RENT REVIEWS OF MĀORI RESERVED LANDS Prepared by Te Puni Kōkiri for the Māori Affairs Committee Background 18 May 2011 Māori Reserved Lands 1. In the 19th century the New Zealand Government and the New Zealand Company acquired land on the basis that reserves were to be set aside for Māori ownership and use. It was decided that the land would be administered by the Crown on behalf of the Māori owners. This arrangement established what is now known as Māori reserved land. 2. Much of the land was offered to the new settlers under lease arrangements, for farming or housing. Settlers wanted guarantees that leases would be renewed for as long as they wanted to remain on the land. A perpetual renewal leasing regime was introduced in response by the Government. Māori Reserved Land Legislation 3. There were many different Acts relating to Māori reserved land such as the South Island Native Reserves Act 1883 and the Westland and Nelson Natives Reserves Act 1887. 4. In general, the lease terms and conditions were consistent with the objectives of the government of the day, whose focus was on rapid European settlement and the development of productive farmland. Those governments, and the lessees, sought terms and conditions for the leases which would increase the incentive to develop the land. The wishes of owners were frequently not a factor in their deliberations and decisions made. 5. In 1955, the Māori Reserved Lands Act 1955 (the 1955 Act) was passed to consolidate 43 earlier pieces of legislation dealing with Māori reserved land. Under the 1955 Act leases were continued with a right of renewal in perpetuity. The leases were perpetually renewable every 21 years and annual rentals fixed at 5% of the unimproved value (the value of the land less the value of the lessees improvements to the land) for rural land and 4% for urban land. 6. The prescribed 21 year rent review period and the prescribed rate of return on the unimproved value of the land specified in the 1955 Act meant that rents lost touch with changes in the market over time. 7. Prior to 1975, Māori reserved land was vested in the Public Trustee and, subsequently, the Māori Trustee. The Māori Purposes Act 1975 enabled Māori reserved lands to be vested in Māori trusts and/or incorporations,
to act on behalf of the owners as the lessor of Māori reserved land. However, most (if not all) of these blocks still had leases with the right of renewal in perpetuity so that the Māori owners had no rights to use the land. 8. From the outset, Māori reserved land owners raised and continued to raise concerns regarding the leasing arrangements of their lands. Numerous investigations, inquiries and reviews were made which also included some consultation with owners and lessees. 9. In 1973-1974 a Commission of Inquiry (the Sheehan Commission) inquired into and reported on the leases under the 1955 Act. The Sheehan Commission concluded that the Māori owners had been treated unfairly, and recommended that the rent be reviewed more often. The Sheehan Commission also made some recommendations about the term of the leases, but also recommended that lessees still retain the right of renewal in perpetuity. 10. Following the Sheehan Commission there were several more inquiries and reviews into the 1955 Act. There was increasing pressure by Māori for the Crown to take action. This included: the 1991 Review Team (the Marshall Report); the 1993 Framework for Negotiation; the 1993 Reserved Lands Panel and subsequent report (the Trapski Report); the 1995 Consultative Working Group; the 1996 appointment of Government negotiator, Mr Ray Chappell; and the 1996 Calvert Committee Report. 11. Throughout the processes above, extensive consultation with lessees and owners occurred. For example, in 1993 the Reserved Lands Panel received and considered 125 written submissions, met approximately 32 tenants and held 12 meetings with owners. Although full agreement was not obtained the processes uncovered common ground between the lessors and lessees on possible reform which led to a number of proposals being provided to the Crown. The Māori Reserved Land Amendment Act 1997 12. In 1997, reserved land was held in 2,110 leases located between Auckland and Southland, equating to a total land area of approximately 26,000 hectares. The main concentrations of reserved land are on the West Coast of the South Island, Nelson and Motueka, Wellington and Taranaki. 2
Lease Types Urban commercial 552 Urban residential 954 Urban industrial 36 Rural dairy 298 Rural pastoral 183 Rural horticulture 87 TOTAL 2110 13. The Māori Reserved Land Amendment Bill (the Bill) was introduced to Parliament on 21 August 1996 and referred to the Justice and Law Reform Committee (the Committee) on 27 August 1996. The Committee presented its report on 24 November 1997 and the Bill was passed on 4 December 1997 as the Māori Reserved Land Amendment Act 1997 (the 1997 Act) with a commencement date of 1 January 1998. 14. In summary, the 1997 Act provided for: rent reviews every 7 years (instead of every 21 years); fair annual rents based on the unimproved value of the land (rather than rental at a prescribed rate of 4% or 5% of the unimproved value); 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; compensation to both lessors and lessees; and an opt out provision by which the parties could agree to other rental provisions. 15. Key aspects of the 1997 Act include prescribing the basis for, and processes associated with, the setting of rents with 7 year rent reviews, retaining the right of perpetual renewal, establishing new rights of first refusal for lessors and lessees, providing for the determination and payment of compensation for lessors and lessees. Rents 16. Two purposes of the 1997 Act is to provide a change to fair annual rentals based on the unimproved value of the land, and to more frequent rent reviews. Under the 1955 Act, leases were for 21 years with a fixed rental and a right of renewal in perpetuity. The rent was prescribed at 5% of the unimproved value for rural land and 4% for urban land. The 1997 Act provided for seven year rent reviews with a fair annual rental while retaining the right of renewal in perpetuity. 3
17. These changes were made in order to move the relationship between lessors and lessees onto a more commercial footing. It also sought to balance the interests of lessors wanting to get a greater return from their land and lessees wanting to preserve existing conditions. Fair Annual Rent 18. Under the 1997 Act, the rent definition was changed from either 4% or 5% of the unimproved value of the land to fair annual rent based on unimproved value. 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. Seven Year Rent Reviews 19. The 1997 Act also provides for rent reviews every seven years or some other period if agreed to by both parties. Seven years was adopted as a compromise between the interests of the lessors and the lessees. Disputes Resolution Process 20. The 1997 Act provides a disputes resolution process to be applied if there is a dispute about rents. The 1997 Act requires disputes to be firstly submitted for mediation, which is triggered by a written request by lessee or lessor. If within 10 working days, the parties cannot agree to a mediator or the terms of mediation, either party can request the President of the Arbitrators and Mediators Institute of New Zealand to appoint a mediator, or set the terms of the mediation. If the dispute cannot be settled by mediation within 30 working days, it must be submitted for arbitration. Rights of Renewal and First Refusal 21. The 1997 Act retains the right to renew leases in perpetuity and provide for the first time for rights of first refusal for lessors and lessees. 22. The 1997 Act confers a right of first refusal to a lessor where a lessee proposes to sell his or her interest. A single generation exception is provided to existing lessees, which enables them to sell to a spouse or to children without a right of first refusal applying. 23. The 1997 Act also confers a right of first refusal on a lessee where a lessor proposes to sell land subject to the lease. Where the land is Māori Freehold Land, this right is subject to the right of first refusal in favour of the preferred class of alienees (whānau, other owners, hapū members) under Te Ture Whenua Māori Act 1993. 24. Again, the right of first refusal was seen as a compromise between the interests of the lessors and lessees. The lessors wanted the right of renewal in perpetuity abolished, while lessees wanted to retain the status quo and saw a right of first refusal as impinging on their property rights. 4
Compensation 25. The 1997 Act provided for compensation to be determined for both lessees and lessors for the changes resulting from the 1997 Act, and for historical Māori reserved land rental grievances. 26. Compensation was paid to lessors for the delay in moving to the new rent regime (phased in over a 7 year period rather than immediately on enactment) and the imposition of a right of first refusal in favour of the lessees as well as any transaction costs. The Government also acknowledged the difficultly lessors would have in purchasing the lessees interest back by also providing a purchase fund. 27. For lessees, compensation was provided for the move to more frequent rent reviews, the shift to fair annual rent, the imposition of a right of first refusal as well as for any transaction costs. 28. Under the 1997 Act approximately $95 million was provided for lessors and lessees, comprising some $66 million to the lessees and $29 million to the lessors. The major component of the compensation for lessees was compensation for additional future rent due to the move from 21 year to 7 year rent reviews. The major component for lessors was compensation for the delayed rather than immediate move to 7 year rent reviews. 29. Although not strictly part of the 1997 Act, which only applied prospectively to leases from 1 January 1998, the 1997 Act also included reference to the position regarding rentals received prior to the 1997 Act. Schedule 5 of the 1997 Act came about as a late amendment by way of supplementary order paper moved and adopted on 4 December 1997. On 4 December 1997, the Minister of Māori Affairs at the time, the Hon Tau Henare, proposed an amendment which was passed on the unanimous vote of the whole House. The amendment was inserted as Schedule 5 of the 1997 Act and states: The present Government recognises that Māori for a number of years have not been obtaining fair market rents for their land. This is an issue that has to be addressed by the present Government in the future. It is an issue that will be dealt with by the present Government as part of its consideration of historical grievances. 30. Notwithstanding a change of Government, lessors sought compensation from the Crown in reliance on Schedule 5 and commenced legal proceedings against the Crown in 2001 for past losses due to the belowmarket rents received prior to the 1997 Act. The claim was based on the 21 year period up to 31 December 1997. Agreement was subsequently reached between the lessors and the Crown in 2002 for the payment of $47.5 million in full settlement of the claim. 5