Council meeting agenda - 4 June 2012 - Clarence City Council

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10.0 Occupancy & Lease Details "Rosny Hill Nature Recreation Area" 12A Akuna Street Occupancy Status Property is currently used by the general public free of charge. Rosny, Tasmania Legislative Framework It is proposed that the Minister would enter into a long term lease with the Clarence City Council under section 48 of the National Parks and Reserves Management Act 2002. Council would then enter into a sub-lease (as approved by the Minister) with the preferred developer/proponent. Any development of the Reserve would be via a sub-lease, whilst the Minister also has the right to issue business licences. Tenure Options for Development 10.1 Possible Ground Lease Terms In the event development was to occur on part of the property the recommended form of tenure to be offered to a proponent is by way of a ground lease (by virtue of a Crown Land Lease). Ordinarily development on this type of property would be undertaken on the basis of a long term lease of the land to a tenant who would construct improvements (tenant improvements) to meet their business requirements (subject to the approval of the lessor). Alternatively the Council could construct improvements and lease the land and buildings to a tenant, although this involves capital expenditure and the improvements may not meet the specific requirements of tenants. For any substantial development by an operator to occur, the proponent is likely to require secure land tenure. This in part will be required to facilitate financing of any development. Given the land is and is expected to remain in the ownership of the Crown, freehold land tenure is not expected to be offered. Our recommendation to assist facilitating any substantial development is to offer a long term ground (sub) lease on terms and conditions similar to the following: Lessor/Landlord Major and Aldermen of the City of Clarence Lessee/Tenant Yet to be nominated Demised Premises Land to be defined by way of illustration plan Commencement Date Yet to be specified Initial Term 25 yrs Options 25 yrs Commencement Rent To be negotiated Rent Reviews Annualy in accordance with movements in the Consumer Price Index with the rent reviewed to the market rent of the land every 5 years Net or Gross Net Outgoings The tenant is to pay all outgoings including their share of land tax (on a single holding basis), Council Rates and water and serwage rates. Permitted Use To be agreed Special Provisions The lessee shall undertake all works required to complete the development within a specified time frame. If the lessor gives due notice to complete the development and the lessee fails to complete the development within the timeframe specified, the lease shall be surrendered and become null and void. If required by the lessor, all improvements made by the lessee shall Page 16
"Rosny Hill Nature Recreation Area" 12A Akuna Street Rosny, Tasmania be removed by the lessee at the end of the lease. If the lessor does not require the tenant improvements to be removed the improvements shall become the property of the lessor. Note: It is considered important to include a provision that the development must be undertaken within an agreed timeframe so that if the tenant fails to develop the property, the lease is surrendered and other development proponents can be considered. 10.1.1 Ground Lease Rental Structures There are a number of means by which ground rentals can be determined/established. Ordinarily where the tenant (and not the landlord) is making a significant capital contribution to the construction of buildings and other improvements (collectively known as tenant improvements), it is not appropriate to assess a rental as a percentage of turnover because the majority of that turnover is generated from the improvements and business which are the property of the lessee (tenant). Nonetheless these type of lease agreements do exist and certainly this can be an appropriate method of determining the rent for a new business (where the tenant is concerned about the affordability of rent) or specialised types of businesses. Where the tenant is making significant tenant improvements it is more common for the rental to be negotiated by the parties, based on valuation advice of prevailing market ground rents. Where the tenant is establishing a new business it is common for the lessor to provide a rent free period during the period of construction, and if deemed necessary during the first few months or first year of the lease to assist the tenant establish their business. Typically at the end of the lease ownership of the tenant improvements unless removed by the tenant will become the property of the lessor (land owner) and rental payable after that date would be payable on both the ground and the improvements. The benefits of an agreed rental are that this is a known quantum from which both the tenant and landlord can make informed decisions about the lease. Conversely it is a fixed overhead to the tenant. The benefits of a rental which is a percentage of turnover are that the rental is set at a theoretically affordable percentage of sales and therefore reduces the risk of tenant default (it does not eliminate this risk). Conversely there is no certainty of rent for the landlord, the landlord shares in business decisions/risks, and if the tenant’s business is successful (which would almost certainly be a result of their business initiatives, capital investment and management) the tenant pays a higher rental. Notwithstanding the above, the quantum and manner of determining a rental payable under a lease is usually determined through commercial negotiations (either directly or though a commercial real estate agent or valuer), market forces (ie competition between tenants), with parties ordinarily seeking expert valuation advice. In the event agreement cannot be reached, the assessment of the rent can be referred to a valuer or the Australian Property Institute for the rental to be determined (either as an expert or an arbitrator). Page 17
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David Sales CHIEF EXECUTIVE OFFICER
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Council meeting agenda - 4 June 2012 - Clarence City Council

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