Foreword
Summary of the Maori Reserved Land Amendment Bill 1996
Background
Maori Reserved Land Amendment Bill 1996
The Impact of the Bill
1994 Proposals and the Current Bill
The Move to Market rents and Compensation
How Will the Right of First Refusal Work?
What Happens Next?

Foreword
by Minister of Maori Affairs and Minister of Lands

The provisions contained in the Maori Reserved Land Amendment Bill 1996 follow more than five years of consultation.

These consultations include:

• The 1991 Review Team (The Marshall Report)
• The 1993 Framework for Negotiation
• The 1993 Reserved Lands Panel
• The 1995 Consultative Working Group
• The appointment of a Government negotiator, Mr Ray Chappell, in early 1996

The underlying issue which has generated these consultations, reports and proposals has been dissatisfaction by owners of Maori Reserved Lands at their lack of control over their land. This is the result of the provisions of the Maori Reserved Land Act 1955.

Some owners and lessees of Maori Reserved Land have already reached negotiated agreements on rents outside the provisions of the Act. These agreements have gone some way towards meeting owners' concerns. The proposed changes to the Maori Reserved Land Act 1955 detailed in this booklet are a fallback option for use when owners and lessees are unable to achieve negotiated agreements.

Why is the Maori Reserved Land Act 1955 Being Changed?

This Bill aims to restore balance to the relationship between owners and lessees. It will place owners and lessees in close to a normal commercial lease relationship.

For the lessees, the policy reviews and consultations have generated uncertainty. The Bill aims to provide certainty for lessees and give them compensation for the proposed move to market rents.

We believe the mechanisms contained in this Bill - which emphasise market rents and market prices for leases - allow owners and lessees the best opportunity to preserve the value of their investments during this process of change.

Once owners and lessees have a more commercial relationship, management of this relationship will be their joint responsibility.

This Bill and the subsequent legislative process, which includes consideration by a Select Committee, will give both owners and lessees equal opportunity to present their case for any further amendment or change they may want to submit.

Due to the importance of this matter and the long term effects of the provisions contained in the Bill, it will not be passed in the remaining term of this Parliament. This will give both owners and lessees ample time to prepare their submissions and to continue to seek negotiated solutions on both an individual and group basis.

We have received considerable support from the majority of lessees and owners for what the Government has achieved in working towards resolving this longstanding issue.

The Government maintains its commitment to ensuring fairness for all parties. Our intention too, has been to resolve a grievance without creating further injustice. This has been our consistent approach throughout the consultation and decision-making process over the last few years.

We would also like to thank everyone involved in both the policy development and consultation process for all their hard work and constructive contributions.

This Bill is a positive step forward for both lessees and owners.

Hon John Luxton	Hon Denis Marshall
Minister of Maori Affairs	Minister of Lands

Summary of the Maori Reserved Land Amendment Bill 1996

The Bill:

• Continues the right of perpetual renewal.
  
• Provides that once legislation is passed there will be a
  three year delay before market rents are phased over
  the following four years.
  
• Provides compensation to owners because of the phased
  delay before all rents are moved to market levels, and to
  lessees for the move to market rents and seven year rent
  reviews.
  
• Gives owners a right of first refusal to buy leases (at the
  market value) except when existing lessees (lessees on the
  day the Bill becomes law) seek to transfer their lease to
  their spouse and/or child. All other transfers are subject
  to the right of first refusal.
  
• Provides that the owners' right of first refusal will be deemed
  to have been provided when the lessee has given the owners
  28 days written notice prior to sale by public auction.
  
• Gives lessees the right of first refusal should the owners wish
  to sell their land, provided owners comply with the land sale
  requirements of the Maori Land Act 1993.

Background

Maori Reserved Land is held in 2,236 leases located between Auckland and Southland. The total land area is approximately 26,000 hectares and the owners' interest is currently valued at around $200 million. The main concentrations are on the West Coast of the South Island, Nelson and Motueka, Wellington and Taranaki. The land involved ranges from urban residential to rural dairying.

Lessees range from urban home owners in the Wellington suburbs of Berhampore and Newtown, to homeowners in Greymouth and Motueka, to the Wellington Rugby Union, dairy farmers in Taranaki and horticulturalists in Nelson, bach owners in Kawhia, large tenants such as supermarket chains, local bodies and, in various forms, the Crown. In addition, much of the central business districts of Greymouth and Motueka are built on Maori Reserved Land. Many lessees, including the Crown, hold more than one lease.

Just under half the lessees are urban homeowners and a quarter are urban commercial property owners.

The land owners are also numerous and widespread. The largest owners' groups are represented by incorporations and trusts: The Mawhera Incorporation on the West Coast of the South Island, the Wakatu Incorporation in Nelson and Motueka, the Parininihi ki Waitotara Incorporation of Taranaki, the Wellington Tenths Trust, the Palmerston North Reserves Trust, and the Pukeroa Oruawhata Trust in Rotorua.

The land achieved its current status as Maori Reserved Land in the 19th century in two major ways. Some was returned from land originally confiscated by the Crown. Other portions were reserved for Maori following Crown or New Zealand Company purchases.

The current ownership and leasing arrangements were originally established by more than 40 different pieces of legislation. The terms and conditions of these arrangements were consolidated in a single piece of legislation, the Maori Reserved Land Act 1955, the key features of which are:

• The leases are perpetually renewable.
• The rents for the leases are set at 5% of the unimproved value for rural land and 4% for urban land.
• The rent is fixed for 21 year periods.

These features are the legal framework which today govern the land and the relationship between the owners and lessees.

Problems with the Maori Reserved Land Act 1955

One of the many inquiries into Maori Reserved Lands, the Sheehan Commission of 1975, commented:

"The beneficial owners are not a contracting party and their role is a completely passive one. They are treated as children under a disability."

This was not always the case. Some of the original terms and conditions did allow the owners a say at some point but this degree of control was eroded over time.

In general, the lease terms and conditions were consistent with the objectives of the governments of the day whose focus was on rapid European settlement and the development of productive farmland. Those governments, and the lessees, sought terms and conditions for the leases which would increase the incentive for development of the land. The wishes of the owners were frequently not a factor in their deliberations.

The prescribed 21 year rent review period and the prescribed rate of return on the unimproved value of the land mandated in the legislation mean rents lose touch with changes in the unimproved value over time. This in a period of steady inflation has severely depressed the rental return to owners over the full rent review period.

The historical background to grievances of the owners of Maori Reserved Land are treated in detail by the Waitangi Tribunal in two reports, the Ngai Tahu Report of 1991 and the Taranaki Report of 1996. These will be dealt with as part of the settlement of historical Treaty grievances. The current changes relate only to the future of Maori Reserved Land.

Recent History

In 1991 the Minister of Maori Affairs, Hon Winston Peters, appointed a three person team, chaired by Mr Steve Marshall, to review Maori Reserved Land. The review, known as the Marshall Report, was a response to the Sheehan Commission of 1975 and the Waitangi Tribunal's Ngai Tahu report of 1991.

In 1993 the Government issued a booklet, based on the Marshall report entitled "A Framework for Negotiation, Toitu Te Whenua" and appointed a Reserved Lands Panel to consult widely with the affected parties.

The Panel commented in its report - published in January 1994 - that the reaction of both lessees and owners to the Government's proposals was based on a misunderstanding about the Government's primary intent. This was - and remains - that owners and lessees should negotiate and determine their own affairs rather than having their futures determined by the Crown.

As the Panel remarked:

"It (a freely negotiated settlement) must be elevated and highlighted so that it is seen as the Crown's response to the Maori owners' complaint that successive Government's have prevented them from exercising Mana Whenua and Te Tino Rangitiratanga.

"It must also be seen as the Crown's way of enabling tenants to play their part in remedying injustices of the past and freeing themselves from a regulated and prescribed environment but without unduly disadvantaging them as innocent parties."

Following the consultations reported on by the Panel, the Government issued "Maori Reserved Lands Government Policy Decisions 1994, Toitu Te Mana Toitu Te Whenua".

This document stressed that legislation should apply only to those leases where the owners and lessees could not reach a mutually acceptable negotiated settlement.

Over the years some of the lessees and owners have agreed to more realistic, commercial lease terms. Lessees were aware of the uncertainty that has surrounded the issue in recent times, and saw market determined terms and conditions as the best way of gaining commercial certainty as tenants. There are now more than 400 leases where the rents are other than those provided for by the legislation and are directly negotiated between owners and lessees.

The primacy of negotiated arrangements between owners and lessees remains the Government's position.

The Government is concerned that in attempting to address a current inequity in the law it treats lessees and owners fairly.

Maori Reserved Land Amendment Bill 1996

Many of the commissions and inquiries into Maori Reserved Land have recommended changes. But none of these recommendations have been implemented insofar as they affect the core questions of:

• the perpetual right of renewal;
• the rent review period of 21 years; and
• the prescribed rental percentages.

The Government has determined that action must finally be taken.

The Maori Reserved Land Amendment Bill 1996 has been drafted so that it will not impede owners and lessees from reaching their own, negotiated, solutions.

Most of the provisions are identical to those proposed in the Government's Policy Decisions of 1994 and are very similar to one of the options outlined in the 1991 Marshall Report.

But, following additional rounds of consultations with owners and lessees in 1995 and the appointment of a negotiator between the Crown and the parties in 1996, some further changes have been made.

The essential features of the Maori Reserved Land Amendment Bill 1996 are:

• Once legislation has been passed there will be a three year delay before market rents are phased in over the following four years.
• Following the first review to market rent, rents will be reviewed every seven years.
• A process will be established to compensate the lessees for the movement to market rents and seven year rent reviews and to compensate the owners for the delay (from the day the Bill is passed into law) before all rents are phased in to market levels.
• Owners will be granted the right of first refusal to purchase the lease if the lessee wishes to transfer the lease by way of sale, gift, will or on intestacy, unless the proposed transfer is to the existing lessees' spouse and/or child (the existing lessee is the person who holds the lease on the day the Bill becomes law). All other transfers will trigger the owners' right of first refusal.
• However, spouses to whom the lease is transferred by an existing lessee will be also able to transfer the lease to a child. The right of first refusal will be triggered by any subsequent transfers.
• If the lessee wishes to sell his or her lease and the owner either declines to purchase or does not exercise the right of first refusal at the offered price, the lessee is free to sell at that or a higher price to anyone else. However, if the lessee wishes to sell at a lower price than that originally offered to the owner, the lessee must again give the owner the right of first refusal to purchase at that price.
• The owners' right of first refusal will be deemed to have been provided when the lessee has given the owners 28 days written notice prior to sale by public auction.
• Lessees will be granted a right of first refusal to purchase the land if offered for sale, subject to the requirement that the owners of the land must first comply with the land sale provisions of the Maori Land Act 1993.

The Bill proposes to deal with Owners' concerns and provide certainty for the Lessees by:

• Providing the owners with the right of first refusal to purchase the lease (including improvements) at market value where the existing lessee (the lessee at the time the Bill becomes law) wishes to transfer the lease to other than their spouse and/or child.
• The move to market rents with associated compensation for both owners and lessees.

Both these mechanisms provide owners and lessees with the best opportunity to preserve the value of their investments during this process of change.

The Impact of The Bill

The Bill will have three important consequences:

• The right of first refusal will give owners the opportunity to take control of both their land and the improvements over time if they so wish.
• The move to market rents will allow the owners to receive a fair return for their land and, if they wish, to purchase leases as they come to market in the normal fashion.
• It will provide fair compensation to both owners and lessees for the move to market rents. The Bill also recognises three important points:
• Existing lessees (lessees on the day the Bill becomes law) can transfer the lease to their spouse and/or child without having to give owners the right of first refusal.
• Owners, once they receive a fair return, may wish to continue leasing their land and have no desire to buy the improvements.
• Some owners may wish to sell their land to current lessees in order to consolidate their assets in less widely scattered form. Some owners' organisations have already signalled their intentions in this area.

1994 Proposals and the Current Bill

The main difference between the Bill and the Government's policy decisions of 1994 is that:

• The perpetual right of renewal of the leases will remain.

Under the 1994 proposals, these properties would have had to revert to the land owners after between 42 and 63 years.

But this has been changed in the new Bill and, providing agreed market rents are paid, existing lessees (lessees when the Bill becomes law) are able to retain their leases over their lifetimes if they wish. The lease can also be transferred to their spouse and/or child. Any further transfers whether by way of sale, gift, will or intestacy will trigger the right of first refusal.

Accordingly, a number of policy decisions made in 1994 that flowed from the proposal to remove the perpetual right of renewal are no longer relevant. These are:

• compensation for the loss of the perpetual right of renewal; and
• lifetime occupancy rights for urban and rural residential lessees (this will still occur but does not need specific provision).

In another difference from the 1994 proposals, the Government has moved to meet lessee concern where one lessee holds multiple adjoining leases within an economic unit. If the right of first refusal to an owner is triggered by the transfer of one of these leases the owner will have to offer to buy all the adjoining leases within the unit.

Why Change The 1994 Proposals?

The decision to make the change regarding perpetual right of renewal was made after extensive discussion with owners' and lessees' representatives. It was generally accepted that in terms of achieving the objective of the reforms - providing owners' with the opportunity to regain control of their land - the right of first refusal combined with the move to market rents were more practical options because:

• There has traditionally been a rapid turnover of leases - particularly in rural land - with the number of transactions within a 21 year lease period often exceeding the total number of leases. This rate of turnover continues (see tables below).

This would provide owners with ample opportunity to regain their desired level of control by participation in the normal commercial markets for the leases on their land.

FURTHER INFORMATION:

The Move to Market Rents and Compensation

The Government has decided that there will be a three year delay, once legislation has been passed, before market rents and seven year rent reviews are introduced.

Compensation for the three year delay and the phased introduction of market rents over four years will enable owners to make an early start on establishing a fund for the purchase of lessees' interests. Compensation to lessees for the move to market rents and seven year rent reviews will also enable lessees to accumulate funds to purchase land where the owner wants to sell or to purchase an alternative freehold property should they sell their leasehold interest.

Market Rent - Phased Introduction

To meet owners' concerns about the administrative difficulties of reviewing all rents to market levels, the Government has agreed market rents will be phased in over four years after the initial three year delay.

However, if they wish, owners and lessees may reach agreement that allows for earlier implementation. The following table shows the proposed phased introduction of market rents in relation to lease expiry dates, assuming legislation is passed in 1997 (later passage will have an affect on the exact dates on which leases will move to market rents).

Rent review period

Following the initial review, rents will be reviewed every seven years. Frequent reviews will help ensure rents remain current and prevent the major fluctuations in rentals which have occurred in the past for lessees. Compensation For the Move to Market Rents The Bill also provides an important compensation mechanism. The compensation mechanism applies to both owners and lessees and is designed to provide a process by which:

• owners can receive compensation for the phased delay before all rents move to market levels; and
• lessees can receive compensation for the move to market rents and more frequent review periods.

Compensation Process

The compensation process will operate as follows:

1. Preparation of the compensation calculation model - The preparatory work on the model, which is a standard type used for expressing a future value in current dollars, has already been completed by consultants.
2. Appointment of professional negotiators - These negotiators will act for the Crown in negotiations with lessees and owners.
3. Negotiations - The negotiation will occur on two variables in the compensation model. These are:
   • The Land Inflation Rate (LIR) - This reflects the underlying long-term inflation rate adjusted to reflect land and location factors.
   • Market Rental Rate (MRR) - The percentage of the unimproved land value that is used to estimate the future market rent for leases falling within each land type and location.

Once these negotiations have been completed an estimate of the likely additional rental cost for each property will be generated by the model and compensation paid accordingly.

1. If the parties are unable to agree on the negotiated variables the legislation proposes that these variables be set by an independent party with the necessary expertise.

How Will the Right of First Refusal Work?

Owners' Right of First Refusal

Those who hold leases at the time when the new law comes into force will be able to transfer their lease at any time to their spouse and/or child as of right. Existing trusts can transfer similarly to a beneficiary. Existing companies can transfer similarly to a shareholder. Apart from this, and unless the lease is sold at a public auction*, a lessee must give the land owners an opportunity to buy the lease before it can be sold on the open market or transferred to anyone else.

There is one exception. When a lease is transferred to a spouse by an existing lessee (a lessee on the day the Bill becomes law) that spouse will also be able to transfer the lease to a child. All subsequent transfers trigger the right of first refusal.

The Bill provides for the lessee to give the land owners notice setting out the price and terms on which the lessee will sell. If the owners do not want to buy on those terms, the lessee can sell on the market at that price or higher. If the lessee subsequently wishes to sell at a lower price or more than six months after the most recent offer, the lessee must again offer the right of first refusal to the owner.

In most cases it would be best to find out in advance of sale whether the land owners want to buy. Having explored this, and the owners having indicated their intentions, the matter may well proceed without having to follow the formal procedure.

The owners' right to buy also arises when a lessee wants to transfer at less than full price or at no price - such as under a will. In these cases, if the owners want to buy, the price is negotiated or fixed by a valuation process. The owners' right to buy will arise whenever the shareholders in a company or beneficiaries of a trust want to dispose of their interests. However this will not apply to existing lessees if the transfer is to a spouse and/or child. * The owners' right of first refusal will be deemed to have been provided when the lessee has given the owners 28 days written notice prior to sale by public auction.

Lessee's Right of First Refusal

A similar right of purchase is given to lessees if the owners want to sell the land that is subject to the lease. Notice is given to the lessees of the terms on which the owners will sell and a similar procedure is followed. Exercise of the right of first refusal is subject to the owners complying with the land sale provisions of the Maori Land Act 1993.

What Happens Next?

• Once introduced to Parliament the Bill is referred to a Select Committee. The Select Committee will consider the Bill after the next election. The Bill, following any amendments made by Parliament, is expected to become law some time in 1997.
  

Having Your Say

You will have the opportunity to have your say on the Bill. To do so, you need to make a submission to the Select Committee of Parliament to which the Bill has been referred. You may do this as an individual lessee or owner, as part of an owner or lessee group or simply as an interested member of the public. The Committee will call for public submissions through the public notice columns of local and national newspapers. Letters inviting submissions will also be sent to all owners' groups and all lessees.

The following guidelines should be followed to ensure that submissions to the Select Committee are clear and effective:

Format

• head the submission with the name of the Select Committee and the full title of the Bill;
• state who the submission is from and provide contact details;
• state whether or not a meeting is required with the Select Committee;
• if the submission is made on behalf of an organisation, provide details of the organisation's aims, membership and structure.

Layout

• type or word process on one side of A4 size paper;
• provide adequate margins and spacing between paragraphs;
• use headlines and number pages and paragraphs;
• and staple pages together in top left hand corner.

Content

• arrange your thoughts logically;
• be simple and brief;
• be accurate and complete;
• provide a summary of main points and recommendations.

Writing about the Bill

• obtain a copy of the Bill and focus the submission on what it contains;
• make a clear general statement about the Bill;
• address specific clauses which are of concern, following the order of the clauses as they appear in the Bill;
• state reasons for any changes or amendments recommended.

Delivery

• send twenty copies of the submission to the Clerk of the Committee before closing date for submissions.

Further information or advice on the Select Committee process and making a submission to a Parliamentary Select Committee may be obtained from:

Office of the Clerk of the House of Representatives,
Parliament House,
Wellington.

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