Deconcessionalising and varying leases - impact on valuations and rates
The ACT Government sometimes grants concessional leases for a community purpose at low or no cost. If a development application that removes the concessional status of a lease is approved, the owner must pay a fee equal to the market value of the lease, minus any amount paid when it was first granted.
Impact of a lease variation on a property’s valuation
If a leaseholder wants to add new purposes to a Crown Lease, or expand existing purposes, a Lease Variation Charge (LVC) is also payable. This charge recognises the value uplift associated with the additional development rights. The LVC is 75 per cent of the increased value of the lease.
Adding new purposes to a lease or expanding existing purposes will generally lead to a higher property valuation. The valuation is based on the ‘highest and best use’ of the land—that is, the most valuable use the land can be put to under the lease terms.
This is the case even if the land is not currently being used for its most valuable purpose.
It is possible to vary a lease to add a new, higher-value purpose, with limitations on the portion of the land that can be used for that purpose. The ACT Valuation Office (ACTVO) will consider such restrictions when valuing a lease. If the lease only enables a portion of the land to be used for a specific purpose, only that portion of the lease will be valued for that use, which can limit the increase in the value of the lease and reduce any increase in rates.
For example, a lease may be varied to add residential development rights, but only for a quarter of the land area. ACTVO would value that portion for residential development (if this is a higher value use of the land), and value the remainder of the land for the next highest value purpose allowed.
Impact of a lease variation on rates
Property owners in the ACT must pay general rates yearly. Revenue from general rates is used to fund a range of services to the community such as our hospitals, schools and public transport.
The total rates bill is determined by the unimproved value of the land, marginal rating factors and a fixed charge. If a lease variation has increased a property’s value, this will also generally increase the property’s unimproved value for rates purposes, and therefore the annual general rates payable.
Commercial rating factors are applied to all leases that are not used for residential or rural purposes. Under the ACT Government’s tax reform program, commercial rates are currently increasing by an average of 6 percent a year.
What does it mean for your project?
Deconcessionalising and varying leases can have an ongoing financial impact through changes in annual general rates.
When seeking to deconcessionalise or vary a lease, you should consider these financial impacts and include them in the financial assessment of any proposed development. The ACT Government does not provide waivers or concessions on general rates where there has been a change brought about by a lease variation.