Long Term Thinking

Inter-Generational Inequity

Here is something you don't see every day.  A local Maori tribe has bought up some state houses in the area of its traditional tribal lands.  It plans to lease them out to tribal members.  Nothing unusual there.  But it is the terms of the lease which are startling.

"Buying land close to Orakei is important to Ngati Whatua Orakei. Our focus is securing land within the tribal boundaries and then using it in the best way to ensure sustainable benefit for the hapu," he said.  The iwi would convert three freehold titles at 38 Takitimu St, 29 Te Arawa St and 11 Ngaio St into leasehold titles and advertise them for sale. 

Leases of 125 years, 150 years or 175 years could be bought, he said.  But ground rent review issues would be avoided because purchases of the leasehold interests in those three properties would be sold with prepaid ground rents. 

Mr Hutchison said such arrangements were relatively rare on suburban residential properties but common overseas.  "There will be no rent reviews throughout the term and the ground leases are prepaid, which we believe removes uncertainly and will make budgeting easier. After 175 years the land can come back to Ngati Whatua Orakei." [NZ Herald]

The first thing that is unusual is the long term view which the tribe is taking of land ownership.  It genuinely believes its newly acquired land is to be held in perpetuity for its descendants.  Ancestral or family land is largely a thing of the past in modern Western economies.  Ngati Whatua is to be commended by thinking in a manner consistent with its tribal ideology.


One wonders, however, whether the terms and conditions will stand the test of nigh on two centuries of time.  If the ground rent is to be pre-paid there can be no re-negotiation or adjustment for inflation in the future.  That means the early lease-holders will likely be penalised, if inflation has been taken into account in the calculation of the 175 year, one-off, up front ground rent.  If inflation has not be taken into account, the later leaseholders will benefit hugely. 

Unless these kind of long term contracts are carefully structured it is unlikely they will survive the tests of time.  They will end in tears.  Since reasonable terms and prices must be struck today to get people into the leases in the first place, almost always it is the later, successive leaseholders that will pay the price.  It is far too easy in such long term leases to set things up so that future leaseholders will pay an exorbitant price, and the current leaseholders will have the luxury of kicking the can down the road for someone else to pick up.   Expect resentment, anger, lawsuits, divisions, reversals, and envy.  Maintaining equity between generations is never an easy thing to do.

As the old adage has it, Marry in haste; repent in leisure.