Power to the people of the Piermont Apartments
A group of forward-thinking apartment dwellers have secured their future by turning their leasehold properties into freehold ones. Melanie Carroll reports.
It took six years, a lot of patience, and some creative thinking to swap the capital’s upmarket Piermont Apartments from leasehold to freehold ownership.
The apartments have only just become officially freehold, something that could not have happened without agreement from all the 150-plus people on the title.
Leasehold property owners have to pay ground rent to the land owner, usually based on the value of the land which means the amount can increase over time.
Leasehold properties tend to have a lower valuation than freehold properties because of the lack of full control and the uncertainty, said Moneyhub founder Christopher Walsh.
Converting to freehold was a very smart thing to do, but it was a big commitment. ‘‘If you can make it happen, it’s going to make your property increasingly valuable,’’ he said.
In the midst of a housing boom, with New Zealand house prices at record highs, some leasehold apartments are selling well below their capital value (CV), according to data from homes.co.nz. In central Auckland, an apartment with a CV of $1.04 million sold for $490,000 in August; in June, one with a CV of $680,000 sold for $170,000.
‘‘Leasehold apartments selling well under CV comes as no surprise, especially as properties approach their ground rent renewal date,’’ said homes.co.nz chief data scientist Tom Lintern.
‘‘With the new lease terms not yet being clear, some owners may want to sell for bargain prices to avoid potential rent hikes.’’
One positive factor for the Piermont Apartment owners was that the land was privately owned, said Piermont body corp chairman Doug Martin. ‘‘If it’s privately owned, you can potentially purchase it,’’ he said.
‘‘We recognised that the building on the land was an asset that was generating income for the owner, so we pitched a price at a level that he and his partners were comfortable with.’’
Martin, a former deputy State Services Commissioner, was part of a small team to devise a strategy and engage legal advice.
The Unit Titles Act required 100 per cent of owners to agree, a high threshold as people might not want to participate for a number of reasons, for example they might not have the money.
‘‘So we had to think a little bit outside the square about how we could do this,’’ Martin said.
A company called Piermont Holdings was set up to buy the land, in effect becoming the leasee. The company was owned by ‘‘participating owners’’, which in the beginning was 75 per cent of the apartment owners.
When he sought bank finance to cover the outstanding 25 per cent, he was turned down. Unwilling to give up, some of the owners decided to fund the difference on commercial terms, which everybody agreed to.
Over the past four years, as the value of the land increased, the remaining 25 per cent exercised their right to become a participating owner, often after an apartment had sold and the new owner could see the advantages.
Martin said it was well worth doing. ‘‘There’s been a huge growth in value as a consequence. Once the market understood what we’d done, most of the value was factored in when we bought the land through Piermont Holdings. Now that we’ve achieved full freehold status, there’ll be a further growth in value.’’
But he advised others to think carefully if they wanted to go down the same path. ‘‘You can’t get to Nirvana immediately. You’ve got to have a plan that gets you there over a number of years so you need to just recognise that.
‘‘The other key piece of advice is you can’t force people to do this, you’ve got to arrive at a system that provides incentives for people to do it. Some just aren’t in a position to do it.
‘‘You need to be quite patient and quite measured, it’s really creating this notion that we’re all in this together and not creating a conflict between participating and nonparticipating owners.’’
Lawyer Graeme Smaill from Greenwood Roche, which acted for the Piermont Apartments body corporate, had not come across the situation before where a large number of unit owners had to work together to buy the land and change to freehold.
In this case, there were more than 80 different units, most of them residential but some commercial and some car parks, involving at least 150 people on the title.
‘‘So to get everybody ending up in the same position and effectively having to cough up a reasonable amount of money to buy out the relevant share of the underlying land, it’s a pretty protracted and complex process of progressively getting to that stage,’’ Smaill said.
‘‘Forming the company is pretty straightforward, buying the land is relatively straightforward, but explaining it all to people and allowing for them progressively to join required thinking about something which to the best of our knowledge nobody else had done,’’ he said.
‘‘We had to think a little bit outside the square about how we could do this.’’ Doug Martin Piermont body corp chairman, right