What is Rent, its types and what types of Rent Agreements are there?

Updated December 30, 2020
Hello, dear readers of the KtoNaNovenkogo.ru blog. In everyday life, this concept is rare, but it is common in the field of economics and jurisprudence.

Let's figure out what the term means in relation to a particular industry, what types of rent exist, what legally significant contracts are concluded and how they differ from each other.

What is it in simple words

The meaning of the term “rent” becomes clear if it is translated into Russian. The French word "rente" comes from the Latin (reddere), which means " to return, to give ". We’ll look into what needs to be given and to whom.

Let's take a simple example: gr. Ivanov deposited 100 thousand rubles into a bank deposit account at 15% per annum, provided he did not withdraw money from the account for a year. At the end of the specified period, Ivanov closed the account and took his deposit of 100 thousand plus 15 thousand rubles of interest accrued for the year. These 15 thousand are rent or, in other words, rental income .

A person who receives income from a bank deposit, for whom these funds are a means of subsistence, is called rentier . The rentier does not spend the principal capital, he uses only the interest on it.

If Ivanov’s capital, which he deposited in a deposit account, amounted to a couple of million rubles, then on the interest from this deposit (in our example, this is 300 thousand rubles per year), he could live modestly, without making any effort to earn money. In this case, our gr. Ivanov would be called a rentier.

Conclusion: rent is income received from any property transferred to another person.

In the 19th century, there was the practice of a lifelong bank annuity . What it is? The man invested his money in a reliable bank on the condition that he would never withdraw it. And the bank in such a situation was obliged to pay the client interest at an increased tariff rate at specified intervals.

The life annuity was inherited by the heirs of the client who originally invested capital in the bank. Today, given the unstable economic situation in the world, when many banks are forced to cease their activities, the service of lifelong bank annuity is not in demand.

the lifetime annuity of residential property is still relevant . More details about this in the article below.

Rent is the transfer of ownership of any property (including real estate) for the obligation to ensure the maintenance of the owner of this property for a certain period of time; as a rule, rent agreements for the transfer of residential real estate are concluded for the entire life of the owner.

The content can be either material, that is, in the form of certain amounts of money specified in the contract, taking into account indexation by the level of inflation in the country, or in any other type of assistance. For example, buying medicine, helping with housework, caring or arranging care during illness. All conditions are initially specified in the rental agreement. The property under the annuity agreement can be transferred into the ownership of the annuity payer immediately after signing it, or at any other time agreed upon by the parties; the deadline for taking possession of the property transferred under the annuity agreement is the death of the annuity recipient. This period is set by the parties based on their interests. It is also specified how long the original owner of the premises will be registered in it and whether he will live in it. For someone who has property that is subject to transfer under an annuity agreement, the annuity can become a permanent source of income without any time or labor costs. There are two options for paying annuities: in perpetuity (which is called a permanent annuity) and during the life of the annuitant (or a life annuity). The second option - a life annuity - can be with a dependency (with the obligation to support the annuity recipient in addition to paying the payments themselves). What is the distinctive feature of all these types of annuity contracts will be discussed below. An agreement must be concluded between the parties describing the terms of the agreement. Such an agreement must be registered with a notary, otherwise it will not have legal force. If the agreement provides for the alienation of property, it must undergo state registration. An annuity agreement can also be concluded between the parties with the consent of their spouses, if any. The rent agreement must contain information about how the alienated property will be transferred: for a fee or free of charge. The concept of “paid - free” will be determined by the form in which rental payments will be transferred to the owner of the property after the conclusion of the rent agreement. Paid alienation involves the payment of rental payments in the form of a certain amount of money, which will determine the value of the transferred property. In this case, an agreement for the purchase and sale of property must also be drawn up between the parties who entered into a rental agreement. If rental payments involve any other form of payment, then the property will be transferred under a gift agreement. In general, both forms of transfer of property may be appropriate for any type of payment of rent payments, depending on what will be more acceptable for the parties to the rent agreement, and the above-described links to the form of payment are more logical and standard, bearing, rather, it is advisory in nature. A rent agreement implies an encumbrance on property. Thus, if a rental agreement is concluded on the property, it becomes encumbered by this agreement. The encumbrance will consist in the fact that when the property is alienated by the rent payer, his obligations under the rent agreement pass to the legal successor. That is, if the rent payer donates or sells an apartment received under a rent agreement before the end of the rental agreement, then the person who bought such an apartment will be obliged to comply with all the terms of the rent agreement concluded with its original owner. You should also pay attention to this point: if the rent payer transferred the rights to the property before the end of the rent agreement, and the person who accepted them evades for some reason from fulfilling the terms of the rent agreement, then they have subsidiary (joint) liability to the original owner. In other words, even in the event of alienation of property, the rent payer will be liable under the rent agreement until the end of its validity period. To protect the interests of the property owner who has become a rent recipient, the law provides for the provision of rent payments. Such security is achieved by acquiring the right of pledge on the alienated property. Another type of protection for the annuity recipient must be specified in the annuity agreement, and it is an essential and mandatory condition when concluding the agreement. This is the provision of security to fulfill the obligations of the rent payer. Such security can be a bank guarantee for a certain amount of money or insurance of the object of the transaction in favor of the annuity recipient at the expense of the payer, in case the latter fails to fulfill its obligations under the annuity agreement. If these conditions are not met, the annuity recipient has the right to terminate the annuity agreement at any time with a requirement to compensate for losses associated with such termination. An annuity agreement, like any other agreement that has a financial component, makes the annuity payer responsible for the exact fulfillment of its obligations, in case of failure to fulfill which the annuity recipient may demand the payment of penalties, which are prescribed in the agreement or established in accordance with Article 395 Civil Code of the Russian Federation.

Financial rent

This is a method of repaying financial obligations, which involves making payments in equal installments over a specified period of time with a specified frequency. Such payments have their own economic name - annuity .

Example: at gr. Ivanov has a deposit in the bank. Amount = 2 million rubles, tariff rate = 15% per annum, deposit agreement term = 1 year. The agreement states that the bank pays interest on an annuity basis once a month. Therefore, gr. Ivanov receives 25 thousand rubles every month for a year. This is the amount of Ivanov’s monthly financial rent for the period of validity of the deposit agreement.

Definitions used in the financial annuity instrument

1. The period is the period of time between payments.
2. Term – the interval between the beginning of the first annuity period and the end of the final period.
3. Ordinary annuity - payment is made at the end of the period.
4. Advance – payment is made at the beginning of the period.

Considering the example about the deposit deposit of gr. Ivanov, given in the previous paragraph, we can say that this is an ordinary annuity, the period is 1 month, the amount is 25 thousand rubles, and the period is 1 year.

Economic rent

Rent in economics is one of the fundamental concepts. Let's look at this economic term using an example: Ivanov and Petrov work at a factory, Ivanov is a lower-class turner, and Petrov is a higher-ranking one. Ivanov receives a salary close to the minimum possible, and Petrov receives 2 times more.

Why is there such a difference in income under the same initial conditions? The owner of the enterprise pays Petrov more because he strives to keep a valuable employee at his enterprise to fulfill complex orders.

The employer pays a salary bonus, economically stimulating Petrov to work at his plant. The difference in the salaries of Ivanov and Petrov, equal to the amount of the bonus, is economic rent .

Conclusion: economic rent is payments to the owner of a certain factor that exceed its alternative value.

In our example, Petrov has high professional skills; the alternative value of his skills is the ordinary skills of his comrade Ivanov. Therefore, Ivanov receives an ordinary salary, and Petrov receives the same salary plus an allowance for experience and skills.

Ground rent

This is a special case of economic rent. The object is a land plot. The land owner receives passive income from renting out the land to tenants. There are 3 types of ground rent:

1. Absolute – payment for land is determined regardless of its location and fertility. Example: the municipality of a rural settlement, allocating land plots for the construction of cottages, sets the same price per square meter of land, regardless of the landscape on the site: plain, ravine or hill. Thus, the owner (the municipality in our example) receives absolute rent.
2. Differential - the payment is set depending on the quality of the land plot. Example: the same municipality, allocating land for growing crops, sets higher fees for the use of fertile and developed plots than for virgin plots (undeveloped).
3. Monopoly - payment for land is dictated by demand for it. The higher the demand, the higher the fee. Example: the cost of a plot of land of the same area in the center of Moscow and outside the Moscow Ring Road. Beyond the ring road, the cost of land is hundreds of times less than in the center of the metropolis, and rent is distributed similarly.

Definition of annuity and brief classification

Rent is a concept that is used in several senses and meanings, depending on the application, but we are interested in its economic meaning.

Economic value - a constant type of income, indexed in accordance with inflation processes, received from land, capital or other types of property.

There are two parties involved in the process - the owner of the resource ( rent rent payer for use . The transfer process and terms of use are formalized in the form of a bilateral agreement. In this case, the recipient is obligated to pay the cost of the transferred property or otherwise provide for the maintenance of the owner.

From the point of view of obligations, the contract is one-sided, since the owner has no obligations under it after the transfer. After the transfer of property, the new owner has the right to own and dispose of the resource, use it for commercial purposes and perform other actions provided by law.

Rent classification :

1. Land – the cost of using land and other types of natural resources, divided into:

• absolute - surplus value is formed exclusively due to the monopoly right of ownership;
• differential - the surplus is formed by improving working conditions, cultivating the land and investing additional funding in it.

1. Financial – a sequence of regular payments of a fixed amount.
2. Economic - a type of rent determined by payment for resources, the quantity of which is limited on the market. It is calculated as the difference between the price of labor and the cost of goods.
3. Dead – funds received for resources that are not used.
4. Constant - the contract does not imply an end date for payments, only their frequency.
5. Life annuity is the most common form of annuity in real estate, where the owner receives a guaranteed regular income, and after his death, the property passes to the second party.
6. Insurance – when periodic payments in favor of the policyholder are made by the insurer.
7. Natural - excess income generated when the profit caused by invested labor or capital exceeds the usual level.
8. Monopoly - excess income generated by a successful confluence of market factors that make it possible to inflate prices for products.

Rent is a complex concept that a novice entrepreneur must take into account if he assumes the presence of this source of income or expense. For competent business planning, download from our website a complete ready-made business plan, including calculations of key economic and financial indicators. Or order an individual turnkey business plan, which will reveal the features and main nuances associated with opening a specific enterprise.

We also recommend that you read the article Net profit of an enterprise: calculation formula, difference from profit. Net profit is determined within the framework of the Profit and Loss Statement.

Permanent annuity agreement (PRA)

By and large, the concept of rent, used in the legal field, is a type of economic one.

After all, the execution of a rent agreement is the legal legitimation of certain economic relations.

A permanent annuity agreement (PAR) is an agreement between the parties (recipient and payer), under which certain conditions are met.

Conditions of the LDP:

1. One party to the agreement transfers ownership of the property belonging to it to the other party. This can be done through a purchase and sale transaction (compensated act) or donation (gratuitous act).
2. The party to whom ownership of the property has transferred must pay an agreed amount at certain intervals to the other party to the transaction;
3. The period for which the LDP is concluded is not limited by time frame.

The object of the DPR can be both movable and immovable property. What falls under the definition, look at the diagram:

Rent payments can be in the following form:

1. money;
2. things or services whose cost is equivalent to the agreed amount of rent;
3. in mixed form, i.e. money, as well as goods and services.

The recipient may be an individual or an organization not engaged in commercial activities. A permanent annuity can be inherited. The payer can be an individual or legal entity.

Termination of the LTP is possible in the following situations:

1. by agreement of the parties;
2. when the recipient becomes a legal entity;
3. when buying out rent, if such a possibility is specified in the LDP.

Who can enter into a rental agreement

Both an individual and a legal entity have the right to act as a rent payer. The main requirement is solvency.

For an entity that wishes to become a rent recipient, the legislation establishes the following requirements:

• he must be the sole owner of the apartment that is the subject of the agreement;
• the apartment should not have any debts or encumbrances;
• It is also not allowed to use an apartment that is pledged to the bank at the time of signing the rental agreement.

Before signing the contract, you need to check and study in detail the title documents of the property owner and make sure that the history of the apartment is clean.

Lifetime annuity agreement (LIA)

A life annuity agreement (LIA) implies the fulfillment of conditions No. 1 and No. 2 (from the previous section of the article) specified in the previous section (transfer of property into ownership in exchange for payments at a certain frequency).

The only difference is condition No. 3 – the period for which the DPZHR is concluded.

This agreement assumes that payments will be made until the death of the recipient. Inheritance of a life annuity is impossible.

The object of the DPZHR is movable and immovable property, the form of payment is only money. The recipient of a life annuity can only be an individual. face. The payer is both an individual and a legal entity.

DPZHR can be terminated in the following situations:

1. death of the annuitant;
2. desire of the parties;
3. if the payer fails to fulfill debt obligations.

Rules for drawing up a rental agreement

There is no exact template for drawing up this type of agreement, and therefore you will need to work on creating the document yourself.

Of course, it is much better if the agreement is drawn up by a notary or a specialized lawyer, who will enter all the necessary information in accordance with the requirements of current legislation.

The rent recipient is required to describe in detail his requirements for cash payments and other types of in-kind assistance, and the payer must ensure that these conditions are consistent with the agreement and they do not imply fraud on the part of the apartment owner.

Attention! An annuity agreement is concluded voluntarily between two entities. This must be checked by a notary, since any forced transaction may be declared invalid.

Before executing an annuity agreement with lifelong maintenance, the owner must prepare the following package of documents:

• personal documents (passport, TIN);
• application for registration of a rental agreement with Rosreestr;
• consent of the spouse (approved by a notary);
• title documents (sale and purchase agreements, donations, wills);
• technical passport (cadastral passport) for housing;
• certificate of ownership;
• personal account of the annuity recipient;
• certificate of housing cost:
• receipt of payment of state duty.