MINUS 20 PER CENT.

Wanganui Chronicle, Volume 75, Issue 119, 23 May 1932, Page 10

MINUS 20 PER CENT.

AN ALGEBRAIC PROBLEM INTEREST AND RATE “CITT PUZZLE FOR LEGAL MINDS. MOST COMPLICATED FORMULA. “X minus 20 per cent, equals what you now have to pay.” This, in effect, is the apparently simphe formula with which legal minds will have to contend in determining tho value of the reduction in interest or rent which will apply to all contracts entered into before January 1, 1925, and between January 1, 1930, and April 1, 1932. The diffiviuty lies in determining X. Of all the remedial measures passed by Parliament during the recent emergency sesion, the section of the National Expenditure Adjustment Act providing for a lowering of interest charges and rents, “commensurate with the wage and salary reductions,” is tho most difficult of interpretation, and will offer tho biggest problems in operation, states tho Auckland Star. A large crop of anomalies is inevitable in view of the peculiar wording to the section. Determination of what is called tho ‘hypothetical” rate of interest or rent, namely, the rate of rent that would have been fixed had the contract been made on January 1, 1930, is tho principal snag; and lawyers in Auckland readily admit that, endless confusion and trouble will result. Some go as far as to say that the task will bo one for accountants, and not for legal men. The action of the Government in laying down so complicated a formula is widely criticised, tho opinion being held that many simpler and equally effective alternatives must have been available to the law draftsman. “It savours highly of bush draftsmanship,” commented one promi-

nent. barrister. Tho same difficulties do not arise in cases where the contracts were made on January 1, 1930, or at any time during the preceding five years. In all such •cases tho standard rate of reduction is to be 20 per cent. Contracts made between January 1, 1930, and April 1, and prior to January 1, 1925, however, como under the requirement for the determination of a hypothetical rate of interest, or rent, and when this is arrived at it. will be subject to a reduction of 20 per cent. Back to Algebra. For the purpose of illustration, let “x” be taken as representing the hypothetical rate of interest or rent. Where the nature of the contract renders tho fixation of the hypothetical rent or rate, the parties concerned may agree as to what “x” will be, but failing that, the question can by mutual consent be submitted to arbitration. If “x” is not arived at by either of those methods, it can bo determined on application by either party to the Supremo Court, if the annual amount exceeds £3OO and to tho Magistrate’s Court in other cases. Unless the parties agree to accept the determination of the court, the application will be referred to an adjustment commission under tho Mortgagor’s Relief Act for investigation and recommendation.

No reduction is permissible if the rate of interest or rent at March 31, 1932, does not exceed tho residue of “x” minus 20 per cent.; and if it does, the reduction to be made will be the difference between the rate and tho residue, but not exceeding a reduction of 20 per cent, of the rate payable on the date mentioned. In the case of customary hire-pur-chase agreements or in other cases where the rate of interest is not specified in the contract, tho parties will have the right to determine the proportion that is principal, and the amount that represents interest. In default of an agreement, application can bo made to the Magistrate’s Court for a determination. “Penal” and “Net” Rates. Provision is incorporated for the reduction of “penal’ and “net” rates of interest and rent under contracts; but the “net” rate of interest payable under any mortgage of chattels is not to bo cut below six and onehalf per cent., and the “not” rate payable under any other mortgage below five per cent. In the case of income tax-free debentures, however, the rate of interest can be reduced to four and one-half per cent. Where mortgages provide for “penal” or “not” rates of interest, the gross rate is not to be reduced so that the margin between it and the net rate is less than one-half of one per cent or the margin between the original gross and net rates, which ever margin is the less. «. It is also provided that no ground ron t —the rent reserved when land is leased to a person on condition that he erects certain buildings on it is to be reduced below five per cent per annum of the unimproved value of the land in respect of which they are charged. Cumulative Preference Shares. The rate of dividend payable by companies on cumulative preference shares is to be reduced by 20 per cent, for three consecutive financial years commencing from April 1 last, but in no case is the rate of dividend on anv cumulative preference share to be reduced below 5 per cent, per annum of its nominal value. Power is given to the Supreme Court to authorise a reduction of annuities or other periodical payments derived from proceeds of rent or interest, in cases where it is satisfied that complianee with the terms of tho deed, etc., is imposible or will create undue hardship. - , , . Tho section doos not apply to t.ne rate of interest on a morrpaße securinp the payment of principal moneys on’ demand' or tho rate payable under a mortgage debenture or other vharge secured on tho mortgage; to tho, rate of interest or rent under contracts made after April 1 last; or to rents under leases or licenses of Crown lands which are fixed on tho capital value and do not exceed 5 per cent, of it- - • » i „ Mortgages are defined to include any agreement for tho sale and purchase of land, and eustomnrv hire-purchase agreements. Power is given for the exclusion from the operation of the section, by Ordcr-in-Council, of any specified classes of mortgages or of other contracts. The Crown is bound by the, provisions of tho section. Reductions in interest and rent made in accordance with the section are retrospective to April 1 last, and will hold good until April, 1935. I