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AUSTRALIAN CAPITAL TERRITORY (PLANNING AND LAND MANAGEMENT) AMENDMENT BILL 1997

Bills Digest No. 135   1997-98
Australian Capital Territory (Planning and Land Management) Amendment Bill 1997

WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Passage History
Purpose
Background
Main Provisions
Endnotes
Appendix
Contact Officer and Copyright Details

Passage History

Date Introduced: 4 December 1997

House: House of Representatives

Portfolio: Regional Development, Territories and Local Government

Commencement: Royal Assent

Purpose

To extend the maximum term of a lease in the Australian Capital Territory from 99 years to 999 years.

Background

The principle of Commonwealth ownership of land in the Australian Capital Territory was given expression in s125 of the Constitution which states in part that:

The seat of Government of the Commonwealth shall be determined by Parliament and shall be within territory which shall be granted to or acquired by the Commonwealth and shall be vested in and belonging to the Commonwealth.

Public leasehold of land in the ACT was provided by The Seat of Government (Administration) Act 1910 which states in s9 that 'no Crown lands in the territory shall be sold or disposed of for any estate of freehold'.

In 1989 the ACT became self-governing. The Australian Capital Territory (Planning and Land Management) Act 1988 provides for land within the ACT to be 'national' land or 'territory' land. Section 29 states that the ACT Executive is responsible for the management of territory land on behalf of the Commonwealth. Section 29(3) provides that the term of an estate in territory land granted on and after self-government (11 May 1989) 'shall not exceed 99 years or such longer period as is prescribed, but the estate may be renewed'.

Reasons for Leasehold in the ACT

The original reasons for the adoption of a public leasehold system for the ACT included:

• defraying the expenses of establishing the National Capital by allowing unearned increments in land value to be retained by the Commonwealth Government;
• avoiding speculation in undeveloped land; and
• ensuring orderly planned development through lease purpose clauses.

At the time of Federation, in debates on the acquisition of land for the Seat of Government, many members of Parliament were convinced that the only really economical method of managing land in the Territory was to alienate it under long-term leases, with periodical reappraisals of rent. Speaking in the House of Representatives on 22 September 1903, Sir Edmund Barton summed up what was the prevailing view when he said:

Within the area that is chosen, the Commonwealth should be the landlord or the proprietor of every square inch of private land...there will be a progressive settlement which will tend to swell the revenue derivable from the land within the federal area, and thus provide a fund, not only for meeting interest, but also the extinction of debt...a system of leases with periodical reappraisement, will be about the best manner in which we can set about the meeting of any expense which we may incur in connection with this project.(1)

There was also concern in the minds of the people framing the legislation to establish the new National Capital about the possibility of land speculation that might eventuate. Land scandals associated with the grant of lands and speculative development were especially common in Sydney and Melbourne in the 19th century and led to heightened concern that after the long debate about the siting of the National Capital, it would give rise to unseemly land speculation.(2)

In addition, the leasing of land was seen as a way of ensuring orderly development by placing conditions on the granting of leases. By leasing the land the Commonwealth Government could provide sites at low capital cost for housing and for public and community services, as well as for commercial activities. Leasehold provided a means of planning the city so that it developed in a predictable fashion.(3)

Types of leasehold in the ACT

There are four categories of lease granted in the ACT under the Land (Planning and Environment) Act (ACT) 1991 [the Land Act (ACT)]:

• Residential leases can be for up to 99 years, and most are for that period. These may be automatically renewed for a further 99 years without charge. The only exception to this right is if the ACT or Commonwealth Government require the land for a public purpose [s171of the Land Act (ACT)]:
• Commercial, industrial and community leases may also be for up to 99 years. Renewals of these leases are governed by s172 of the Land Act (ACT). As with residential leases, an application for renewal may be made in the last 30 years of a lease. If the land is not required by the ACT or Commonwealth Government for a public purpose and if there is no change to the purpose of the lease, then it may be renewed on payment of a 'determined fee'. On 8 January 1998 the Chief Minister of the ACT, Kate Carnell, announced that commercial leases which were granted for less than 99 years could be converted to 99 year leases on the payment of $200, provided that the lease purpose remained the same.(4)
• Rural leases are usually granted for up to 50 years. Unlike residential or non-residential leases the Land Act (ACT) does not provide any security of tenure by way of lease renewal for rural leases. The reason for this relates to the gradual resumption of rural lands for residential development as more land was required for the building of Canberra.
• Special leases may be granted for a charge that is less than the market value of the lease where the ACT administration is satisfied that it is desirable and in the public interest to do so in order to facilitate economic development or the development of business in the ACT [s164 of the Land Act (ACT)]. Sites provided to each church or denomination and to the Australian National University have been granted as special leases.

Land rents were charged on residential and non-residential leases until 1970 when they were abolished and municipal rates increased. From January 1971 a 'betterment levy' has been charged when a lessee is granted a change in the lease purpose.

How ACT leasehold differs from freehold

Usually (but not always) freehold permits the owner to use the land for a particular purpose, allowed by government and planning laws, for an indefinite period. There is no right to change the use to a different use, unless the latter is a permissible one under land use controls and permission is granted after an appropriate assessment. In addition, an owner's lawful use of land is constrained by a large number of diverse regulations relating to building, health, and environmental concerns. A land owner is also required to pay taxes on land, eg. rates and land tax. For land held in fee simple (that is, an estate in land which is the most absolute in respect to the rights it confers), minerals are usually reserved for the Crown.

The ACT leasehold system has evolved since the 1920s to share many of the attributes of freehold. For example, leases may be transferred with the agreement of the lessor (the ACT administration). Transfer may be by sale or inheritance. As in a freehold system, the administration continues to make rules about the use of its land, controls over building etc, and levying of rates and taxes. The administration retains the right, as with freehold tenure, to compulsorily acquire the lease upon payment of compensation.

One of the principal differences between private freehold and public leasehold is that the lessor is also the government and therefore owns all of the use rights in land. By granting a lease it permits the lessee to use the land for the use or uses specified in the lease but no more. The lessor retains the right to use the land for any other purpose. Normally leases are granted for a terminable period. Until 1 January 1971, the lessor also had the right to receive rent. In this way increases in value in land accrued, to some extent, to the lessor.(5)

In summary, the characteristics of the ACT leasehold system which are distinct from freehold are:

• a lease is for a purpose which is specified in the lease purpose clause;
• a lease is for a specified period of time, usually 99 years;
• a lease includes covenants and conditions with which the lessee is required to comply; and
• a lease is subject to the payment of land rent or a premium.

Reviews of ACT leasehold system

The leasehold system in the ACT has been reviewed thirteen times in the past 25 years. A list of the thirteen reports is in the Appendix. A number of these reports discussed the alternative of perpetual leasehold.

The Land Tenures Inquiry (1976) favoured perpetual leasehold for home owners because of their concern for security of tenure. However, the Inquiry did not recommend that commercial uses should have leases of indefinite duration. It recommended that commercial leases should be for fixed terms.(6)

The White Report (1983) rejected perpetual leasehold as unnecessary and unjustified. It saw the notion as inconsistent with the Commonwealth ownership of land. Perpetual leasehold had the capacity to weaken the leasehold system and the effectiveness of the lease purpose clause as a planning tool.(7)

The Langmore Report (1988) also rejected leases in perpetuity as being fraught with contractual difficulties and weakening the Government's control over the use of land.(8)

The Stein Report (1995) similarly rejected conversion to a system of leases in perpetuity (or freehold) because of the primacy of lease purpose clauses in controlling planning and development in the ACT. Justice Stein of the NSW Land and Environment Court also argued that conversion to freehold or perpetual leases would affect the ACT Government's ability to extract a charge for development rights ('betterment') on ACT land. He said that:

Since the Government's residual interest in the land is diminished (by perpetual leasehold), it will be in a weaker position to exact a betterment charge. The failure of the NSW land development legislation in the early 1970s was largely a product of the opposition of private landholders to accepting a development rights levy within a freehold tenure system. This experience is indicative of the lessening of political control which likely would follow conversion to a system of perpetual leasehold in the ACT.(9)

Arguments in favour of perpetual leasehold

The Australian public has a general preference, understanding and appreciation of freehold tenure. Freehold tenure is predominant throughout Australia, so anything less than perpetual leasehold would 'severely penalise Canberra residents'.(10) A term leasehold subject to renewal, and possibly re-appraisal, is 'an extreme restriction on natural rights of property ownership and family inheritance'.(11) This is also one of the arguments in the minority report of the Joint Sub-Committee on the Canberra Leasehold System (The Langmore Report) where four Coalition members of the sub-committee argued in November 1988 that:

Freehold or perpetual leasehold is consistent with the very Australian aspiration to enable each Australian to own a little piece of Australia. There is no reason why residents of the ACT should be denied that aspiration.(12)

The main feature of Canberra's leasehold system is the control over the land use particularly by individual purpose clauses and building requirements which facilitates planning. However, planning in each of Australia's six States is easily facilitated by the statutory planning systems of State and Local governments. Canberra could adopt the familiar statutory planning systems of the rest of Australia. The residual role of the ACT and Commonwealth Governments would ensure that local as well as national interests are taken fully into account.(13)

Perpetual leasehold would be a natural progression from the many changes that have occurred to ACT leasehold, including:

• the method of sale of land leases which has changed gradually from a rental bid to an outright cash premium;
• tenant rights in the improvements were introduced in 1938 to give the lessee some long term equity in the lease;
• land rent and consequent re-appraisals were abolished from 1 January 1971.

These changes are largely irrevocable, and the logical next step would be perpetual leasehold.(14)

Proponents of a change to 999 year leases claim that they would provide more certainty and security for investors in the ACT. In his Second Reading Speech, the Minister for Regional Development, Territories and Local Government, Hon Alex Somylay, quoted the ACT Chief Minister, Mrs Kate Carnell in describing the 99 year limit as 'antiquated and unduly restrictive'. The ACT Minister for Land, Planning and the Environment, Mr Gary Humphries, is quoted as telling a meeting of the ACT Property Council that:

I have been told constantly of overseas investment opportunities which evaporated when the investors found they were dealing with leasehold - and a leasehold system which is not quite like any other...one that does not provide certainty of lease renewal.(15)

The limited leasehold system requires more administration than is necessary. Perpetual leasehold should involve less administrative perplexities and workload. It is much more readily understood by the public.(16)

Arguments against perpetual leasehold

One important aspect of any change to leases would be the effect on the Government's ability to enforce compliance with lease terms. Its interest in land would obviously be less than in the case of a fixed term lease. In terms of enforcement, it would be in little different position than a local government authority in the States seeking to enforce development approvals and statutory planning schemes. Professor Max Neutze has argued that many of the critics of leasehold assess it in comparison with an idealised view of what happens under freehold. 'Because the land is owned by the community, leasehold has the potential to more adequately protect the community interest in the way a city develops.'(17)

The beneficial ownership of land is almost the only 'resource' of the ACT government from which it can gain revenue, and increasingly, as the supply of suitable rural land for conversion to urban uses runs out, the source of revenue will be from changes to use. Justice Stein argued in his 1995 report that, if that source is given away, then it is unlikely that the Commonwealth Grants Commission would recommend that the ACT be compensated. He argued that:

In negotiating self government for the ACT, the Commonwealth was mindful of the fact that the new government would have limited opportunities to locally raise revenue. In managing the Territory land on behalf of the Commonwealth, the ACT was given the income stream from the administration of leases as a significant source of income...The Commonwealth could not take lightly a self denying ordinance by the ACT Government to secure an appropriate return on a national asset such as Territory land.(18)

In addition, he suggested that the leasehold system has brought the following financial benefits to Canberra residents:

• lower price of land for housing;
• lower cost land for public use;
• lower cost land for community use; and
• financial return for the government.(19)

The Langmore Report (1988) stated that 'Canberra land is a national heritage to be safeguarded and used for the benefit of the nation and its capital'.(20) Leasehold tenure ensures that ownership of the land remains in the public domain for the benefit of all Australians.

Canberra residents have a secure tenure with residential leases renewed automatically and without cost. According to the Stein Report, if renewal of commercial leases was made virtually automatic, subject to the requirement of s172 to the Land Act (ACT), and long term rural leases were given the right of renewal, 'then the vast majority of leaseholders will have adequate security of tenure'(21).

The Stein Report said that there is no evidence that leasehold tenure inhibits investment in the ACT.

Unfortunately no one was able to give the Board any details of any investment which did not take place in the Territory as a sole consequence of the leasehold system. In the result we have been left with a small number of admittedly anecdotal stories which are impossible to verify, despite a number of attempts. Those examples able to be scrutinised by the Board revealed a variety of complex reasons behind a decision not to invest.(22)

Professor Patrick Troy, head of the Urban Research Program at the Australian National University, is quoted as saying that it is 'nonsense' to suggest that the leasehold system affected investment. 'Hong Kong, Stockholm, Amsterdam and Singapore were among the "thriving and bubbling" cities which operated with leasehold systems'.(23) Professor Max Neutze has written that:

It is true that investors will pay somewhat less for leasehold than for freehold land because they are buying lesser rights, but that does not reduce the rate of return on their investments. The strongest proponents of conversion to freehold are those who purchased leases and want to be given the additional rights that attach to freehold tenure. Once everyone has freehold tenure, the rate of return from investment in the ACT would be expected to be about the same as elsewhere in Australia.(24)

Section 164 of the Land Act (ACT) enables the Government to grant special leases at less than the market value in order to facilitate economic development or the development of business in the ACT. The Stein Report recommended that the ACT Government provide special leases where it is 'satisfied that it is desirable and in the public interest to do so'.(25)

Summary

In the various reports on changes to the ACT leasehold system, those in favour of abolition of the leasehold system are presented mainly as developers and as the owners of leases which had potential for redevelopment. Those in favour of maintaining the leasehold system are presented as representatives of residents and community groups. According to Professor Neutze, a useful way of describing the situation in Canberra is that leases have been increasingly treated by many lessees and land administrators as though they were freehold. Some people believe that this is appropriate and want to legitimise that situation; others see it as the erosion of the community equity in and control over land and want to see it reversed.(26)

The Process

If this Bill is passed, then it will still be necessary for the ACT Legislative Assembly to pass its own complementary legislation changing the current leasehold system. Prior to the ACT election on 21 February 1998, the Labor Party, the Greens and the Independent MLA Mr Michael Moore all said that they would oppose such a change. In the previous Legislative Assembly, those nine votes would have been sufficient to stop the Assembly making the change.

Main Provisions

This Bill contains only two items.

The effect of Item 1 is to enable leases in the ACT to be granted for 999 years and to remove the provision for prescribing longer periods. Item 2 states that the change from 99 to 999 year leases will apply to estates granted on or after this Act receives Royal Assent. Automatic renewal would not be possible under the proposed legislative change. Business and other lessees wishing to obtain a lease longer than 99 years would have to surrender their old lease and apply for a new one under the new limit of 999 years.

Endnotes

1. House of Representatives, Debates, 22 September 1903, 5278-5281.
2. Joint Sub-Committee on the Canberra Leasehold System, Report on the Canberra leasehold system, (Chair: J.V. Langmore), AGPS, Canberra, 1988, 5.
3. ibid., 7
4. Canberra Times, 8 January 1998, 'ACT tempts business with $200 lease renewal deal'.
5. ACT Board of Inquiry into the Administration of Leasehold, Report into the administration of the ACT leasehold, November 1995 (Chair: P. Stein), Publications and Public Communication, Canberra, 1995, 20-23.
6. Commission of Inquiry into Land Tenures, Final report, February 1976 (Chair: R. Else-Mitchell), AGPS, Canberra, 1976.
7. Committee of Review of the National Capital Development Commission, Canberra planning and development: report of the Committee of review of the role and functions of the NCDC, July 1983 (Chair: G.M. White), AGPS, Canberra, 1983.
8. Joint Sub-Committee on the Canberra Leasehold System, Report on the Canberra leasehold system, (Chair: J.V. Langmore), AGPS, Canberra, 1988.
9. ACT Board of Inquiry into the Administration of Leasehold, Report into the administration of the ACT leasehold, November 1995 (Chair: P. Stein), Publications and Public Communication, Canberra, 1995, 117.
10. B.V. Raison, 'Proposal for perpetual leasehold in the Australian Capital Territory', The Valuer, October 1979, 643.
11. Ibid., 643.
12. Joint Sub-Committee on the Canberra Leasehold System, op. cit., 76.
13. Ibid., 74.
14. B.V. Raison, 'Perpetual leasehold tenure sought for the ACT', The Valuer, June 1988, 32.
15. Canberra Times, 10 July 1997, 1-2, 'Coming soon: 999-year leases for land in ACT'.
16. Raison, 'Proposal for perpetual leasehold...' op.cit., 646; Joint Sub-Committee on the Canberra Leasehold System, op.cit.,76.
17. M. Neutze, 'The Stein Report on leasehold administration in the Australian Capital Territory: some observations on land tenure and systems in other States', Local Government Law Journal, 1(4), May 1996, 215.
18. ACT Board of Inquiry into the Administration of Leasehold, op. cit., 113.
19. Ibid, 124-125.
20. Joint Sub-Committee on the Canberra Leasehold System, op. cit., 8.
21. ACT Board of Inquiry into the Administration of Leasehold, op. cit., 116.
22. Ibid., 113.
23. Canberra Times, 11 July 1997, 2, 'Plan for 999-year leases an election stunt: academic'.
24. Neutze, op. cit., 212.
25. ACT Board of Inquiry into the Administration of Leasehold, op. cit., 114.
26. Neutze, op. cit., 212.

Appendix

List of Reports on the ACT Leasehold System 1973-1998

Commission of Inquiry into Land Tenures, First report, November 1973 (Chair: R. Else-Mitchell), Govt. Printer, Canberra, 1975.

Commission of Inquiry into Land Tenures, Final report, February 1976 (Chair: R. Else-Mitchell), AGPS, Canberra, 1976.

Joint Committee on the Australian Capital Territory, Planning in the ACT: procedures, processes and community involvement, March 1979 (Chair: J.W. Knight), AGPS, Canberra, 1979.

Committee of Review of the National Capital Development Commission, Canberra planning and development: report of the Committee of review of the role and functions of the NCDC, July 1983 (Chair: G.M. White), AGPS, Canberra, 1983.

Joint Sub-Committee on the Canberra Leasehold System, Report on the Canberra leasehold system, (Chair: J.V.Langmore), AGPS, Canberra, 1988.

J. Mant, A further report on the planning system for the ACT, 1989.

ACT Priorities Review Board, Priorities for improved public sector management, Canberra, 1990.

Access Economics, An economic assessment of the betterment issues in the ACT, 1992.

R.K.Todd, Report of inquiry into planning and development proposals, Section 22 - Braddon, ACT Government, Canberra, 1993.

R.B. Lansdown, Australian Capital Territory residential redevelopment review: report to the Minister for the Environment, Land & Planning (ACT), Canberra, 1994.

ACT Legislative Assembly, Standing Committee on Planning, Development and Infrastructure, Inquiry into possible changes to planning legislation in the ACT, Canberra, 1994.

ACT Department of the Environment, Land and Planning, Draft process review report, December 1994.

ACT Board of Inquiry into the Administration of Leasehold, Report into the administration of the ACT leasehold, November 1995 (Chair: P. Stein), Publications and Public Communication, Canberra, 1995.

Contact Officer and Copyright Details

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

IRS staff are available to discuss the paper's contents with Senators and Members
and their staff but not with members of the public.

ISSN 1328-8091
© Commonwealth of Australia 1997

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Published by the Department of the Parliamentary Library, 1997.

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