Cornwall Park rent shock

Proposed rent increases of up to 750 per cent for land around Cornwall Park have left some residents distraught.

The Cornwall Park Trust Board is reviewing leasehold ground rents on 27 of its 119 properties around the Campbell Rd and Maungakiekie Ave area which backs on to the park.

The board has been unable to review rents on many of its residential sections for a long time because they are on 21-year leases.

After years of frozen rents, residents are horrified at the revised rents being demanded.

But board trustees say they have no option other than to seek market value because they have a duty to run the park.

Astronomical Auckland property price increases in the past two decades have shot land values up so high that a Maungakiekie Ave leasehold rent review could see ground rent rising 750 per cent in one hit, from $4000 to $34,000 a year.

Other rent reviews have resulted in residents being presented with a $20,000 annual bill.

Rental payments are based on 5 per cent of the land value. Many properties in the area are worth at least $800,000, resulting in a $40,000 annual rent bill.

Upset homeowners - fearful of being identified because they said they did not want to devalue their properties even further - are so shocked at the dilemma they face they are considering abandoning their houses.

"What can we do?" asked one resident whose relative's ground rent comes up for review in two years.

"People are trying to sell their places but once would-be buyers get a sniff of what's happening, they're not interested.

"Who can afford to pay this much for simply living in a house on that land?"

Board chairman Dr Lindo Ferguson defended the increases, saying the trustees had a right to charge full market rents and the situation simply pointed to the inherent value of land as an investment.

"As a non-profit organisation, we are required in our trust deed to administer Cornwall Park for the benefit of all New Zealanders and to administer the board's revenue-producing assets in a way that best serves that purpose.

"We're talking about absolute prime real estate and the lessees bought their leases or renewed them in the full knowledge of that situation. Quite a lot of the properties - although not all - are in the grammar school zone, too," he said.

Asked how the board thought residents could afford such large rent increases, Dr Ferguson said it depended on their individual financial situations.

"If you're a professional couple with two incomes, you are going to occupy land at a discount to the freehold value," he said, referring to the lower price charged to buy leasehold residential properties initially.

"Any lower rent would be a subsidy by the board to that particular lessee and there's no possible justification for that," Dr Ferguson said.

Lessees who disputed revaluations on rental reviews could get an independent valuation and take the matter to arbitration, he said.

One of Auckland's leading valuers, John Darroch, said leasehold property had major advantages which included buyers getting into an exclusive area at a big discount.

Drawbacks were reduced borrowing capacity because lenders had more conservative rules for leasehold properties, large rent rises and reduced ability to redevelop because the lessor often demanded a say in changes.

Mr Darroch's Freemans Bay home was on leasehold tenure until two years ago when he calculated a $17,000 ground rent bill would rise to $50,000.

He bought out the lessors' interest in the land and freeholded the section. "Timing is everything with leasehold land."

He said the best way to reduce costs was to buy on a long lease term before the next review and sell well before any review.

"Then people are not able to price that potential review into their expectations and you can live very cheaply in an otherwise very expensive area," he said.

Other leasehold areas in Auckland include the Viaduct Basin, owned by Viaduct Harbour Holdings, Dilworth Trust residential blocks, Melanesian Trust Board suburban holdings and Ngati Whatua land around the former railway station at Quay Park.

Cornwall Park rents

* Some properties around Cornwall Park are owned by the park's trust board, which leases the land to residents.
* Rents have been frozen for 21 years while the value of surrounding properties has climbed to $800,000 or more.
* Residents who have been paying about $4000 a year in rent may have to pay up to $40,000.