Hundreds of leasehold apartment owners in downtown Auckland are gearing up for a legal fight with the Ngati Whatua o Orakei Maori Trust Board over the amount of ground rent they have to start paying from August, says the Sunday Star Times.
As earlier alluded to in The Joys of Leasehold, Ngati Whatua’s land includes the Quay Park development between Britomart and the historic former railway station at the bottom of the CBD….leased to private developers for 150 years but rent free for the first 15 years. That ends in August, so:
the owners of nearly 800 apartments and several commercial buildings will have start paying ground rent.
…including Vector Arena. Nigel Dean, the director of valuation services for Colliers International, said he had already been retained by the owners of about 200 apartments at Quay Park to work for them if they decided to dispute the ground rent assessments:
…owners should be preparing for a fight now, rather than waiting for the ground rent notices to arrive. “The lessee or body corporate has a right of appeal and they’d need to get a valuation done and then sit down and negotiate and there’s only a limited amount of time to get that done.”
Generally the ground rent will be set at around 6% of the value of the land it occupies. The only comeback is to challenge the landlord’s valuation; preferably by getting your own and, even better, getting yours FIRST before the ground landlord does theirs. Negotiate based on yours and, if the landlord is reasonably happy, they might never get their own (which could have been much higher and lead to a dispute).
Informed property sources say behind-the-scenes discussions between Ngati Whatua and some leasehold property owners suggest apartment owners may only have to pay $4000 to $5000 a year. If the lower figure is adopted, it would not only ease the cash flows of apartment owners, it should also boost the value of their properties.
Martin Dunn, the director of real estate agency City Sales said the resale values of leasehold apartments had fallen significantly as public awareness of the implications of leasehold ownership improved over the last few years. Last week City Sales sold a sub-penthouse in a popular building in the Quay Park precinct, for $275,000. It had originally been purchased for more than $500,000. Ad Feedback Dunn estimated that if ground rents at Quay Park were set at $4000 to $5000 a year, it would probably add around $100,000 to the average value of apartments in the precinct.
Very much in the interests of a large scale ground lessor to reach agreement rather than have properties vacant.
After reading the article – which spouts lots of potential new rent figures but in only one instance gives any existing rent and/or tenancy details to give us a point of reference – I can’t help but wonder how many of the commercial tenants in the area are being charged rent by their present landlord on the basis of rental valuations assuming the then $0 ground rent….ie as if the landlord owns the freehold…and are stuck with lease provisions that the rental cannot decrease below the starting figure – a common lease provision. In other words, the lease they got themselves into can’t reduce to take into account the new ground rent realities.
Purchasers also….the sub-penthouse described above might be a case in point where a purchaser simply didn’t allow sufficient discount for the forthcoming end of the 15 year ground rent free period. Or it could just be another victim of the property recession….purchased off the plans at a set price and now worth a fraction of that value. Hard to tell.
We will keeping an eye on the progress down the Quay….should be an interesting saga for the next few years.