There is another aspect of the above conditions which is too frequently overlooked, and which can be made clear by an example. A mercantile concern paid $60,000 for the building in which it transacted its business. Owing to improvements in surrounding properties, the actual value of this building increased in the course of three years to $150,-000, evidenced by an offer for the property at that figure. It had been the custom of this concern to make a rent charge based on 8% of the cost of the property, or $4,800 a year. As soon as it is possible to obtain a higher price for the property, this basis of calculation becomes erroneous, for when the value of $150,000 was reached, the concern was paying (on the same basis) a rental of $12,000 a year - which might be far in excess of what the business warranted.
It is evident that if property can be sold for $150,000, that sum is tied up in it, and that amount fixes the proper rent charge. The wisdom of paying such a rent depends, on the one hand, upon the earning capacity of the business, and, on the other hand, upon the contingency of such further increase in value as will refund the excessive rent. At the same time, as soon as a concern relies upon increases of real estate values for its profits, it is to some extent engaging in real estate business as well as in that for which it was created.