Can a land use consent affect valuation of ground rental?

Viaduct Harbour Holdings Ltd v Westhaven Properties Ltd (2005) 5 NZCPR 730

The characteristic feature of a ground lease is that the rental is assessed on the value of the land alone, ignoring the value of any improvements. If the lessee has obtained a land use consent which makes it possible to use the land more profitably, can this be taken into account in a valuation for rental review purposes?

Viaduct Harbour Holdings Ltd (“VHH”) was the landlord and Westhaven Properties Ltd (“WP”) was the tenant under a commercial ground lease which specifically excluded improvements from consideration in a rental assessment. The zoning of the land did not permit development of commercial office premises and neither did the lease. WP successfully applied for a land use consent for commercial office development and VHH agreed to vary the lease to allow the use of the land for that purpose.

Rental review time arrived and VHH wanted the consent be taken into account in valuing the land for rental purposes to get a higher rental. The court held that the consent attached to the building, rather than the land. Consent is different from zoning in that zoning attaches to the land, in which case, the landlord can take zoning into consideration for rental review purposes. The highest and best use of the land is to be considered in assessing the ground rental, but any benefit added by the lessee cannot form part of such consideration.

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