Anglican church holds desperate leaseholders to increasing rents

Sunday, 14 July 2024

“I was a kid. I had no idea what a leasehold was, I just knew what I had to pay each month. My parents’ lawyer didn’t warn me, the bank didn’t warn me,” says Bruno Noble, a leasehold tenant of the Anglican church.

When Noble was 19 he made the ill-fated decision to use a deposit gifted from his parents to buy into Harbour View apartments in the affluent central suburb of Parnell.

Now 36, he’s trapped with an apartment that isn’t worth the $275,000 remaining on his mortgage.

That’s because buying an apartment at Harbour View means signing up to pay more than $700 a week in ground-lease payments.

“I’m stuck with it. I earn a pretty good salary, but I’m just piling all of my money into the church’s pockets and a mortgage that isn’t worth anything to me.”

He’s not the only one. Various apartments in the building have failed to sell on the market, with one desperate owner even unsuccessfully offering their apartment up for free.

“My immediate neighbour is in her 70s and she was trying to sell because she was having difficulty walking up the three flights of stairs because we don’t have a lift, but she’s stuck here.”

Ground leases are typically pegged to 5-6% of the value of the land. When Noble bought in, Harbour View was valued at about a million dollars, but when the lease was to be renewed in 2020, the land value had shot up to $10.2 million.

Noble and other residents say they have pleaded with the Anglican church for mercy, but have been met with stern negotiators and unfeeling lawyers.

Ross Bay, Bishop of Auckland, is a trustee of the land-owning General Trust Board of The Diocese of Auckland.

His response to residents and the Sunday Star-Times is that the church’s spiritual arm is entirely separate from its revenue generating enterprises.

“For the sake of good governance responsibility I do draw clear lines in these matters,” he said in a statement.

“The property concerned is an investment held by our General Trust Board. In that sense it is separate from the Diocese of Auckland and not under our control. We are its beneficiary.”

Earlier this year, the trust board evicted Peter Van De Wiel from Parnell Lodge, which he had owned and operated for 14 years, after he fell behind by a million dollars in payments when his leasehold rates were raised by $120,000 to $395,000 a year.

Van De Wiel died in June, broke and homeless, days after his 79th birthday, following a five-year legal battle.

Local MP David Seymour remarked that he thought the church could have handled the episode better. In an email to Noble he said its actions might be seen as “not very Christian”.

However, when approached by the Star-Times, Seymour said that while leaseholds had caused “a lot of ructions”, he didn’t believe the Government should intervene.

“There is something inherently unfair about an arrangement where you might own the house, but you don’t own the land, because when the lease renewal comes up you really have almost no bargaining power, because you can’t easily move the building you own,” he said.

“[However], I certainly wouldn’t support retrospective law that would change contracts that were signed in the past, often decades if not a century ago … because once you start doing that, you actually erode the rule of law, one of the foundations of NZ’s prosperity.”

Fellow Harbour View residents Sophia Cook and Vanessa Clarke inherited their apartments, and are now on the hook for the leasehold costs.

“It just kind of sucks because my brother and I would never have touched a leasehold property. We would never purchase one,” Clarke says.

“Legally we are completely hamstrung because the legislation is totally archaic. It doesn’t have any relevance to today’s market. It needs a full reformation, there’s no doubt about it.”

Clarke has tried to give away her apartment for free, but there weren’t any takers.

“We definitely got a bit of vitriol from everybody saying we were devaluing the apartment, but my argument is you can’t devalue something that is valueless.”

“We tried to explain to the other unit-holders that we both have mortgages and young families and this is not something we can afford.”

Clarke believes the Anglican church should buy out owners in financial strife and rent out the apartments to residential tenants.

“Somebody needs to take a compassionate view, because it’s outrageous. They are making so much money off vulnerable people.

“And, I would like to raise that the church doesn’t pay tax and if they are going to act like a big business and give us no option other than financial haemorrhage, that also needs a reformation.”

Harbour View residents spent two years trying to negotiate with the church but it went to arbitration before a QC. The church won and then collected legal costs. Residents say they each had to pay a $19,500 share.

“It’s a punitive contract that we all find ourselves in,” Sophia Cook says.

“The church played really serious hard-ball, and their lawyers were pretty cut-throat.”

The trust’s financial statements show it owns $33 million in investment property. In 2022, its total assets were worth around $231.7 million.

The trust board’s management company sent a statement saying that it had tried to negotiate a positive deal with residents, but ultimately it had to be settled by arbitration.

“The [trust board] acknowledges there is financial stress related to these types of leases and remains sympathetic to the concerns of shareholders.”

“[Yet], its trustees have a fiduciary duty to the beneficiaries of the trust. In fulfilling this duty, they sought to balance fairness while considering alternative options.”

Valuer Gary Cheyne says the traditional residential leasehold model is not fit for purpose in Auckand any more, and such properties shouldn’t be passed on through the generations.

“Without a doubt the current conditions weren’t anticipated [in the 1920s]. I think there was a general view that the level of rent would always remain reasonable because land values were stable.”

Cheyne has been a crusader within the industry trying to get valuers to agree on a new model for setting lease rents. Called the ‘Rate of Diminuitive Value’, it takes into account what leaseholders can sell their homes for.

“It kind of goes like this, if the lessee’s interest in the land is negative, it means that the ground rent is too high. If it’s positive, the ground rent is too low.”

Cheyne has been hoping the model will catch on, but it was put forward in the arbitration between Harbour View and the church, and it was knocked back.

The problem is the way the rules are set up. Arbitrators can only look to the market value of comparable leases when attempting to determine a new rent. But, when values are inevitably set by lessors who hold all the cards, it becomes an upward self-reinforcing cycle.

Cheyne says the other issue is that values are set by “the highest and best use” of the land which takes into account changes in zoning. That means leaseholders might live in a five-storey building but pay for the privilege of living in a skyscraper.

“The issue requires some form of legislative intervention because the courts have said highest and best use on vacant land form the basis of the rental.”

In May, the UK effectively banned new ground leases. Bruno Noble thinks similar political scrutiny is warranted in New Zealand.

“It’s absolutely mad. It’s no longer a fair agreement. The balance of power means anyone who now has a leasehold has their back against the wall and is trapped.

“It’s in [the lessor’s] interest to squeeze as much out of us as possible, because we’ve got a really shitty deal, and they’ve got a great deal.”

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