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What is Trust Leasehold Land in Qld. Worth

A friend of mine is looking at "purchasing" a leasehold grazing property in Queensland. The question that is glaringly obvious is; what exactly is leasehold under the new Trust Lease worth?

In view that there is a buy price and rent applicable to the leasehold land what does the "purchaser" actually get for his money?

When you take into account that the following clause is present on many of these leases: "No compensation for improvements or development work is payable by the State at forfeiture, surrender or expiry of the lease, but the lessee has the right to remove the lessees movable improvements within a period of three months from the forfeiture, surrender or expiry of the lease, provided all money due by the lessee to the State on any account whatsoever has been paid, or be required to remove those improvements as specified in any further condition of lease."

If we assume that there are no livestock on the property, doesn't that make the purchase price zero, in view that the improvements you must maintain, if you cannot move them, are worthless. I guess the comparison here is leasing a factory for a term, to produce widgets, the only outgoing in relation to the property itself is normally the rent.

Who would purchase nothing and also pay rent???

How do the banks now justify lending money when the asset looks as though it is worthless?? Is the mortgage held over a Trust Lease instrument worth anything, there is no land assett as this is State owned (Crown) land.

Surely everyone is going to opt to freehold, based on the following from the Land Act 1994; if they don't, they are loosing their only assets on the property, i.e. the developments. However then the lessee has to pay to convert to freehold after paying for the potentially worthless lease in the first place.

LAND ACT 1994 - SECT 166

166 Application to convert lease

(1) Subject to subsections (2) to (4), a lessee may apply to convert (a conversion application)--

(a) a perpetual lease to freehold land; and

(b) a term lease to a perpetual lease or to freehold land.

(2) The lessee of a term lease issued for pastoral purposes may only apply to convert the lease--

(a) to a perpetual lease; and

(b) after 80% of the existing term on the lease has expired, unless in the chief executive's opinion, special circumstances exist.

(3) A lessee of a term lease not issued for pastoral purposes may only apply to convert the lease to freehold land.

(4) A conversion application can not be made for a lease if it contains a reservation that all of the lease land is a future conservation area.

(5) A conversion application may be rejected without consideration under section 167 if--

(a) the applicant has made an earlier conversion application and the application was refused; and

(b) there is no relevant change in circumstances from the earlier application.

(6) In this section--

existing term, of the lease, does not include an extension under section 155A, 155B or 155BA of the term of the lease.

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Replies to This Discussion

Permalink Reply by Greg Blackmore on January 18, 2012 at 4:36pm

John, This link may help you with the different land tenures in Queensland. You may have to check to see if it has been revised. No doubt the Delbessie Agreement re condition of land at renewal has implications.

LAND TENURE IN QUEENSLAND

There is also another booklet put out by the Law Society here:-

LAW SOCIETY BOOKLET

Permalink Reply by Greg Blackmore on January 18, 2012 at 4:52pm

John, A grazing property is not suite the same as an empty shed as there is an inherent ability for the property to carry livestock and earn an income. The country type and previous development/improvement will determine the carrying capacity and whether it will fatten or be useful simply as a breeding property. About 80% of Queensland tenure is leasehold and historically there has not been much difference in market values for either Leasehold or Freehold. Also historically banks regarded Queensland Leasehold tenures as good security as there was not much chance that the current lessee would not get a renewal. All this may/should have changed with the advent of the Delbessie Agreement, however I am not sure what sales evidence there is to support this. Bear in mind a lot of Leasehold Land in Queensland is Perpetual Lease, sometimes said to be a 99 year lease, which is inaccurate as the lease does not expire, and as the description says, it is perpetual, so good bank security. A grazing lease over state forest is probably becoming more rare these days and these leases are very insecure and it is likely/possible that they may not be renewed at the end of term.

Permalink Reply by Joanne Rea on January 18, 2012 at 5:01pm

From the Land Act 1994

Division 2 Resumption of a lease under a
condition of the lease
223 Application of division
This division applies to a lease containing a condition that all
or part of the lease may be resumed.
224 Resumption of lease
(1) A lease or part of a lease may be resumed by the Minister.
(2) However, the resumption must be in accordance with the
condition in the lease allowing the resumption.
225 Effect of resumption
(1) If a lease or part of a lease is resumed under this division, the
land the subject of the interest comprising the lease or the part
of the lease is free of any interest or obligation arising under
the lease.
s 226 204 s 229
Land Act 1994
(2) The owner of lawful improvements on the lease has the right
to claim the compensation allowed under this division.
(3) To remove any doubt, it is declared that the lessee is the
owner of improvements made to the lease by the State only if
the lessee has paid for the improvements.
226 Compensation limited to improvements
(1) Compensation for a resumption under this division is payable
only for lawful improvements on the lease or part of the lease
resumed.
(2) The compensation is the value of the improvements on the
day the resumption takes effect.
(3) The Minister must decide the compensation payable.
(4) The value of the improvements must be assessed as their
market value in a sale of the lease if the lease had not been
resumed.
(5) The lessee may appeal against the Minister’s decision.
227 Development work an improvement
For this division, development work is taken to be an
improvement.

Seems to me there are a few questions that need to be answered by the legal brains. Are the conditions of the lease attempting to override the provisions of the Land Act?

Permalink Reply by Greg Blackmore on January 18, 2012 at 5:36pm

John, The statement above (as below) sounds more like it is from a term lease over state forest land:-

"No compensation for improvements or development work is payable by the State at forfeiture, surrender or expiry of the lease, but the lessee has the right to remove the lessees movable improvements within a period of three months from the forfeiture, surrender or expiry of the lease, provided all money due by the lessee to the State on any account whatsoever has been paid, or be required to remove those improvements as specified in any further condition of lease."

Permalink Reply by Lynette McDougall on January 18, 2012 at 6:10pm

John - "Trust lease"? I think you mean "Term Lease".

Joanne - your question is "Are the conditions of the lease attempting to override the provisions of the Land Act?" No - the Land Act section you quoted sets out how a lease may be resumed if it contains the condition referred to by John in his post. If the lease doesn't have the resumption condition (and many of them don't), it is resumed under the Acquisition of Land Act.

Greg - that condition is not used in leases over State Forests. Because you are not allowed to build improvements (other than boundary fencing) on leases over State Forests, they are only to be used for grazing.

Permalink Reply by John Michelmore on January 18, 2012 at 6:39pm

Hi Joanne,

Resumption clauses do not apply, the paragraph in quotes in my post are the conditions of the lease. The improvements are of zero value if you have one of these new leases. The question therefore remains, what is the lease worth , answer still looks like a big fat zero to me. Freehold is real property the lease is only a chattel. Surely my original conclusion that conversion to freehold was a must, if the improvements move to zero value under these leases.

Joanne Rea said:

From the Land Act 1994

Division 2 Resumption of a lease under a
condition of the lease
223 Application of division
This division applies to a lease containing a condition that all
or part of the lease may be resumed.
224 Resumption of lease
(1) A lease or part of a lease may be resumed by the Minister.
(2) However, the resumption must be in accordance with the
condition in the lease allowing the resumption.
225 Effect of resumption
(1) If a lease or part of a lease is resumed under this division, the
land the subject of the interest comprising the lease or the part
of the lease is free of any interest or obligation arising under
the lease.
s 226 204 s 229
Land Act 1994
(2) The owner of lawful improvements on the lease has the right
to claim the compensation allowed under this division.
(3) To remove any doubt, it is declared that the lessee is the
owner of improvements made to the lease by the State only if
the lessee has paid for the improvements.
226 Compensation limited to improvements
(1) Compensation for a resumption under this division is payable
only for lawful improvements on the lease or part of the lease
resumed.
(2) The compensation is the value of the improvements on the
day the resumption takes effect.
(3) The Minister must decide the compensation payable.
(4) The value of the improvements must be assessed as their
market value in a sale of the lease if the lease had not been
resumed.
(5) The lessee may appeal against the Minister’s decision.
227 Development work an improvement
For this division, development work is taken to be an
improvement.

Seems to me there are a few questions that need to be answered by the legal brains. Are the conditions of the lease attempting to override the provisions of the Land Act?

Permalink Reply by John Michelmore on January 18, 2012 at 6:58pm

No Greg,

This is a pastoral lease, and these conditions should have everyone in Qld very concerned.

The improvements will go to zero value if these new leases replace the old leases, where at least the improvements counted. I wouldnt let any old lease expire and be replaced by this new one, the lessee can only loose.

As I said the banks will have the security of a piece of paper that can change or be interpreted differently by the Executive Government of the day. Believe me there are a lot of days in 30 years.

Greg Blackmore said:

John, The statement above (as below) sounds more like it is from a term lease over state forest land:-

"No compensation for improvements or development work is payable by the State at forfeiture, surrender or expiry of the lease, but the lessee has the right to remove the lessees movable improvements within a period of three months from the forfeiture, surrender or expiry of the lease, provided all money due by the lessee to the State on any account whatsoever has been paid, or be required to remove those improvements as specified in any further condition of lease."

Permalink Reply by Lynette McDougall on January 18, 2012 at 7:02pm

That condition is not a new condition. It's been in leases for years. In fact more old leases have it than new leases. When does the lease you are referring to expire?

Permalink Reply by Greg Blackmore on January 18, 2012 at 7:04pm

John, Lynette knows what she is talking about so take her comments on board. Also you are still overlooking the main asset, therefore value, of the lease and that is it's ability to graze cattle. The value will therefore be more affected by the carrying capacity than any structural improvements. In any event the market value is what someone is prepared to pay for it in a free and willing market. Annual rental is a percentage of the unimproved valuation and consequently only a small percentage of the market value. In very general terms grazing properties together with all stock and plant (ie a going concern) would generally have trouble generating returns on capital invested of more than a couple of percent. Cheers Greg

Permalink Reply by Elizabeth Gearey on January 18, 2012 at 7:15pm

An interesting discussion with many points of value. However, as far as I can see none of it is of much value if the mining mob decide to muscle in.

Permalink Reply by John Michelmore on January 18, 2012 at 7:16pm

Greg Blackmore said:

Greg ,

Thanks for that, however this Land Tenure Document you have linked contains the following statement ;

"The State deals with land in much the same way as a freehold owner. For example, a corporation which

has freehold ownership of a number of lots may decide to sell, lease or subdivide its interests in land in

what it believes are the best interests of its shareholders. Similarly, when the State makes decisions for

dealing with land it does so in what it believes are the best interests of its' share-holders'—the people of

Queensland. Accordingly, the State may deal with unallocated State land in several ways. Depending on

the circumstances, it may:

•

lease land for a term of years or in perpetuity, or, in the case of a temporarily closed road, issue a

licence allowing the land to be used in specified ways

•

issue a permit allowing a person to occupy the land on a short-term basis

•

sell the land as freehold

•

reserve the land for community, forest or conservation purpose (e.g. to be used as a park, State forest

or national park, or for sport and recreation)

•

dedicate the land as a road

•

retain the land as unallocated State land."

The concern here is that this land was crown land, the document indicates that crown land is now freehold land owned by the State? If so did the State pay the crown for it and what happened to the money?

Is this the association between the Brigalow story and how this old corporation ends up regularly in land tenure discussions in Qld. Was the conversion done via the Brigalow Corporation?

John, This link may help you with the different land tenures in Queensland. You may have to check to see if it has been revised. No doubt the Delbessie Agreement re condition of land at renewal has implications.

LAND TENURE IN QUEENSLAND

There is also another booklet put out by the Law Society here:-

LAW SOCIETY BOOKLET

Permalink Reply by Greg Blackmore on January 18, 2012 at 7:35pm

John, My comments are purely related to your question as to the value of a lease. Some of your comments below have merged with my original comment and could be construed to be mine and this is not the case. My original comment was:-

"John, This link may help you with the different land tenures in Queensland. You may have to check to see if it has been revised. No doubt the Delbessie Agreement re condition of land at renewal has implications.

LAND TENURE IN QUEENSLAND

There is also another booklet put out by the Law Society here:-

LAW SOCIETY BOOKLET "

I would suggest that your friend get legal advice as to the security of tenure of his proposed lease and I am afraid I can not comment or speculate on the other matters raised.

Cheers Greg

John Michelmore said:

Greg Blackmore said:

Greg ,

Thanks for that, however this Land Tenure Document you have linked contains the following statement ;

"The State deals with land in much the same way as a freehold owner. For example, a corporation which

has freehold ownership of a number of lots may decide to sell, lease or subdivide its interests in land in

what it believes are the best interests of its shareholders. Similarly, when the State makes decisions for

dealing with land it does so in what it believes are the best interests of its' share-holders'—the people of

Queensland. Accordingly, the State may deal with unallocated State land in several ways. Depending on

the circumstances, it may:

•

lease land for a term of years or in perpetuity, or, in the case of a temporarily closed road, issue a

licence allowing the land to be used in specified ways

•

issue a permit allowing a person to occupy the land on a short-term basis

•

sell the land as freehold

•

reserve the land for community, forest or conservation purpose (e.g. to be used as a park, State forest

or national park, or for sport and recreation)

•

dedicate the land as a road

•

retain the land as unallocated State land."

The concern here is that this land was crown land, the document indicates that crown land is now freehold land owned by the State? If so did the State pay the crown for it and what happened to the money?

Is this the association between the Brigalow story and how this old corporation ends up regularly in land tenure discussions in Qld. Was the conversion done via the Brigalow Corporation?

John, This link may help you with the different land tenures in Queensland. You may have to check to see if it has been revised. No doubt the Delbessie Agreement re condition of land at renewal has implications.

LAND TENURE IN QUEENSLAND

There is also another booklet put out by the Law Society here:-

LAW SOCIETY BOOKLET