice, they are difficult to distinguish, since they are interdependent and interconnected.

The main difference between the economic nature of differential rent and its two other types is the monopoly on land as an economic object.

Monopoly rent and the nuances of its formation

Monopoly rent is a specific form that arises when agricultural products are sold at monopoly-increased prices. This type of rent is usually formed on lands of exceptional quality, on which crops that are rare in their consumer characteristics are grown (for example, subtropical agriculture).

Due to the limited number of such lands, and, consequently, the supply of products obtained from them, a monopoly arises on the possibility of setting higher prices. As a result, additional profit is formed, the agreed part of which the tenant transfers to the owner of the site as monopoly rent.

Conditions of ground rent

According to Article 583 of the Civil Code of the Russian Federation, a annuity agreement is an agreement under which one party (recipient) transfers ownership of property to another party (payer). The payer, in turn, undertakes to periodically pay the recipient a certain amount of money or provide his maintenance in another form. The object of alienation can be any property, but in practice, real estate (houses, apartments, land plots) is usually transferred for payment of rent.

How does rent differ from rent and sale?

A land rent agreement has common features with lease and purchase and sale agreements, but at the same time it has special features that distinguish it from related transactions. For example, rent differs from lease in that it provides for the transfer of ownership of a land plot to the payer of rent payments.

When leasing, the tenant receives the right to use the property, which remains the property of the lessor. In addition, a lease agreement is always concluded for a certain period, and the rent can be indefinite (permanent) or for life.

An annuity is distinguished from a purchase and sale agreement by the absence of a specified total amount of payments in the agreement. At the time of entering into the transaction, the parties cannot know how long the permanent or lifetime annuity will last. In the first case, the payer can buy back the annuity at any time, and in the second case, it is unknown how long the annuitant will live.

Clarification of difficult points

In judicial practice, one of the main points is how to pay rent payments exactly in accordance with legislative acts.

In jurisprudence, “land” is a special resource that is not in the power of man, which, by definition, also includes territories for various purposes, water basins and groundwater resources, subsoil. Nevertheless, the primary purpose of the land is to carry out agricultural tasks and obtain raw materials for the food and light industries.

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