High Country Accord
21 March 2005
Many New Zealanders – including farmers, trampers, fishers, skiers and sight-seers – are passionately interested in the South Island high country. As a result, discussions about the future of the high country can at times lose sight of the facts. The complex issues surrounding high country tenure review also serve to muddy the debate.
This confusion was reflected in much of the media commentary which followed National Leader Don Brash’s speech at Molesworth Station on 16 March 2005.
The following questions and answers address some of the main issues. Since the country is debating the future of the high country, let’s do it on the basis of the facts and an understanding of what high country farmers are concerned about.
Who owns Crown Pastoral Lease land?
A land grab?
How much is a lessee’s interest worth?
Are farmers paying market rents?
Isn’t this debate about sustainability?
Is the Accord anti-DoC?
What does the Accord want?
Who owns Crown Pastoral Lease land?
Most New Zealanders understand leases and tenancies because they are familiar with the legal ownership situation which applies to student flats, state houses, office premises, Maori land and the like. A very different legal situation applies to Crown Pastoral Leases.
The following points are supplied by solicitor and specialist in land tenure law Kit Mouat. Mr Mouat is a former solicitor for Lands & Survey (23 years) and Landcorp (14 years). He has acted as Counsel in the High Court, Waitangi Tribunal and Planning Court on valuation and Public Law (Maori issues), advocating for both conservation and commercial interests. He is regularly called upon for advice on tenure issues by senior practitioners and Counsel.
Crown Pastoral Lessees have ownership rights to the land they farm. A Pastoral Lessee can stand on his hill, with the tussocks that he has improved and maintained blowing in the breeze being judiciously grazed by the Merino, point to the four corners of his lease and say, “This is mine, it belongs to me.”
However, the Crown is the absolute owner of all land in NZ. Everyone who has a legal right to occupy land is, in a strict legal sense, a tenant. Tenant simply means “holder”. A person who holds land is a tenant, a landholder. There are several different types of tenancy, but the most common ones are a tenant in fee simple (called freehold); and a tenant for years (called leasehold).
Unlike normal residential or commercial leases or tenancy agreements, a Crown Pastoral lease document says that the Crown “doth hereby demise and lease” to the farmer all the land. The use of the word “demise” creates an estate (ownership interest) in the land and secondly implies an agreement on the part of the Crown to protect and preserve that estate, in particular the implied covenants for title and quiet enjoyment.
The lessee is granted a title to the land by the Crown of perpetually renewable terms of 33 years. As to quiet enjoyment, the lessee is granted exclusive occupation.
A reservation to the Crown under the lease or the Crown Pastoral Land Act 1998 (CPLA) of a limited right of entry, is not inconsistent with a grant of exclusive occupation. Subject to such reservation the lessee can exclude his landlord as well as strangers from the demised premises.
Land tenure review under the CPLA is about reviewing the relationship between the Crown and its tenant, to determine if it can change from a tenant for years to a tenant in fee simple over all or part of the land.
2. A land grab?
The minister of lands, Pete Hodgson, said in parliament on Thursday 17 March that about 35% of the former Crown leasehold land which has so far been settled under the tenure review process has gone to the Crown; 65% has been freeholded by farmers.
This fact has been used by the minister, Forest & Bird, and others to argue that the Accord is “crying wolf” when it says the Crown has targeted about 60 per cent of high country Crown Pastoral Lease land to go into Department of Conservation parks and reserves.
The facts are:
The Crown is using whole property purchase – not just the land tenure review process – to achieve its high country goals
If one whole and three partial property purchases are added to the land acquired through tenure review, the freeholding percentage to date is 49.4%
The ‘easy’ tenure review settlements have been completed first, typically on farms with limited land of conservation value. The ‘hard’ settlements, on farms with large areas of some conservation value have now stalled, because the Crown wants up to 85% of the land, making the balance non-viable for farming.
A recent Cabinet paper - Government Objectives for the SIHC: A Strategic Framework: POL (04) 159 said: DoC envisages a network of 15-20 [increased to 22 in a February 2005 Cabinet Policy Committee paper] new high country parks … About 10 of the properties that could potentially contribute to the parks network warrant whole property purchase due to the significant inherent values that they contain and the location of the properties in relation to the potential park network. One of these properties (Birchwood) has already been purchased.
Paragraph 31 of the Government’s Objectives for the South Island High Country released in August 2003 states: Tenure review will result in as much as 1.3 million hectares of tussock grassland areas east of the Southern Alps being added to the parks and reserves network.
1.3 million hectares is 59% of 2.2 million ha of land in pastoral lease as at 30 May 2002.
3. How much is a lessee’s interest worth?
Because a Crown Pastoral Lease transfers most of the rights to the land to the lessee, the Crown's interest in a pastoral lease is typically of the order of 15 - 20% of the fair market value (capital value).
The position, from a perspective of land valuation law, is that the Crown’s interest is in the land exclusive of improvements, whereas the farmer lessee owns and maintains the improvements. These typically include roads, water supply, pasture, accumulated fertility, fences and buildings.
There has been some criticism of the high cost to the Crown when it buys out all or part of a lessee’s interest in a high country farm. This simply reflects the market value of high country property and the relative ownership shares of the farmer and the lessee.
In some cases, the market value of high country land is being set by the Crown through its purchases of leasehold farms for inclusion in its network of up to 22 parks. In the case of the Birchwood purchase, the Crown valued the lessee’s interest at $10 million, as this was the payment the lessee received. The value of the Crown’s interest is not publicly known.
4. Are farmers paying market rents?
The Government has announced that it plans to investigate whether farmers are paying market rentals for their properties, with a view to changing the rental-setting formula under the CPLA.
The Act provides for farmers to pay an annual rental based on 2 per cent of the value of the land exclusive of improvements, with rent reviews every 11 years. The average rent paid, for the last seven properties reviewed, is $25,000.
Crown Pastoral Leases are unique, and were originally created in order to encourage farmers to invest in their properties – a situation which does not normally occur in other leasehold situations. The leases also restrict activities on the farm to pastoral farming, and require the lessee to obtain permission from the Crown before undertaking many normal farming activities like applying fertiliser and re-grassing.
The unique nature of these leases means rent-for-rent comparisons with other properties with different types of lease are misleading and potentially mischievous.
The following is abstracted from a professional opinion by valuer, John Larmer of Telfer Young, dated April 2004:
The joint ministerial report-back paper refers to advice received by Government that pastoral lease rents are only 25-33% of normal rent for a freehold property in the market.
With due respect to that opinion, invalid comparisons are being made. The leasing of a developed parcel of land on a short to medium term is one thing; the occupation of land under a perpetual ground lease where the lessee owns all improvements and pays rent for the land in an assumed unimproved or LEI state is another.
Rural rentals as a percentage or rate of return on value are characteristically much lower than commercial or residential rent rates. Further, the imputed return rate on improvements that depreciate, or land development improvements that require ongoing maintenance such as the fertiliser and weed control, is obviously higher than the imputed return rate on unimproved land.
From an investment viewpoint, the intrinsic undeveloped land is the safest component within the overall developed or improved property value. It is this component that experiences the highest capital growth (without any inputs or risk) resulting in rental return rates below other property investments (and well below Government stock or bank bill rates).
The ministerial paper unfortunately takes the view that the difference between the statutory prescribed rates for pastoral lessees and so-called market rates is concessionary, although conceding that specific limitations apply (stock limits, burning, soil disturbance) that may not apply to so-called comparable arrangements.
In addition to considering the safe inflation-proof investment held by a lessor of unimproved land that is subject to a perpetual ground lease arrangement, and the consequent modest return rates applicable, there is also a considerable amount of case law on what has come to be known as the "prudent lessee test". [This requires valuers] to ascertain what a prudent lessee would give for the ground rent of the land for the term, and on the conditions as to renewal and other terms etc mentioned in the lease.
The issues surrounding rental return rates on pastoral leases are therefore much less simplistic than indicated by the Cabinet paper.
5. Isn’t this debate about sustainability?
The Cabinet policy committee minute of 9 February 2005 “South Island High Country Objectives” lists 10 objectives. Three of these – Objective 1, Objective 3 and Objective 8 – have assumed prime importance.
Objective 1 is to promote the management of the Crown’s high country land in a way that is ecologically sustainable. Objective 3 is to protect conservation values by the creation of protective measures or (preferably) by the restoration of the land concerned to full Crown ownership and control. Objective 8 is to progressively establish a network of high country parks and reserves.
The minute notes that tenure review; and the purchase of the whole or parts of pastoral leases outside the tenure review process; are the key tools being used to progress all 10 objectives.
In practice, the creation of 22 parks and the restoration of the land concerned to full Crown ownership and control, is in conflict with Objective 9 which commits the government to the sustainability of communities, infrastructure and economic growth and the contribution of the high country to the economy of New Zealand.
There is also considerable evidence that the establishment of parks, and the removal of Merino flocks from the high country, is in conflict with the Objective 1, to promote ecological sustainability in the high country.
The term ‘ecological sustainability’ is not defined in the CPLA, but has been taken by the Department of Conservation to mean an environmental state which existed prior to the arrival of humans in New Zealand. At that time, much of the present tussock country was in forest and scrubland. There are many references in DoC literature of its aim to see the tussock grasslands of the high country revert to ‘tall vegetation’.
Even though tussock may not have been dominant ground cover in the high country 700-800 years ago, it is the land cover which New Zealanders know and love. It has been the focus of countless books, films and images.
The Resource Management Act promotes ‘sustainable management’, a concept which most New Zealanders are familiar with. In the context of the high country, ‘sustainable management’ means retaining and enhancing existing vegetation; preventing pollution and erosion, and preventing the spread of weeds and pests.
The environmental sustainability of farming practices in the high country is the responsibility of regional councils. Neither the Otago or Canterbury Regional Councils, in whose regions most of the high country lies, have any significant concerns about the sustainability of high country farming practices in their regions.
Canterbury University conservation biologist Associate Professor David Norton has written numerous papers and articles about environmental sustainability in the high country. He says continued grazing by sheep may be the best way to protect the tussock grasslands of the high country. Once the stock and farmers have gone, large areas will revert to bracken, scrub and wildling pines rather than remaining in tussock grassland. The outcome is unlikely to be positive from a conservation point of view and is certainly not what the public would expect.
There are several scientific trials and much anecdotal evidence to indicate that light grazing by Merino flocks of high altitude tussock grasslands helps enhance biodiversity. However there are few studies which measure the benefits of integrated farm and conservation management on a whole-farm basis. Three such trials are now being established, with research by Canterbury University and funding from the Accord and MAF’s sustainable management fund. (Refer to www.highcountryaccord.org.nz).
The removal of sheep from up to 1.3 million hectares of the high country will seriously affect the economic sustainability of individual farmers and the Merino industry.
In a report for MAF, Glen Greer of Lincoln University calculates that tenure review – if it proceeds along current lines – will lead to a loss of 663,000 stock units from the high country – a dramatic cut in the present 2,120,424 stock units. The estimated loss of gross economic output at the farm gate per year will be $33 million. One-in-five properties will end up carrying fewer than 4,000 stock units, making them non-economic from a farming perspective.
A peer review of the Greer Report by Professor Keith Woodford says that the reduction in Merino numbers as a result of tenure review could be as high as 750,000 stock units.
The Merino wool industry believes that a reduction in stock numbers of this magnitude is likely to threaten its continued viability, because of the loss of critical mass. Merino sheep produce high quality wool in the high country environment – one of the few areas of New Zealand where this is possible.
The Government and DoC say they do not agree with the conclusions of the Greer report, but have not seriously challenged its findings.
The higher altitude tussock country being targeted by the Crown for inclusion in parks is normally used for light summer grazing by Merino flocks. In winter, flocks are grazed on the lower developed land.
A balance of summer and winter country is essential for the economic viability of a high country farm. When leases were established by the Crown, property boundaries were deliberately chosen so that this balance was achieved.
DoC’s demand that farmers forfeit their summer tussock country will make tenure review impractical for many farmers, because much winter country is drought-prone during summer.
In order to compensate for the loss of summer country, farmers would need to greatly intensify their farming operations on their flat developed country. This is not necessarily desirable from an environmental point of view.
For the nation as a whole, the Crown has not provided any benefit/cost analysis to show it is in the nation’s interest to take enormous areas of privately held land out of productive and economic use.
Economic sustainability will only occur where a farmer has a viable and robust economic unit after the completion of tenure review. For the majority of properties, this is unlikely to be the result if tenure review continues along current lines.
Although the Government’s high country objectives commit it to sustainability of communities, this does not feature in the negotiations associated with land tenure review, or its whole property purchases. Under current policy, DoC advocates for the land it seeks for inclusion in parks, and the farmer advocates for an economically viable farm.
Because much of the high country is isolated and prone to severe weather events, a strong self-help type culture has evolved there, with families helping each other, as well as visitors, during emergencies. For these high country communities and values to be sustained, farming families need to live on and maintain their properties into the future.
While tourism has much to offer high country communities, it is socially undesirable to base these communities on transient and often single people who have no knowledge of the land or the environment.
Is the Accord anti-DoC?
The Accord is not opposed to conservation or to the objectives of the Conservation Act. It has also tried to maintain a constructive dialogue with the Department of Conservation, even though lessees and the department are put in an adversarial situation in land tenure review negotiations.
However, the Department of Conservation is very unusual among government agencies in that is both a policy and delivery agency. This old-fashioned model has been abandoned in most other areas of government activity.
DoC acts as advisor to the minister of conservation, has a mandate to advocate for conservation, and manages the Crown’s conservation estate. This gives it a vested interest in ‘growing its business’ and in protecting its favoured policies and activities.
This inevitably brings the department into conflict with those who believe conservation can effectively be carried out by private land owners, or who take a different view on the best way to achieve a conservation outcome. A challenge to a policy becomes a challenge to the department itself.
Compounding this situation is lack of any independent process for formally auditing the department’s performance. The Accord is very concerned that DoC wants to greatly increase its mountain land holdings when there are no performance audits in place for the lands for which it is already responsible.
Despite these policy concerns, the Accord recognises the commitment most DoC field staff have to the environment, and acknowledges the good personal relationships some of them have with individual farmer lessees.
What does the Accord want?
The Accord believes:
7.1 Local, regional and central government policies for the high country should explicitly take into account the need for environmental, economic and cultural sustainability in the high country on both public and private land.
7.2 In most situations this over-riding objective will be best achieved where the land capable of economic use is owned privately and managed according to sound integrated land management principles. This view reflects the fact that the conservation estate already comprises 6.1 million ha (or over 41%) of the South Island.
7.3 The unique farming cultural heritage and the iconic tussock grassland landscapes of the high country must be retained for future generations.
7.4 Crown Pastoral Leasehold land is not public land. Leaseholders have property rights which are as legally binding as those held by owners of land with freehold title. These rights must not be degraded in any way without strong justification and fair compensation.
The Accord is seeking the following Government policy initiatives:
7.5 An independent review of the Department of Conservation to:
Determine whether the current structure – that of a single advocacy, policy and delivery agency – is the most effective and accountable way to protect New Zealand's unique eco-systems, and endangered flora and fauna
Ensure systems are in place so that scarce resources are allocated to areas of greatest need
Objectively monitor the performance of public and private agencies which are publicly and/or privately funded to protect unique eco-systems, and endangered flora and fauna
Provide for the integrated management of modified landscapes which are considered to have a mix of environmental, economic, cultural and other values.
7.6 Full public consultation before the Crown acquires more land for high country parks and reserves. The Crown's plans should be accompanied by expert analyses of the likely environmental, economic and social outcomes
7.7 A revision of the Government's high country and tenure review policies to ensure:
Negotiations between the Crown and land holders are fair and conducted in good faith
Economic and cultural sustainability are given equal weighting with conservation concerns
There is an objective definition of what constitutes a Significant Inherent Value [referred to elsewhere in this document as a ‘Conservation Value’].
Tenure review remains voluntary, with the land holder able to withdraw at any time before an unconditional agreement is signed
Farmers entering tenure review emerge from the process with a property which is as viable as it was prior to tenure review
The use of the full range of measures provided in the CPLA for the protection of SIVs, including greater use of whole farm plans and covenants
All occupiers of high country land are accountable for their stewardship, based on objective monitoring.