Lease modification rules logical and rational, says lands director

Lands director fights back after accusation that rules determining how to assess premiums are fundamentally flawed

PUBLISHED : Wednesday, 23 October, 2013, 4:49am
UPDATED : Wednesday, 23 October, 2013, 4:49am

With reference to this column on October 16 with the headline: "Lease modification a funny old policy", we at the Lands Department cannot agree that current practice in assessing premiums for lease modifications is "fundamentally flawed" or that it is an "aberration".

Premiums for a lease modification are equivalent to the difference between the current value of the land held under the previous lease conditions (the "before value") and its current value under the modified conditions (the "after value"). The premium is assessed on a consistent approach by comparing like with like.

When the "after value" is assessed on a "cleared site" basis, the "before value" will also be assessed on that basis. Likewise, if an existing building will be retained for conversion, both the "after value" and "before value" would be assessed reflecting the value of the existing building.

In most cases a private lot owner may not apply for a lease modification for redeveloping the lot unless the existing building is ripe for redevelopment. To adopt a "cleared site" land value for the "after value" but the "before value" for the existing building under such circumstances is not a fair approach.

The Lands Department, in assessing the modification premium, always takes into account appropriate development costs. But some fundamental principles relating to accountability for the costs of public works must be observed.

In particular, the implementation of every public works project is subject to established procedures having regard to factors such as the justification, relative priority, and timing of the relevant funding. Using the example cited in last week's column, a public transport interchange may not be taken into account in the premium assessment just because it is a public facility.

Consider a scenario in which the public transport interchange might have continued in public use for years if not for the development project initiated by the lot owner. Its replacement or reprovisioning using public funds in the form of allowing the costs in the premium assessment may not be justifiable.

Similarly, public funds should not be used for the provision of public facilities offered by a lot owner merely to secure planning permission.

We do have logic and a rationale in applying these practices.

Bernadette Linn is director of lands