PAPER A: MĀORI RESERVED LAND COMPENSATION Prepared by Te Puni Kōkiri for the Māori Affairs Committee 6 July 2011 Background Māori Reserved Land 1. Māori reserved land was created in the 19th century primarily through two means: land returned to Māori from land originally confiscated by the Crown; and portions reserved for Māori ownership and use following land purchases by the Crown or the New Zealand Company. 2. Reserved land is held in 2,087 leases located between Auckland and Southland, with the main concentrations on the West Coast of the South Island, Nelson and Motueka, Wellington and Taranaki. Just under half of the lessees are urban homeowners and a quarter are urban commercial property owners. Māori Reserved Land Legislation 3. Over 40 pieces of legislation, some dating back to the 1850s, established the ownership and leasing arrangements for Māori reserved land. The Māori Reserved Land Act 1955 (the 1955 Act) consolidated those earlier pieces of legislation into one statute, and provided for perpetually renewable 21 year leases, with rents fixed for the whole lease period. Annual rents were fixed at five percent of the unimproved value for rural land, and four percent for urban land. 4. The Māori Reserved Land Amendment Act 1997 (the 1997 Act) came into effect on 1 January 1998, and provided for a move to fair market rents, and for more frequent rent reviews. The 1997 Act provided for: rent reviews every 7 years (instead of every 21 years); fair annual rents 1 rather than a fixed rental, freely negotiated between lessees and lessors and rents still based on the unimproved value of the land; a continuation of the right of lessees to renew their leases; a right of first refusal for both lessors and lessees, should either party wish to sell or assign their lease interest to a third party; 2 compensation payments to both lessors and lessees; and the continuation of the opt out provision under the 1955 Act by which parties could agree to other rental provisions. 1 There has been some debate about what constitutes fair annual rent. Fair annual rent is explicitly provided for in the Public Bodies Leases Act 1969. A 1994 Court of Appeal decision relates fair to the circumstances of the property not the circumstances of the parties. 2 The lessors right of first refusal does not apply if an existing lessee sells or transfers the lease to a member of their immediate family. The lessees have a right of first refusal if the lessor wishes to sell the land subject to the provisions of Te Ture Whenua Māori Act 1993.
5. The 21 year rent review period and rates of rental return prescribed in the 1955 Act meant that over time rents had lost touch with changes in the market. The changes implemented through the 1997 Act attempted to move lessors and lessees to a more commercial footing, and sought to balance the interests of lessors wanting greater returns from their land and lessees wanting to preserve existing conditions. Compensation Payments 6. The 1997 Act provided for compensation to be paid to both lessors and lessees for changes resulting from the 1997 Act and for past rental losses under the Māori reserved land regime. In September 1997, the Government approved a total compensation package of $66 million, and noted that approximately $29 million would be allocated to lessors and $37 million would be allocated to lessees, including: compensation payments of $56 million to lessors 3 and lessees 4 calculated over a 50 year period; 5 solatium payments of $2 million for lessors, and $2 million for lessees for extra transaction costs arising from the reforms; and a purchase fund of $6 million for lessors (in recognition of the difficulty lessors would have in purchasing the leases). 7. The 1997 Act gave lessors and lessees the option of accepting compensation payments calculated under the 1997 Act, or having compensation determined by the Land Valuation Tribunal (LVT). In March 1998, the Chief Executive of Te Puni Kōkiri wrote to all lessors and lessees setting out the amount of compensation payable to them under the 1997 Act. They had three months to accept or to elect to have their compensation determined by the LVT. If they did not take either of those steps they were deemed to have accepted the compensation notified. Compensation payments calculated under formula 8. All lessors and the majority of lessees accepted the compensation payments calculated under the compensation formula, and were paid accordingly. Table 1 below provides a breakdown by region. 3 Lessors were compensated for the delay in moving to the new rent regime, and the imposition of right of first refusal provisions. 4 Lessees were compensated for the move to more frequent rent reviews, the shift to fair market rents, and the imposition of right of first refusal provisions. 5 An additional appropriation of $0.353 million was approved in 2000 to cover leases that were located after the commencement of the 1997 Act.
Table 1: Compensation under formula to lessors and lessees, by region Region 6 Lessors ($m) Lessees ($m) Auckland $0.470 $0.860 Nelson $5.002 $7.507 Others 7 $0.778 $0.658 Palmerston North $1.351 $3.091 Rotorua $0.619 $1.467 Taranaki $14.815 $6.776 Wellington $1.460 $3.601 West Coast $2.872 $4.904 TOTAL 8 $27.367 $28.864 Compensation payments determined by the Land Valuation Tribunal 9. The lessees of 169 leases elected to have their compensation determined by the LVT. The compensation was determined on the basis of the difference between the market value of the lessee s interest at 1 January 1998 (as if the 1997 Act had not been proposed or enacted) and the market value of the lessee s interest in the lease as at 1 January 2001. 10. An assumption was made that LVT compensation was likely to closely approximate what would have been provided for under the compensation model. However it was accepted that the LVT determinations would be an unknown factor given that they would be based on two valuations made on 1 January 2001, three years after the commencement of the 1997 Act. 11. Consideration of the 169 leases was initiated in April 2001 with an initial hearing of 10 test cases by the LVT. The total compensation determined by the LVT for the 10 test cases amounted to $2.465 million a sum significantly higher than what would have been provided for the same leases through the compensation formula in the 1997 Act. 12. The Crown contended that the LVT approach was flawed and appealed to the High Court. The High Court upheld the LVT s decisions and dismissed the Crown s appeal. In December 2001, compensation of $2.465 million determined by the LVT for the 10 test cases was paid to the lessees. 13. By the end of 2001, $60.678 million of the $66.353 million appropriated for compensation had been expended ($58.213 million under the compensation formula, and $2.465 million for compensation determined 6 The regions replicate the regions set out in Schedule 3 of the 1997 Act. 7 Others refers to land in Kāwhia, Otorohanga, Waipiro Bay, Tokomaru Bay, Te Araroa, Taihape, Taumarunui, Tokānu, Te Kūiti, Utiku, Canterbury and Port Chalmers. 8 The totals include compensation payments, solatium and purchase fund payments.
by the LVT). This left a balance of $5.675 million to meet the estimated outstanding liability, including the remaining 159 cases with the LVT 9. 14. Based on the determination of the LVT test cases, the outstanding liability for the remaining 159 cases was estimated at $31.5 million. The balance remaining was insufficient, and in 2002 the Government approved a new appropriation of $28.65 million to meet the total estimated outstanding liability. Table 2 below shows the amounts of compensation paid to lessees determined by the LVT by region. Table 2: Compensation to lessees determined by the Land LVT, by region Region No. of leases Lessees ($m) Others 2 $0.414 Palmerston North 1 $0.512 Taranaki 163 $32.302 Wellington 1 $0.090 West Coast 2 $0.125 TOTAL 169 $33.443 Schedule 5 Negotiations 15. Schedule 5 was added as a late amendment to the 1997 Act in acknowledgment of the fact that Māori owners had not been receiving fair market rents for their land for a number of years. The Government of the day undertook to address this issue in the future as part of its consideration of historical grievances. The lessors commenced legal proceedings against the Crown in 2001 in reliance on Schedule 5 for past losses due to below-market rents received prior to the commencement of the 1997 Act. 16. The owners claim was for past losses due to below-market rents received prior to the commencement of the 1997 Act, and was based on the 21 year period up to 31 December 1997. Agreement was reached in 2002 between the lessors and the Crown for the payment of $47.5 million as full and final settlement for the claim. Table 3 below shows the amount of exgratia payments made to owners, by region following settlement of the claim. 9 This outstanding liability also included $1.62 million for six outstanding leases that had not progressed due to legal or other difficulties, $0.40 million for the lessors of those six outstanding leases, and $0.80 million for costs in favour of the 10 test case LVT applicants.
Table 3: Ex-gratia payments to owners following settlement of Schedule 5 Region Owners 10 Amount Auckland / Others Māori Trustee 11 $2,263,993 Nelson/Motueka Others Rore Lands Limited $172,140 Wakatu Incorporation $14,081,565 Rapana-Robin (Ōtorohanga) $11,163 Pōtaka Whānau Trust (Utiku) $3,183 Te Ata-i-Rangi Kāhu (Kāwhia Properties Trust) $43,938 Palmerston North Palmerston North Reserves Trust $3,490,015 Rotorua Others (Trustees of Section 18 Block LXIX, Town of Rotorua) $61,655 Pukeroa Oruawhata Trust $1,846,088 Tiki te Kohu Ruamano Trust $584,583 Taranaki Parininihi ki Waitōtara Incorporation $12,220,135 Wellington Wellington Tenths Trust $4,541,620 West Coast Māwhera Incorporation $8,199,925 TOTAL $47,500,003.00 Total compensation paid 17. A total of $142.5 million was appropriated for compensation for lessors and lessees for changes resulting from the 1997 Act, and for past rental losses under the Māori reserved land regime. Of this $140.299 million was paid out, and $2.204 million was returned to the Crown. 18. Due to the length of time that has passed since the compensation was paid, it has been difficult to accurately identify all payments. Of the $140.299 million officials have been able to identify $137.174 million 12 of payments to lessors and lessees, by region: $56.231 million to lessors and lessees comprising of $27.367 million to lessors and $28.864 million to lessees, for compensation payments calculated under the formula in the 1997 Act; 10 The amounts paid to owners were in a Schedule to the Deed of Settlement for the claim. 11 The Māori Trustee was paid one amount for leases in the Auckland and Other regions. 12 The unidentified amount of approximately $3.2 million is likely to include the payments in relation to the six outstanding leases referred to in the footnote of paragraph 13, leases identified in the years after the 1997 Act came into effect, and other leases where there may have been legal or other difficulties.
$33.443 million to the lessees who elected to have their compensation payments determined by the LVT; and $47.5 million paid to owners as full and final settlement for the claim under Schedule 5 of the 1997 Act. 19. Table 4 below summarises the total amounts of all types of compensation paid to lessors and lessees, by region. Table 4: Total compensation paid to lessors and lessees, by region Region Lessors (Formula) Lessees (Formula) Lessees (LVT) Owners (Sched. 5) TOTAL Auckland $0.470 m $0.860 m n/a See Others $1.330 m Nelson $5.002 m $7.507 m n/a $14,253,705 $26.763 m Others $0.778 m $0.658 m $0.414 m $2,322,277 13 $4.172 m Palmerston North $1.351 m $3.091 m $0.512 m $3,490,015 $8.444 m Rotorua $0.619 m $1.467 m n/a $2,492,326 $4.578 m Taranaki $14.815 m $6.776 m $32.302 m $12,220,135 $66.113 m Wellington $1.460 m $3.601 m $0.090 m $4,541,620 $9.693 m West Coast $2.872 m $4.904 m $0.125 m $8,199,925 $16.101 m TOTALS $27.367 m $28.864 m $33.443 m $47,500,003 $137.174 m Compensation paid to Kāwhia lessees 20. On 30 March 2011 the MAC received a letter from the Kāwhia Leaseholders Association (KLA) expressing concern about the time and cost in negotiating rent reviews with the Māori Trustee (the lessor). The KLA s concerns related to the second rent review in respect of the Kāwhia leases since the commencement of the 1997 Act. The first occurred between 2001 and 2003 and was conducted without dispute. The cause for concern for the KLA was the significant increase in rent during an economic recession. The rent increase was largely driven by an increase of over 100 percent in land values in the years between the first and second rent reviews. 21. The Kāwhia lessees accepted the compensation payments calculated under the formula in the 1997 Act. The compensation was determined on the same basis as all other leases that were paid under the formula. It provided for compensation calculated over a 50 year period, and solatium payments for increased transaction costs as a result of moving to more frequent rent reviews. 13 The total payments to owners under Others for Schedule 5 claims includes the total amount paid to the Māori Trustee for leases in Auckland. The Māori Trustee was paid one amount for the 13 leases in Auckland and lease interests in Other areas and the amount cannot be separated.