Property Quarterly (September 2014)

VOL 4 | ISSUE 3 | SEPTEMBER 2014

IN THIS ISSUE Valuing plant and equipment Rural valuation reports Wind farms in New Zealand Confidentiality in arbitration

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Vol 4, Issue 3 September 2014 ISSN 2253 5179 print ISSN 2253 5195 online

Publication Committee Donn Armstrong Ah-Lek Tay Gwendoline Callaghan Ian Campbell Craig Russell Contact details David Clark Property Institute of New Zealand PO Box 11 380 Manners Street Central Wellington 6142 Phone: 04 382 7621 david@property.org.nz Editor Julian Bateson Assistant Editor Helen Greatrex Bateson Publishing Limited PO Box 2002 Wellington Phone: 04 385 9705 bateson.publish@xtra.co.nz Advertising management Bateson Publishing Limited Phone: 04 385 9705 Publisher Property Institute of New Zealand Property Quarterly is published four times a year and a copy goes to every member of the Property Institute.

Property Quarterly articles are not peer reviewed. Articles in the magazine represent the unaudited views of the relevant authors. If you have any questions about the content of an article please contact the Editor or the relevant author.

Contents Plant and equipment valuations Graham Barton .............................................................................................................. 3 Do not write off contaminated land Brett and Helen Mongillo ............................................................................................ 7 WorkSafe NZ brings in a new era of safety Gordon MacDonald ......................................................................................................11 Rural valuation report requirements Neill Sullivan and Callum Taylor .............................................................................14 A rural valuer in the King Country Adrian Doyle .................................................................................................................18 Confidentiality in arbitration Mark Colthart ...............................................................................................................29 Costs in arbitration – time for guidance John Walton.................................................................................................................. 31 Wind farms in New Zealand Vaughan Wilson...........................................................................................................33 Demographic trends and home ownership Ian Campbell.................................................................................................................36 Annual Awards for 2014 ........................................................................................... 41 Legal cases Fast tracked land acquisition and valuation principles under the Public Works Act 1981 Niven Prasad .................................................................................................................24 Keeping premises clean and tidy – how far does that extend?

Niven Prasad ................................................................................................................26 Profile David Paterson .............................................................................................................43

Vol 4, Issue 3, September 2014 Property Quarterly 1

CEO’s comment

From the President By the time this issue of Property Quarterly has made it to your hands, submissions will have closed for the review of the occupational regulation of valuers. The consultation process showed that the majority of valuers are largely comfortable with the status quo, but recognised the need for improved discipline and VRB processes. Institute commentary was made in a submission from the NZIV, in its role as a statutory body. The Property Institute also submitted in support of this, reinforcing the critical issues.

There is unlikely to be any feedback from LINZ on the review until after the election.

The Rotorua conference was a great success, and I congratulate Jenny and David on putting this together. The calibre of speakers was, as always, excellent. Particular highlights included Mark Burry, the Kiwi architect managing the building of the Sagrada Familia in Barcelona, and Catriona Williams. Both were inspirational stories.

The Valuers Council and the Board have listened to the concerns raised at the AGMs in Rotorua.

Although the remits were put to the NZIV AGM, the Board have heard the sentiments of the members and will look at where and how these remits can be actioned. At the August Board and Council meetings, a process was discussed for the review of the Service Level Agreement between our two Institutes.

Fellowship and other awards were presented at the awards dinner and the recipients of these are listed on page 41. My congratulation go to all award winners.

This issue of Property Quarterly has a strong rural feel to it, with two rural articles and one on wind farms. Neill Sullivan and Callum Taylor’s article is based on a presentation they gave at the 2013 Mainland Spring seminar and discusses the increasing complexities of rural valuation reports as well as some suggestions for improving them. Adrian Doyle’s article is a personal account of life as a rural valuer in the central North Island.

As always, Niven Prasad from Simpson Grierson provides excellent legal updates – one of the many benefits which the Institute gains from our longstanding relationship with Simpson Grierson. This month Niven discusses fast track acquisition and valuation principles under the Public Works Act, and also the recent Auckland Waterfront Development Agency v Mobil Oil NZ Limited. Both are interesting and informative reads.

Safe work practices are getting a lot of attention lately, so we have an article on page 11 by Gordon MacDonald, CEO of Worksafe NZ, outlining the proposed changes. The article is a timely reminder to all members that they must comply with legislation and best practice in this area. The new Bill is expected to be introduced in 2015 and will support a stronger enforcement regime with stronger penalties and increased responsibilities on company directors.

David Paterson has been profiled in the Otago Daily Times recently and is profiled on page 43.

David has been on the NZIV Council since last century, as well as putting many years into the Professional Practices Committee. David was also presented the John M Harcourt Memorial Award at the conference dinner to recognise these years of service.

Finally, I congratulate National Office on their move to their new premises on The Terrace, in the heart of the Wellington political, regulatory and business environment. The new office is modern in an open plan format with two meeting rooms, two quiet rooms for private conversations, and a welcoming open kitchen area. David and the team welcome all members to pop in for an inspection, and will be formally inviting members on an upcoming afternoon for a drink and a chat.

Blue Hancock

2 Property Quarterly Vol 4, Issue 3, September 2014

Plant and equipment valuations

Plant and equipment valuations Graham Barton Plant and equipment amounts to almost anything which is not real estate and does not constitute the business itself. It is the non-real estate assets that businesses or individuals use and it can be anything from an acid den to a Zimmer frame. Note that an acid den is part of a super-phosphate fertiliser manufacturing plant, not a house full of drug users.

The scope of the valuation and client can also vary.

There is an individual situation, for example, valuing ordinary household chattels for Relationship Property Act purposes, and there is valuing large-scale processing plants for corporates such as Rio Tinto and Fonterra.

Of course we also get to value some strange things – beehives and an automatic dog washing machine come to mind.

At the other end of the scale one of the more impressive pieces of machinery I have valued as part of a large ore processing facility in northwest Australia was a car dumper, a kind of rail bridge device for unloading ore wagons. These work by first clamping the ore wagon on to the rails before swivelling. The rail bridge is on gimbals and the car couplings can also swivel so that the car is tipped upside down and 84 tonnes of ore crash into a very strong hopper below, pass through a jaw crusher and then go on to an underground conveyor.

The whole process is automated with the wagons moved by an unmanned electric hauling device called an indexer. It has sensors to switch things off if personnel get too close.

Bucket wheel excavators and reclaimers are another impressive piece of mining kit. One example is the Bagger 293 which has a 6.5 metre diameter bucket, weighs 12,000 tonnes, is 29 metres high and 69 metres long and can move 2.4 million cubic metres of overburden each day, equivalent to a football field sized hole 7.5 metres deep. The price is upwards of US$100 million.

How to value How do you value these things? It is quite simple. If there is a market then we look for comparable sales, adjusting for any differences in size, capacity, age and condition, just as when valuing a property. Sometimes the market is small and the participants are international.

We often have to consult specialist suppliers and dealers and sometimes pay for information.

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Plant and equipment valuations

Often there is no discernible market and we have to use depreciated replacement cost by finding the current cost of an equivalent capacity machine and depreciate based on age, condition and expected useful life. However, this approach is a rather blunt instrument and may not necessarily equate to market value, as explained later.

The biggest difference between valuing property and plant and equipment is that the income approach is rarely applicable because − • Sometimes the plant is not in use by a business which may have failed • It will inevitably produce a value for the business as a whole including intangibles such as brands and existing contracts, whereas the plant and machinery itself could be substituted for other plant, whether new or second-hand.

The only time we would, and then only indirectly, use an income approach is as a check on the depreciated replacement cost of a specialised plant.

Example Consider a specialised plant producing an income which equates to a current value of perhaps $50 million with the business value assessed by accountants. If depreciated replacement cost is perhaps $60 million, there is obviously at least $10 million economic obsolescence affecting the plant in addition to the intrinsic age and condition-related obsolescence. In such a case you would write the depreciated replacement cost down to whatever economic value is left after the value of any other intangibles is deducted. The maximum value could only be $50 million, with no goodwill.

Location, and whether equipment is to be sold in-situ or for removal also make a big difference as do freight and installation costs. In Australia, it is common to multiply a Sydney price by 300 per cent to get to the installed replacement cost in a remote location such as a Pilbara mining site. So the value installed, on the basis of a going concern, can be large, whereas the ex-situ for removal value can be zero or even negative.

Valuing a tank farm

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Plant and equipment valuations

Cost does not equal value Valuing specialised plant and equipment certainly teaches you that cost does not equal value. For example, in 2002 I saw a pelletising plant being dismantled at Port Lambert in Western Australia. It cost at least $100 million to build, although it was being demolished and had never been used. The plant was designed to make iron ore from the otherwise unusable ore fines which would clog a smelter. The process is similar to baking the small pebbles and dust particles in order to fuse them together.

Unfortunately the heating source was oil, selected in the late 1980s, and its price had increased to the point where it was uneconomic to run the plant. Natural gas was subsequently discovered offshore, but by then the plant had been mothballed for over a decade, gas conversion costs were large, and the plant design was now inefficient and obsolete. It was therefore removed for scrap at great expense and sadly this involved a fatal accident for one of the demolition crew.

Some pitfalls Scoping the job and fee properly Getting the scope of the job correct can be difficult and of course the fee has to be commensurate with the scope. Oddly it is the larger companies, which you might expect to be better organised, which tend to be most vague about what they actually own. I recall a job where after our site tour a company representative announced, ‘Hang-on, I think we own all the houses in town as well.’

They did and there were several hundred properties, although this was bad news for the property valuer rather than me.

Missing assets during inspection Plant is, of course, far more mobile than buildings and can be widely dispersed. We often find assets which turn out to be leased or borrowed rather than owned, such as office copiers and computers. However company-owned plant may be away at a contractor’s for repair or just out on the road. If it is an insurance valuation and there are leased assets it is necessary to find out if the lessor insures the leased assets themselves or whether, as is common, the contract requires the lessee to insure.

Sometimes it is simply not practical to inspect

all the assets and sampling, with suitable disclaimers in the report, is the only viable approach. One client had several hundred vending machines all over New Zealand and Australia. These would have had second-hand values in the range of $250 to $2,000, so the travel costs for inspecting them all would have been not dissimilar to the market value. A colleague recently valued the plant and equipment at the Pike River mine for the post-disaster insurance settlement. The majority of it is underground and may never be accessible again.

Leasehold improvements in buildings are another trap. When you inspect plant in leased buildings there is usually no way to tell whether the lessee has altered the building. It is therefore very easy for the management or the valuer to overlook these and they may have cost hundreds of thousands of dollars. It is wise to ask for a copy of the client’s fixed asset register and check whether you have seen all the major assets.

Factory managers can be a very useful source of information. Everything from the new replacement costs, historic costs, installation dates to whether the plant is good or a ‘dog’ and the supplier and agent contact details are at some managers’ fingertips. But you have to be aware of hidden agendas, and if it is a receivership this person may have just been made redundant and developed a difficult attitude.

Asset registers Asset registers can be useful, but only if used with great care. The purchase date shown may be when the asset was installed new, but it could also have been installed second-hand so is far older than the date shown.

Similarly, the cost shown could represent the installed new replacement cost at acquisition, but it could also be the cost of a second-hand machine or reflect a trade-in or one-off discount. If, as would be tempting if you cannot find a cost for a similar new machine, you index from a second-hand or discounted cost your updated cost will not represent reinstatement or replacement cost.

Caught in other people’s battles The most dangerous scenario for plant valuers seems to be when a business exchanges for a set price, based on income, with the plant to be valued or settled at a Vol 4, Issue 3, September 2014 Property Quarterly 5

Plant and equipment valuations

later date. Often business deals go sour very quickly. The purchaser takes over and finds the income is not quite what it was supposed to be, or a major contract suddenly disappears to a subsidiary of the vendor. In these situations, if the value of the plant is the only thing left that can be disputed, you can be sure that it will be.

I have seen at least one valuer sued in this situation, although his value was correct and very defensible.

However, the legal costs of defending the valuation were so high that it was cheaper for his insurer to settle for about $100,000. One of the problems was that the valuer’s report was badly drafted, it was unclear as to how he had reached his conclusion, and it did not meet Property Institute standards. This made it easy for the opposition to undermine the credibility of the whole thing. Being involved as an expert witness was a good lesson.

Valuing within your experience In the course of any large-scale valuation, it is not unusual for a plant and equipment valuer to have to value an item of equipment that they might never have encountered before. It can usually be valued using one or more of the standard methods. However, there are certain specialised types of equipment which require so much technical knowledge to value that generalist plant and equipment valuers should avoid them.

Aircraft are a good example. This is because all aircraft airframes engines, undercarriages and most components have to be certified, with running hours logged and various parts inspected, replaced or reconditioned by certified people at various hours.

To illustrate, two aircraft may have been built in the same year but one may have newer engines which are due for a complete rebuild, whereas the other has original engines that have done low hours. The one with the newer engines would usually be worth less. The valuer has to know at what hours inspections or rebuilds are due, what the actual hours are, where to find all the documentation and so on. People who value aircraft are therefore usually specialists who have spent time working within the aircraft industry.

Extensive travel Plant and equipment valuation tends to involve far more travel than property valuation. Because the 6 Property Quarterly Vol 4, Issue 3, September 2014

market is international, a plant and equipment valuer is not confined to a specific geographical patch in the same way that ordinary property valuers are.Valuing in Australia for us is like going to the outer suburbs, and you can easily end up in some fairly remote places.

I know one valuer who was very lucky not to be taken hostage by armed rebels he bumped into while inspecting a river water intake in a Philippine jungle.

Usually an international plant and machinery valuation will involve multiple sites and locations in a country and a lot of internal travel. This can be a blessing if the area is scenic and the schedule not too tight, but it can also be tedious and risky. There are many countries where the driving skills are even worse than the average New Zealander and several where you just have to avoid driving at all. Travelling and staying at nice hotels sounds wonderful, but it palls dramatically after a week or so. Hotel food tends to be very rich, and despite the extra exercise you get from the leg-work during the site inspections, it is easy to return home rather more plump than when you left.

Plant and equipment valuation is therefore an unusual occupation. There are only about 30 registered valuers in New Zealand who do this, although the variety of places and obscure equipment or processes you get to see make it extremely interesting.You get to deal with a broad spectrum of people, from CEOs to factory managers to engineers. There is never a dull day working in plant and equipment valuations.

Graham Barton is an Associate Director at Jones Lang LaSalle in Auckland and has been valuing plant and equipment for 24 years.

Contaminated land

Do not write off contaminated land Brett and Helen Mongillo A council informs a prospective buyer that the land they are considering buying may be contaminated because it has a Hazardous Industries and Activities List land use. What is the first instinct? Run. What is the second thought? Perhaps I can get a good deal. Which thought holds more wisdom? We recommend a new default thought – How can I get more information?

Finding out that land you are intending to buy, sell or develop is contaminated is really no different from finding out that it does not have a good water supply or good road access. It is simply a hurdle which needs to be crossed in order to complete your project. The trick is to know how much time and money it will cost, and accounting for that when planning the project. The more information you have, the more likely your project will be a success.

What information is needed? Some relatively easily accessible information is available which can help clarify cost liabilities and opportunities. Let us first focus on questions that need answering and which will lead you to information that can provide guideposts in your decision-making process.

Has the hazardous land use affected the land?

The Ministry for the Environment developed the Hazardous Industries and Activities List, frequently referred to as HAIL, to identify land uses that could potentially lead to contamination of soil or water. For example, the presence of a chemical storage tank is a Hazardous Industries and Activities List land use and this may cause concern regarding environmental liabilities.

However, if there has never been a leak or release of the stored chemical, there has been no effect on the property. The property will continue to be listed as a ‘Hazardous Industries and Activities List site’ but will not be considered contaminated.

What is the proposed use of the property?

Before you get too far into the process of evaluating whether contamination on a property will be a financial nightmare or not, you need to know the proposed future use. If soil or water at your property has been affected by chemicals, then the land use becomes very relevant to assessing risk. This is described in more detail below. If Vol 4, Issue 3, September 2014 Property Quarterly 7

Contaminated land

you do not know the future land use, then you will have to be more conservative in your approach to estimating costs for clean-up or management of contamination.

Will the chemicals affect the future property occupants?

In situations where the Hazardous Industries and Activities List has affected the land, in New Zealand’s risk-based framework the next question is whether there has or will be an effect on the site occupants or the surrounding ecosystems. How the land will be used is relevant to the assessment of possible effects and the associated costs with mitigating those effects.

Let us say a property was used for an apple orchard and in the past DDT was sprayed to kill pests. If the plan is to use the site for a commercial development, higher levels of DDT are allowable in the soil than if you are planning to use the site for a residential development or a pre-school. This is because children, who like to play outside and some who especially like to play in dirt, are much more likely to be exposed to surface soil than office workers.

If the level of DDT in the soil is below the acceptable levels for commercial land use, as defined by New Zealand standards, then the land can be considered ‘not contaminated’ for commercial land use. The same land can also be considered ‘contaminated’ for residential use if the levels are greater than standards for residential land use. So the word contaminated is not an absolute.

To take this explanation a bit further we should think about dose. Risk is related to exposure to something dangerous. Whether a chemical is dangerous depends on the dose you receive. We need essential minerals for a healthy diet, but too high a dose can become a hazard. At contaminated sites the probable dose which a site occupant may receive is related to length of exposure and frequency of exposure. For each chemical of concern, toxicologists have identified that at a certain dose level, health problems are likely to occur.

These health effects could be chronic and only occur after a long time or acute and occur quickly.

On property where exposure times are long and exposures occur frequently, such as a residential property where pre-schoolers are on the lawn playing nearly 8 Property Quarterly Vol 4, Issue 3, September 2014

Contaminated land

every day, then allowable concentrations of contaminants must therefore be lower. If the exposure times and frequencies are smaller, such as for commercial or industrial property, then contaminant levels are allowed to be substantially higher.

The only way to find out the levels of any other chemical in the soil is to have soil samples taken to a laboratory for testing. The results of the tests can then be compared to soil standards which the Ministry for the Environment has developed for the various types of land use – commercial, industrial, residential and recreational.

How much will it cost to get relevant information?

The Ministry for the Environment has developed a series of Contaminated Land Guidelines which describe the step-wise process for site investigation. In January 2012, the government also gazetted a standard – the National Environmental Standard for assessing and managing contaminated soil for the protection of human health.

According to the Ministry for the Environment, the first step to better understand a contamination problem is to undertake a preliminary site investigation.

In general, the preliminary site investigation is a desktop study where available information is gathered and reported. Often a site walk is completed, but no intrusive work is carried out, such as sampling, trenching or drilling. District and regional councils often hold historical hazardous industries and activities list land use information about properties which can be provided on request.

Title records and historic aerial photographs are also available, and people who have lived or worked on the site or nearby properties are often excellent sources of anecdotal information about site history. Depending on the complexity of a site, the cost of a preliminary site investigation report may range from $2,000 to $5,000.

A contaminated land specialist can quickly collate the information and make recommendations on probable areas of environmental concern and whether more investigation is required. At this stage you may have enough information to value a land development project.

High levels of uncertainty may remain at the preliminary site investigation stage, which can be dramatically lowered with some soil or water testing.

This is where cost-benefit decisions are required, which must factor in the risk appetite of the prospective buyer or land valuer.

What is involved in detail?

A detailed site investigation involves testing of soil or water to measure the type, levels and extent of chemicals of concern which might be present. Suitably qualified and experienced professionals should be used to oversee the work and obtain the samples. This ensures the quality of the data generated is appropriate for assessing site risks, and it is required under the National Environmental Standard. The type of laboratory tests undertaken depends on the site history and what chemicals would most probably be present if a release to soil or water occurred.

The costs associated with a detailed site investigation can vary widely. They depend on whether it is just a few soil samples for one chemical or if numerous areas of a property need to be characterised requiring many samples and a range of chemicals to be analysed. Investigation costs escalate further if monitoring bores are needed for sampling groundwater.

A detailed site investigation may cost tens of thousands of dollars, but for a significant land purchase this may be a relatively small price for reducing uncertainty.

Getting a property fit for purpose Once you have completed the investigation stage of the process, the next appropriate question should be about the costs of getting a property fit for purpose. If a property is not going to undergo any changes, even though site contamination may be present, New Zealand law generally leaves it up to a property owner to decide if any action will be taken unless there is an immediate threat to human health or the environment.

It is only when substantial earthworks with greater than 25 cubic metres of soil disturbed in a 500 square metre area, subdivision, or change of land use are proposed that the need for consent is triggered. In the process of granting a consent the district or regional councils have an opportunity to require specific actions by the landowner or prospective buyer.

With enough information, cost estimates for cleanVol 4, Issue 3, September 2014 Property Quarterly 9

Contaminated land

up or management of contamination can be made. For sites where contamination has been documented, the economic costs associated with property development may relate to obtaining the following − • A National Environmental Standard consent The preliminary site investigation is generally submitted with the National Environmental Standard consent application. A detailed site investigation or environmental site management plan may also be required • Building and subdivision consents from the district council These may have special provisions aimed at mitigating possible future human healthproblems • Stormwater consent from the regional council Special consent conditions may apply to control the off-site migration of contaminants via stormwater.

Contaminated properties may also require special consents for wastewater management, depending on the local plan rules • Remediating the property This can involve covering contaminated soil to prevent exposure or digging soil and transporting it offsite to the landfill as part of the environmental site management plan.

Time should also be considered. Obtaining a resource consent can be a long process and may involve public hearings, additional investigation and remediation.

Remediation If remediation is required for a site, a range of options should be developed so that the most practical and cost-effective measures are selected. The following are examples of remedial actions or strategies – • In some cases land which is contaminated needs to be remediated by removing the contaminated soil or relocating it to a place where people will not be exposed to it • In many cases putting in administrative controls such as requiring raised bed vegetable gardens can effectively solve contamination concerns • Choosing to change the type of development from standard residential to commercial or high-density residential can sometimes avoid the need to manage or remediate site contamination because those site 10 Property Quarterly Vol 4, Issue 3, September 2014

uses have lower exposure rates.

Whenever contamination is left at a site, and engineering or administrative controls are required to minimise exposures, an environmental site management plan is necessary to communicate the requirements to the site owners. The plan must be attached to the property files to make sure their functions are clear to future owners.

Environmental regulation There is one other difficulty in managing risk associated with any property in relation to site contamination.

Rules have a tendency to change.

New Zealand does not currently have a standard for soil to protect aquatic ecosystems. There are guidelines to assess ecological risks, but the interpretation of these can vary widely between councils and their representatives. In the future, a plan rule or standard may be established which requires a more conservative approach to managing contaminants on a site. No technical consultant can provide definitive answers on how to manage the moving target of environmental regulation.

Gather your information You have just taken a virtual trip through the process of determining if you should run from a potentially contaminated site or give it a go. The process may seem a bit daunting, but with the help of an environmental professional, and a planner or lawyer, cost liabilities can be reasonably framed and compared against the other economic values of a property.

The take-away message is that investment in gathering information can exponentially reduce financial risks associated with contaminated sites. With adequate knowledge, what was thought to be a liability may just turn out to be an opportunity.

Brett and Helen Mongillo are the directors of Sephira Environmental Limited based in Christchurch. Brett is an environmental chemist who was senior advisor for Environment Canterbury’s Contaminated Land Team.

Helen is an environmental engineer and hydrogeologist.

New era of safety

WorkSafe NZ brings in new era of safety Gordon MacDonald Big changes are under way in workplace health and safety in New Zealand. WorkSafe NZ is a dedicated workplace health and safety regulator launched late last year. The focus is on lifting this country’s health and safety performance, particularly in high-risk sectors such as construction.

WorkSafe NZ regulate and enforce workplace health and safety, and energy and gas safety. It was created in December 2013 as a stand-alone Crown agency with a focus on transforming workplace health and safety attitudes and performance. WorkSafe took on the staff and functions of the health and safety group of the Ministry of Business, Innovation and Employment, which was previously the Department of Labour.

The annual budget is $80 million, an increase from $53 million. The total inspectorate resource will increase, with the number of inspectors increasing from 115 to 200, and high hazards and major facilities inspectors going from six to 29 by 2016.

WorkSafe NZ’s establishment was one of the main recommendations of the Independent Taskforce on Workplace Health and Safety, which was part of the response to the 2010 Pike River mine tragedy in which 29 men died. Pike River laid bare the fact that New Zealand has had a poor record in workplace health and safety. A stand-alone agency was required.

WorkSafe NZ therefore have the mandate and the resources for a critical role in ensuring workers in New Zealand come home healthy and safe every day.

We enforce a range of legislation including the Health and Safety in Employment Act 1992, the Electricity Act 1992, the Gas Act 1992 and Plumbers Gasfitters and Drainlayers Act 2006. A major overhaul of the current law is also under way, with a new Health and Safety at Work Act expected to be in place and operational by April 2015.

High rate of workplace deaths A small group of industries, construction, forestry, agriculture, manufacturing and fishing, account for more than half of the annual deaths and serious injuries in New Zealand. These are among WorkSafe NZ’s top priorities.

Vol 4, Issue 3, September 2014 Property Quarterly 11

New era of safety

New Zealand’s average of 75 workplace deaths a year is seven times the rate of the United Kingdom’s on a population basis. In addition to the death and injury toll, up to 900 more workers die each year of workrelated diseases or illnesses. About 170 of these deaths each year are asbestos-related. Others are from cancers, as well as cardiovascular and respiratory diseases caused by workplace exposure. New Zealand is therefore losing far more people per head of population than other first world countries.

Those numbers have to change and the government has set clear targets – it expects a 25 per cent reduction in deaths and serious harm by 2020. We have been asked to lead the push to that target but it will have to be a joint effort to get there. Every board director, manager, worker, union and health and safety advisor has a role to play. It is not the task of WorkSafe NZ alone. WorkSafe NZ, as the health and safety regulator, will strongly enforce where necessary. This is an unprecedented opportunity to make a real difference.

Canterbury a priority Ensuring a safe Canterbury rebuild is a high priority.

Several of the focus areas come together in Canterbury where the construction and infrastructure-related rebuild is on an unprecedented scale. The Rebuild Health and Safety Programme has a dedicated team of inspectors focusing on the greatest risk areas for serious harm. These include proactive site assessments on work involving asbestos, excavations, working at height and mobile plant.

The programme team is also working on a range of initiatives to benefit construction workers, contractors, employers and principals as well as the construction industry nationwide. Initiatives have included trade breakfasts, information sessions, forums and seminars on high-risk health and safety issues. So far more than 2,000 people have attended these sessions. Our staff are there 12 Property Quarterly Vol 4, Issue 3, September 2014

to provide guidance, support and advice, and to do what they can to promote high standards of health and safety.

We are pleased with the Canterbury Rebuild Safety Charter which is a joint partnership with industry leaders and government. More than 100 organisations including major construction, engineering and insurance companies have signed or endorsed the charter, which shows a very strong commitment to health and safety.

The charter has 10 main actions to help raise standards of safety across the rebuild – everyone knows what is expected of them and what they have to do to keep themselves and others safe. This is the type of innovative initiative which has national appeal and we are very keen to see it replicated in other centres.

Legislative reform coming The Health and Safety Reform Bill was introduced to Parliament in March 2014. An overhaul of the law is central to Working Safer, the government’s reform blueprint for workplace health and safety. It has been referred to as the most significant reform of New Zealand’s workplace health and safety system in 20 years.

The aim of the Health and Safety Reform Bill is to modernise New Zealand’s approach to health and safety at work. Among the proposed changes is a new definition of responsibility in the workplace. It will be the core duty of a person in charge of a business or undertaking to ensure the health and safety of downstream workers, contractors and subcontractors as far as is reasonably practicable. There will also be a much greater requirement for them to consult and support their employees in health and safety matters. In addition, the Bill proposes a more effective enforcement regime with stronger penalties, enforcement tools and court powers. We expect the new law will come into effect in April 2015 replacing the Health and Safety in Employment Act. A suite of regulations is required to support the

New era of safety

new Act, which specifies what duties various parties have, and the regulations outline how those duties can be met in particular circumstances. The first phase of regulations will cover − • General risk and workplace management • Worker participation, involvement and representation • Work involving hazardous substances • Major hazard facilities • Work involving asbestos.

Changes to directors’ duties There are also significant proposed changes to directors’ duties in the Bill. The proposed law requires directors and other officers to exercise due diligence to ensure that the person in charge of a business or undertaking complies with its duties. The due diligence duty is individual to the officer. If the officer exercises due diligence, they cannot be liable regardless of the conduct of the person in charge of a business or undertaking or other officers. The Bill defines due diligence to include the officer taking reasonable steps to −

• Acquire and keep up-to-date knowledge of work health and safety matters • Gain an understanding of the nature of the operations of the business or undertaking of the person in charge of a business or undertaking and generally of the hazards and risks associated with those operations • Ensure that the person in charge of a business or undertaking has available for use and uses appropriate resources and processes to eliminate or minimise risks to health and safety from work carried out as part of the conduct of the business or undertaking • Ensure that the person in charge of a business or undertaking has appropriate processes for receiving and considering information regarding incidents, hazards and risks, and for responding in a timely way to that information • Ensure that the person in charge of a business or undertaking has, and implements, processes for complying with any duty or obligation of the person in charge of a business or undertaking under the Act • Verify the provision and use of the resources and processes referred to above.

A safety culture A safety culture is not something WorkSafe NZ can produce on its own. The Minister has said that it requires leadership and action from business and workers, working with government and sharing the responsibility.

The real game-changer will be when there is acceptance from everyone that what we all do really counts.

This is the most significant set of opportunities which New Zealand has had in 20 years. We need to grab it, commit to it, and make it work. Lives depend on it.

Gordon MacDonald is CEO of WorkSafe NZ based in Wellington. He came into the role after a 35-year career at the United Kingdom’s equivalent regulator, the Health and Safety Executive.

Vol 4, Issue 3, September 2014 Property Quarterly 13

Rural valuation report requirements

Rural valuation report requirements Neill Sullivan and Callum Taylor The importance of the valuation profession to the New Zealand economy is widely acknowledged and its contribution is equally important in the urban and rural sectors. The country relies significantly on farming to pay our way in the world, and on this basis professionals operating in rural-related disciplines have a critical role in maintaining and advancing our well-being.

This sentiment has been further reinforced during the work which Land Information New Zealand has undertaken for the review of the occupational regulation of valuers. Meetings and consultation with business leaders and other stakeholders throughout the country have highlighted the risks that would be posed to our economy if we had a sub-standard or poor-performing valuation profession. As a result LINZ is proposing to recommend to the Minister for Land Information that the highest level of regulation available should be imposed. This means that the current Valuers Act 1948 is on course to be replaced by a new modernised Act, rather than some lesser form of regulation.

Given the above recognition of the importance of the valuer’s role in the economy, all practitioners should operate in a manner which is compliant with valuation standards and which also enhances the reputation of the profession. This article has been adapted from a presentation at the 2013 Lincoln Mainland property seminar which looked at the application of valuation standards and best practice rural valuation reports. In doing so it focuses specifically on areas of standards compliance for rural valuers covering main issues such as − • Documentation of comparable evidence • Explanation of valuation conclusions • Presentation of valuation reports • Compliance with current rural valuation standards.

It also represents observations made following the review of several rural valuation reports that come before the Office of the Valuer General for various regulatory compliance purposes.

Rural valuation reporting The valuation report is the profession’s window to the world so it must at the very least correctly recite and meet the appropriate standards. It must also detail 14 Property Quarterly Vol 4, Issue 3, September 2014

assumptions critical to the valuation result and provide clarity on the risks to maintaining the value.

Correct standards The appropriate standards are the International Valuation Standards 2013 along with the guidance notes within the Australian and New Zealand Property Institute Valuation and Property Standards (2009). Guidance notes relevant for rural valuation reports include IVGN 1, ANZVGN’s 1, 2, 3 and 10 (Valuation of Agricultural Properties).

Reports that continue to cite the Institute of Valuers practice standards are non-compliant because this document is years out of date and no longer applies.

It would be advisable to check your report immediately after reading this and see how current you are.

Preparation and presentation No rural valuation should be started without a full awareness of district and regional planning documents and associated Resource Management Act 1991 concerns, including the raft of plan changes, and a careful examination of title memorials.

Assumptions critical to the valuation result should be in the front of the valuation report and not buried in the back. Examples would be resource consents, such as water rights, which underpin the property’s use and value or title encumbrances that may restrict land use.

Remember that at times the reader will not be familiar with the geographic location of the property, especially in isolated or remote areas. Reports should therefore include a map to assist in identifying the location of the property being valued.

Clarity, tone and peer review Consider an executive summary which gives the reader an overview of the property, the likely reaction of prospective purchasers if it was placed on the market, and the risks to maintaining the value. An example of risks

Rural valuation report requirements

to value could be a tightening of nutrient management loading by a regional council. This is a real and increasing risk to the sustained land use and therefore the level of value of the property. Readers of your report should be made very clear about the implications of any changes that could affect land use and therefore value.

Avoid mixing farm management due diligence with facts surrounding land use and productivity.

Critical or subjective assessments of the quality of farm management and animal husbandry regimes can be challenged and may detract from the essence of the valuation, as well as potentially breaching the code of ethics.

More complex assignments should be peer reviewed, especially for linking of sales evidence to valuation conclusion and writing accuracy. Small firms may need to establish a protocol amongst themselves to facilitate this.

Comparative sales In terms of their relevance, sales are the lifeblood of valuation and this is no different in a rural context.

Careful thought is required on the number of sales and how they are analysed. A generic dump of sales into a report without differentiation is not helpful and dilutes a reader’s confidence in the professionalism involved. It is far better to have fewer sales that are well researched and analysed than a large number of inadequately analysed sales that compare poorly or are not relevant to the subject property.

The sales selected should cover the upper and lower limit to the value of the subject property. Factors that influenced the sale price and prevailing market circumstances in which the sale took place should be considered when determining relevance for comparison purposes. This would include weighing up the relevance of sales where the price was due to competing adjoining owners or sales which were bid up because they were very well suited to an alternative higher use. This is important to ensure that your sales evidence is relevant to the property being valued.

Sales should be analysed in a consistent manner. For example, the use of consistent land class breakdowns and value per unit of production parameters are critical to ensure ‘like with like’ analysis.Valuers should explain why they apportion land values across various land classes in a particular way so the reader is clear about the way this process operates. There is also an increasing trend amongst rural valuers to analyse sales in different ways such as on a dry matter basis, which is arguably less blunt than analysis on a purely production basis alone. If this analysis is used it should also be explained.

For land use changes where properties sell for a higher use and still include original improvements, then

valuers need to think carefully about the added value.

Woolsheds on dairy conversion land may need to be written back significantly, although they may still offer some use for calf-rearing. Dairy farms with uneconomic production levels, but with modern rotary milking sheds, might be considered over-capitalised. Similarly, additional houses may have a higher or lower added value when land use changes and need individual review in the context of the highest and best use.

Sales and valuation conclusions The key to the valuation report is the ability to link the sales evidence to the valuation conclusion. This step is a fundamental part of compliance with the Institute of Valuers code of ethics clause 1.5 and IVS 2013 (103 Reporting).

Market commentary A market commentary is essential to help the reader about the state of the market and any subsequent risk in the short term to the sustainability of the value. Market comments should be concise and provide expert opinion on the property attributes which produce value. The valuer should also consider the client when writing market comments and adhere to the approach set out in the scope of works for the valuation assignment.

The commentary must be relevant to the locality and property.

If wider market behaviour is referred to then the linkage to the subject must be fully explained. Overseas clients with little or no understanding of the prevailing rural market and economic factors may need a detailed market and economic commentary in the report. This may be better placed in an appendix to avoid distraction from the fundamentals of the valuation process and conclusion. In fact, it may be preferable to refer readers to independent macro-economic reports by economists rather than trying to interpret and articulate economic data yourself. At the very least main economic factors affecting the subject property should be explained.

Sales conclusions The commentary around each sale should, as a minimum, state whether it is inferior, comparable or superior to the subject property. A more thorough approach would be to extend the commentary to comparing different aspects of each sale property to the subject, for example, location, production, contour, soils, rainfall, standard of improvements and scale.

Allowances for items such as shares which may underpin value, such as milk supply shares or irrigation company shares, should be clearly explained. The use of a table ranking the sales by comparability to the subject is recommended, preferably one which includes the details Vol 4, Issue 3, September 2014 Property Quarterly 15

Rural valuation report requirements

Comparable sales ranking table Address

Sale date

Sale price Area

Production

NSP $/ha

NSP $/SU

Poor flats

stock units Oct 2013

$2,300,000 177

2000

$13,000

$1,150

2 Nash Road

Dec 2013

$2,345,000 152

1700

$15,425

$1,380

1 Key Road

Feb 2014

$2,525,000 165

1975

$15,300

$1,275

133 Holyoake Road

Nov 2013

$3,785,000 166

2200

$22,800

$1,720

234 Holland Road

Jul 2013

$3,885,000 194

2400

$20,000

$1,620

Valuation conclusions The valuation conclusion should link all the component parts of the valuation together. An explanation should be provided which draws the evidence and the valuation together in a way which is consistent with the sales analysis, remembering the doctrine of ‘as you analyse so you value’. It is useful even if you have identified sales as inferior, comparable or superior to again state the relevance of the main sales to the subject in a separate narrative. This should draw the evidence together and explains the valuation conclusion.

Emerging trends in rural valuation The IVS 2013 recommends using a cross-check method to support valuations. Our commercial valuation cousins already use a cash flow multiple method, and in the rural valuation sector there is an opportunity to benchmark the valuation conclusion for economic properties.

Examples of this would include market value divided into total farm income or earnings before interest and taxes divided into sale price or value. Each provides a ratio or percentage that can be compared to both the sales and the subject, providing that a consistent measure of revenue and production is used, based on an average efficient approach.

Geographic information systems are booming and offer extensive opportunities for valuers to improve sales analysis and enhance their valuation report presentations.

A picture tells a thousand words and the electronic offerings available provide good examples of this which should be more widely used. LINZ has a data server 16 Property Quarterly Vol 4, Issue 3, September 2014

Downs

Dollars per hectare

2013 Seddon Road

of the subject property and its proposed value within the body of the table. This provides a graphic representation for the reader of how the sales relate to the subject.

The example in the table has land class breakdowns, but thought must be given to the appointment of value between land classes. The breakdown should be apportioned on the basis of material contribution to the property and should be capable of independent verification. Carrying capacity based on dry matter production or the use of geographic information systems are useful methods in this area.

Good flats

$11,800

$10,500 $12,500

$16,750

$17,000

$13,500

$23,000

$18,000

$18,000

$11,000

system providing free access to national data for imagery, topographic, cadastral and other electronic information.

This is available at www.data.linz.govt.nz.

Get help if you need to If you do not know what a geographic information system is or struggle to use computers, then get some external help as it will enhance your valuation report and probably save you significant time in the long run.

The recent changes to the Crown Pastoral Land Act rent review process resulted in the production of detailed physical layer electronic maps for much of the South Island displaying things such as contour, aspect, altitude and rainfall. These are available from Landcare Research at https://lris.scinfo.org.nz. This site also provides access to nationwide land-related data such as soil type, land use classification and cover.

An example of the mapping capability of landrelated data used in the Crown Pastoral Land carrying capacity project is shown on the next page. This map displays land use classification.

Water affects value The rapid increase in irrigation opportunities and subsequent land use change is significantly affecting the value of rural properties across the country.Valuers need to get a better understanding of the nature of water rights and resource consents generally and form a view about where they fit in the valuation build-up. Are they items which go into land value or improvements value?

Does this change depend on the scarcity or otherwise of obtaining them? Are they tied to the land and if so, by what instruments are they held? This is especially important where the value assessed is dependent on the resource consents or shares being tied in.

Aligned to the increases in irrigation are the new innovations in technology to apply the water. These have moved a long way from border dyke and wild flood using roto-rainers and now centre pivot systems.

As the technology improves, the fixture of the irrigation mechanisms is increasing and they may now qualify for recognition as improvements rather than non-fixtures.

There will be machinery items which will not qualify as improvements, but much of the distribution

Rural valuation report requirements

Land use capability map – Cora Lynn Station

arms could well be included. The basis for considering this question would probably hinge on the intent and degree of annexation involved. It would make for an interesting topic at a forum such as at the Lincoln Mainland seminar and enable development of industry discussion and consensus.

Nutrient management restrictions and the wider use of Overseer are initiatives being introduced by regional councils to manage environmental constraints and are affecting market sentiment. Careful research and understanding of these initiatives is increasingly important for rural valuers as they affect the sustainability of land uses and value.

Conclusion The valuation of rural properties is becoming increasingly complex and there is a real challenge and opportunity for valuers to correctly apply the current standards. The role played by valuers in underpinning New Zealand’s future growth in agriculture is a critical one and practitioners need to be very aware of this.

Their signature on the report carries considerable weight

and responsibility to those relying on the valuation and the profession as a whole.

Feedback from the users of rural valuation reports indicate that some rural valuers have been slow to adopt changes in the valuation standards and in particular, do not present their sales analysis and reports in a manner which draws a logical valuation conclusion.Valuers should never under-estimate who may end up reading and relying on their reports. This is especially so if the report is addressed to a bank as it could come under some form of regulatory scrutiny such as from the Reserve Bank or the Valuer-General’s office. If the rural valuation profession does not make the changes required to meet the practice standards, and provide robust reports with sales analysis which is consistent, comprehensive and links to the valuation conclusion, they risk other alternatives being put in place to replace them.

Neill Sullivan is Valuer-General and Callum Taylor is a Senior Valuation Adviser at the Office of the ValuerGeneral, Land Information New Zealand based in Wellington.

Vol 4, Issue 3, September 2014 Property Quarterly 17

A rural valuer

A rural valuer in the King Country Adrian Doyle After spending 14 months as a graduate valuer in the Valuation New Zealand office in Masterton, in 1997 I returned to my home town of Taumarunui to begin life as a small town valuer. Ken Luoni had been in practice for many years and had kept the practice open while I trained at university and gained experience outside the district. I distinctly remember the first morning in private practice, turning up at 8 am. Ken arrived a few minutes later and, after two hours of discussing various functions of the office, he stood up and said to me, ‘Right I’m going home. If you’ve got any problems, give me a call’. Out he went – retirement beckoned.

I recall my heart pounding and dreaded the thought of the phone ringing. There were no digital cameras, no spreadsheets, no cell phones and no templates.

A typewriter stood in one corner. Having such responsibility at a young age sharpened my skills quickly and there were many discussions with Ken after work over a glass of wine.

One of the most successful habits adopted in those early years was to reduce the valuation fee by the charge-out rate if I was late for an appointment. Most valuers charge by time and in my opinion a client’s time is just as important as my own. I am seldom late these days.

After modernising the practice, it was on to a new challenge. In late 1999, Roger Hughes enquired as to whether I would purchase his Te Kuiti practice. Roger was terminally ill and negotiations were conducted and concluded at his bedside. I literally sat down at another man’s desk that first morning, not knowing the area or any of Roger’s systems or clients. I remember the first phone call when a client requested a lifestyle valuation in Kinohaku. On the pretext of calculating the fee, I frantically searched a map of the district trying to find the place, with little success. I then plucked an estimate out of the air, and after two hours on a windy road found that I had significantly under-quoted.

I was always impressed with Roger’s signature line, ‘I value the King Country’, and particularly the vehicle number plate which I purchased with the business. I VALUE is well known in the district and is seen down many side roads. It epitomises how I feel about the district.

18 Property Quarterly Vol 4, Issue 3, September 2014

A rural valuer

Feast or famine The area now covered extends from the Puniu River just south of Te Awamutu, out to Kawhia on the west coast, down to Mokau, across to Waiouru and along the Desert Road in the central North Island to the western shores of Lake Taupo and up to Mangakino. It can take two hours to drive to the first job of the morning, and notes for this article were dictated making one such trip. I am proud to say that in my entire patch there is not one traffic light. Large areas are either in Maori ownership or the conservation estate.

The population of the King Country is approximately 30,000 and includes the townships of Otorohanga, Te Kuiti and Taumarunui. Ohakune in the Ruapehu District is also covered. Servicing such a large area with a small population can lead to a rather bumpy cash flow. Weeks, if not months, of regular work can suddenly come to a stop. Having invested a significant amount of time and capital in a business, it is daunting when no income is produced. It can be a matter of hours between collecting firewood and shifting sheep to being under pressure and meeting numerous deadlines once again.

Variety is the spice of life A small town registered valuer has to be a master of all trades. The figures show that 37 per cent of Doyle Valuation Ltd income is from rural valuation, 29 per cent from residential, 17 per cent from insurance and 17 per cent from commercial and industrial. Rural people are very accommodating, particularly when you arrive on their doorstep to value their lifestyle block or commercial property in your gumboots, with your ute parked outside their front door and covered in mud.

I have valued in the snow, negotiated rockfalls in progress to meet inspection times, found patches of interesting herbs, chased wild pigs down raceways, valued thousands of hectares in the pouring rain, valued by aeroplane and helicopter, tramped up mountains, down caves, forded streams in a two-wheel drive car and recently even inspected my first P lab. I have valued slumping houses, sinking houses, rotting houses, firedamaged houses and once even a whole town that had

been affected by flooding. I was known as the de-valuer that time.

The market I found viewing the local economy from a macroperspective very difficult. Mainstream news media and national statistics had parts of my area classified under Manawatu/Wanganui, parts under Bay of Plenty, parts under Waikato and others under Taranaki. After five years of frustration, the King Country Economic Commentary was born in 2002. That publication is a quarterly update on the King Country property market. All back issues can be found at www.doylevaluations.co.nz.

Price in dollars 500,000

Median house price

400,000 300,000 200,000 100,000 0

2008

2009

2010

2011 Year

2012

2013

National median

Te Kuiti

Ohakune

Taumarunui

2014

Otorohanga

House prices in relation to the national median

It is an excellent discipline as a sole practitioner to take a breath on a quarterly basis and look at the sales evidence from a wider perspective. At present, the most interesting factor in the residential sector is the growing gap between urban and rural New Zealand.

Lately there has been a growing gap between local median house prices and the national median due, in my view, to two significant factors. First, there is the continued urban drift from rural centres. For example, between the census periods 2006 and 2013 the population of the Ruapehu District fell by 1,728 or nearly 13 per cent. There is no shortage of housing in rural New Zealand.

Vol 4, Issue 3, September 2014 Property Quarterly 19

A rural valuer

Secondly, in any given year, throughout the King Country the number of new houses can be counted on one hand – two hands in a good year. The age and quality of the housing stock is below average and declining.Valuing houses on a quarter acre section at between $15,000 and $30,000 is not uncommon.

When the added value of improvements are significantly below construction cost the market for bare land is depressed. Bare land values in some townships have dropped by two-thirds from the highs of 2008.

Residential land values throughout the district are in decline. In some smaller isolated communities, no market exists for bare land and a nominal amount of $1,000 for a quarter acre section is the norm.

The net result is that median house prices have flat-lined, with movement dependent on the number of surplus houses the government is selling off. These houses are generally located in the less desirable parts of town and tend to pull the median down when they sell.

Price in dollars 200,000 180,000 160,000 140,000

Property around the median house price

was closer to 50 per cent and remained low until 2011.

Since then there have been small and dramatic rises in land values, the two most recent being a 25 per cent lift in May 2013, with a further five per cent lift in December 2013, culminating in values similar to the 2008 highs.

Local real estate agents are also operating on a feast and famine diet. There were 29 sales of properties of over 100 hectares for the year beginning May 2013, still well off the high of 43 experienced in 2008. The median farm price is $2,525,000, with the average farm size now at 557 hectares. Rural estate agents are reporting a lack of quality listings.

Commercial rents

120,000 100,000 80,000

4 4 3 3 -13 ul-13 ug-1 ep-13 ct-13 ov-1 ec-13an-14 eb-14 ar-1 pr-14 ay-1 un-14 J O N D J S A J M M A F

Jun

Ohakune

Te Kuiti

Otorohanga

Taumarunui

Median house prices in the King Country

Over the last 17 years, lifestyle property values have been the most consistent performer of all property groups. Apart from the rapid rise through the mid-2000s, lifestyle property values have been either static or slowly rising over that time. Sheep and beef prices however are quite the opposite. Since 2008, many commentators indicated a decline in land values between 25 per cent and 30 per cent, and in the King Country that decline 20 Property Quarterly Vol 4, Issue 3, September 2014

Over the last two years commercial rentals have been soft in all three of the townships of Otorohanga, Te Kuiti and Taumarunui.Vacancy rates in main streets are increasing. Since the beginning of 2011 vacancy rates in Otorohanga have risen from 7.1 per cent to 11.3 per cent, Te Kuiti has risen from 12.7 per cent to 18.2 per cent and Taumarunui from 13.3 per cent to 23 per cent.

Only now are commercial rentals beginning to reduce. Quality office accommodation ranges from between $100 and $120 a square metre, while lesser accommodation tends to rent between $70 and $80. The rise in vacancy rates is due to several factors including online shopping and Building Act requirements. There are also personal factors in small towns as businesses close due to matrimonial splits, retirement or illness. They have yet to be re-occupied as the entrepreneurial skill has all moved to the larger centres.

A rural valuer

Challenges facing valuers Earthquake strengthening requirements under the Building Act 2004 are the biggest challenge currently facing small town New Zealand. Much of the commercial sector in Otorohanga, Te Kuiti and Taumarunui was developed in the early part of last century using unreinforced masonry. Some buildings have been demolished, some lesser quality buildings are being vacated by blue chip tenants, while many, particularly on side and back streets, stand vacant. One side street, which 10 years ago was the busiest in the town, now has a vacancy rate of over 45 per cent.

Rent reviews are almost a thing of the past as landlords struggle to retain tenants at current rentals.

What this means for the future of small town New Zealand is uncertain. Recent calculations to buy the existing improvements on a large block of the main street and demolish them came to $280 a square metre for the resultant bare land.

Developers contacted only wished to pay $50 a square metre, so the buildings remain idle. The cost of strengthening is uneconomic and building owners with assets below 66 per cent of the National Building Standard are only now coming to terms with the fact that their buildings may be worth nothing. Given current demolition costs the land is worth nothing either so it is a sad situation. The earthquake policy is good in theory, but in practice it is a nightmare and is set to decimate small town retail shopping.

Discipline is vital Discipline as a sole practitioner is paramount, given that there is no peer review process or anyone to bounce ideas off when determining the value of a property, particularly those valuations that fall outside the box.

The small town valuer becomes an expert at questioning themselves and playing the Devil’s advocate. A spouse is usually a good sounding board and sometimes the harshest critic.

We do have an informal network of valuers practising on the fringes of the region who can offer advice or just a chat when required. With technology and web-based communication, an opportunity exists in establishing a network of sole practitioners to encourage communication and eliminate the wayward thinking that can occur when operating in isolation.

Summary Working in a rural area has its advantages and disadvantages, but without doubt the former far outweigh the latter. The risk may be higher in that you do not have a support network within the office and cash flow can be a little edgy. However, many of the clients such as bankers, lawyers, accountants and real estate agents are also acquaintances. Their children are in the same rugby team, they come collecting from you for one of their causes, and no-one is afraid to have a laugh while doing business.

One of Ken Luoni’s comments back in 1997 was that being a small town valuer is a very lonely business.

It is difficult for people to understand that they cannot ask for your opinion at the swimming pool or on the sideline and much of the time you must rely on your own thought processes to come to a logical and evidence-based conclusion. However, without doubt, the King Country and the central plateau provide some of the most amazing vistas while commuting to work and I would not change it for the world.

Adrian Doyle is a Registered Property Valuer at Doyle Valuations Ltd based in Te Kuiti and Taumarunui.

Vol 4, Issue 3, September 2014 Property Quarterly 21

Legal cases

Legal cases

Fast track land acquisition and valuation principles under the Public Works Act 1981 Niven Prasad Roads of National Significance and the Canterbury Earthquake Recovery Act 2011 contain processes which have an element of fast track land acquisition associated with them. The question arises as to whether those processes come with their own valuation approaches because of the accelerated nature of the acquisitions compared to the process in the Public Works Act 1981.

The answer to this question is that the Public Works Act still has a part to play when it comes to assessing compensation. Land related to Roads of National Significance or the Canterbury earthquakes may be taken for different reasons, but the mechanics of the assessing compensation are still guided by the Public Works Act. In this article, I briefly comment on each of those processes mentioned and recap on the valuation approach, contained in summary in the Public Works Act.

Roads of National Significance Roads of National Significance are seven of the most essential routes that the government considers to be strategically significant investment needs which require ‘work to reduce congestion, improve safety, and support economic growth.’ In particular, they are − • Puhoi to Wellsford • Western Ring Route, Auckland • Victoria Park Tunnel, Auckland • Waikato Expressway • Tauranga Eastern Corridor • Wellington Northern Corridor • Christchurch motorways.

24 Property Quarterly Vol 4, Issue 3, September 2014

Naming these as Roads of National Significance was to ensure that they were given priority when the funding allocations for roads were being determined by the New Zealand Transport Agency while preparing the National Land Transport Programme. Roads of National Significance are large and complex projects which require resource consents. Since 1 October 2009, applicants such as the New Zealand Transport Agency have been able to lodge applications directly with the Environmental Protection Agency and the Minister for the Environment can intervene in the decision-making process for proposals of national significance. However, when it comes the acquisition of any land which falls within the route of a nationally significant road, the Public Works Act still applies to assess compensation for land taken in this respect.

Acquisition under the Canterbury Earthquake Recovery Act The Canterbury Earthquake Recovery Authority, through its chief executive and under section 38 of the Canterbury Earthquake Recovery Act (the Canterbury Act), can carry out or commission works. In addition,

Legal cases

under section 53, the Authority can acquire or dispose of property.

There is a notice of intention process under section 54 of the Canterbury Act which says that there is no right of objection for any land taken under that section.

The wide-ranging emergency powers given to the Canterbury Earthquake Recovery Authority under the Canterbury Act have been the subject of controversy when there has been little or no consultation with owners when demolishing buildings, closing roads, or preventing access to specified parts of Christchurch.

When it comes to the mechanics of assessing compensation for land taken under the Canterbury Act, section 64(3) says that − (3) For compensation for the compulsory acquisition of land, the Minister must determine compensation having regard to its current market value as determined by a valuation carried out by a registered valuer; and so far as practicable, the Minister must determine compensation in accordance with the relevant provisions of Part 5 of the Public Works Act 1981.

It is interesting to note that the reference to the Public Works Act is referenced with the words ‘so far as is practicable’. It should also be borne in mind that under section 64(2) of the Canterbury Act, compensation is determined as at the date of the compulsory acquisition and at current market value. This means that the value assessed is the post-earthquake value of the property.

Unlike the Public Works Act, there is no compensation payable under the Canterbury Act for business loss.

Given the relevance of the Public Works Act in relation to Roads of National Significance and land acquired by Canterbury Earthquake Recovery Authority, the compensation principles under the Public Works Act should be mentioned briefly.

Compensation under the Public Works Act Compensation under the Public Works Act is a wellknown topic to valuers. It is also a topic with many and varied nuances with a vast amount of commentary and case law related to it. I will just briefly recap on what the

mechanics are under this Act for compensation.

The compensation provisions under the Public Works Act can be found in Part 5. Compensation is assessed under section 62 to the value of the land as if sold on the open market from a willing seller to a willing buyer. There are factors which affect that base proposition, such as excluding the effect on value any public work would have or any suitability of the land for a special purpose for which there is no real market.

Disturbance payments such as moving costs, legal fees and valuation fees are payable as compensation under this Act. There is also the solatium payment under section 72 of the Public Works Act which has recently been increased in 2013 from a maximum of $2,000 to a maximum of $50,000. The concept behind this added payment is to console the landowner for their injured feelings in having their land taken. The government increased the amount with the intention of making the acquisition process more efficient by making landowners feel that the compensation is fairer. With landowners feeling it is fairer, the government hopes that potential disputes will be avoided during the acquisition process.

The potential problem with this rationale is that the land acquisition process can be a sensitive one in any case, so this increased amount may not always be enough to curtail any potential disputes.

These compensation principles have been generally described and, as mentioned above, the Public Works Act has a myriad of factors to take into account when assessing compensation. Depending on whether land is fully or partially acquired, further considerations need to be taken into account. While the language guiding Canterbury Earthquake Recovery Authority acquisitions recommends using this Act where practicable, it will be interesting to note how closely these principles are applied in practice and what circumstances preclude the Public Works Act from being used. This topic will therefore be the subject of a future article.

Niven Prasad is an Associate, Commercial Property, at Simpson Grierson in Auckland.

Vol 4, Issue 3, September 2014 Property Quarterly 25

Legal cases

Legal cases Keeping premises clean and tidy – how far does that extend?

Auckland Waterfront Development Agency Limited v Mobil Oil New Zealand Limited [2014] Niven Prasad A tenant’s obligation to keep premises clean and tidy and in good order is a common clause which has ‘boilerplate’ versions found in most commercial leases. But how much of an obligation does the clause really place on the tenant? Boilerplate clauses are provisions that are routinely found in contracts to the extent that they have standard forms.

The Auckland Waterfront Development Agency Limited v Mobil Oil New Zealand Limited [2014] NZHC 84 case shows us what the court will consider when the boundaries of this type of clause are analysed. The court in the case had to consider principles of contractual interpretation within a factual matrix where decades had passed since the obligations were first entered into.

The stakes in the case were high because the standard of repair that Auckland Waterfront Development Agency Limited sought to impose on Mobil Oil New Zealand Limited, namely remediating the sub-surface of any contamination, was worth in the vicinity of $10 million. As the concepts of interpreting this type of clause were looked at in detail, the case is instructive in having obligations clearly spelled out in any lease arrangements.

The background Mobil leased two properties, the Pakenham and ASPT sites, in the tank farm at the western end of the Port of Auckland in the area now commonly known as the Wynyard Quarter. The relevant tenancy agreements between Mobil and the Auckland Harbour Board were entered into in 1985 and included a clause requiring Mobil to release the land ‘in good order and clean and tidy and free from rubbish, weeds and growth, to the reasonable satisfaction of the lessor.’

When Mobil left the area in 2011 the sub-surface of the land was heavily contaminated because of its use of the premises, but some of the contamination had also been present in the land from the outset of the 26 Property Quarterly Vol 4, Issue 3, September 2014

lease. Toxic waste from the former gas works in the area was used as fill during the reclamation process. Further contamination was caused by the tenants who occupied the sites in the 30 to 40 years before Mobil. Some of the contamination had spread to the land from neighbouring sites, for example after the 1986 spill of 1.8 million litres of jet fuel on an adjoining Shell site.

The Auckland Waterfront Development Agency Limited, as the successor to the Auckland Harbour Board, relied on the clean and tidy clause to say that Mobil had to keep and deliver up the sites in an entirely uncontaminated state. This included any historic subsurface contamination accumulated on the sites since they were first leased to oil companies in the 1920s, but excluded any inherent contamination in the reclaimed land itself.

In the words of the court, ‘the sole issue in this case is the extent to which Mobil was contractually required to remediate the Pakenham and ASPT sites when it ceased occupying them in 2011.’

The decision The court found against the Auckland Warehouse Distributors Association’s contention that Mobil was liable to remediate all historic sub-surface contamination because that interpretation was ‘untenable, commercially unrealistic, and not in accordance with the common intention of the parties at 1985.’

The court also found that Mobil was only required to do such repairs and maintenance as would make the

Legal cases

premises fit for occupation by a lessee of the class who would have been likely to occupy them at the time the 1985 agreements were entered into. Accordingly, the lease only required Mobil to keep the surface of the premises, including the land, clean and tidy for an industrial user to occupy. That obligation did not extend to remediating the sub-surface of the land from any historic contamination.

The reasoning Justice Katz, the judge in this case, gave nine succinct reasons for her decision.

• The natural and ordinary meaning of the words of the clause was more consistent with an obligation relating to the surface, rather than the sub-surface • There was no mention in the negotiations before the 1985 tenancy agreements of sub-surface contamination issues • The phrase ‘clean and tidy’ was used elsewhere in the tenancy agreements in the context of restoring the condition of the surface of the site. The clean and tidy clause appeared to reflect similar objectives and should be read consistently with that clause • The sites were already heavily contaminated at the outset of the 1985 tenancy agreements. It would be unusual for a tenant to agree to remove historic contamination caused by entities for which it is not legally responsible. Any such agreement would normally be expressed in clear and unambiguous wording • Local government actively encouraged the development of the tank farm. If, in 1985, Mobil was to assume retrospective contractual liability for the historic contamination of the sites, that would be a significant departure from the previous basis of the parties’ relationship • The 1985 tenancy agreements were short-term periodic tenancies. The shorter the tenancy, the stronger the inference must be against a common intention to impose onerous repair obligations on a tenant • If a tenant has an obligation to put, to keep and to leave sites in a particular condition, the nature and extent of this obligation is the same at the commencement of, during, and on termination of the tenancy. It would be commercially unrealistic to hold that, on acquiring the tenancies in 1985, Mobil was required to remediate the sites. That would have been a massive undertaking which might have taken years, during which time Mobil would have been unable to use the site • It was essential that Mobil was able to determine the scope of its obligation at the outset of the

tenancy. That would be impossible if the scope of the obligation was to be assessed according to potential land uses at an unknown future termination date • Negotiations between the parties for new long-term tenancies in the 1990s had failed because Mobil would not agree to an express contractual term requiring it to remediate the sites and there was no suggestion during those negotiations that Mobil had already agreed to do so, by way of the clean and tidy clauses, in the 1985 tenancy agreements.

Auckland Waterfront Development Agency Limited also submitted that there was an implied term in the lease for Mobil to return the land free of contamination caused by it and its predecessors. The court dismissed this argument because it would be inconsistent with and broader than the express term already in the lease.

In addition, such an implied term was not required to give effect to the intention of the parties, nor was it a clause that was so obvious that it went without saying.

While the judge succinctly put forward her reasons for the decision, it is also worth mentioning the main points that she touched on in her discussion.

Interpreting ‘clean and tidy’ The starting point in interpreting the clause is to consider the natural and ordinary meaning of the words used, viewed in the context of the contract as a whole.

That must be checked against the relevant factual background known to both parties. If the natural and ordinary meaning results in a conclusion that defies commercial common sense, it must yield to common sense.

The court considered that this was not a case where the ordinary meaning of the words was so apparent that there is no need to look any further to determine the meaning of the clause. Ordinary meaning favours Mobil, but the Auckland Waterfront Development Agency Limited interpretation is possible. So there was a need to look at the factual context.

Pre-contractual negotiations Pre-contractual negotiations can be looked at by the court for the purpose of understanding the parties’ knowledge of the relevant circumstances and the setting in which they used the words in the lease. In this case, pre-contractual negotiations did not show any particular concern by either party as to the condition of the sub-surface. That made it difficult to infer an intention to impose extensive obligations relating to historic contamination from a largely boilerplate repair covenant.

Post-contractual conduct Post-contractual conduct can also be taken into account to a limited extent where that conduct is objective and Vol 4, Issue 3, September 2014 Property Quarterly 27

Legal cases

mutual, rather than conduct which demonstrates one party’s subjective understanding of the contract. Neither party suggested that the 1985 tenancy agreements already included a term that dealt with sub-surface contamination. Mobil argued that this indicated both parties had a common understanding that the 1985 tenancy agreements did not impose obligations on Mobil to remediate the sub-surface of the sites.

Justice Katz gave relatively little weight to this argument. If there was such an obligation in the 1985 agreements, it would be desirable to make it express and she stated accordingly that ‘one would normally expect this to be addressed explicitly, rather than left for inference from the general wording of the clean and tidy clauses.’

Anstruther case To determine what the scope of the clean and tidy clause actually was, Mobil put forward the English case of Anstruther-Gough-Calthorpe v McOscar [1924] 1 KB 716 (CA) as authority. In this case the court held that unless there is something contrary in the factual context, a covenant to repair should be construed with reference to the age, character and locality of the premises.

In the Anstruther case, the court had to determine whether the relevant character and locality for the purposes of the repair covenant should be assessed as at the commencement of the lease in 1825 or on expiry of the lease in 1920. At the beginning of the lease, the houses under the lease were new and in a semi-rural part of London. At the expiry of the lease, they were in a run-down neighbourhood where prospective tenants would expect nothing more than the lowest standard of repair.

The court held that the lessee was liable for the cost of putting the houses into that state of repair in which they would be found if they had been managed by a reasonably minded owner having regard to their character at the commencement of the lease term. Mobil argued that the clean and tidy clause in this case required the sites to be in such a condition that they would be reasonably fit for occupation by a lessee of the class who would have been likely to occupy them at the time that Mobil commenced its holding over tenancies.

The Auckland Waterfront Development Agency Limited opposed this. They argued that this line of cases was about repair clauses relating to buildings, rather than land, and the fact that Mobil had a right to remove fixtures on expiry of the term recognises that the land’s future use is not necessarily determined by its use at the commencement of the lease.

The court applied the Anstruther test, to say that Mobil was required to keep the land in a condition suitable for a lessee of the class who would have been 28 Property Quarterly Vol 4, Issue 3, September 2014

likely to occupy the land as at 1985. That test, the court said, provides commercial certainty. Justice Katz commented that ‘in 1985 the Pakenham and ASPT sites were both zoned for industrial use and the tank farm was still fully operational. There was no realistic possibility of the land being used for commercial or residential purposes at that time.’ The contemplated class of tenant in 1985 would have been a heavy industrial user who would not have been unduly concerned about sub-surface contamination.

What does the case teach us?

Repair clauses in leases are usually non-contentious, but parties should turn their mind to what exactly is required of them when the expression ‘clean and tidy’ is used. The court approached the interpretation of the clause in the Auckland Waterfront Development Agency Limited case with reference to the factual circumstances, even though the clause can be a standard boilerplate clause. Clear written words can therefore alleviate any ambiguities which arise from the facts in a party’s arrangements.

The judge made the comment about environmental awareness being a relatively recent phenomenon, and how use arrangements for premises will now incorporate such an awareness and understanding between the parties. The relevant tenancy agreements in the Auckland Waterfront Development Agency Limited case pre-dated the Resource Management Act 1991 by more than five years. The court even commented that ‘while it is possible now to determine whether Mobil’s use of the land was at all times reasonable, judged against the laws, regulations and industry standards of the time, it seems likely that it was. The land use expressly authorised … carried with it the likelihood of contamination.’

New Zealand has no specific legislation dealing with liability for historic contaminated sites, unlike other countries such as Canada, England and Australia. The Auckland Waterfront Development Agency Limited case mentions that ‘despite extensive policy work being undertaken since the 1990s, including two relevant Ministry of Environment Discussion Papers, New Zealand does not currently have any specific legislation allocating liability for clean-up of historic contaminated sites (those which pre-date the coming into force of the Resource Management Act 1991).’

If the same leases were entered into in the current market, it would be interesting to note how different any lease arrangements would be and how much closer the parties would have investigated their respective environmental obligations.

Niven Prasad is an Associate, Commercial Property, at Simpson Grierson in Auckland.

Confidentiality in arbitration

Current issues in arbitration Mark Colthart and John Walton Valuers can find themselves in difficult arbitration situations. The following two articles look at different aspects of this field – confidentiality and costs.

Confidentiality in arbitration Mark Colthart One of the main advantages of arbitration is that it is conducted in private and under the cloak of confidentiality. That can give great comfort to those involved, whether they are corporations keen to want commercially sensitive information to stay out of the public domain or individuals desiring to keep personal information private. Confidentiality is said to be one of the main attractions of arbitration and is sold as such by lawyers and other advisors recommending arbitration as a process for private dispute resolution.

But is it really that simple? Is arbitration really private and confidential?

The Hawkesby case

The Arbitration Act 1996

In 1999, John Hawkesby brought a claim in an arbitration against TVNZ after his ill-fated switch from TV3 to One News. In the course of the arbitration Hawkesby and his doctor gave detailed evidence about the depressive illness he suffered from, the various medications he had been taking and episodes he had experienced of hyper-ventilation, dizziness, weakness and sweating. All of the evidence was given in private in the arbitration under the so-called cloak of confidentiality.

The result of the arbitration, as was later to become public, was an award of $6.5 million in favour of Hawkesby. If the arbitration had ended there none of the details would have necessarily become public. However, it did not end there as Hawkesby applied to the High Court to enforce the award and TVNZ applied to the High Court to appeal it. From that moment on, the award became susceptible to being published.

Despite opposition from Hawkesby, the High Court judge dealing with the case ruled that all details of the arbitration, including the award, would be open to public scrutiny. This is why, 15 years after the event, you only needs to search in the internet for Hawkesby versus TVNZ and all the details are still there to see. How can that happen?

The 1990s saw a split between the approach of the courts in the United Kingdom and Australia regarding confidentiality of arbitration. In 1991, the English Court of Appeal held in Dolling-Baker v Merrett that a duty of confidentiality between the parties to an arbitration was fundamental and was to be implied as a matter of law in all arbitration agreements. However, in 1995 the High Court of Australia in Esso Australian Resources Ltd v Plowman went the opposite way and declined to follow the Dolling-Baker decision, holding that confidentiality was not an essential attribute of arbitration.

When the Arbitration Act 1996 came into force in New Zealand it appeared to go the way of the United Kingdom line of authority, incorporating a blanket confidentiality provision. The Law Commission had noted in drafting the Act that – ‌ the privacy of the proceedings in an arbitration is a key advantage compared with litigation that is conducted in public. In selecting arbitration as their way of resolving disputes, parties would not contemplate that one of them might publicise or pass on information given in the course of the arbitration because such conduct would negate some of the advantages derived from arbitrating.

Vol 4, Issue 3, September 2014 Property Quarterly 29

Confidentiality in arbitration

As a result, section 14 of the Arbitration Act contained a blanket prohibition against any disclosure of information relating to arbitration proceedings. The Hawkesby case considered the effect of section 14 and the tension between the confidentiality of the arbitration and the principle of open justice applying to business before the court.

After considering the arguments, the High Court judge took the view that the confidentiality the parties had adopted for their arbitration did not automatically extend to the processes for enforcement or challenge in the High Court. The judge also expressed the view that a clear and unambiguous determination of Parliament was necessary for the cloak of confidentiality attaching to the arbitral process to apply to subsequent proceedings in the High Court. So he concluded that the terms of the arbitral award should be available for public scrutiny.

The Law Commission report In 2003, the Law Commission reviewed the Arbitration Act 1996 and recommended a number of changes in light of the Hawkesby case. One of those recommended was the adoption of a rebuttable presumption in favour of all court proceedings relating to the enforcement or challenge to arbitral awards being conducted in public.

But it also allowed for confidentiality orders to be made in exceptional cases and for the reporting of judgments in such a manner as to protect privacy where possible.

The changes were brought into effect in 2007 in amendments to the Arbitration Act. The amendments introduced what has been described as a confidentiality code, which is now found in sections 14 to 14I of the Act. In summary, the Act now provides that, with limited exceptions, all arbitration proceedings must be conducted in private, but that with limited exceptions all court proceedings under the Act must be conducted in public.

It is fair to say that the code has not been met with universal enthusiasm by commentators. The old provision gave blanket confidentiality as of right, but the new provisions have removed all certainty of confidentiality surrounding the arbitration process. They have opened the way to significant erosion of what is generally agreed to be one of the pillars of arbitration litigation – the privacy and confidentiality of the process.

It has also been suggested that the amendments put New Zealand out of step with the United Kingdom.

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Telstraclear Ltd v Kordia Ltd There has only been one case since the amendments to the Arbitration Act where someone has sought an order that proceedings under it be conducted in private. That is the decision of Justice Brewer in Telstraclear Ltd v Kordia Ltd. The case concerned an application to the High Court to appeal an arbitrator’s award. Telstraclear, one of the parties to the arbitration, sought orders that no person could search the court file and that the decision omit any particulars which could identify the parties.

Justice Brewer started from the proposition that Parliament had intended proceedings to be conducted in public. On considering the competing interests set out in section 14H the judge ordered that the court file, which contained details of commercial interests, could not be searched without leave, but that the judgment be open to public scrutiny.

Possible reform One possibility of reform is that section 14F is amended to reverse the presumption that court proceedings relating to an arbitration are conducted in public. Then to introduce a presumption that such proceedings remain confidential, and are conducted in private, unless the court orders otherwise. That is the default position in Singapore, Hong Kong and the United Kingdom.

This option was considered and rejected by the Law Commission in 2003 in favour of the open justice principle. A decade on it is perhaps time to reconsider.

There are strong arguments in favour of reversing the presumption. The first is that there should be a consistency of approach to confidentiality throughout the arbitral process. As confidentiality remains a major selling point of arbitration, why should the approach to confidentiality take a u-turn once an award has been produced and the matter appealed to the High Court?

If the presumption is reversed, any concerns about maintaining open justice can be addressed in the court’s discretion on a case-by-case basis.

The second and related argument is the economic benefit of attracting international arbitration to New Zealand. The Act’s provisions about confidentiality remain out of step with some of our main competitors in the international arbitration market, but it will be difficult to sell this country as a seat for the resolution of international disputes.

Costs in arbitration

Concluding thoughts We currently have a regime in New Zealand which recognises the confidentiality of proceedings during the conduct of the arbitration, with some flexibility to allow disclosure in exceptional cases, but which presumes against confidentiality once any aspect of the arbitration is brought before the courts. What public interest is there in the steps taken by those who have chosen a private and confidential dispute resolution process to enforce the bargain they have made? I suggest there is little, if any.

What is the public interest in an appeal from an arbitrator’s decision? Perhaps there is a stronger argument, particularly as appeals are limited to points of law. However I still question why such a public interest should trump the private interest of those maintaining the confidentiality which in most cases would have been a strong factor in prompting them to agree to arbitration in the first place.

I also wonder how international commercial interests view New Zealand as a seat for arbitration.

If confidentiality of the process were an important factor, or perhaps the most important one, why would you choose to arbitrate in a jurisdiction where confidentiality is at risk of jeopardy the minute an aggrieved party elects to escalate the dispute to the courts?

One suggestion is that if the parties genuinely wish to avoid the public scrutiny which comes hand-in-hand with an appeal under the Act, there is the option to elect an appeal to the Arbitrators’ and Mediators’ Institute Arbitration Appeal Tribunal. This tribunal is not subject to the provisions of section 14F and so can maintain confidentiality throughout the conduct of an appeal. In that way confidentiality, which is one of the key points which the parties sign up to in agreeing to arbitrate, can be preserved.

Mark Colthart is a barrister and Fellow of the Arbitrators’ and Mediators’ Institute of New Zealand who specialises in arbitration law in Auckland.

Costs in arbitration − time for guidance John Walton There are many reasons to go to arbitration and central to them is party autonomy. They have decided to go to arbitration, not to court, and with that come different considerations. It has been my practice for some time to ask those at the preliminary conference how they would like costs to be dealt with. This is invariably greeted with some surprise by counsel and predictably with the suggestion by them that the High Court rules on costs should apply.

The award of costs to a successful party in arbitration is made not to punish the unsuccessful party but to compensate the successful party for the expense to which it has been put by reason of the arbitral proceedings. (Williams & Kawharu on Arbitration, para 16.8) In most cases clients see no reason why, if they are 100 per cent successful, they should not get the entirety of their fees reimbursed. It can be difficult to explain why a reasonable contribution is preferred and why, for example, that contribution is fixed at two-thirds of

what is considered to be a reasonable daily rate for the proceedings.

The case law in New Zealand is inconclusive, with some cases giving support to using the court’s approach to costs as a starting point and others recognising that arbitration is different. The Arbitrators’ and Mediators’ Institute has proposed new rules and guidelines which clarify this problem. Clause 6 of the second schedule to the Arbitration Act 1996 gives primacy to agreement which the proposed rules look to fill. The Arbitrators’ and Mediators’ Institute rules and guidelines outline the Vol 4, Issue 3, September 2014 Property Quarterly 31

Costs in arbitration

following core principles − • Costs follow the event • Party costs fixed by the arbitrator should be reasonable and proportional • The allocation of costs can be adjusted to reflect the circumstances of the case.

The core of this is that the arbitrator first considers whether the costs claimed are reasonable and proportionate to the dispute or need to be fixed.

The arbitrator then considers whether there are circumstances which require an adjustment to the allocation of the full amount to the successful party.

The principle underlying the courts’ reasonable contribution approach is that of encouraging, or at least not discouraging, access to justice on the basis of cost. In court proceedings this is laudable, but it is less so in arbitration. It also needs to be recognised that in practice the High Court scale of costs is inadequate and arguably always has been.

Reasonable and proportionate The policy concern is whether the entire cost should be recoverable or if arbitrators should retain a buffer to reward or sanction either party for conduct. If the statement of policy above is correct, arbitrators are not in the business of promoting good behaviour or punishing bad behaviour like some Pavlovian ringmaster. That is simply not our role. The starting point must be whether or not the costs and expenses claimed are reasonable and proportionate to the matter in dispute. It is therefore incumbent on the arbitration tribunal to review the successful party’s claim for costs on that basis.

To my mind, the best definition in the context of assessing legal costs is given by United States Judge Holtzmann in the Iran-US Claims Tribunal − A test of reasonableness is not … an invitation to mere subjectivity. Objective tests of reasonableness of lawyers’ fees are well known. Such tests typically assign weight primarily to the time spent and complexity of the case … The pragmatic fact that a businessman has agreed to pay a bill, not knowing whether or not the Tribunal would reimburse the expense, is a strong indication that the amount billed was considered reasonable by a reasonable man spending his own money, or the money of 32 Property Quarterly Vol 4, Issue 3, September 2014

the corporation he serves. That is the classic test of reasonableness.

The problem of proportionality may be seen to be the flipside of the same coin. The concept has recently been introduced into the English Civil Procedure Rules and it has generated some academic discussion.

The United Kingdom rule recognises the relationship between the sum in dispute, the value of non-monetary relief, complexity of the litigation, conduct of the losing party and wider factors such as public importance. This is in contrast to the approach taken in our own High Court rules.

The Arbitrators’ and Mediators’ Institute rules also propose the following circumstances. These may cause a tribunal to move away from ordering reimbursement of the entirety of the successful party’s reasonable and proportionate costs − • Interim cost orders • Degree of success • Conduct of the parties • Any other factor the arbitral tribunal deems relevant.

The degree of success can be surprisingly problematic, as in some cases it is not at all clear who has prevailed and to what extent. For example, in a rent review dispute an award splitting the difference would hardly favour either party, although I have seen counsel try. In such a case, letting the costs lie where they fall could well be appropriate.

Regarding conduct, consistent with the public policy distinction outlined above it is not the role of arbitrators to promote access to justice or to punish bad behaviour. It is disincentive enough that a party has lost its case and is potentially exposed to the other’s actual costs. Clause 6 provides a broad discretion for tribunals when fixing and allocating costs, but it also identifies a gap. We are left dangling, and the approaches to costs are as varied as the professional disciplines which bring people to the profession of arbitrators. The proposed guidelines and institutional rules will help.

John Walton is a technology, engineering and construction law specialist, project mediator, domestic and international arbitrator, commercial mediator and adjudicator based in Auckland. He is a barrister and Fellow of the Arbitrators’ and Mediators’ Institute of New Zealand.

Wind farms

Wind farms in New Zealand Vaughan Wilson Wind farms have become a different type of property category in the New Zealand landscape. This article sets out why wind farm developments have grown and how landowners receive payments. It also outlines challenges in setting up these developments, including resource consents and problems such as noise, birds, access and viewing.

The first commercial wind farm of one turbine was Brooklyn, built by the Electricity Corporation of New Zealand and opened in 1993. Since then over 16 wind farms have been developed in many parts of New Zealand taking advantage of the significant and constant winds. Currently around five per cent of New Zealand’s electricity production is created by commercial wind generation.

Wind farm developments usually begin in one of two ways. The first is when a company, often a power generator such as Meridian Energy, determines a constantly windy location, obtains access agreements from the landowners and tests the wind speed using an anemometer on a tall tower perhaps 80 metres high. The access agreements allow for a suitably long period to test wind speed and how constant it is.

The second method of wind farm development is when a landowner or a consortium of landowners get together and form a wind farm development on their properties. They are usually farmers. This group would then look for an investment organisation or power company for them to sell this opportunity. They may have already tested the wind energy and potentially even achieved a resource consent.

The basic rule of thumb is that you need an average wind speed of 8.4 metres per second or better, which equates to around 30 kilometres an hour. Having a very windy location is not necessarily good all the time.

In extreme winds, in excess of 80 kilometres an hour, turbines automatically shut down to avoid damaging the turbine blades and associated equipment.

Tenure and rental When an access agreement is made with the wind farm developer and landowner, the latter will generally receive an annual payment, allowing the wind farm developer access for wind testing. Attached to this, or agreed at a later date, would be a wind farm development Vol 4, Issue 3, September 2014 Property Quarterly 33

Wind farms

agreement and associated rental payments.

Due to the lifespan of a wind farm exceeding the maximum term of a lease determined by the Resource Management Act 1991 as 35 years, tenure is usually in the form of a an easement for a set term, often with a renewal. A base rental is generally in the form of a rental for each turbine, increased periodically using the consumer price index, or this index linked to the electrical sub-groups administered by Statistics New Zealand.

The base fee can sometimes be supplemented with a turn-over royalty payment and is very similar to a turn-over rental in a retail lease for a shopping mall or large airport. After a set period, such as 12 months, the electricity produced by each turbine is assessed.

This volume is then multiplied by an electrical spot rate, often the average spot rate of the local Transpower node, and multiplied by a percentage benefitting the landowner.

If the resulting figure is higher than the base rental paid, then the landowner receives the difference in the form of a top-up rental payment. If the spot market price is high, which is often out of the control of the landowner and generator, then the landowner can benefit significantly.

Meridian Energy I carry out property-based work for Meridian Energy, New Zealand’s largest electricity generator, and most significant wind farm developer. Meridian has four wind farms − • Te Apti north east of Palmerston North on the northern side of the Manawatu Gorge with 55 turbines of 1.65 megawatts • White Hill near Mossburn in Southland with 29 turbines, each two megawatts • West Wind at Makara west of the Wellington with 62 turbines of 2.3 megawatts • Te Uku near Raglan in the Waikato with 28 turbines of 2.3 megawatts.

Meridian is constructing a fifth wind farm, Mill Creek in Ohariu Valley near Wellington, which is due to be completed later this year. It has 26 turbines identical to those at West Wind.

Various designs Wind turbine design varies significantly between manufacturers. The following specification is for the turbines presently being constructed at Mill Creek.

The turbine towers are made up of two pieces, one on top of the other, to give an overall height of 67 metres. On top of this is the nacelle, a tubular enclosure which opens at the top, with the generating equipment 34 Property Quarterly Vol 4, Issue 3, September 2014

and gearbox inside. At the front of the nacelle is where the three blades are, each at 40 metres long and weighing around 10 tonnes each. On the front of these is a 50 tonne hub and nose cone similar in shape to that of a small propeller aircraft. The total weight, excluding the tower, is over 130 tonnes.

Each turbine has an elevator capable of taking two staff from a landing inside the tower near the base to just below the nacelle. Each turbine generates electricity at 690 volts AC, which is then stepped up to 33 kilovolts. Using a series of underground high voltage cables generally installed in the roadway easement, the electricity is taken to the substation on the wind farm where it is converted to a higher voltage up to 220 kilovolts and sent to the Transpower grid for use.

Wind farm development challenges Once a company has decided that wind testing has determined its suitability for development, a business case is formed. Items include logistics to construct the wind farm. The civil engineering required for the roading is considerable. Each road needs to be up to 10 metres wide and capable of large loads of well over 100 tonnes. The windy nature of wind farm locations typically means they are on probably medium to low productivity land and usually hilly. This make the engineering challenging with steep gradients, silt and soil retention and with complicated batters and cuts.

The routes to get workers, machinery and turbine components to the site need to be assessed. In the case of West Wind, a temporary wharf was built with its own large gantry crane. Turbine parts were shipped by barge from Picton across Cook Strait to the wharf, unloaded and placed on large, powerful trucks and driven around the site for installation. In some cases several trucks were connected with heavy steel bars to act as road trains on the steeper gradients.

The last major consideration is where the local grid entry point is. A wind farm development depends on the location and distance to the grid and what costs it would incur to get to that point. The grid entry for Mill Creek is at Wilton in the western hills of Wellington. Alternative grid solutions include connecting the wind farm into the local distribution network at 33 kilovolts, reducing costs of the substation on the wind farm.

Resource consents Any wind farm development requires a resource consent.

This can be a very time-consuming and expensive undertaking with plenty of opponents, usually local inhabitants. Resource consents will have significant conditions to ensure the wind farm developer meets

Wind farms

environmental requirements.

Visual assessments are a big part of the consent application and it is not unusual for a consent to be granted which restricts the number of turbines that can be built. This can determine the fate of the development.

Losing planned turbines as a result of the resource consent process can produce a business case which does not meet financial requirements, restricting productivity and causing a development to either be appealed or shelved.

Noise, birds, access and viewing Opponents are also concerned with noise. Bird safety is another consideration and ornithological studies are made to ensure bird numbers are not at risk from turbines being installed in their flight paths.

Access to site is also important. A requirement of the Mill Creek resource consent meant that workers, machinery and turbine parts could not be brought to site using the existing access routes of Ohariu Valley. Instead Meridian constructed a two kilometre road from the Porirua landfill at Broken Hill Road south through a council owned pine forest to the end of Ohariu Valley Road. Meridian then upgraded two kilometres of the Ohariu Road before entering the land which is the Mill Creek wind farm.

This made the logistics of large loads feasible and kept much of the construction traffic away from most of the Ohariu Valley. At the time of writing the first Mill Creek turbine tower has gone up and turbine parts are being transported up State Highway 1 during the night to be brought to the wind farm.

Public access Other requirements of a wind farm resource consent can be public access and viewing turbines. In the case of Te Uku, those considering the consent were concerned that people would stop their vehicles on the highway leading to Raglan to view the turbines on the hill nearby, creating safety problems on the busy road. Access for public vehicles to the wind farm was not possible due to the private landowners not wanting large-scale public access and the maintenance, security and safety problems this creates. Therefore the consent required Meridian to develop a viewing area at Te Uku, providing a safe stopping and parking area with information boards about the wind farm.

The resource consent for West Wind required public access. This has been achieved with the public having access 10 months of the year, but it is closed in August and September for lambing. The public has access via Opau Road near Makara Beach during daylight hours. There is a purpose built car park, the

remnants of the Post Office exchange building and some information displays. The public also has access to the most northern of wind turbines in this area along with the gun emplacements and two mountain bike trails.

Future for wind farm developments Mill Creek could be the last wind farm developed for some time. Although there are plenty in the pipeline with agreements between New Zealand’s power generators and landowners, the electricity market is flat meaning that it is not financially viable to construct any more generating capacity for the time being. Economic problems such as the global financial crisis, the efficiencies in electricity use, and the closing of some of the formerly largest electricity users, particularly in the timber and pulp industries, have meant that electricity demands are relatively constant and new forms of electricity development are not currently required.

That is not to say that they will never be required, but the market is complicated. Wind farms are often targeted for local demand. Most of New Zealand’s electricity is generated in the South Island, but the greatest requirement is in the North Island. There is potential for other changes in the future of the electricity market. If, for example, Tiwai Point closes in the next 20 years it would make available Manapouri’s electricity generation of around 15 per cent of New Zealand’s total generation. This would be re-distributed into the grid and could mean that new wind farms are less likely to be developed.

New Zealand’s wind farm development has been very aggressive in a short time. We have gone from no wind farms to over 16 in under 20 years and all without government subsidies. Overseas developments in the United States and Europe are often subsidised by central government, encouraging the wind developments as an alternative to ageing nuclear and coal-fired generating plants.

New Zealand is well suited to wind power electricity development, with excellent wind resources and experienced people who can design and construct the infrastructure to make these developments work.

This and the attraction of the green and renewable aspects of wind-based electrical generation should see New Zealand supplement its electricity requirements for many decades to come.

Vaughan Wilson is a director of Wilson Hurst Property Services operating in Auckland,Wellington and Christchurch.They provide property services to organisations such as Chorus,Telecom,Vodafone, 2 Degrees and Meridian Energy.

Vol 4, Issue 3, September 2014 Property Quarterly 35

Demographic trends

Demographic trends and home ownership New Zealand Census 2013 Ian Campbell This is the second article using information released by Statistics New Zealand following completion of the 2013 New Zealand Census. This article reports on New Zealand’s population demographic and home ownership changes and further data can be obtained from Statistics New Zealand. The recent census was originally planned for 2011, but due to the Christchurch earthquakes was delayed until March 2013. A seven-year gap between censuses may therefore affect trends.

The main findings • New Zealand’s population at 5 March 2013 was 4,242,048 but growth has slowed. The annual growth rate between 2006 and 2013 was 0.7 per cent which was half the growth rate last recorded between 2001 and 2006 at 1.5 per cent.

• There were 1,570,695 occupied dwellings in 2013, mostly privately owned, an increase of 6.2 per cent since the 2006 census. Unoccupied dwellings make up a further 185,448.

• New Zealand’s population is getting older – the medium age in 2013 increased to 38 years up from 35.9 years in 2006. Males make up 48.7 per cent of the total population and females outnumber males at 51.3 per cent.

• The number of people aged 65 years and over continued to increase. In 2013 those aged 65 years and over totalled 14.3 per cent, up from 12.3 per cent in 2006.

• The number of people aged between 50 and 69 years is also on the rise, increasing by 21.5 per cent since 2006.

• There were fewer children under 15 years in 2013, now making up 20.4 per cent of the population as opposed to 21.5 per cent in 2006.

• New Zealand’s population mainly consists mainly of European at 74 per cent followed by Maori at 14.9 per cent, Pacific at 7.4 per cent and Asian at 11.8 per cent, with some people identifying with more than one ethnic group. Medium ages range from 21.1 years for Pacific people to 41 years for Europeans.

• There were 2,001,006 or 62.3 per cent of adults employed. Unemployment increased to 7.1 per cent 36 Property Quarterly Vol 4, Issue 3, September 2014

•

• •

• •

•

and it was higher in the 15 to 24 year age group.

The percentage of people aged 65 years who are employed has doubled since 2001.

Health care and social assistance has replaced manufacturing as the most common industry followed by retail trade. There were 29,472 fewer people employed in manufacturing since 2006.

In 2013, the median income was $28,500.

Households owning their own home or held by family trust decreased from 66.9 per cent to 64.8 per cent between 2006 and 2013. Of households owning their own home, 56.4 per cent had a mortgage and 43.6 per cent did not. A total of 453,135 households which did not own their home rented one.

The region with the highest level of home ownership was Tasman. The region with the lowest level of home ownership was Gisborne.

Most households in occupied private dwellings, whether owned or rented, had three bedrooms. The 2013 census had a wide variation in the amount of rent paid. Households commonly paid between $250 and $349 a week and the median was $280.

The majority of households use electricity and wood to heat their homes. There was a marked decline in the use of gas bottle heating.

Population growth New Zealand’s population growth rate is currently slowing. The annual average population growth rate recorded between 2013 and 2006 reduced from 1.5 per cent to 0.7 per cent. In 2006 there were 4,027,947 people usually residing in New Zealand and by 2013 this had increased by 214,101 to 4,242,048.

Demographic trends

Census

Population count

Percentage change since previous census

Average annual growth rate since previous census

1991

3,373,926

n/a

n/a

1996

3,618,303

7.2

1.4

2001

3,737,280

3.3

0.6

2006

4,027,947

7.8

1.5

2013

4,242,048

5.3

0.7

Occupied dwellings

The number of people aged 65 years and over continued to increase. In 2013, those aged 65 years and over totalled 607,032 people or 14.3 per cent of the population. This had increased from 12.3 per cent of the population recorded in 2006 and 12.1 per cent back in 2001. Over 73,000 people were aged 85 years and over, which was a 29 per cent increase on the 2006 census.

Total population 1981 Census

Total population 2013 Census

Age in years

Age in years

90

Male

Female

90

Male

Female

For data collection purposes the definition of a dwelling is ‘any building or structure (or its parts) that is used, or intended to be used, for human habitation. Dwellings can be permanent or temporary and include houses, motels, hotels, prisons, motor homes, huts and tents.’

For the 2013 census, there were 1,570,695 occupied dwellings mostly privately owned. There are a further 185,448 unoccupied dwellings, which was an increase of 16.4 per cent on the previous 2006 census.

Total occupied and unoccupied dwellings equates to 1,756,143 dwellings.

80

The change in occupied dwellings between 1981 and 2013

Age distribution in 2013 compared with the 1981 census

Census

Number of occupied dwellings

Percentage change since previous census

Average annual growth rate since previous census

1981

1,011,882

–

–

1986

1,095,747

8.3

1.6

1991

1,185,396

8.2

1.6

1996

1,283,994

8.3

1.6

2001

1,368,204

6.6

1.3

2006

1,478,709

8.1

1.6

2013

1,570,695

6.2

0.9

Unoccupied dwellings made up 10.6 per cent of all dwellings in 2013 or one in 10 dwellings. Statistics New Zealand classifies unoccupied dwellings as being empty or with known residents temporarily away.

Age distribution New Zealand’s population is getting older. The median age in 2013 increased to 38 years, up from 35.9 years in 2006. Males made up 48.7 per cent of the population, whereas females outnumber males in all age groups from 25 to 29 years onwards, with the most pronounced seen in the oldest age groups.

80

70

70

60

60

50

50

40

40

30

30

20

20

10

10

0 40

20 0 20 Population thousands

40

0 40

20 0 20 40 Population thousands

The number of people aged between 50 and 69 years had risen to 989,364, an increase of 21.5 per cent since 2006. People in this range made up 23.3 per cent of the population in 2013. All five-year age groups within the 50 to 69 year age band had increased since 2006, particularly those aged 65 to 69 years and 60 to 64 years since 2006. The 50s and 60s age range is therefore on the rise.

There were fewer people under 15 years in 2013 at 865,632 than in 2006 with 867,567 people. Those aged 15 years and under made up 20.4 per cent of the population, a decrease from 21.5 per cent in 2006. Other age group decreases include people aged 10 to 14 years down 6.4 per cent, 30 to 34 years down 7.2 per cent and 35 to 39 years down 11.3 per cent.

Maori, Pacific and Asian ethnic groups The percentage of the population who identified themselves as belonging to the Maori ethnic group was 14.9 per cent or 598,605 people and this was similar to the 2006 census. Pacific peoples made up 7.4 per cent of the population in 2013, which was a slight increase Vol 4, Issue 3, September 2014 Property Quarterly 37

Demographic trends

Most common employment industry

from 6.9 per cent in 2006. Nearly three-quarters of the population identified themselves as being of European ethnicity, an increase from 67.6 per cent in 2006. Asian ethnic groups continue to grow, almost doubling in size since 2001. The percentage of the population who identified as Asian in the previous three censuses was 2001 at 6.6 per cent, 2006 at 9.2 per cent and 2013 with 11.8 per cent.

Ethnic groups European Maori Pacific peoples Asian Middle Eastern, Latin America, Africa Other ethnicity

Number 2,969,391 598,605 295,944 471,711 46,953 67,752

The health care and social assistance industry expanded 19.6 per cent since 2006 and has replaced manufacturing as the most common industry. In 2013, one in 10 employed people worked in the health care and social assistance industry, which includes hospitals and medical care, residential care services, child care and other social services.

Other industries to experience growth included professional, scientific and technical services, with an 8.8 per cent increase since 2006, and education and training with a 13 per cent increase. Retail trade remained the second most common industry employing 188,631 people, but has declined since 2006.

Manufacturing showed the second largest decline, with 29,472 fewer people employed in 2013 than in 2006.

Percentage 74.0 14.9 7.4 11.8 1.2 1.7

The medium age was lower for Maori and Pacific peoples than for European and Asian ethnic groups.

Ethnic group

Medium age where half are younger and half older than this age

European

41.0 years

Asian

30.6 years

Maori

23.9 years

Pacific peoples

21.1 years

Major industry groups for employed people aged 15 years and over Industry Agriculture, forestry and fishing Mining Manufacturing Electricity, gas,water & waste Construction Wholesale trade Retail trade Accommodation & food services Transport, postal & warehousing

Employment In 2013, there were 2,001,006 employed adults and those who were employed made up 62.3 per cent of adults, down from 65 per cent in 2006. The unemployment rate is defined as the number of people aged 15 years and over who did not have a paid job, were available to work, and were actively seeking work expressed as a percentage of the labour force.

Unemployment has increased since 2006. The unemployment rates for the last three censuses were 7.5 per cent in 2001, 5.1 per cent in 2006 and 7.1 per cent in 2013. Unemployment was higher in the 15 to 24-year age group than for the overall labour force. In 2013, the unemployment rate for this age group was 18.4 per cent.

Over a million adults are not in the workforce.

The 2013 census reports that the percentage of people aged 65 years and over who were employed has nearly doubled since 2001. In 2013, a total of 22.1 per cent of those aged 65 years and over were employed compared with 11.4 per cent in 2001.

2013 2006

Information media & telecommunications Financial & insurance services Rental, hiring & real estate services Professional, scientific & technical services

38 Property Quarterly Vol 4, Issue 3, September 2014

Administrative and support services Public administration & safety Education & training Health care & social assistance Arts & recreation services Other services

0

2

4

6 Per cent

8

10

Median income In 2013, 38.2 per cent of adults aged 15 years and over had a personal income of $20,000 or less and 5.9 per cent had an income over $100,000. The median income was $28,500. Men had a median income of $36,500 and women had a medium income of $23,100. Since 2006, women’s medium income increased 20.9 per cent and for men 15.9 per cent during the same period.

12

Demographic trends

or held it in a family trust, down from 66.9 per cent in 2006. The percentage of households which owned their home dropped from 54.5 per cent in 2006 to 49.9 per cent in 2013. Of households that owned their own home, 56.4 per cent had a mortgage and 43.6 per cent did not. There were 215,243 households holding their home in a family trust. Most households, a total of 453,135, which did not own their home were renting.

Total personal income for people aged 15 years and over 2013 census Income $150,001 or more

Male Female

$100,000-$150,000 $70,001-$100,000 $60,001-$70,000 $50,001-$60,000

Home ownership by individuals

$40,001-$50,000

The percentage of households that owned their own home in 2013 decreased to 49.9 per cent. Within this group, home ownership was highest for those aged 70 to

$30,001-$20,000 $20,001-$30,000

People aged 20 years and over who owned or partly owned their home

$10,001-$20,000 $1-$10,000

Percent 80

Zero income

60

Loss

2001

2006

2013

40 0

5

10

15

20

25

Per cent

0

Home ownership Home ownership fell between 2006 and 2013. In 2013, 64.8 per cent of households owned their own home

Per cent

20

Home ownership by households 2006 and 2013 censuses

20-29

30-39 40-49 50-59 Age group in years

60 and over

Households who owned their home or had it in a family trust 2006 and 2013 censuses Regional council area Tasman Marlborough

60 2006

2013

Southland Nelson

50

Canterbury West Coast

40

Otago Taranaki

30

Northland

20

Manawatu-Wanganui

10

Bay of Plenty

Hawke’s Bay Wellington

Waikato 2006

Auckland

0 Dwelling owned or partly owned

Dwelling not owned Dwelling held in a and not held in a family trust family trust

2013

Gisborne 0

20

40 Per cent

60

80

Vol 4, Issue 3, September 2014 Property Quarterly 39

Demographic trends

74 years at 77.5 per cent. The following figure shows the trend in home ownership across each age group over the previous three censuses.

The region with the highest level of home ownership was Tasman. In 2013, 75 per cent of households in this region owned their own home or held it in a family trust. The region with the lowest level of home ownership was Gisborne. In 2013, 59.2 per cent of households in this region owned their home or held it in a family trust, down from 61.8 per cent in 2006. Auckland has the second lowest level of home ownership.

Rental homes Rental housing tended to have fewer bedrooms than owned housing. Of households that rented, 29 per cent were in a two bedroom dwelling compared to 13.8 per cent of households which owned their home or held it in a family trust.

Number of bedrooms by tenure For households in occupied private dwellings 2013 census Per cent 50 Owned or in a family trust

45

Nationally, the median weekly rent in 2013 was $280 a week and varied according to the number of bedrooms, at $260 for two bedrooms, $300 for three bedrooms and $360 for four bedrooms.

Percent 16 14 12 10 8 6 4 2 0

Under 100

100149

150199

200249

250299

300349

350359

400499

450499

500 and over

Weekly rent in dollars

Heating This section relates to the most common fuel type used for heating dwellings. Electricity remained the most common fuel type, heating 79.2 per cent of all occupied private dwellings compared with 74.8 per cent in 2006 and 72.0 per cent in 2001. Wood was the second most common heating fuel at 36.8 per cent, down from 40.9 per cent in 2006 and 44.7 per cent in 2001. The use of wood was highest in the West Coast and lowest in the Auckland region.

Rented

40

Weekly rent paid by households 2013 census

Fuel types used to heat occupied private dwellings 2001, 2006 and 2013 censuses

35

Per cent

80 70 60 50 40 30 20 10 0

30 25 20 15 10 5 0 1

2

3

4

5 or more

Number of bedrooms

There was a wide variation in the amount of rent paid. Households generally paid between $250 and $349 a week. However, 8.6 per cent of households paid less than $100 a week and 8.8 per cent paid $500 or more.

40 Property Quarterly Vol 4, Issue 3, September 2014

2001

Electricity

Mains gas

Bottled gas

Wood fuel type

Coal

Solar power

2006

Other fuel(s)

2013

No fuels used in this dwelling

There was a marked decline in the use of bottled gas for heating purposes. In 2013, bottled gas was used by 15.4 per cent of private dwellings compared with 27.7 per cent in 2006. The use of mains gas for heating remained low at 12 per cent and was limited to certain cities, and coal was used in only 4.1 per cent of all private dwellings.

Ian Campbell is a Fellow of the Property Institute of New Zealand.

Awards

Annual awards for 2014 Property Institute and NZIV Fellowships Terrence John Naylor Terry is the current President of the NZIV, as well as sitting on the Property Institute Board and having served two years as Deputy President of the NZIV. He has also had many years of involvement with the Canterbury Westland branch committee.

Garth David Laing Garth is a previous chair of the NZIV Tauranga branch, and has served on the local committee for a number of years between 1999 and 2010. Garth practices in the Bay of Plenty. He set up Landmass Technologies, a specialist rating valuation firm contracted by six local authorities.

Patrick Gerard O’Reilly Patrick chairs the Property Management community, and has been active in Institute leadership roles since 1993. He also served on the Canterbury Westland Branch committee in the early 1980s including stints as branch secretary, treasurer and chairman. Patrick is also a respected member and leader within the Property Council.

Honorary Fellowship, Property Institute Greg Towers

Marius Damian David Ogg Marius served on the Canterbury Westland branch committee for seven years from 2005, and was chair of the committee for five of those years. He also played an instrumental role in the organisation of the annual Lincoln Mainland Seminar from 2006 until 2012.

John Alexander Churton John was registered as a valuer in 1984, advanced to an associate member of the NZIV in 1985 and became a foundation senior member of the Property Institute at its formation in 2000. Also active at Institute branch level, John has been a member of the Property Institute and NZIV Auckland Branch Committees since 2010 and 2011 respectively, and is currently the convenor of the busy membership committee.

Neill Anthony Sullivan As Valuer-General, Neill chairs the Valuers Registration Board, as well as sitting on the Valuers’ Council. He has been a tireless champion of the profession and of the quality and standards therein.

Property Institute Fellowships Paul Julius Mautz Paul has been a constant champion of the property advisory community within the Property Institute.

He serves as the chair of that community as well as a member of the Board, and represents the Institute on the Australia/New Zealand Standards Board.

Honorary Fellowships are awarded to recognise those from outside our professions who have rendered service to the Property Institute. Greg has been a part of the Property Institute for many years, having presented a number of seminars for members on topics including commercial leases

Journalist award Greg Ninness Throughout this career, Greg has been a regular contributor to the commercial and industrial property market scene within New Zealand for many years, with the national readership of the Sunday Star Times attracting a high profile. The articles produced have been balanced and objective, offering readers an insight into market trends, issues and analysis over the various property asset classes. His contribution has advanced the property industry.

Vol 4, Issue 3, September 2014 Property Quarterly 41

Awards

The Property Institute Industry Award Paul Duffy

This award is given to an individual who has demonstrated leadership and vision, and positively affected property industry. Paul chaired the Keystone Trust for 17 years from 1994. The trust supports young people who would not have been able to afford to continue their education. The trust has now supported over 100 young property professionals through their studies.

John M Harcourt Memorial Award

Young Property Professional Award Aimee Martin

This award is given to a young professional to recognise attainment in, and services to, their profession. This year’s recipient is a member of the young leadership programme, and is already contributing at the highest level of the Institute’s leadership. As well as this, Aimee has served on the Auckland branch committee as social convener since 2009. This award is the only one which recognises the start of a career, not the achievements of a lifetime’s career.

Life membership of Property Institute and NZIV Gwendoline Callaghan

David Paterson

This award recognises outstanding service to the profession of valuation. David has had an extensive involvement with the NZIV and Property Institute, having served in a variety of roles including on the Valuers Council during the creation of the Property Institute in 2000, and has served on the council constantly, until he stepped down at the latest AGM. 42 Property Quarterly Vol 4, Issue 3, September 2014

Life Membership Awards are recommended to the Board and Council and awarded to Fellow members of the Institutes who have rendered pre-eminent service to the Institutes and the industry over a long period.

Gwendoline’s history of awards began with her receipt in 1982 of the NZIV trophy for the student completing the urban professional valuation exams with the most merit.

She has spent nine years on the Valuers Registration Board, been a member of the Land Valuation Tribunal since 2001, on the Board of the Property Institute from 2003 until 2007, and won the John M Harcourt Memorial Award in 2009. As well as being eminently deserving of the award of Life Membership, Gwendoline is the first woman to have been made a Life Member of the Property Institute or the NZIV, just as she was the first woman to be made a Fellow,16 years ago in 1998.

Profile

Profile: David Paterson David started his valuation career in 1980 when he took up a one-year bursary with the Valuation Department to complete his final year at Lincoln College. He completed the Bachelor of Agricultural Commerce (VFM) at the end of 1980 and started working for the Valuation Department in March 1981 after a three-month period on a dairy farm near Palmerston North.

The Valuation Department was the training ground for the valuation profession and a large number of graduates from Massey and Lincoln started their careers there. Its main role was to undertake rating valuations for local and regional authorities throughout New Zealand.

New graduates generally spent a good part of the first year completing all the tasks the more experienced staff did not want to do. David recalls the days he spent ‘de-goughing’ the field slips for the Silverpeaks revaluation. He says anyone who has worked in the Valuation Department will know what he is talking about. Thankfully that part of the training did not last too long and he began his career in valuation, mostly rural-orientated, in the Otago region. In 1984 he gained his registration but notes that the registration process is much tougher today. At that time interviews were the exception rather than the rule as it is now.

Quotable Value David transferred to the Invercargill office in early 1985 where he remained until 1998 and the establishment of Quotable Value. During this period the Valuation Department went through a restructure which saw the establishment of Valuation New Zealand in 1988. David was appointed senior valuer in the Invercargill office following this restructure.

In July 1998, the Valuation of Land Act was repealed and replaced with the Rating Valuations Act. This removed the monopoly Valuation New Zealand had on completing the government valuations, now referred to as the rating valuations.

David was appointed manager of the Alexandra office following the establishment of Quotable Value in 1998. Within a few months of taking up this position he

then moved to Dunedin to help build and manage the commercial valuation branch of Quotable Value.

David remained in this role until the rural and commercial part merged into Darroch Valuations. In 2013, following a further change in Darroch, the rural business was incorporated back into Quotable Value and he was appointed to a new position as national manager of a new business unit, Rural Value.

NZIV involvement His first involvement in the Institute of Valuers was in 1985 following the move to Invercargill. He was coopted on to the branch committee as secretary. As is the case in most small branches, members all get an opportunity to serve in the various positions on the committee and it was not long before he was appointed chairman. At the time Wade Briscoe was the local branch representative on the NZIV council and had been for a long time.

When Wade retired from the role, David decided to take it on for a short period to see how it would go. As it happened he remained in the role as Southland branch councillor, and later as southern region councillor, until this year when he stood down at the 2014 annual general meeting in Rotorua.

Professional practice David is currently the NZIV representative on the Professional Practices Committee set up to consider complaints about valuer members on behalf of NZIV and other members on behalf of the Property Institute.

It has appointed investigators to investigate a number of complaints of an ethical nature over the years. He says that one thing is certain – complaints against valuers Vol 4, Issue 3, September 2014 Property Quarterly 43

QQQQ

increase after periods of rapid value growth followed by an easing in the market. This is not unexpected and valuers tend to be targeted when equity is lost as values decline.

He feels that some valuers have not been good at keeping clients up to date with progress. This often leads to problems when deadlines are not met, resulting in complaints relating to a lack of professionalism and failure to meet the code of ethics. He notes that it is very easy to complain, but every complaint has to be investigated to determine whether it has any substance.

Professional Practices Committee members are valuers, or have been valuers, and are aware of the effect a complaint can have. They try to expedite investigations to minimise the timeframe, and hopefully the effect, on the valuer concerned.

David says that being involved in this area of the profession does make you think seriously about your day-to-day work. Most valuers will have had unhappy clients in their valuing career. Each one of these is a potential complaint and it just takes one to go to the next step.

Changes to the profession David notes that changes to the Valuation of Land Act and the Rating Valuations Act resulted in significant changes to the profession in 1998. De-regulation meant that rating valuation work created opportunities for other valuing firms to provide this service. This change also resulted in the loss of the national property database which was previously managed by Valuation New Zealand.

The database was devolved to the local authorities and each one managed the database either themselves or through valuation service providers. The loss of this database was a disappointing aspect of the 1998 restructuring process. David notes that there has been discussion recently about reinstating a national database following a review of the Rating Valuations Act. 44 Property Quarterly Vol 4, Issue 3, September 2014

Quotable Value purchased a copy of the data from the Crown and developed their own database, having to buy regular data updates from each local authority to ensure the database remained current. Quotable Value continued to invest in technology to ensure they could meet the changing needs of customers and they developed new products, including the E-Valuer. This was the start of the development of the automated valuation models in New Zealand. They are now common, with a number of different systems operating.

David recalls this was the start of change as people looked online for information. Many valuers were concerned with what this could mean.

He believes that in reality products such as E-Valuer were only used on low-margin lending.

Previously banks and other lenders used the government valuations for security in these situations and very rarely sought the services of a valuer. Quotable Value has been at the forefront of technical developments in the profession over a number of years. One of these was the establishment of the valuation ordering system where banks were looking for help with risks identified following the global financial crisis. David feels that, on reflection, the profession has been slow to accept change and the move to a valuation clearing house was inevitable given its presence in Australia.

The single most significant change was the establishment of the Property Institute, which at the time was called the New Zealand Property Institute.

David was on the council at the time and recalls the difficulties associated with creating a new organisation from three different institutes. At the time there was an expectation that the Valuers Act would be reviewed and the New Zealand Institute of Valuers would no longer exist. Fourteen years on we still have the Valuers Act and the NZIV still exists.

David notes that with the changes in council membership, and with his departure, there will be none of the original members left who were involved with

Profile

Profile David Paterson the establishment of the Property Institute. He says there is a perception from some members that there are two separate organisations. Technically that is probably correct, but David is firmly of the view that NZIV is part of the Property Institute and its role is to represent valuers within the Property Institute.

Future of the profession David has serious concerns about the future of the profession. He feels they are currently at a crossroads with the review of the Valuers Act finally looking as if it has some traction. A change in the Act will mean voluntary membership. Members will most probably be required to belong to an institute, but they will have a choice and it will not just be the Property Institute or the Institute of Valuers. At the last count there were around 900 practising valuers which is not a large number when compared to other professional institutes in New Zealand. He believes that the Property Institute needs to provide for the needs of valuers so they are not tempted to move to another professional body when the Valuers Act is reviewed.

He also feels that the profession has failed to attract enough young people and has an ageing membership as a result. This cannot continue if they want to be a viable profession into the future. David reflects that one of the reasons may be the length of time it takes to get qualified and obtain registration and associate status. At

present this is seven years, just about as long as it takes to become a doctor.

A further problem he sees as limiting is the requirement for the supervision of graduates for the three years. This makes it very expensive to train young valuers and for many businesses the cost can be too great.

He is hoping the review of the Valuers Act will address these matters, making it a more attractive profession for young people.

Final note David says that one thing he will miss is the interaction with council members. He has been privileged to serve with a number of very good people over the last 20 years. It is difficult to mention all them all by name, but one is Nicola Bilbrough who was NZIV president during a very difficult period. Nicola survived her presidency and I admired her for her efforts.

On a final note, it has been my observation over a long period that valuer members do not or will not get involved with Institute matters and then complain when the elected members do what they believe is the best for the profession. There have been many examples of this over the last 20 years. Committee members are not paid for the time they put into the profession and still have to make a living. Sometimes I wonder whether this is fully understood by some.

Vol 4, Issue 3, September 2014 Property Quarterly 45

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