LEASES COMMISSION

Dominion, Volume 10, Issue 2981, 19 January 1917, Page 7

LEASES COMMISSION

CHAIRMAN PROPOSES A TRIBUNAL

APPEAL TO A JUDGE

CITY PARTIES NEARING 1 AGREEMENT

The Leaseholds Commission conbained its 'Wellington • session yesterday. The Commission consists of ffilr. 'Justice HoskiiiK (chairman), Mr.. C. 1 ,, . Thomas, and Mr. W. Milno. At the beginning of the sitting tho chairman put forward a suggestion of b tribunal for the determination of fronts. His suggestion ran:—

"If any determination) whether of the rent or of the value of the buildings aud improvements is that of wo only of tho. arbitrators, by reason of ono of tho arbitrators dis■senting,, either party may appeal to a judge of tlio Supremo Court in a summary way. Tho appeal shall-be based on. such, of the ma- ■ terials before the', arbitrators as shall be presented by ithem to tho judge. And for tho purposes of 'such appeal' the arbitrators shall lie competent and compollablo witnesses as regards tho grounds and reasons for their determination ' and dissent. . , • "No other evidence shall'be ad- .- duced on appeal save that of tho arbitrators, unless the judgo shall specially require any witness who was before the arbitrators to be examined before him on any particular point. "Upon such, appeal the ' judge shall decide whether tho determination appealed against is fair, and, if not, he may fix any other rent which he finds to be fair, not exceeding the higher and not less than tho lower of the valuations made by tho majority ..of tho arbitrators, and the remaining arbitrator respectively.. "The judge shall fix the costs of ' the appeal, and may order the costs to be paid by one party to the other, 'or make any other order on that • subject." "I would like the parties to consider that," continued the chairman, "and ;see if it won't meet both sides —meet the idea, of the tenants for a business .tribunal and the others for a judge, lit may fix a principle. If it is known ,that the arbitrators have to present reasons for their calculations', they iwili havo to find reasons and bo able io demonstrate that they proceeded on (correct principles. I would like the parties To consider this. I have not .discussed it with, my fellow-commis-isioners; I Tiavj not Lid an opportunity." ' To Facilitate Settlement. In course of a discussion 1 which followed, Mr. Blair remarked that in efifeot the third arbitrator : was an umpire. . . Mr. O'Shea: I doubt if two out of ithree arbitrators can mats an award. The Chairman: That is provided for. Mr. Milne: That is tho practico in the southern districts. ' Mr. O'Shea: I was just pointing it out. I have never raised the point before. The Chairman: Wo will make it so. Mr. O'Shea: I think your suggestion will go a long way toward a settlement. ~ The Chairman: The expense of call•ing fresh witnesses will be done away fwith, and the appeal is only to lie nvhere there is no concurrence. It bnay be that the corporation's man- or Jthe tenant's man may stand out in orfdor to get an appeal.- But that is not conduct. Mr. Tripp suggested that there should Ibe somo protection in tho case of a itenant failing to give notice of intension to claim renewal.

The Chairman: I remember a case jtvhere a matter had gone on practically jfor somo years beford the proceedings jliad been taken up for determination, jit..came before the Court, and in consequence of that a form was revised {■which is now to be found in the public bodies leasing provisions, and it .provides that if things arc not dono Tip to time it shall not matter. In one of the forms I hayo noticed it is .provided .that time shall be of the essence of the contract. _ I. think that is •a most iniquitous provision. It is put in without any of the tenants knowing what it means, and they may have good excuse. ■!•■..-.

Mr. Thomas: Wouldit answer if tho leasing body had to give notice of the time for revaluation? Mr. O'Shea: We do remind them, but it would bo an intolerable burden if the duty was to be, put on us. . The Chairman: My experience is that you lave to bo more particular with private, .individuals than•' with public bodies. A"public body is "amenable to .public opinion. Mr. O'Shea: If a public body ever did anything wrong relief could bo got by petitioning Parliament. The Chairman: They would probably be turned out next election. Mr. Milno: Does Your Honour's proposal apply only to Wellington, or to other towns as well. The Chairman: My idea is that this is > clause which. should not bo applied to residential leases. Mr. Milne: I'really think one of tho principal causes of difficulty in Wellington is' the abolition of tho auction clause. That hasbegn the prin-' cipal safeguards down south'. Mr. O'Shea: They would not have it here. Mr. Milne: They have it down south. Mr. O'Shea.: They would not look at it here. They would rather have the present lease. Mr. Tripp remarked i that the auction clause would not work here because if a big oversea firm wanted to tome in it would pay it to give a much bigger sum than the Wellington tenant could pay in order to got the goodwill of the business. : . Mr. Milno: That only applies to businesses run by drapers. Mr. O'Shea: As a matter of fact they would not have tho. auction .here at any price, would thev? Mr. Trij,)): No. _ ' . ; The Chairman: Anyway wb . know that each arbitrator to a certain extent

considers himself tho ropresentative of the man who appoints "him."' He knows \ the views of his'appointc'r, and if the' other two are «oing to fix a.rent which his man says lie cannot, afford, to pay, he will object. But if the three concur, there will be no appeal. Mr. O'Shea: We have, never instructed our arbitrator. The Chairman: That is a counsel of perfection which is rarely carried out, ■ I think. Mr. O'Shea: f-have never discussed it with Mr. Morison, and he Avoiild not discuss it Mith us. Mr. Milne: My experience is that every councillor reckons himself a '' ■ qualified valuer, and instructs tho arbitrator, wlw is practically an employee of the council. ""* Mr. O'Shea: Mr. Morison would not think of discussing it. The Chairman: L am quito prepared to believe that. Mr. Tripp: Still von have a very good advoo.ito., Mr. O'Shea. The Chairman: Anyhow Sir. Amos (Wellington City Corporation valuer) would probably ho the first witness called, and Mr. Morison would know tho views of the City Council right 'away. The Chairman said ho understood

that some of the leases wore oßjected to, and that tho lessees asked for somo relief.

Mr. Blair: As far as the lessees aro concerned, we don't ask for auy alteration the council won't givo us fully and freely. Wo do ask that the council shall ho given power to givo us a hotter lease. We say tho council will then bo able to get bottor rents. The Chairman: The council has power subject to a special resolution to rcduco rent. They can oven accept surronders and grant now leases. Mr. O'Shca: You.can do that under our lease.

Compensation Problem. Mr. Blair: They cannot extend their present term and" cannot give us compensation. If they could wo feel it would mako tbe greatest possible ditferonco to tho council. Wo say: "Framo a better lease and loavc it to private negotiation between the tenants and the council, and we havo no doubt that as a business proposition it will appeal to the council." The Chairman: What you; want is an Act of Parliament which mil give you, amongst other options existing at present, power for the council to exchange any Wellington lease for a leaso r.i tho Form X. Tho oujy point now that seems to bo at issue, between tho City and tho tenants, assuming this suggestion for appeal is accepted, is the question of what proportion of valuation should bo payable by tho corporation. .., , Mr. O'Shea: We are quite prepared to leave that to tho commission. Mr. Blair: Wβ suggest 90 per cent., but the position is that, supposing it wore fixed at 50 per cent., the greater the compensation the greater the rent vou will get. Wo say it is desirable to mako a lease which will appeal to business,men, and it is well to havo as great a compensation as'possiblo, with a safeguard for the council, so that they won't have a whole lot ot useless buildings foisted -upon thorn. The Chairman: Wo need not go,into tho question of fourteen years against twentv-ono years. The, main .point is as to how to safeguard the .corporation and do justice to the tenants. _ Mr Milne: It would be only right to consider What'the position would be il tho whole'of the lessees were to accept the 1 compensation inserted in the'lease. Where is a council to find the money to pay them all? Tho Chairman: I thmk if the corporation is to pay the compensation the council should got twelve months in which to do it, and pay 5 per cent, interest on the amount m the meantime. That- would givo them an opportunity to sell., . ■ Mr. Milne: It appears to mo that it that clause were inserted in the present lease a good many of. the 'Wellington tenants wofild feel inclined to take advantage of it at tho end of the term.' " " Mr. O'Shea: I can assure you that none would. Mr. Milne: That is tfhat you think.

Tho Chairman: The compensation must be for a building that is of service. It would not be for a merry-go-round. The Chairman added that compensation might be sought for a church which was unsuitable for other purposes. '■ Mr. Thomas: They mako picture shows out of churches now. The Chairman: Has the corporation unoccupied land which is going to be put up. Mr. O'Shea,- Yes. Mr. Tripp: And you have sections with old buildings on. Mr. O'Shea: Yes. Wo are letting these to tenants. Mr. Milne: You are not building? Mr. O'Shea: No; we havo no funds to build with, and no power cither under the Act. Mr. Blair; Your Honour will see that the difference between the parties is surnrisingly little. 'The Chairman: Yes.' It has all come down to what percentage would he fair. The Chairman: I think it might be considered whether the lease should not be amended thus:—lnstead of sayinc,

"ft fair annual ground rent," ive shall adopt the definition given by the Court of Appeal—that would be a gufdo to the valuers—that; it shall be "such as a prudent tenant would give," and I thins it mi<.thtbe well to add "such as a willing landlord would accept." You mav consider these suggestions, and wo will have them'discussed later. How Values are Arrived At. Tho hearing of evidence \yas then proceeded with. William Ferguson, who had acted at several valuations, said ho found that tho tenants fell into three classes—(l) the leaseholder, who used his building solely for letting; (2) partly for lotting and partly for own use; (3) solely for own use. In respect to_ the first class ho. had to find what his incomo was and what his outgoings were. It was clear that he could not pay more than the difference in rent. There was a certain amount of difficulty in arriving at these amounts. There was evidence showing that with a largo number o£ renting buildings generally there was a certain loss due to empty premises, and he had been able to come to a decision as to what amount, "ought to be allowed for. The question of land tax and rates was decisive. Then there was the question of insurances neainst fire and other destroyers. He did not kuow if a prudent man would insure against earthquake. If he did not probably it would bo because tho rates were prohibitive. Also there was. .the element of public risk—lift accidents risks. Further, depreciation nf the buildi'is" hud to be considered. Tho balance left" after considering the outgoings was the maximum, a man could pay to Ih'c corporation. Ho fame. to the conclusion Hint it was a toss m> whether ;t; was better to put m> a small biiil'dins Fnr one's own use or a larger one and let the spare space. Therefore it en?"" hnek to what a "nil in business could nlford to give. They had to form a judgment as to what was a '•eawpnbln rent.

To' Mr. Thomas: He found that freehold property brought rather much move than leasehold. The chairman: Of course, a mnu who buys a freehold buys a chance which a leaseholder docs not of increment in' value. % Mr. 'Milno: Tho larger institutions won't look at leasehold. Mr. Ferguson: There is a case of one firm who told us in Court that they had sent over instructions to their local hrancli here not to touch a leasehold, but buy a freehold/ at all cost. Therefore, it .'freehold value is not a fair indication of the value of a leasehold property alongside it. The Fact that a nropei'lv is a leasehold depreciates it immcdinMv. Mr. Milno: Von think it is unfair to ihe lonnnt tr> fix n vontnl on the basis of this freehold purchase. Mr. Forirnsoii : Y (> sJlr. O'SliPn: No one ever suggested 'it "houM he done. The chaiim"n: The Court of 'Appeal says it can't he.

The chairman: Tt would seem almost n<; if fclio o)ilv way to, remedy these ron<.tnrt complaints would lip. ns in TrpIniul- to allow n tpiianfc to convert unci obtain I''" freehold. Mr. O'Shea: It would he Hip Tjnst thins; if tlio whole of those endowments wore sold. The corporation wonlfl sret ?o nuicli money now that it. would hn moro than eomnensatotl for the linearnerl incronicnfc of the future. Air. Ferguson: If it, were not for the liiismana.aement of the local bodies, ■which is very great, it would he better that the whole of the hind should lie run by the corporation, because they onn borrow money at a lower rnter than anyone elso. But these bodies are

sometimes run by politicians and others.

The chairman: AVe aro asked to consider whether Jio .svstom of valuation is satisfactory in its application. By that I understand tho system of thren arbitrators. From your nxjxrience, what conclusion would you form ? "Would Not Have Lawyers." Mr. Ferguson: 1 think it entirely depends on who tho arbitrators aro. I would not have lawyers on any account. I would havo thrco businessmen who would deal with it from a practical point of view.

The chairman: Your view is that fourteen years is much too short. Tho chairman inquired Mr. Ferguson's views on compensation aspect. Mr. Ferguson: I think you should havo tho approval of the council or tlio leasing body as to the class of building to be erected. Because it is clear that a man may erect a building for his own specific purposes, but of no value to tho class of tenant likely to take it up in that district. Tho chairman: Do you think it should bo an option to the corporation to refuso to exchange if it thought a building' unsuitable ? Mr. Ferguson: No. If a tenant has erected a building ho certainly is entitled to bo compensated in tho event of tho building being taken. The chairman: Some of thorn may bo of a character which would cast a lini biljty on tho corporator A wooden building, for instance. Mr. Ferguson: Well, th'wa would bo no valuation for a building of that class. It would bo of no use. The chairman: Tho question is: Would tho valuers value for removal only ? Mr. Thomas: Difficulty could arise this way: tiie obsolescence which takes places comes of an entire change of locality. Mr. Ferguson: Yes, but a change of locality is as a rule an improvement. Mr. Thomas: I had in mind tho state- ': ment that Foa.therston Street was threatening to become a retail centre. That gives a good case in point. A man goes thero at present either for warehouses or offices. He builds a building which the council approves. That lease runs for 25 years, and at the end of the period tho building goes tol a revaluation. The building is as good , as at tho time of erection, but the street has become a retail streot. Aud what is to be dono? What sort of revaluation would be mado thcro? Mr, O'Shea: Nowadays most of the buildings are easily converted. Most of the big buildings are only shells. Mr. Tripp: That is only during tho last two or three years. Mr. O'Shea: Yes. When Mr. Ferguson had concluded his . evidence tho chairman observed' that after what tho Commission had heard that day the tenants should be very much indebted to him. Mr. Ferguson: And the- corporation, too. . . ' ' The chairman: And the Commission is indebted to you. Alexander Gray,'K.C, who has bad some experience as an assessor, said ho thought the Wellington, leases unsatisfactory, chiefly because tho periodical revaluation of rents led to considerable disturbance aud disagreement. Whether or not that could .be said to be counterbalanced by tho fact that the tenant was not obliged to expend tho whole of his capital in freehold (that was, that they could use the capital in the erection of buildings) he was not prepared to say. He favoured a longer lease than was granted now— a longer lease with periodical revaluation of rent.

Mr. Thomas: Do you favour a, fixed porcentago or a revaluation ? Mr. Gray: A revaluation. Because values might fall, and a fixed increase would then ho unfair to tilio tenant. The chairman': What period of long lease do you favour? Mr. Gray: Sixfcy-threo years. Mr. Thomas: With three periods of 21 years for rovahintion ? Mr. Gray: Yos. Tiie chairman put to Mr. Gray the. scheino he had proposed at the outset of t!ie sitting- "What do j'ou think of it?" he asked. Mr. Gray: It seems rather cumbrous. Sidney Kirkcaldie, of the firm of Kirkcaldio and Stains, who hold a Wellington City Corporation lease, was called, and was asked what percentage of compensation for buildings he reckoned the corporation should give tenants. Ho answered that 60 per cent, was' too low, and that it might Lave to ho made as high as 80 per cent. He took into consideration the fact that depreciation in the building would liavo already hocn allowed for by the valuers before the compensation was arrived at.

"William James Harland, in charge of the securities in "the A.M.P. Society, .Wellington, said liis society looked with disfavour on leaseholds as securities, particularly short term leases. Ernest Liddlc, secretary of the Equitable Building and Investment Society, said he would practically reiterate what Mr. Harland had said. Tho Commission will sit again at 10.30 this morning.