H.—42.

90

H. BBAUOHAMP

Wellington, Thursday, Ist March, 1917. Harold Bbauohamp examined. (No. 50.) The Chairman : You have kindly come in response to the desire that you should. I should be glad now if you would jvrst make your statement. Of course, you know what the issue is : First as to whether there are any defects in the present form of city lease and in the methods of valuation that follow upon it, and what remedies ought to be adopted to meet these defeots. Witness: I have taken the liberty to embody my views in writing, and if I may 1 will read my statement: — Wellington City Corporation Leases. Where the terms of a tenure cause the tenant unnecessary loss without any corresponding gain to the landlord that loss is economic waste —a truth of which an extreme example would be the leasing of rural land totally unsuited for agriculture on condition that it should not be used for pastoral purposes. This illustrates the crude fallacy that a fair rent may be ascertained by determining the freehold value of the land, and fixing rentals on the renewal of a lease, with oppressive terms, on a percentage of that value. Where land belonging to a Municipal Corporation can be leased only on terms which arc unnecessarily disadvantageous to the tenant the ordinary freehold value of such land is reduced by the extent to which these terms prevent the best rental being obtained, and that reduction is a pure economic loss. Hence it is of paramount importance, in determining the terms of the Municipal Corporation leases, that they should impose upon the tenant no burden which does not bring to the Corporation a corresponding gain. If this test is applied to the Wellington City Corporation leases it will be found that their terms are gratuitously burdensome and economically unsound. In the case of the D.I.C. v. the Mayor of Wellington (31 N.Z. L.R. 598) it was decided by the Court of Appeal that the basis on which the valuers must proceed in fixing the fair annual ground-rent on the renewal of a Wellington Corporation lease was that there were no buildings or' improvements on the land, and then ascertain what a prudent lessee would give as ground-rent for the term, and on the condition as to renewal and. other terms, &c., mentioned in the lease. This means that the land must be considered as being vacant, and no compensation is payable to the terrant for- his building should he decline to take a renewal of the lease at the new ground-rent and no new- tenant be found prepared to take a lease of the land at such ground-rental. The term of these leases is for fourteen years only. It is true that there is a right of renewal, but a renewal upon a revaluation of the ground-rent assessed as expressed in the judgment of the Court of Appeal above referred to. These terms, and others which will be found in these leases, are devoid of the requisites of a lease which is to the fullest extent mutually beneficial to the landlord and tenant. These requisites are—Firstly, the reasonableness of the term; secondly, the reasonableness of the rent; and, thirdly, the fairness and reasonableness of Hie other conditions to be observed by the tenant. As regards the first requisite, the term of fourteen years, even with the right of renewal referred to, is absurdly short. The business man, who in many oases must look for a return from his operations not year by year but often only over a period of time, is liable to experience considerable embarrassment where he is faced with the prospect of disturbance after such a brief period. Very many businesses, especially in a young country, are dependent upon the financial support of the banks and other lending institutions, and the security offered by the trader te the lending institution is, generally speaking, the business assets, wdiich are generally comprised in the undertaking as a going concern, and the business premises. Anything which tends to raise doubts as to the value restricts credit and hampers trade and progress of the district generally. I regret to have to say that the present Corporation leases are worthless for securitypurposes. Ido not know of any of the larger lending institutions in the city whioh will make advances to the lessees. Second, as to the reasonableness of the rent, it does not appear to me that the rents asked by the City Corporation, especially the rents asked on a revaluation, are at all reasonable. It; had been the practice, until the D.I.C. decision was given, for the arbitrators appointed to settle the question of rent, to ascertain the freehold value of the site, and allow a percentage of that value as the fair rent to be paid. In my judgment, and, I think, in the judgment of every man who has had to deal in a praotical fashion with the matter, this worked out most inequitably. The only sound principle, in my view, is to take the return that is to be made from the site, having regard to all the usual conditions generally adopted by a prudent business man. I can speak with some special and practical knowledge of the way some rents have been fixed at least, as some years ago my firm was directly interested in a leasehold property of the Hunter Street endowment. The rent of that section was increased in 1911 from £242 lis. per annum to £706 per annum, an advance of not less than 291 per centum per annum; and in addition to this my company was mulcted in legal and other charges, in order to secure a renewal of the lease I'm- a further period of fourteen years, to the extent of about £70. Unfortunately for my firm and others whose properties then came up for revaluation the arbitrators — or, rather, the umpire—proceeded to ascertain the rent by endeavouring to find the freehold value of the land as if it were available for any purpose at all, and was not influenced in any way by the return that could be made from the premises in ordinary business calculation. Verymany other lessees at that time suffered similar extraordinary increases in their rent, and these increases were such as led to an investigation by the lessees of the terms and conditions of their leases, which lam perfectly certain none of them had ever understood. It is true that after an application had been made to the Court of Appeal in the D.I.C. case rents were fixed upon a more reasonable basis, but this afforded no relief to those whose rents had already been fixed other than the melancholy satisfaction of knowing that the method of valuation adopted in the previous cases was wrong.