Now why would anyone buy into a leasehold property? More grief for Blue Chip investors.
Ground rents hit the roof
By GREG NINNESS - Sunday Star Times | Sunday, 06 April 2008
People who bought apartments in one of the country's largest leasehold residential developments are facing hard choices as their ground rents increase by more than 400 per cent.
Apartment owners in the fashionable Beaumont Quarter complex opposite Victoria Park in central Auckland have been paying ground rent of between $1900 and $3900 a year.
But last week these were increased by more than 400 per cent, with the owners of the largest apartments now facing ground rent payments of about $18,000 a year.
Apartment owners who attended a packed meeting called by the Beaumont Quarter Residents Society heard there were no easy options, but decided to contribute $250 each towards the legal costs of challenging the increase.
Beaumont Quarter is a 258-unit complex developed between 2001 and 2007 by Melview Beaumont Quarter, part of the Melview group of companies owned by Auckland developer Nigel McKenna.
The leasehold titles on which the apartments were sold stipulate that the ground rent is to be set at 7% of the land's unimproved value, which is to be reviewed every seven years.
According to Melview, the original ground rents were set based on a value of $14.5 million, the price it paid for the site when it purchased it in 2000.
Last year, Melview sold the freehold land under the complex for $70m to a property syndicate put together by investment company Augusta Group, which commissioned Jones Lang LaSalle to revalue the land for the scheduled seven-yearly rent review.
This revalued the land at $63.7m, which this has pushed the ground rents up proportionally, and these figures have been confirmed in a separate review by Colliers International.
Faced with such unexpectedly high ground rent increases the Residents Society commissioned a report on its legal options by law firm Glaister Ennor.
The report said the lease allowed the owners to challenge the valuations used to set the ground rents but warned that the legal costs involved could run to between $300,000 and $500,000, which would have to be passed on to apartment owners.
Some are not well placed to bear such costs, especially when there is no certainty such a move would result in a significantly different valuation.
Many purchased their apartments through troubled property company Blue Chip and have already suffered large financial losses as a result.
By way of an olive branch, Augusta Group has offered to have the increased ground rents phased in over the next three years.
According to Augusta Group director Mark Francis, this would at least give residents some certainty about the situation "so they can just get on with their lives and either sell their house or stay in it and refinance or whatever. We know it's a big uplift in rent but it's been seven years since it was set and we all know what's happened to the property market since then."
The owners will reconsider their position at another meeting this week and Francis is hopeful they'll agree to the plan.
Ground rents hit the roof
By GREG NINNESS - Sunday Star Times | Sunday, 06 April 2008
People who bought apartments in one of the country's largest leasehold residential developments are facing hard choices as their ground rents increase by more than 400 per cent.
Apartment owners in the fashionable Beaumont Quarter complex opposite Victoria Park in central Auckland have been paying ground rent of between $1900 and $3900 a year.
But last week these were increased by more than 400 per cent, with the owners of the largest apartments now facing ground rent payments of about $18,000 a year.
Apartment owners who attended a packed meeting called by the Beaumont Quarter Residents Society heard there were no easy options, but decided to contribute $250 each towards the legal costs of challenging the increase.
Beaumont Quarter is a 258-unit complex developed between 2001 and 2007 by Melview Beaumont Quarter, part of the Melview group of companies owned by Auckland developer Nigel McKenna.
The leasehold titles on which the apartments were sold stipulate that the ground rent is to be set at 7% of the land's unimproved value, which is to be reviewed every seven years.
According to Melview, the original ground rents were set based on a value of $14.5 million, the price it paid for the site when it purchased it in 2000.
Last year, Melview sold the freehold land under the complex for $70m to a property syndicate put together by investment company Augusta Group, which commissioned Jones Lang LaSalle to revalue the land for the scheduled seven-yearly rent review.
This revalued the land at $63.7m, which this has pushed the ground rents up proportionally, and these figures have been confirmed in a separate review by Colliers International.
Faced with such unexpectedly high ground rent increases the Residents Society commissioned a report on its legal options by law firm Glaister Ennor.
The report said the lease allowed the owners to challenge the valuations used to set the ground rents but warned that the legal costs involved could run to between $300,000 and $500,000, which would have to be passed on to apartment owners.
Some are not well placed to bear such costs, especially when there is no certainty such a move would result in a significantly different valuation.
Many purchased their apartments through troubled property company Blue Chip and have already suffered large financial losses as a result.
By way of an olive branch, Augusta Group has offered to have the increased ground rents phased in over the next three years.
According to Augusta Group director Mark Francis, this would at least give residents some certainty about the situation "so they can just get on with their lives and either sell their house or stay in it and refinance or whatever. We know it's a big uplift in rent but it's been seven years since it was set and we all know what's happened to the property market since then."
The owners will reconsider their position at another meeting this week and Francis is hopeful they'll agree to the plan.
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