Federated Farmers: KiwiRail leases off track with farmers

KiwiRail is revising leases adjacent to the rail corridor with substantial increases proposed in some cases..

KiwiRail has recently informed farmers about reorganising its asset portfolio and revising leases adjacent to the rail corridor.

In some cases substantial increases in rentals have been proposed by KiwiRail. There are a variety of lease arrangements covering odd bits of railway land; sometimes the leased land is locked by the farm.

Federated Farmers has met KiwiRail to discuss a fair formula to manage these leases, recognising that individual farmers will make their own agreements with KiwiRail.

Farmers meanwhile have been contacting Federated Farmers expressing concern at the size of proposed increases and a lack of any objective standard for the value of the lease of the land.

While the lease sizes vary, most appear to be small. Fence maintenance and pest control has in the past been undertaken by farmers as lessees.

The new fee structure for 'KiwiRail Grants' was proposed to come into force from June 1, 2015.

KiwiRail are saying it must recover the costs of, application, documentation and an annual fee, as currently their administration fees are well below the costs of this activity.

We are seeking to establish fair, objective commercial principles which the parties can apply to achieve a fair and reasonable settlements.

The first principle should be that the value of the leased land determined by an independent valuer should be sought, and this should be the basis of the rental paid.

The rent is usually four per cent of the land value, but at the end of the day both parties must respect the commercial reality of the market.

KiwiRail costs of administration, annual review and any inspection costs are an issue for KiwiRail only and should not affect the value of the lease to the farmer.

If KiwiRail believes its administration costs are too high, lengthening the term of the lease will reduce annual costs. Land leases are generally longer term than commercial building leases, so longer term lease with less frequent reviews and right of renewal will make the lease more valuable to farmers and reduce KiwiRail annual administration costs.

Access grants are a separate issue and should be dealt with away from land leases.

Weed and pest control and boundary fencing should be agreed by the parties as a component of the lease agreement. It is usual for the lessor to manage the ongoing management of the land.

The proposal of a two per cent annual increase in rental is expensive to administer and can lead to totally non commercial situations.

In any negotiation, if agreement cannot be reached KiwiRail must consider their costs in holding land, including rate, weed, pest and fire control costs and perhaps purchase may be the best out come.

Federated Farmers is meeting with KiwiRail and will continue to press for an objective commercial process to renew existing KiwiRail land leases.