TelferYoung (Nelson) Limited
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Nelson Newsletter - December 2007
7 December 2007
Welcome to our Summer edition of the TelferYoung Nelson Newsletter. In this issue we examine some commercial property matters and the results of our recent client survey.
Client Survey
Our thanks to clients who participated in our sample client survey. We received a fantastic response. Thank you for the time taken in completing the survey and in particular the comments that we have found most helpful. We will be acting on many of the ideas to improve our service levels yet again. The pleasing aspect was that in 95% of survey responses, our service met or exceeded our client's expectations.
The winner of the case of wine in our sample survey was Lynne Ehau, a client of some 20 years standing with the firm.
From left - Bryan Paul, Lynne Ehau and Ian McKeage.
Once again our thanks to all respondents. Our client survey will be a regular process that will provide the opportunity for feedback from you, our valued clients.
Rent Reviews
Commercial property owners will be familiar with the provision for rent reviews at regular intervals during the term of the lease. The most common lease in Nelson is the Auckland District Law Society Deed of Lease. The latest version provides that either the landlord or the tenant may initiate a rent review by giving notice in writing to the other party specifying the annual rent proposed as the current market rent for the relevant rent review date. The term "current market rent" is crucial and has been examined in several Court cases. The most important being the clear expression in the 1992 case of Modick versus Mahoney where Judge Cook, stated
"... the enquiry is as to the rent that would be agreed between reasonable parties, embodies the same idea and indeed a manifestation of the similar willing vendor/willing purchaser test. The question is what figure would be notionally agreed upon by the parties acting freely and adequately informed. Figures fixed by arbitration or rent reviews as between captive parties aren't necessarily a reliable guide since they do not represent the unfettered play of market forces but rather the arbitrators assessment (assuming he has applied himself to the task correctly) of what market forces should produce. It is only a freely negotiated rent on a new letting that can be confidentially taken to be truly comparable, provided of course that there are also sufficient similarities as to the site and otherwise."
This principle therefore clearly sets out the importance of new letting evidence to the Valuer in determining the current market rent on review. Whilst the "basket of evidence" to be considered will include rent review and arbitrated settlements, the greatest weight should be placed on new letting evidence, providing of course that is reflective of market trends.
It is therefore incumbent on Valuers to take into account open market lettings of comparable premises leased on similar terms and conditions and in similar locations as the most critical evidence for the assessment of current market rent.
A recent trend in some new leasings is for rent reviews to be prescribed at CPI plus a margin varying between 0.5% to 1.5%. History has shown that prescribed rental reviews of this nature tend to favour either the lessee or lessor over the passage of time. Only time will tell which party will benefit.
Earthquake Prone Buildings
Many Nelson commercial property owners will recall the inspections and subsequent remedial work taken to strengthen a number of the city's buildings in the 1980's. The recently released Building Act requires Councils to adopt new policies for unsanitary and earthquake prone buildings (EPB's). Both Nelson City and Tasman District Councils released their policies in 2006.
Under Section 22 of the Act a building is earthquake prone if, having regard to its condition and to the ground on which it is built, and because of the construction of the building, the building -
a. Will have its ultimate capacity exceeded in a moderate earthquake and
b. Would be likely to collapse causing -
(i) Injury or death to persons in the building or persons on any other property; or
(ii) Damage to any other property.
The definition does not apply to a building that is used wholly or mainly for residential purposes unless the building comprises two or more storeys and contains three or more household units.
The two Council's policies are similar and involve a review of existing buildings to determine those likely to be EPB's. Building owners will be notified and required to provide an independent assessment of the performance of the building to new building standards. Both Council's adopt a requirement to strengthen existing buildings to 67% of the new building standards.
Information relating to EPB's will be recorded on Council property files and placed in any LIM or PIM.
The timeframes adopted for the assessment and remedial action by both Councils are shown in the table below.
Building Category | Assessment By | Upgrading Within |
| Buildings with special post disaster functions | December 2008 | 15 years |
| Buildings that contain crowds or contents of high value to the community | December 2009 | 20 years |
| Buildings with Heritage rating of A or B | December 2010 | 25 years |
| Buildings of importance level of less than 3 | December 2011 | 30 years |
Buildings with special post disaster functions include facilities such as fire stations, police stations and emergency and surgical facilities.
Buildings that contain crowds are categorised as importance level 3, and include buildings where more than 300 people can congregate and various educational and community facilities such as schools with a capacity of greater than 250 persons. The majority of commercial buildings will fall within the category of an importance of less than 3 requiring the assessment to be completed by December 2011 and remedial action to be effected within 30 years.
The impact of the assessment and any upgrading work will become an increasingly important consideration in the purchase and ownership of commercial and multiple unit residential property.
A more critical feature of the 2004 Building Act is contained in Section 115. The policy of both Council's when a Building Consent application is received for a change of use of a building that is or could be earthquake prone, then irrespective of the general priorities for dealing with EPB's, the owner will be required to make a detailed assessment of the existing building. If shown to be earthquake prone then the Council require the building to be strengthened to comply "as nearly as is reasonably practical" with every provision of the building code relating to structural performance. Therefore substantial upgrading may be required on change of use. This has the potential to impact on property values.
Copies of Council's policy documents for earthquake prone and also dangerous and unsanitary buildings can be found at the following links:
www.ncc.co.nz/consents/earthquake-policy/earthquake-policy-consult.htm
Back issues of the newsletter can be obtained from TelferYoung (Nelson) Ltd
Phone (03) 546-9600
Fax (03) 546-9186
www.telferyoung.com
email: nelson@telferyoung.com
+ Ian McKeage + Rod Baxendine + Bryan Paul + Ashley Stevens + Wayne Wootton
Opinions expressed in this newsletter are of a general nature and should be used as a guide only. TelferYoung should be consulted before acting on this information.