Lease increases of up to 200% defended

Andrew Duncan
Andrew Duncan
Port Otago subsidiary Chalmers Properties is defending ground-lease increases of up to 200% for some Dunedin building owners.

Chalmers chief executive Andrew Duncan was contacted about the increases yesterday, and said all leases were being reviewed "as a matter of course" when they came up for renewal.

He said the price of land nationwide had undergone increases in the past five years, and industrial land in Dunedin was not immune from increasing rents.

An Internet blog site criticised a recent 200% Chalmers ground-lease increase from $6000 to $18,000 a year, while another foreshore building owner, who declined to be named, was critical of a 180% increase to more than $20,000.

Chalmers Properties owns more than 200 ground-lease properties spread around Dunedin, and just three buildings.

The ground leases are perpetually renewable, mainly for seven-year terms and occasionally for 21 years.

Mr Duncan said both parties to leases were encouraged to have separate independent valuations of properties undertaken by registered valuers as a starting point for comparisons.

When asked if the company had received complaints, he said "different views" were being aired but "there have been no formal arbitrations and all leases [renewed] were made by agreement by both parties".

"It appears as a large percentage [increase], but some time has elapsed," Mr Duncan said.

One building tenant and business operator believed his landlord would try to fight an increase in rent.

However, he was concerned any increase in ground rent would be passed on to him.

Bearing such an increased cost would come at a time of recession and dampening economic demand for most goods and services.

Mr Duncan said markets went both up and down, but when pressed to confirm if ground rents would decline if industrial land prices joined the residential downturn, he said it was theoretically possible but the rentals were struck under the lease agreement.

Chalmers also had a responsibility to Port Otago and its shareholders, being 100% owned by the Otago Regional Council, he said.

Last month, Port Otago reported its full-year result, which showed its overall profit was down 29% from $39.3 million last year to $27.8 million, including unrealised revaluation of Chalmers investment properties worth $17.9 million (if they were sold).

Port Otago chairman John Gilks said the profit reduction reflected the lower levels of the property revaluations, a 9% increase on asset depreciation to $6.8 million and a $600,000 decline in interest-rate swaps, a protection against interest-rate fluctuations.

Port Otago delivered its first special dividend to the ORC, boosting its overall dividend by $2.6 million for the year from $6.9 million to a record $9.5 million.

simon.hartley@odt.co.nz

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