Cornwall Park with Auckland CBD in the distance. Photo / Auckland Unlimited
It’s one of the rare Auckland house situations where 20 highly desirable properties, often on the edge of the city’s biggest park and valued something like up to $3 million or more, net “owners” only $185,000.
Why?
Those “owners” don’t actually own the 20 properties.
Instead, they lease the real estate, set around some of the leafier suburbs in the city and they have to pay annual fees of sometimes $100,000 or more just to stay there.
John Duncan, chairman of the Cornwall Park Trust Board, said that the entity had made a $185,000 “backstop” offer to many people living on board land in the desirable One Tree Hill, Royal Oak, Epsom and Greenlane areas.
That allows them to escape although some lessees remain unhappy and have expressed frustration about the deal.
So many people in leasehold properties were financially hamstrung, unable to pay tens of thousands in leasehold fees - but also unable to sell on the open market because no other buyers wanted to be caught in the leasehold noose - that the board has come up with a solution.
Duncan said that was the best way out for many people.
The Cornwall Park Trust board has offered those living in multi-million dollar homes that $185,000 one-off payment.
That is a flat sum, paid out in cash if they want to end leases around the reserve and nearby streets and walk away from the homes they live in and own but on land they don’t own.
The board is then renting out those places to get money to run the park.
Duncan said of the 100 leasehold residential properties on the edge of Cornwall Park beneath Maungakiekie One Tree Hill, lessees of 20 properties had now accepted the $185,000 “backstop” deal so far. Not all payments have been made. Some are pending and will be paid over the next year or when the option is exercised.
“Twenty of those eligible have taken up the option,” he said of a proposal first put forward in 2020.
That is to break the impasse between residents or lessees and the board, which owns those 100 residential properties under a scheme established by Auckland’s ‘founding father’, Sir John Logan Campbell.
“The $185,000 is the price paid for the lease interest if the lessee can’t sell it for more in the market,” Duncan explained.
But not all residents needed to take that backstop deal, he said. Some lessees were still selling their lease interest on the open market and netting higher amounts than the $185,000 offer.
“In the same time frame, there have been 13 transactions on the open market where lessees have sold their interest to other parties,” Duncan said, referring to the 2020 proposal only enacted more recently.
In 2013, the Herald reported the case of the lessee of a $2.1 million Auckland house who abandoned her property, after leasehold payments to the board skyrocketed from $8300 a year to more than $70,000. The nightmare over the home on its huge leasehold site at the foot of One Tree Hill went to court.
In 2005, Young Xin Chen bought 21 Maungakiekie Ave, on the edge of Cornwall Park, paying $450,000. But the 1297sq m site is owned by the board. She bought knowing she had to pay ground rent. But just three years later, the board wrote to tell her the rent was rising in accordance with the terms of the lease, which has a 21-year review period.
She was ordered to pay $175,000.
Today, Ray White Greenlane agent Dean Tuffley is advertising a leasehold weatherboard five-bedroom three-bathroom well-kept bungalow at 62 Maungakiekie Ave for just $235,000.
“You do the maths!” he exhorts, telling how the place has big grounds, is in a great location and has at least three off-street car parks. The site alone is 1029sq m and is an exclusive chance to “own a piece of paradise in one of the city’s most coveted streets”, he writes.
Valuations on that board-owned property are listed in his ad as being $3.1m in 2021, making that $235,000 price seem obscenely cheap. He doesn’t say how much the annual leasehold fee is and wouldn’t talk to the Herald about it either.
“With the ground lease fixed until September 2032, there is an excellent opportunity for the next owner to make a significant return on this property - ask me for the numbers.”
People in the area said the ground rent on that place was around $38,000 annually but Tuffley wouldn’t discuss the sale.
Duncan stressed that the initial offer of $185,000 was made in 2020. Since that was made, a number of leasehold properties owned by the board had sold on the free market.
“So not everyone has to take up the backstop offer,” Duncan stressed.
David Glen, chair of the Cornwall Park Leaseholders Association, an outspoken critic of the leasehold situation and a lessee himself, doesn’t like the $185,000 offer but nor are the alternatives palatable.
“The alternative to accepting the trust board’s offer is to just walk off the land in a few years when the leases expire. They want us all to renew the lease for the next 21 years and paying 3 per cent of the unimproved value of the land in the first seven years, increasing every seven years to 4 per cent then 5 per cent.
“People would be nuts to burden their family with that. Our lease will go from $35,000 to north of $150,000. No one in their right mind will pay that,” Glen complained of the property he leases.
Those close to the situation say some lessees rented out their board properties. They had effectively been subsidised by the board for many years when they paid low annual fees at rates set 21 years ago.
Other leasehold properties have sold for low sums lately too, so it’s not just dogging Cornwall Park. For example, properties in the former Auckland railway station have been auctioned with a $1 reserve.
Leasehold title
• Lessee buys a house but not the land.
• Lessee rents land from the lessor (ground owner)
.• Lessee pays regular ground rent.
• Conditions sometimes apply for house upkeep.
Freehold title
• More common than leasehold.
• Homeowner owns house and land.
• No ongoing obligations to pay any other parties.
• Freehold title may become leasehold to provide rental income following sale of the buildings.
Anne Gibson has been the Herald’s property editor for 23 years, has won many awards, written books and covered property extensively here and overseas.
'Apartments on the site and more than likely offices' – Andrew Moore, CMP Construction.