An Auckland apartment owner is frustrated and angry about a 133 per cent leasehold ground rent rise and is pleading for lower charges.
Richard Cordell owns a one-bedroom 47sq m level-seven unit in the waterfront Scene One between Beach Rd and Quay St.
His ground rent from 2011 until May this year was $5898/year.
But due to rapidly escalating land values and seven-yearly reviews on the block with more than 100 apartments, that now jumps 133 per cent to $13,700 annually until 2025, he said.
“It takes a big chunk out of my annual salary and it’s not just the new quarterly payments. It’s the back rent of $22,300 which I have to pay for the period of time when negotiations were taking place about the revised ground rent,” he said.
That $22,300 is to cover Cordell’s ground rent from 2018 until April 1, 2021.
Ngāti Whātua Ōrākei Whai Rawa owns the land the apartment block stands on but developer and investor Paul Doole’s Kupe companies bought the leasehold interest from Tony Gapes whose business developed Scene One, Two and Three.
In an unusual three-way arrangement, the iwi sub-leases to Doole’s companies which charge the apartment owners the ground rent which then goes back to the iwi.
On March 17, Doole of Kupe Trustee Company and Kupe Trustee Company No 2 wrote to Cordell, telling of the ground rent review and revised payments.
Cordell must pay $3443/quarter, or $13,772 annually – the stand-still cost for owning an apartment in a block on the iwi land.
But Whai Rawa chief executive Andrew Crocker said although the iwi owned the land, it was subleased to Doole.
“We want to be very clear about our role as owners of the land in Te Tōangaroa [Quay Park]. As with all land in the precinct, our arrangement is with the ground lessee (landlord of Scene One apartment) and the lease is in respect of the land only.
“Ngāti Whātua Ōrākei Whai Rawa has no involvement in the downstream sub-leasing arrangements between the ground lessee and the owners of the apartments in the Scene One building. The payment terms and final rental payable to the ground lessee by the apartment owners is determined as part of that sub-leasing arrangement,” Crocker said.
The clear terms of the ground leases for all Te Tōangaroa land specified that ground rents were based on a fixed percentage of the freehold land value on seven-yearly reviews from 2011, Crocker said.
The review process was fully transparent, he said.
“Whai Rawa seeks advice on land value from two independent and respected valuers and there is a process for arbitration where land value cannot be agreed,” Crocker said.
Doole said the rising leasehold payments reflected rising land values: “They’re right down by the harbour and it’s inevitable. It’s in line with other buildings down there. It is what it is.”
Crocker said after ongoing discussions with Scene One representatives, “we were pleased to reach a resolution in the rent review negotiations late last year. Furthermore, the seven-year rent review process for all the land we own in Te Tōangaroa has been completed.
“It is important to note that while we are sympathetic to those impacted by difficult circumstances, we are obliged to make commercially prudent decisions that enable us to support our whānau and their future, Crocker said.
The iwi was a commercial landlord and simply acting in accordance with the clear terms of the ground leases.
Cordell said the new payments were bad enough but another round of rent reviews is due in just four years.
“What scares the **** out of me is what happens in 2025 when the next round of seven-yearly ground rent reviews come up. Some owners are talking about going bankrupt and they’re aged in their 80s,” he said.
He feels powerless to sell, saying banks were reluctant to lend on properties on leasehold land.
That means the pool of buyers was extremely limited and expects he would be lucky to get $30,000 to $50,000.
He bought the place for $230,000 in 2005 which he said was expensive at the time, “only about $100,000 cheaper than for freehold at the time”.
Doole said the ground rent was based on “the agreed current market value of $30m” so the leasehold is a percentage of that.
Cordell said paying that amount annually was extremely unpalatable.
Around a decade ago, the annual leasehold payment on the block was only $7m when the valuation was put at $17m.
“Jump to June 2018 and owners at Scene One get a notice that Ngāti Whātua wants a 160 per cent increase, taking the value of the land from $12.9m to around $33m. We pay 7.5 per cent of that value each year as ground rent,” Cordell said.
Eventually, a $30m land valuation was agreed on for Scene One, he said.
“I can walk away owing $100,000 to ANZ or I can fight – a fight I know is impossible and my cost me my job my home and maybe my life or put me behind bars, one of which I welcome,” he said.
“Simply I want to be treated fairly by Ngāti Whātua and have a fair increment in the ground rent,” Cordell said.
TDB Advisory said Ngāti Whātua Ōrākei’s assets are almost entirely in property: 29 Quay Park ground leases include land under Auckland’s Spark Arena, Countdown, apartments, offices, banks, hotels and medical facilities.
There is also 28ha of North Shore land where it has begun developing terrace-style houses. Property rental revenue increased from $42m in 2019 to $45m in 2020 and consulting revenue rose from $2.2m to $3.5m.
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