Rotorua Lakes Council has overcharged rates for 94 inner city lease holders for the past three years and the mistake and subsequent legal feud will cost ratepayers thousands of dollars.
The land, on a strip between Amohau and Eruera Sts, is own by the Ngāti Whakaue Education Endowment Trust Board, which was set up in 1996 following a Treaty of Waitangi claim.
The council stopped allowing the lease holders a 10 per cent discount on their rates in 2014, something it had done since 1999.
A four-year legal feud ensued. Now the Court of Appeal has dismissed the council's appeal of the High Court ruling in 2016 which ruled in favour of the trust board that the land was entitled to the rates discount.
The Court of Appeal, in a decision just released, has ordered the council pay the trust board's court costs.
When asked how much more money did the council collect in rates by not discounting the 94 properties by 10 per cent each year since 2014, the council responded it was about $150,000 over three years.
When asked whether the council stood by its actions, given the outcome would cost ratepayers' money, council chief executive Geoff Williams said in a written response: "In making any decision to take legal action there is a balance between the cost of doing so versus the cost of accepting what is considered to be an adverse situation for council and therefore for our ratepayers.
"This case was based on what the organisation considered was fair and equitable for all ratepayers."
The Court of Appeal ruling said the primary issue was whether a specific statutory prohibition on the sale of land should be taken into account when determining the land's capital value for rating purposes.
The finding said the council stopped applying the discount in 2014, departing from what it had done since the trust board took control of the land after it was returned to Ngāti Whakaue.
The land, between Amohau and Eruera Sts from Ranolf St to the lake edge near Sudima Hotel, is divided into 94 leases held by 58 different lessees, as some of the larger businesses such as the hotel and KFC have more land.
The businesses pay a lease to the trust board. That money is managed by the trust board for educational purposes, the finding said.
Trust board secretary Murray Patchell told the Rotorua Daily Post valuation principles established under law showed there should be a discount applied where landowners were restricted from selling their land.
"In 2014, council unilaterally took that discount away."
Patchell said the trust board was disappointed the council chose to fight the matter in court, which had now meant ratepayers would have to pay.
"It didn't need to go this way, If council had not withdrawn the discount in 2014, the 10 per cent discount would have continued.
"Now the door is open to a higher discount rate as the courts have commented that the endowment restriction on selling is even stronger than that of Māori freehold land so our valuers will now be arguing for a greater percentage discount and that discount will be borne by other ratepayers."
Patchell said the trust board had spent about $100,000 throughout the three court hearings, including the initial Land Valuation Tribunal hearing in 2015, on legal fees.
He said the council should also repay the businesses.
"As a result of the incorrect 2014 valuations, council have been overcharging endowment lessees so they have an obligation to correct that."
Trust board chairman Malcolm Short said it took on the legal battle on behalf of its tenants.
"It is the principle of it. Something was getting cut out that should not have happened and that has now been proven in the court," Short said.
In response to written questions, the council's chief financial officer, Thomas Colle, said the trust board had been receiving a 10 per cent rating valuation discount on the understanding its land was Māori freehold land.
"When it was realised it was not Māori freehold land, council stopped discounting the valuations on the trust properties on the basis of fairness for all ratepayers, because council considered that as these are commercial properties able to attract market rentals, they should be treated the same as other commercial properties."
He said the Valuer General disagreed with the High Court finding and supported the council to take the matter to the Court of Appeal.
He said any costs and repayments to be made were yet to be determined between the parties.
Colle said the Valuer General was covering the cost of taking the matter to the Court of Appeal.
"We have not yet tallied the total cost to council as the matter hasn't yet been fully resolved."
However, he said there was no intention to take the matter further legally.
Landlord Bruce Law owns the buildings from 1233 to 1237 Amohau St where Turnbull S F Electrical and Hertz Car Rental is.
He said he recalled getting a letter about the rating changes a few years ago but wasn't aware where the legal action was at or that he had been overcharged.
He calculated his rates overcharging was about $2400 and said he would definitely be asking for a reimbursement.
"It's quite a bit of money and our rates are pretty high but this is not good news for the council."
Facts at a glance:
What: A court ruling has found Rotorua Lakes Council overcharged rates for 94 inner city properties
Who: Ngāti Whakaue Education Endowment Trust Board on behalf of the 94 tenants versus Rotorua Lakes Council
How much: The council has overcharged about $150,000 in rates and will now negotiate repayments. The court has ordered the council pay the trust board costs, which the Valuer General, which supported the council, has agreed to pay
When: Court proceedings started after the trust board objected to the 2014 valuations
Now: The council and the trust board are to negotiate future rates discount of the properties