The stand-alone home in Auckland's Lynfield was a leasehold property when purchased in 2013. Photo: Melanie Earley
Two men who spent years locked in court battles with the same landowner over leasehold homes they purchased in Auckland are warning others of the risks of the leasehold model.
When John* found he and his best mate could buy a three-bedroom home in Auckland for $100,000 - well below the national average for 2013 of $466,000 - it seemed like a perfect way to get onto the property ladder.
He knew the property on Canberra Avenue was a leasehold, but with rent of $250 per month and an option to buy as a freehold in two years, it seemed like too good a deal to pass up.
"I showed it to my lawyer and they said it was a great deal and I should go for it."
Two years went by, and John said he gave the house a complete renovation, he approached Trust Management, a property investment company that landowner Neil Christian was using, asking if he could buy the land.
"At first things seemed positive, but they kept trying to talk to me about renewing the lease agreement which wasn't what I wanted. I looked at valuations and saw the land was worth between $300,000 to $350,000.
"But when I told them about these prices I was told it was worth $1 million and as land prices went ballistic my ground rent would increase to $1000 per week."
John said he tried to fight the rent increase and hired a new lawyer, but in the end he had a discussion with Trust Management and was told if he walked away now he wouldn't be pursued for rent arrears.
"I took it," John said. "I still had the mortgage to pay off and was left massively out of pocket due to the money I'd spent renovating that house and I'd used my KiwiSaver buying it.
"During that time I was working seven days a week just to keep up. I had to just walk away for my own sanity".
John said he'd driven past the house since leaving but tried to avoid it as he found it too upsetting.
"I put a lot of blood, sweat and tears into it - I can't buy another house because I used my KiwiSaver, it ruined my friendship with my best mate, I don't know how I got through it actually."
John said he could not believe something like this was allowed in New Zealand and he would like to see the leasehold model stopped.
Trust Management chief executive Rachel McDonald said Christian had been a client in 2013, but it no longer acted for him.
"In respect of the situation, I understand we are permitted to act only with direct instruction from Mr Christian. I do not have any other information."
Christian noted the property was "voluntarily surrendered" about 10 years ago as part of a resolution reached.
"It's important to appreciate the nature of a ground lease for both lessor and leassee," Christian said, "ground leases typically have lengthy terms between rent reviews with rents remaining fixed, often for periods of 21 years.
"That had advantages and disadvantages for both parties at various times throughout the overall lease. Reviews are normally required to be resolved by independent registered valuers and processes are readily available to both parties to resolve disagreements, if that's required".
'Disaster after disaster'
In his time in the industry, real estate agent and City Sales founder Martin Dunn said he had seen many issues with leasehold property.
"I see disaster after disaster - there are some very cruel leaseholds out there, I've seen it cause marriage breakups and ruin families."
Dunn said there were a few leaseholds out there he would describe as "benign", but as a general rule he would not advise buyers purchase one.
"Leaseholds were made with no concept that Auckland would grown and the land value would become so disproportionate to incomes. Leaseholds were never a good idea, freehold is always best."
The leasehold money had allowed someone "on beer money" to "live in a champagne suburb", Dunn said, but it was "dangerous territory for the inexperienced".
CoreLogic estimated there are about 15,400 leasehold properties, with more than 5400 located in Auckland.
Ongoing court dispute
John is not the only person unhappy with the leasehold model. Tim Smith - who bought a leasehold townhouse in Auckland's Freemans Bay, which is also owned by Christian - has been in a court dispute for years.
Tim Smith had purchased a leasehold townhouse on Napier St in Freemans Bay. Photo: Google Maps
Smith and his former partner bought the Napier St property in 2015 for just $155,000 and he said at that point the rent was $31,000 a year.
But in 2018, the rent review ticked over and rent was put up to $81,375 a year, Smith said.
He said he was also under the impression he would be able to buy the site as a freehold at that point, but it was refused by Paros Property Trust, Christian's company that own the site.
The trust instead went to the High Court demanding Smith pay the money owed in leasehold fees which he hadn't paid since the reset.
Paros wanted $237,625 in back-rent - money it said Smith had not paid the land owner for owning the townhouse. The court had ordered Smith and his former partner pay back the money, but Smith chose to appeal the decision.
"I've been to hell and back," Smith said, and the court case was still ongoing, "I have no mortgage but I'm still having to pay the lease rent which is ridiculous as it is more than the place could be rented for on the open market.
"I'm one of several lesees stuck in this situation - some had to abandon their leases and properties. It's been a real struggle to fight against it."
Christian said the matters regarding the Napier St leasehold remained before the courts, so Paros Property Trust did not "consider it appropriate" to comment further.
*Name changed to protect privacy
