Meeting of the Hawke's Bay Regional Council
Date: Wednesday 27 July 2011
Hawke's Bay Regional Council
159 Dalton Street
item subject page
8. Update on Transport Issues
Attachment 1: Draft Regional Public Transport Plan
11. Recommendations from the Corporate and Strategic Meeting (This item includes recommendations on the Leasehold Land agenda item) 10.45am
Attachment 1: REDS Development Document
Attachment 2: Supplementary Paper Leasehold Land
HAWKE’S BAY REGIONAL COUNCIL
Wednesday 27 July 2011
SUBJECT: Supplementary Paper - Options to Maximise the Value of Council's Investment in Napier Leasehold Land
1. The purpose of this report is to clarify for Council, the following issues that were raised at the Corporate and Strategic Meeting on 13 July 2011 in relation to the paper that outlined options to maximise the value of Council’s investment in Napier leasehold land:
1.1. Legal opinion on consultation requirements.
1.2. More detail on the calculation of the discount.
1.3. Discounts on freeholding leasehold land owned by investors.
1.4. Clarification of the impact of the proposals on lessees that do not freehold.
Legal Opinion on Consultation Requirements
2. Council’s Solicitors, Sainsbury Logan & Williams, were requested to provide additional clarification for Council covering the consultation requirements for the proposed discount and for the sale of cash flows. This revised legal opinion is appended as Attachment 1 to this paper and provides the requirements of the Local Government Act 2002 and the Hawke’s Bay Endowment Land Empowering Act 2002 in relation to there being no obligation to consult on the proposed discount to be offered to lessees, whilst in relation to the selling of cash flows, the proposal is recommended to be included in the Long Term Plan (LTP) 2012-22. The options for the use of the capital proceeds need to be stated along with revisions to the Council’s investment policy.
More Detail on the Calculation of the Discount
3. Additional information on the scenarios covering the value of realisation for the sale of cash flows to external investors has been sent to Councillors under separate cover. The information sent is commercially sensitive as the release of this information could prejudice future negotiations with external parties for the sale of the leasehold land cash flows.
Discounts on Freeholding Leasehold Land Owned by Investors
4. Council expressed concern about providing a high level of discount to lessees that held the leasehold property for the purposes of investment to yield operating and/or capital profits on sale. There was a concern that there needed to be regard to balancing the need for a discount to incentivise the freeholding of these properties and the cost of the discount on other members of the regional ratepaying community.
5. In this regard this supplementary paper recommends Council consider a graduated discount rate depending on the circumstances of the lessee, and recommends a reduced discount for those lessees who are not currently residing in their property and are holding the property for investment purposes.
Clarification of the Impact of the Proposals on Lessees that do not Freehold
6. Subsequent to the process of lessees freeholding their properties at a discount (up to 30 June 2012) and Council selling the cash flows of the remaining portfolio to an investor, the effect of these actions on the lessees remaining within the portfolio are:
6.1. Can continue to freehold their properties in accordance with the Hawke’s Bay Endowment Land Empowering Act 2002 (ie, sale at lessor value).
6.2. Council will continue as the lessor and all dealings under the lease in relation to the payment of lease rentals, renewals of rentals or transfer of the ownership, will still be undertaken by Council.
DECISION MAKING PROCESS
7. Council is required to make a decision in accordance with Part 6 Sub-Part 1, of the Local Government Act 2002 (the Act) and the provisions of the Hawke’s Bay Endowment Land Empowering Act 2002. Council’s Solicitors, Sainsbury Logan & Williams, have set out the recommended approach to consultation (refer to Attachment 1) in relation to the recommendations included in this paper.
8. This opinion states that there is no obligation to consult on the proposed discount to be offered to lessees for the freeholding of leasehold property, however in relation to the selling of the cash flows, this proposal will need to be included in the Long Term Plan 2012-22 where options for the use of the capital proceeds need to be stated along with revisions to Council’s investment policy.
1. Agrees that there is no requirement to consult on the decision to offer a discount to lessees on freeholding, however the proposal to sell the cash flows from the leasehold portfolio and the purposes for which the sale of proceeds might be used needs to be covered in Council’s Long Term Plan 2012-22.
2. Agrees that to achieve the objectives of maximising value from the Napier leasehold land portfolio, and consequently having funds available to invest in alternative higher yielding assets within the Hawkes Bay Region the following steps are to be taken:
2.1. Agrees to encourage existing leaseholders to freehold their properties by granting a discount of 17.5% where lessees are not considered to be holding a property for the purposes of investment, and a discount of 10% to those lessees not occupying the leasehold property and renting the property as an investor for the purposes of operating and/or capital gain. These discounts are to apply to the lessor’s interest in determining a purchase price for each freeholding, such discounting to apply to all sale and purchase agreements made and settled between the Council and leaseholders by 30 June 2012.
2.2. Agrees to meet the legal costs of all cross leaseholders of up to $1,000 per property, where an agreement for sale and purchase of a cross lease property has been reached and settled by 30 June 2012. This contribution to legal costs is in recognition of the additional special and unique difficulties cross leaseholders have in freeholding their properties.
2.3. Approves the sale of residual cash flows generated from freeholds not sold by 30 June 2012 to investors on terms and conditions to be approved by the Council.
3. Agrees that a target for completion of these processes to maximise value from the Napier leasehold land portfolio be set at 31 December 2012.
Sainsbury Logan & Williams Letter 19 July 2011