Residents fight for bigger cut

Beaumont Quarter was hailed by the Auckland City Council for its visionary urban design. Photo / Dean Purcell

Beaumont Quarter residents in Central Auckland are fighting to have their $3.1 million annual ground rent bill cut by another $1 million.

The angry apartment owners have already had more than $1 million sliced off payment demands for the land on which their buildings stand.

But they want the annual ground rent knocked back to $2.1 million.

Residents have been claiming confirmation of the first $1 million cut as a huge victory.

But sceptics this week criticised the outcome as a pyrrhic victory and said the owners had negotiated only a slight rent reduction.

The reason they were hailing their deal as a big win was so they could quit the place once praised by Auckland City Council for its good urban design vision, the sceptics said.

The housing development was highly commended for its approach to compact inner-city living.

But many apartment owners now wanted to sell out as fast as possible, one critic said, because they could not afford to pay the huge ground rent.

Beaumont Quarter Partners, controlled by Beaumont developer Nigel McKenna's Melview Developments and associates at Augusta Group, had wanted a huge land rent rise. Rent was to go from $900,000 annually to $4,435,000 a year.

But last year apartment owners sought professional arbitration before Sir Ian Barker, QC. He has just issued a second partial award, cutting BQP's demand to $3,129,664.86 annually for seven years from last April.

"That is a reduction of $9,137,000 over the seven-year period," residents were told in a newsletter this month from Neville Corbett, chairman of the Beaumont Quarter Residents Society.

"The victory that I announced in my newsletter of December 15 is confirmed, which is an excellent result for the Beaumont Quarter apartment owners. The setting of the ground rent amount means that those apartment owners who want to sell and move on now can do so."

McKenna said he was satisfied with the settlement.

"The arbitrator's decision was almost exactly the mid-point of the highest and lowest valuation ranges and the consequent ground rental calculations."

A deal for Augusta to buy out Melview's Beaumont stake has also unravelled.

McKenna said although the original sale of the freehold land had taken place, "the structure of the transaction was different from that originally envisioned by Melview and Augusta Group. As a result, Melview retains a security over 89 per cent of the equity in the partnership.

"Consequently, Melview and Augusta had agreed there was no future management role for Augusta in the Beaumont Quarter lessor's interest and this had now been assumed by Melview Developments."

Even after the $1 million annual cut, the unit owners' rent rise has still been steep.

Instead of paying an average $3400 for land under each of the 258 apartments in the complex opposite Victoria Park, unit owners will now be up for an average $12,000 a year each, although payments vary because the housing estate is broken up into a number of lots with differing payments.

Corbett said the new rent would be backdated to April 1 last year.

But owners were still disputing the final amount and fighting over interest costs which the land owner wants.

"At the extraordinary general meeting of the nine Beaumont Quarter body corporates held on March 2, it was decided to proceed with an appeal on the two legal points which did not go in our favour in the first partial award and the interest rate of 19.5 per cent," he said.

"The next partial awards to be considered by Sir Ian before giving his final award are the calculation of penalty interest that is payable to BPL for late and under-payments and the awarding of costs

"Because we made an offer to BPL in May 2008 to settle the ground rent at $3.2 million a year, which was rejected by them, I am hopeful that we may be awarded a significant amount of costs.

"The result of the new rent amount means that the lot value of the Beaumont Quarter land will reduce from the $70 million purchase price to $44.7 million.

"The first legal point is that the prohibition on subdivision of the lease should not be ignored for the purpose of assessing market value.

"Sir Ian has ruled that the prohibition should be ignored, therefore any rent reduction associated with the ruling is disregarded.

"The second legal point is the formula refers to the values of all other non-commercial lots in the development. Here the word 'other' in the lease has been taken to be a mistake by Sir Ian.

"So there is the possibility of a further rent reduction of approximately $950,000 a year should our appeal be successful on both points.

"Over the seven-year ground rent period that is a total reduction of approximately $6.65 million."

On March 10, the body corporates lodged notice for leave to appeal but Corbett said no hearing would be held for at least six months.

"Should our appeal be fully successful, the ground rent could reduce to approximately $2.18 million a year, which would result in a reduction of the Beaumont Quarter lot value to approximately $30 million.

"That's the good news, but unfortunately for some of the Beaumont Quarter apartment owners the new ground rent amount means they do not have the financial ability to pay the new amount.

"This is the sad part of the ground rent increase and I really do feel for those in that position.

"There are some options with this problem, the main option probably means selling and moving on."

Corbett said those who decided to stay needed to pay the ground rent, residents' society fees and water bills promptly.