Have you heard about the Lusk Report?
THE 1993 LUSK REPORT INTO CERTAIN PERPETUALLY RENEWABLE
LEASES IN AUCKLAND
The Inquiry was initiated in May 1992 by the then Minister of Justice into leases of the Auckland Health Board, the Dilworth Trust Board, the General Trust Board of the Diocese of Auckland, the Melanesian Mission Trust Board, the New Zealand Anglican Church Pension Board and the St Johns College Trust Board.
The Cornwall Park Trust Board was not a party to the Inquiry as it had recently given its lessees two separate opportunities to freehold their properties.
The extent of the Inquiry was quite wide, including whether rental reviews were fair, whether the procedures, valuation and pricing methods were reasonable and appropriate, whether action including the enactment of legislation was necessary or desirable in respect of any unsatisfactory or undesirable practice.
This article will address the conclusions and recommendations which are still relevant at the present time to Cornwall Park ground leases.
The first relevant conclusion from the Lusk report is that all the parties, their lawyers and their valuers accepted that if a lease restricts the use to which the property can be put, then under the law of New Zealand, it could not be assessed for a higher zoned highest and best use. The Cornwall Park ground leases all restrict the use to a single dwelling.
The Cornwall Park Trust Deed provides that the leased land should be held and used by the Cornwall Park Trust Board to provide an income for the Park.
Most of the parties to the Lusk Inquiry had similar restrictions in their Trust Deed. Notwithstanding that, all of them, where necessary applied for and got permission from the High Court to offer the freehold of their lands and all of them offered the freehold to their lessees or wrote an option to freehold into their lease.
In any event, the Cornwall Park Trust Deed allows the trustees to sell the freehold of the leased properties … they have already done so in two rounds of freeholding. So no obstacle to freeholding here.
The report also looked into the future, including the conduct of leasing authorities and recommended:-
21.8 The inequality of the parties’ position has already been noted. Some consequences of the lease terms into today’s changed circumstances are unfair (e.g. “the locked in people”), and others are undesirable. It is also undesirable that there should be prolonged publically expressed dissatisfaction and discord between lessor and lessee to the degree that it has now severely affected the market for leasehold properties, and further disadvantaged the very people already worst affected. If allowed to continue and intensify these features and others may mean that at some time legislation is necessary in the public interest.
21.9 It is the Committee’s opinion that much of the present dissatisfaction results from the distant and legalistic attitude and practices of the leasing authorities and their relationships with lessees, and their failure to recognise the need for changes to be made to accommodate changes in the social and economic climate.
21.10 The leasing authorities are the dominant party in each lease, and are the common party to all leases, and the only party capable of initiating changes to the present system in carrying them through to fruition. They also have the professional and financial resources to undertake what is necessary. In the Committee’s opinion they have a moral and social responsibility, if not a legal one to consider the lessees’ submissions and introduce changes.
21.11 The Committee considers that the Trustees of the leasing authorities need to reassess entirely the image they currently project to lessees, and the lessee relationship and communication practices of their secretariat or others whom they have appointed to administer their leases.
21.17 Those leasing authorities whose leases do not already contain a use restriction clause, could consider offering to include a use restriction clause in the leases of those leases whose properties are zoned for a higher density development which now affects their land value for rent purposes, with the Leasing Authority being able to review the rental if and when a change of use is sought.
21.18 It would be preferable that a right to compensation for improvements on non-renewal be written into the terms of the lease, rather than imposed by legislation. Flexible arrangements as to disposal of the lease could be included.
21.20 Leasing Authorities should give recognition to the role Leaseholder Associations could play, both on an ongoing basis and now in seeking constructive solutions to lessee’s concerns and acceptance by lessees of proposed changes.
THE report did not recommend a change of legislation to provide for a right of freeholding by lessees. However it did recommend new legislation to provide for compensation for improvements, see page 147:-
1. Legislation should be introduced to provide for compensation for improvements to be paid to the lessee who elects not to renew. The nature of the provision required would be similar to that contained in part II of the Public Bodies Leases Act 1969 in respect of farm land.
That paragraph referred back to Mr Lusk’s reasons in paragraphs 14.9 – 14.12 of his report which are encapsulated in paragraph 14.17.
“The Committee cannot feel it is fair that the disadvantaged groups of lessees referred to should be left no alternatives but to renew leases, and remain “locked in” to a rental obligation they cannot afford, only because if they refuse to accept renewal the improvements they have paid for will revert to the lessor at no cost, leaving the lessor free either to re-lease, or to sell the property as a freehold one. The Committee was surprised by the leasing authorities’ submissions on this point, and is disappointed that they are apparently unable to recognise the inherent unfairness of the present system in this regard. The Committee rejects as reasons against the change, the relatively modest cost to the leasing authorities that would be involved in attempting to re-lease or sell the land, or that the proposed change would require the leasing authorities to record in their annual accounts a contingent liability of very large proportions.”
2. It would be desirable to introduce legislation that would enable individual flat owners in cross-lease properties to freehold without the concurrence of all co-owners.
3. Consideration should be given to legislation providing that on any proposed sale by leasing authorities of their freehold interest the lessee concerned should have a pre-emptive right of purchase matching the price in terms at which a sale is available to a third party.
So, the more things change the more they stay the same. The parties have changed but the same issues remain between the Cornwall Park Trust Board and their lessees. The Cornwall Park Leaseholders Association has recorded at least 17 lessees who did not renew their leases or have abandoned them, or had them forfeited. The Committee believes that there are several more about to be added to this list out of a total of some 120 leases.
With new ground rents being assessed at $90,000 plus even for non-park front sections, it is highly probable that there will be 100 more non-renewals, abandonments or forfeitures.
Something needs to be done.