Note - the following section is an extract from the Long Term Council Community Plan 2006-16.
The Council owns its leasehold endowment property within and around Napier City. The portfolio consists of approximately 12,405 leases and the most recent independent valuation (30 June 2005) valued the lessors (ie Regional Council’s) interest in the land at $79.3 million.
The Council acquired this property portfolio at the time of Local Government reform in 1989 and under the terms of each lease the properties can only be sold to lessees. Therefore, unless lessees are willing to freehold their properties at fair value, then Council is committed to continuing to own them. The portfolio itself provides an ongoing source of non-rate revenue for Council and ensures that this endowment that was established over the last 150 years continues to benefit the Hawke’s Bay region.
Each lease is overseen in accordance with the individual lease agreements. Ground rental is set predominantly at 5% of the land value, with the rent being reviewed every 21 years. Subsequent to 2011 annual rental will be set strictly in accordance with the terms of the lease which will be at either 5% of land value or at ‘fair annual ground rental’.
The provisions of the Hawke’s Bay Endowment Land Empowering Act 2002 (the Endowment Act) also govern the management of the portfolio. This Endowment Act provides that in order to access the funds for general purposes, Council must first sell the endowment (ie: individual leases) and then use the sale proceeds or the income generated from the investment of the sale proceeds for general purposes as specified in the Long Term Council Community Plan.
Furthermore, the Endowment Act provides that where the endowment leasehold property is not sold then the Council must hold and use all the money received in relation to the land for the improvement, protection, management, or use of Napier Harbour or the Coastal Marine Area in the Council’s region. The Endowment Act did provide for one exception to the above, namely that 50% of the leasehold property fund held in reserve at the commencement of the Endowment Act and the leasehold rentals received by the Council on the commencement of the Endowment Act and up to 1 July 2003 may be used for specific regional and district projects as specified in the Council’s Long Term Council Community Plan. This reserve held $589,000 at 30 June 2005.
An independent assessment is undertaken annually to determine how much of the rental income from leasehold endowment property can be applied each year for the improvement, protection or management of Napier Harbour or the Coastal Marine area.
Council allows freeholding of leasehold endowment property and will also consider requests from groups of lessees to freehold their leasehold property. Council has established specific terms and conditions under which lessees can freehold their properties which include a 5% discount (until September 2004) based on freehold land value.
Subject to any contrary decisions made under 6. above Council will use any sale proceeds from its leasehold endowment property for reinvestment in appropriate investments which will provide an ongoing source of income to Council. Furthermore (in accordance with the Endowment Act) Council has decided that any income earned from the reinvestment of sale proceeds of leasehold endowment property will be used to meet a proportion of Council’s net funding requirement of each group of activities. This is determined as being the net funding requirement of each group of activities expressed as a percentage of the total net funding requirement for all groups of activities. This income is applied after the proportion of the general rate required to fund each group of activities but before the use of dividends, interest and reserve funds.
An Annual Report is provided to Council which specifies the movements in rental renewals, leasehold sales over the year, total transfers of leasehold properties between lessees in a year and any other matters of relevance relating to the Council’s leasehold endowment property portfolio. At the time Annual Plan progress reports are presented to Council throughout the year, accumulated sales are reported as is the leasehold rental income that has been paid to Council. Furthermore, any other matters of relevance relating to the portfolio, and frequently policies relating to the portfolio, are reported to Council as part of Council Agenda papers.