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What is Rental Value?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 06 December 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
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Rental value is a term that is used to describe the monetary amount that would be paid to rent a piece of property that is similar in nature to another property. The comparison allows for factors such as both properties offering similar amounts of square footage for both the structures on the property and the lot on which the structures were located, and the similarity in locations for both of the properties used in the comparison. This approach is often used in the process of determining the fair market value of a given property, based on the current value of a similar property located in an equally desirable location.

There are a number of different applications for rental value. One has to do with identifying how much a landlord may charge for rental units within a given neighborhood. Basing the rental figure on the current amounts that others in the area can command for apartments with similar amenities allows the landlord to be competitive and increase his or her chances of securing tenants. All sorts of factors will be taken into consideration, including the age of the apartment building, the presence of hardwood floors or carpeting in the rooms, the location of the building in relation to stores, schools, and houses of worship, and even the amount of parking space available to each tenant.

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The concept of rental value can even be used in the process of negotiating the division of property during a divorce settlement. By assessing the rental value of property that one party wishes to be awarded, it is possible to consider the income of each party and their combined assets to decide what the other party in the action will receive in turn. Taking the rental value into consideration also makes it easier to determine equitable figures relating to any alimony or child support that may be involved in the settlement, especially if the children are to remain in the custody of the party who takes possession of the family home. The use of this approach is particularly important in jurisdictions that do not recognize the concept of community property, in that determining rental value can help lead to a more equitable divorce settlement.

Rental value is also important when it comes to settling issues that may arise when a tenant defaults on a lease. For example, if a business owner leases space for his or her business operation and then does not comply with the terms of the lease, the building owner will take action to have the owner removed from the premises. A court would likely award the building owner a judgment based on the rental value of the space for the time remaining on the lease. This helps to minimize the losses incurred by the owner, who entered into the lease agreement in good faith, believing that the tenant would honor the terms of the contract. It is important to note that while the rental value and the monthly rental fee named in the lease agreement may not be the same, the court may identify both figures and then choose whichever figure is more equitable in light of the circumstances surrounding the default of the tenant.

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