Government bad faith stops tenure review in its tracks
- What is tenure review?
- Is the process working?
- How much land has the Crown acquired, and why?
- Do farmers have to enter tenure review?
- Rent increase leads to legal challenge
- The Brower campaign
What is tenure review?
Land tenure review – the transfer of farmer-controlled high country leasehold land to the Crown – began more than 100 years ago and has been continuing in fits and starts ever since.
Historically, tenure review has involved the transfer of leased mountain land of little grazing value from private control to the Crown for inclusion in parks, reserves and for other public uses. In the 1990s, there was a general consensus that there was a need for this process to be streamlined.
Many high country lessees wanted to have the management and investment flexibility that comes from freehold title. The Crown wanted to get out of the uneconomic business of being a landlord. And environmental pressure groups, along with the Crown, wanted land with significant inherent values (SIVs) to go into the conservation estate.
The Crown Pastoral Lands Act (CPLA), which became law in 1998, was designed to achieve all these objectives through good faith tenure review negotiations between farmers and the Crown.
In essence, it involves individual lessees selling their leasehold interest in all their land to the Crown. In return, they have the right to buy back freehold title to those parts of their land with productive potential. Land with Significant Inherent Values (SIVs) or that is needed for public access may be retained by the Crown, or sold to the farmer subject to protective covenants or access easements.
Both the sale of leasehold title to the Crown and freehold title to the farmer are done on the basis of market valuations. Because the conservation and productive values of individual properties differ greatly, so does the amount of land freeholded or passed to the Crown.
Normally a payment is made by either the Crown or the farmer to settle the outstanding balance. Where 30 per cent or more of the land goes to the Crown, it is normally the Crown that pays the farmer, because of the farmer’s much greater financial interest in the property.
Does the public have a say in tenure review settlements?
The public can check out the main documents for tenure review for each pastoral lease on the LINZ website. All tenure reviews are publicly advertised for comment and often changes are made as a direct result of this process.
Is the process working?
In most cases, no. Where land has either definite conservation or economic value, the process works well. However when a piece of land has both conservation and economic values, it is hard for the farmer and the Crown to agree on a settlement that is acceptable to both parties.
The definition of what constitutes a ‘significant inherent value’ and how it should be protected in a way that is ‘ecologically sustainable’ lies at the root of the impasse that has occurred on many farms. In essence the Crown has sought to protect most land in tussock or other native vegetation by transferring it to Crown ownership and removing all livestock. Farmers argue that much of the land concerned is already being grazed sustainably and doesn’t need protecting.
Much of the land in question is mid to high-altitude tussock rangeland subject to prolonged snow cover in winter. It is normally lightly grazed by Merino wethers and ewes in the summer, when the flats are either drought-prone or growing winter feed.
Because access to this rangeland is essential for those high country farms (the majority) that depend on Merino farming for their continued economic viability, tenure review has largely stalled. As at the end of March 2008, nearly 100 of the 169 properties that had entered the arduous tenure reform process had not progressed past the Draft Preliminary Proposal stage.
How much land has the Crown acquired, and why?
In 2002, when the latest round of tenure review got underway, there were 303 pastoral leases still remaining. Analysis of their titles reveals that more than 500,000 ha from these properties had been transferred from private to Crown control in the previous 60 years.
Most of these transfers – 474,000 hectares – came from the surrender of land by pastoral lessees. The balance came from surrendered pastoral occupation licences and whole property purchases of pastoral leases.
Since 2002 the government has set its sights on acquiring a further 1.3 million ha of tussock grassland from tenure review and whole property purchases. This represents about 60% of the 2.19 million ha of land in pastoral lease in January 2002.
By 31 May 2008, of the 303 leases in January 2002, 56 had completed tenure review and 9 had accepted substantive proposals from the Crown. From these properties, 48% of the land (165,266 ha) has been or will be bought by the Crown from the lessee and 52% (189,539 ha) by the lessee from the Crown.
In addition, four leases totalling 49,242 hectares – Twin Burn, Michael Peak, Birchwood and Hakatere Stations – have been bought outright by the Crown. And the government has declined to renew the Mount Ida “Soldiers’ Settlement” grazing licence in Otago – a further 8401 ha.
In summary, between 2002 and May 2008 the Crown has transfered 229,909 hectares of high country pastoral farmland to the conservation estate — an area substantially greater than the size of Stewart Island (185,000 ha). All this land, plus the 180,000 hectare Molesworth Station that has been transfered from Landcorp, has to be maintained by the Department of Conservation – a department that struggles to protect endangered species on its existing estate.
Most observers would conclude that such a major transfer of land out of productive use must be justified on ecological grounds. This is not the case. An independent review for the Department of Conservation states that high altitude tussock grasslands are well-represented in the DoC estate. Other research shows that low intensity grazing systems are both sustainable and help control weeds.
It appears that the main motivation for the government’s high country land grab is not based on science. It is driven by the spurious ideology that only the State can manage land with high conservation values.
Do farmers have to enter tenure review?
Tenure review is meant to be a voluntary process, with both parties having the right to withdraw up until the final stages. However, from 2006 the government has pursued policies that put heavy financial pressure on lessees, making them more likely to sell their properties, enter tenure review or to forgo their legal rights.
In November 2007 the government reinterpreted the law to allow it to charge unaffordable increases in rentals. This increase in rentals coincided with a cabinet decision to make 65 farms within 5 km of any of the big South Island high country lakes ineligible to enter tenure review. Several lessees who were well-advanced in their negotiations with the Crown had the process terminated.
These tactics can only be explained by the government’s objective of acquiring more land for high country parks at least cost to the Crown. They are very unsettling for farmers as they have the effect of reducing farm incomes and the financial interest lessees have in the land they farm. As such, they are cynical, short-sighted and show a lack of respect for the people of the high country.
Farming families need security of tenure and sound, consistently applied government policies in order to have the confidence to plan and invest in the sustainable management of high country land.
Rent increase leads to legal challenge
In 2003, with land tenure review going at snail’s pace and costs rising, lands minister Pete Hodgson said the government was thinking of increasing rents three or fourfold to what he called “market rates”.
This led to a cabinet paper proposing the use of rent increases or compulsory acquisition as tools to speed up tenure review. Although this paper was rejected by cabinet on 20 January 2004, in April 2005 an enquiry team of senior valuers, led by Donn Armstrong, was set up in to look at whether rents and tenure review settlements were fair.
Hodgson promised that the government would be bound by the findings of the enquiry. This was not to be.
In October 2006, the draft Armstrong report was released by new lands minister David Parker. It concluded that settlements under the land tenure review process had been fair and that rentals weren’t too low. In fact, they were set too high.
The report said the problem was poor wording of the clause governing rent-setting for pastoral leases in the CPLA. However if case law and the overall intentions of the Act were taken into account, rents for leases had to be based on the value of the land exclusive of lessees’ improvements for “pasturage”, the only land use permitted under the Act.
In a media statement issued at the same time as the Armstrong report, the minister said he had a Crown Law Office opinion stating that the Armstrong committee was wrong. He claimed that ‘significant inherent values’ – like mountain views – had to be included in the lessee’s interest when calculating rents.
A year later, in November 2007, Parker released the final Armstrong Report and confirmed that the Cabinet rejected its findings.
From now on, he said, rents would be set using the Crown Law Office’s interpretation of the law, even though rents set using this formula would make some leases uneconomic.
For lessees in this position he offered to reduce rents on a case-by-case basis in return for the lessees offering some of their interests (like access rights) back to the Crown, or undertaking extra landcare duties for the Crown. Accord chair Ben Todhunter strongly advised lessees not to accept this offer until a legal challenge to the Crown’s rent valuation methods could be heard by the courts.
The correct rent-setting formula will now be determined by the Land Valuation Tribunal (LVT) or the High Court. Minister Parker and Land Information New Zealand (the government agency that handles tenure review on behalf of the Crown) have agreed with the Accord on a suitable test case and the minister has undertaken on behalf of the government not to introduce legislation to parliament to overturn the court’s decision.
The first hearing will be held by the Otago Land Valuation Tribunal in October 2008.
The Brower campaign
Since soon after her arrival in New Zealand, Ann Lacey Brower, a visiting American Fulbright scholar based at Lincoln University, has run a campaign designed to undermine lessees’ property rights and to cast public doubt on the fairness of tenure review settlements.
An environmental activist, Brower came to New Zealand in 2005 from the United States after doing battle with the Colorado River authorities for allowing stakeholders to have what she alleged was too much say in the conservation management of the river.
An accomplished self-publicist, in New Zealand she has used her status as an academic to get substantial media coverage. Rebuttals of her claims by experts in the field have, in contrast, had only minor media coverage.
This campaign has undermined the public credibility of lessees and the tenure review process and has probably influenced the decision of the government to play hardball with lessees since late 2006.
Brower report and rebuttal
In February 2006, Brower published a report criticising tenure review, saying “government contractors and government officials are giving away the crown jewels and paying the recipients to take them away.”
Her report was strongly criticised by the High Country Accord, as well as by valuers and academics with a knowledge of New Zealand valuation law and the legal principles underpinning perpetual leases.
Victoria University professors Neil Quigley and Lewis Evans, in a critique of the Brower report released in November 2006, said Brower’s claims were “entirely unfounded”, that she had “completely misinterpreted the available data” … and had made a series of claims about the outcome of the process that were “entirely erroneous”.
“Brower’s errors include incorrect assumptions about the property transactions which take place during tenure review, an incorrect understanding of the property rights of lessees and the Crown, and a lack of understanding of the nature of a pastoral lease and the value of the lessee’s interest in it.”
Quigley and Evans point out that high country farmers hold title to land which has been transferred into private hands by the Crown. The fact that this was done through a perpetually renewable lease rather than through the transfer of freehold property rights does not change the fact that that properties concerned are now in private hands.
They say Brower is also incorrect to claim that the Crown had retained valuable property rights in pastoral leases.
“The Crown has no rights to do anything with the land except collect rent, and adjudicate on any activities that are not permitted under the lease.”
“Our analysis … makes it implausible that the tenure review process has resulted in any substantial over-payment by the Crown [to farmers].”
These findings were ignored by Brower. In February 2007 she released data showing that 34 high country farmers had been paid up to $5.6 million each by the Crown for their leasehold property interests under tenure review, a process she described as “whack”.
The Accord view
It seems incredible that someone with little experience in New Zealand could be so sure that she is right and that respected judges and senior academics – including some of her senior Lincoln University colleagues – are wrong.
Under tenure review, farmers sell their leasehold land to the Crown at market value. They then buy back at market value the area they are permitted to freehold. In this respect, the process is fair and reasonable.
Farmers have the right to renew their pastoral leases in perpetuity and they own all the improvements on the land. They also have the right of exclusive occupation.
The market has valued those rights as being very close to the value of similar land in freehold title. Hence, if under tenure review farmers sell some of their leasehold land to the Crown, they are likely to get 85-95 per cent of the freehold value for that interest. In the case of Birchwood Station, which the Crown bought outright, it valued the lessee’s interest at 94 per cent and its own interest at 6 per cent.
In 2006 the High Country Accord approached both Ms Brower and the Lincoln University authorities to ensure her work was peer reviewed, but this had not happened.
In mid-2007, Brower repeated her claims in a TV3 documentary that did not seek comment from knowledgeable academics, nor from the Accord.
Waikato Law Review paper and Crown Law office rebuttal
In late 2007, a paper Property Law in the South Island High Country, co-authored by Australian property law lecturer John Page and Ann Brower, was published in the Waikato Law Review. This argued that Crown Pastoral Leases did not give lessees exclusive possession rights to their properties.
In a legal opinion prepared for Land Information New Zealand, crown counsel Malcolm Parker said he did not find the Brower and Page paper convincing and did not agree with its conclusions.
“In fact it would be impossible for the [lease]holder to undertake farming operations without exclusive possession of the land. The issue is whether the parties’ intention was to grant lessees exclusive possession and the pastoral lease does this.”
Photo copyright: Rod Patterson Consultancy Limited