91

H.—42.

H. BEAUCHAMP.

Third : This brings me to the third element I spoke of —namely, the conditions the lessee must observe during the lease and understandable conditions of renewal. In my opinion the evil arising from uncertainty or divergence of opinion as to the conditions to be observed by the lessee during the term and as a preliminary to renewal cannot be overstated, and in this respect the Corporation leases are unutterably bad. I do not think there is any ignorance of the fact that neither the lessees nor their legal advisers have been able to fathom the real meaning and effect, of these leases. It certainly does not, seem a reasonable or sensible thing that lessees should be asked to carry on under a lease from such a body as a. City Corporation without a clear understanding of the rights arrd obligations under that lease, yet this is what, I venture to say, every Corporation lessee has done for years past. There is a further objectionable feature in the Corporation leases in that they contain no provision for compensation for- improvements effected by the lessee. The effect of the absence of such a provision is a tendency towards what might be described as a compulsory purchase by the lessee of his own goodwill in cases where the lease has to be put up for auction. Speaking generally, the short term of the lease, plus the chance of an excessively heavy increase in rent, upon renewal without any compensation for improvements, renders these Corporation leases most undesirable as a base from which a business man can carry on his operations, and upon which to invest money in the erection of substantial buildings. At present they are absolutelyworthless for security purposes, as lenders recognize that it is quite within the bounds of possibility that the lease may become a liability instead of an asset. In the case of three large corporations of which I am a director none will accept a Corporation lease as a security for an advance. To make them attractive and equitable from every point of view 1 would respeotfully urge— (I.) That leases for a term of sixty-six years should be granted, such leases in the first case being offered for sale by tender or public auction at, the upset- rental fixed by the lessor. (2.) That at the expiration of each term the rent for a further period of sixty-six years should be fixed by arbitration in the customary manner, and the value of existing improvements determined in like manner. (3.) Should the then tenant elect not to continue his lease he should have the right to surrender same, and be paid half-value of his improvements as assessed in the manner aforesaid. (4.) On the surrender of the lease the lease should then be offered for sale by tender or public auction for a new term of sixty-six years at the upset rental, weighted with the total value of the improvements. By providing for payment of value of improvements to the extent of one-half there would be every inducement for a tenant to maintain his premises in a good state of repair-, whilst underexisting conditions there is no such inducement. There should be a provision in the lease that the lessee should be compelled to keep his premises in good order and condition, fair wear-and-tear excepted. Before building plans of buildings it is contemplated to erect should be submitted to the lessors for their approval or otherwise. T see no reason why there should be any difficulty in securing the services of competent and experienced men to act as arbitrators and umpires in conformity with the practice that has hitherto obtained, provided that the method of ascertaining the rent is more clearly defined to ensure something reasonable. I would, however, point out that, if the terms of the leases are altered in the direction I have recommended, it is more than reasonable to assume that in the matter of rent there would not be such a wide difference of opinion between the arbitrators, as the one acting for the lessor would know that in the event of his stipulating for. too high a rental the lessee would decline to continue his lease, and would then be entitled to receive from the lessor half the value of his improvements; and it is manifestly in the interests of the lessor that there should be no break in the tenure of his leases. 1. The Cliairman.] We are exceedingly indebted to you, Mr. Beauchamp, for- your views upon the subject. There is one question : You spoke of the fact that these leases are not treated as available security in the first place, and in the second place you mentioned that there is no inducement for keeping the places in repair. What I really have not been able to fathom is this : that in Dunedin, as we have it from the evidence taken there, for nearly fifty years this system of leasing has been in vogue, and there is no objection brought forward to-day except that the leases ought not to be put up to auction. They are accepted there by the various lending establishments and treated as good security up to a certain amount. The difficulties that have arisen here have never arisen there. Now, either there must be some difference in the people, or else the method of arriving at valuations has been something different from what it is here. The plan of arriving at valuations there, according to what we have heard, has been generally to take a rate of interest on the capital value —not the current rate of interest, because it is recognized .that these rentals make the best security possible. Why that is not applicable in Wellington I really have not been able to understand. Wellington is the only place where we hear of these difficulties arising. In Auckland they did try this system, but under the last Chairman of the Harbour Board they reverted to the long-term lease without renewal. Can you explain how it is this difference exists?—l do not think that with the conditions that obtain Dunedin can be really compared with Wellington, for this reason : Dunedin has been really retrogressive to a certain extent, while Wellington has been progressive. Wellington has been progressing so that within the last few years there has been a dearth of land, and people have snapped up the leases at the price fixed by the Corporation without a full knowledge of the oppressive conditions that would be imposed on the renewal of the leases. As to security, I would point <<_t that prior to the revaluation of the Hunter Street endowment a large institution,