Last week Canberra lawyer Alan Stretton raised again the question of what is to happen as Canberra’s 99-year residential leases come to the end of their term. The first residential leases were auctioned in 1924, meaning they are due for renewal in 2023. Many leases were auctioned in the 1930s, meaning they have only 30 years to run. As Mr Stretton and others have pointed out, the issue is not so much renewal on expiry, but whether lenders are willing to accept mortgages on leases that will expire before the borrower would be expected to pay off the loan.
The ACT Government has a policy that all residential leases in the territory will be renewed without cost. The former Government had a similar policy, though it would charge a small administrative fee. The question is whether a lending institution would accept those promises as sufficient security. There is also the question of whether these governments have the right to give away the revenue opportunities of future governments. It is probably politically impossible now for either party to renege on those promises.
The tenure of the lessees upon expiry is still secure. Most leases provide that renewal will take place unless the Government needs the land for a public purpose and even then just compensation will be paid for improvements. However, the Government could require the payment of a market-value premium for renewal if it saw fit provided it changed the Lands Act which at present provides for automatic renewal on payment of an administrative fee.
The position with commercial leases is more pressing. Before the election the Liberal Party said its policy was to renew commercial leases automatically for nothing. Labor, however, said commercial renewals would cost 10 per cent of value any time in their last 30 years. If it regained government, it might revert to that policy. In short, there appears to be some unsatisfactory uncertainty in the property market.
What can be done? The ACT Government is constrained by Federal law from granting anything greater than a 99-year lease over ACT land. The Constitution prevents either the Federal or the ACT Government from converting the land to freehold.
Once mortgage raising becomes a problem, some practical way must be introduced to ensure one of the wheels of the ACT economy … land use … keeps turning. The Government need not listen to some of the shriller business antagonists of leasehold. Leasehold is used in many parts of the world. But it must act if it is demonstrated that mortgagees are refusing finance because leases are not long enough.
Once a pattern emerges, financiers will settle down, but financiers hate uncertainty. Mr Stretton suggested that one way through the impasse would be to extend all existing leases through legislation rather than dealing with individual leases upon application. Mr Stretton’s reason is that all leases in say, a block of flats, would not get out of kilter.
Given that lease renewal is not the planning tool perhaps envisaged by the city’s founders, legislative extension has some merit. The ACT would still have leasehold and be able to enforce planning through lease-purpose clauses, but financial certainty would be returned, once it became, say, an annual practice that all leases with, say, less than 30 years to run get, say, 30 years added to them.