In New Zealand it is very common for a business operator to enter into a lease arrangement with the lessor or landlord. We have all seen Leasehold Property available for purchase but what actually is it? Do you ever actually own the land? Are there special conditions imposed on your use of the property?
This weeks White paper is authored by Queen City Law Lawyer Jan Chen, an expert in commercial and property law. Jan is fluent in Cantonese, Mandarin and English both written and spoken. To read and download the complete article as a PDF click here.
To read more about Jan click here, to read more articles by Jan click here.
What is it?
Leasehold property is an interest in land for a specified period of time pursuant to the lease entered into between the Landlord and the Owner of the leasehold property. This lease arrangement usually specifies the Tenant’s right to occupy the property for a certain period of time in consideration of the rent payment. It is quite common for the lease to specify a rent review procedure, such as market value or Consumer Price Index (CPI).
It is common perception that stratum in Leasehold property is another leasehold property. Technically this is a stratum estate but situated on leasehold land. Owners of stratum in leasehold properties are subject to the underlying lease for the freehold property, and will be liable for ground rent and OPEX (if applicable).
Why buy it?
People elect to purchase leasehold properties for various reasons. On many occasions it comes down to an investment decision. Investors are interested in the rate of return, and most leasehold properties give a rather attractive return on investment with limited capital. Some leasehold properties are located in some prime area in Auckland, such as the water front area in Auckland Central, certain area around Mission Bay and One Tree Hill.
Other investors purchase leasehold properties with the intention to convert the leasehold title into freehold in the future. While this may be possible, it will involve a lengthy discussion with the Landlord and uncertainty as to the outcome. We therefore highly recommend investors to take into account all relevant considerations before making such decisions.
Why not buy it?
Most owners of leasehold properties will need to pay rent and operating expense (“OPEX”) on top of the local council rates. This varies from a few thousand dollars per annum to tens and thousands, depending on the value of the land. In the absence of any specific regulation around the lease, the Landlord may possess wide power to demand rent review and charge OPEX, and other Tenant’s obligation as required in accordance with the lease. It is therefore critical for clients to understand their rights and obligations under the lease.
The value of the property will also depend on the term of the lease. As the lease runs out in time, the value of the property will depreciate at the same rate.
Queen City Law has substantial experience in dealing with freehold properties, as well as leasehold properties. Check out some of the other property law services we offer or take a look at some recent development projects we have represented. Queen City Law are experts in multi-unit developments and similar large commercial projects. We can prepare Sale and Purchase Agreements, Leases, Body Corporate Rules, Financing requirements, Tax Structuring and co-ordination of substantial projects. Completing land subdivisions, unit title developments, building contracts, design build and lease projects and establishing the best legal structure (including for example trading trust, family trust, corporate trust, company,limited liability partnership) for the business.
If you are unsure about any aspect of leasehold properties, or have any questions or concerns in relation to the above, please do not hesitate to contact the writer.