Starting a lease
How to start a lease on your whenua.
Deciding whether to lease your whenua
Leasing your whenua is Māori landowners' most common activity, but that doesn't mean it's right for everyone.
If you're considering whether or not to lease your whenua, first you need to understand:
- the land, its size, the regional location (including what’s going on in the region and nearby)
- land use types in the area
- the condition of any assets that sit on the land, like buildings, fences, water trough
- whether the block has access to water — this can impact the value of a lease
- the level of rental income that’s possible if the land is being used at its highest potential
- owners' views on how the whenua should be used
- any other options that should be considered, for example retiring some or all of it for conservation purposes, or returning it to wetlands or forests.
Understanding the potential helps you work out how the block can be best used to get the highest rental, so the trust is paid for the potential of the land, not what's happening on it.
If there are a few whānau blocks that are close to each other, you could consider combining them as a single lease to make the lease more attractive.
If you decide to lease some or all of the whenua, make sure you understand all of the legal implications. You could have a chat with a kaimahi at the Māori Land Court or with a Te Puni Kōkiri regional advisor.
Working out the rate
It can be good idea to use a professional independent rural valuer to make sure you get a market rate or a fair amount of money for your whenua.
The valuer should come to the block and inspect it, then based on the condition of the whenua and relevant pricing in the area, they will work out a market rate for the lease.
You can use this figure to help with negotiations for the lease — having independent advice helps both parties be confident they're agreeing a fair amount.
Going to market for a lessee
When you're ready to find a lessee, it's best practice to advertise. This gives you the best chance of finding a lessee with the right skills and getting the best rental rate.
There are lots of different ways to seek interest, including:
- the internet, for example listings on property websites, farm discussion groups
- newspaper ads
- word of mouth.
Creating the lease agreement
A lease agreement is a contract between a landlord and a tenant. It is the core legal document that defines how they will work together. It outlines the terms of the lease, including roles and responsibilities.
Things to consider:
- What do the owners want?
- Who would make the best tenants? What skills or knowledge do they need? Is it important that their values align with what the trust wants to achieve?
- How much rent will you charge?
- How long will the term of the lease be?
- Will the tenants need to make any improvements on the land? What kind of upkeep will they be required to do on any assets?
- How will you manage any risks, for example, if there's a drought, who will be responsible for what and how will you work together?
- If there is a breach of the lease, how will the lessee be held to account? What is the process and what are the consequences?
To ensure the lease agreement is robust, you should seek independent professional advice. It can be expensive but it ensures you're following best practice and have processes to hold the lessee to account under the agreement.
Lease terms and rights of renewal
It's standard for leases to have a rent review clause — this is essentially a review of the rent at agreed times during the term of the lease.
For example, you might have a 3 by 3 by 3 lease agreement — the lease term is for 9 years, but every 3 years the lessee has a right of renewal. At this time, the rent can be increased or adjusted, or the lessee can choose not to renew the lease. If they were going to do this, they'd have to give you plenty of notice, usually 6 months in advance.
For leases of more than 21 years, you'll need to notify the Maori Land Court. If the lease is for more than 52 years, you'll need to complete application forms and appear before a judge. If you don't have a trust in place, you'll also need to hold a meeting of owners with at least 75% of owners there.
Health and safety
Whenever a new lessee enters the property for the first time, it's best practice to induct them by explaining any risks or hazards that you know of.
Having a document that clearly outlines any risks or hazards, including a map if possible, is best practice.
You should also create a process to understand and document any new risks or hazards that the lessee introduces through their use of the whenua.
Ending a lease
It's important to make sure you get the right tenant and deal with any issues as they arise, as it's very difficult to end a lease before the end of the term.
If the lessee has breached the terms of the lease, for example by not paying their rent, and you haven't been able to resolve the issue, you'll need to follow the process outlined in the lease agreement.