Meeting of the Hawke's Bay Regional Council
Date: Wednesday 27 July 2011
Time: 9.00am
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Venue:
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Council Chamber
Hawke's Bay Regional Council
159 Dalton Street
NAPIER
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Attachments
Excluded From Agenda
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
Attachment 3: Sainsbury
Logan & Williams Letter 19 July 2011 29
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Supplementary Paper Leasehold Land
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Attachment 2
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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
REASON FOR REPORT
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.
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RECOMMENDATIONS
That Council:
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.
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