CITY LEASES

New Zealand Times, Volume XXXVII, Issue 8359, 20 February 1913, Page 3

CITY LEASES

TERMS AND CONDITIONS REPRESENTATIONS BY LEASEHOLDERS’ ASSOCIATION. The Wellington Leaseholders’ Association has addressed a lengthy letter to the City Council on the subject of corporation leaseholds and the terms and conditions upon which these leases are granted. The association suggests that the corporation appoint a committee to go into this question. The letter points out that three valuers or arbitrators are appointed to assess the rental for each period, and it is the duty of these arbitrators to arrive at what will be “the fair annual ground rent of the land without any •buildings and improvements for each further renewal period of fourteen years.” Until the decision of the Court of Appeal (in the D.I.C. case) the method adopted to arrive at the rental, in making the assessment for each new period, was for the arbitral tors to hear evidence as to the freehold value of the land included _in the lease, determine what in their opinion was the freehold value, and then allow as the rental a percentage of 6 per cent, on the value arrived at. RENTALS TOO HIGH. It was apparent to many of the lessees that Hie rentals awarded by the arbitrators were much too high, and at first it was difficult to see where mistake had been made in the assessment, particularly in view of the fact that the rentals were assessed on what was generally taken to be the current value of the land as a freehold site. When lessees came to work out the net producing value of their land and buildings, on the one hand crediting rentals received, and on the other debiting all outgoings in the nature of rates, interest on cost of buildings, etc., and making due allowance for fir© and earthquake insurance, depreciation, maintenance, and other outgoings, it was found that they could not afford to pay as ground rental even 4 per cent, on the land tax value of the land. This demonstrated either that the land tax value was too high, or that the basis of the arbitrators’ assessment was wrong. Mr C. P. Skerrett, K.C., expressed the opinion ■ that the method adopted by arbitrators of taking the alleged freehold value, and determining as the rental a percentage of that value, was wrong, aa this freehold value nearly always included a prospective value. He advised that the proper way was to ascertain what return the land and buildings would produce, and then, after deducting all proper outgoings, it would bo found what was the fair rental to pay as ground rent to the city corporation as lessor. It was arranged to have a case stated for the opinion of the Supreme Court to ascertain what was the proper basis for the arbitrators ito adopt, and with the consent of the directors of the D.I.C. and of the City Council, advantage was taken of making the D.I.C. valuation a test case. The case was removed to the Court, of Appeal, which decided that the contention that the arbitrators had to ascertain the freehold value of tho land, and then fix the fair annual ground rental at some percentage on that freehold value, was wrong, and that the true basis was that tho valuers must proceed as if' there wore no buildings nor improvements on the land, and then ascertain what a prudent lessee would give for the ground rent of the land for the term on the conditions as to renewal and other terms mentioned' in tho lease. '• ' ■ EFFECT OF THE JUDGMENT. 1 The Leaseholders’ Association then asked Mr Skerrett to advise what was the effect of the judgment. Mr Skerrett expresses the opinion that a prudent man, would take many things into consideration before he could safely take up a lease; ho would have to consider what rental return he was likely to get from hia, building, and on the other hand'he would require to make due allowance for ground rent, rates, taxes, fire and earthquake insurance, interest, - depreciation, repairs and maintenance, sinking fund, . cost of working lift, cost of a certain amount of heating and lighting, cost of collection of rents, and make due allowance for the probable period when the building or part of it would be unlet. Ha vfould have to take into account the fact that during the .construction of his building, probably about twelve months, he would get no return. He would have to realise that he gets no compensation for. his buildings ; that the lease was renewable for fourteen yearly periods, and 1 that each time he applied for renewal he would be put to considerable expense. In addition to this, he would , have to .provide a sinking fund in case it were found that at any period when the lease - was" being renewed that the building was unsuitable for the locality, and that in order to make it suitable a large sum would have to be spent, which expenditure possibly could not be recovered from tho tenants in increased rental during the succeeding period of fourteen years. THE GROUND RENT. Several of the arbitrators who have sat on cases already heard have (the letter continues) ■ expressed the opinion that the leases are unsatisfactory. The difference - between, what lessees and their advisers consider a proper ground rent qnd what tho corporation claima is so enormous that naturally considerable unrest has arisen among holders of leases. In the D. 1.0. case the lessees’ advisers, after going most care fully into the D.I.C. figures, and after comparing them with the figures of other lessees, came to the conclusion that a lessee taking up a lease in Brandon _ street or Panama street, after making provision for ail outgoings ana proper allowances, could not afford to pay more than £2 12s 6d per foot. The corporation claimed £ll 5s per foot, and as the frontage in question was some _2lO feet, and the term of the lease fourteen years, it is apparent that the difference in the calculations of rent by the respective parties was enormous. The association submits that the existing leases are unsatisfactory, and after careful consideration, and getting the best legal advice, has come to the conclusion that the only renewable lease that can be satisfactory to both parties is one which provides that if the arbitrators assess a rental such as the tenants think too high, then the corporation should be compelled either to reduce the rent or allow the lessee to surrender his lease, and should pay him for the value of his building in debentures or otherwise. The present lease, which compels the tenant to forfeit everything or to pay a rent which he cannot afford, is altogether unfair. POINTS FOR CONSIDERATION. The ground rents awarded recently have been so high that some of the lessees had seriously to consider whether' it would pay them "to forfeit ‘to

the corporation all interest in their buildings. Already several of the lessees have acquired freehold sites, and unless the leases are altered it is highly probable that the corporation will have to accept surrender of leases, and have buildings on their hands. The association submits that compensation should be given for improvements in cases where the lessee finds that the rent is too high, and where the corporation will not agree to reduce it; then the lessee will know exactly what his position is. Again, the association considers that the term of fourteen years for the renewal periods is too short, and should ho at least twenty-one years. The tenants would have a better lease and would have more confidence in it. At present the difference between the corporation’s conception of values and the tenants’ ideas is so great that every fourteen years the tenant is put to considerable expense. In self-pro-tection he must have his case properly placed before the arbitrators,. This means employing counsel and calling expert witnesses, and these expenses, the arbitrators’ fees, and cost of drawing out leases, may easily cost several hundreds of pounds. The D.LU. case lasted two and a half days.