Part 2: Background

How the Thames-Coromandel District Council managed leasing arrangements for Council land in Whitianga.

Council purchases the Sherriff Block

2.1
In October 2000, the Council authorised the purchase of 28.73 hectares of land in Moewai Road, commonly referred to as the Sherriff Block (Lot 1 DPS 91047). The land was being used for farming at the time of purchase.

2.2
As outlined in a Council agenda on 25 October 2000, the land was purchased for:

  • the future development of a multi-sports park;
  • an extension to the Whitianga wastewater treatment plant; and
  • a possible extension to the Mercury Bay airfield.

2.3
The conditional sale and purchase agreement for the Sherriff Block was signed in December 2000.

Council appoints the Moewai Road Land Development Committee

2.4
On 13 March 2001, the Mercury Bay Community Board resolved to appoint a Moewai Road Land Development Committee and adopted the terms of reference for that Committee. This was completed in keeping with the Council’s delegations.

2.5
The Moewai Road Land Development Committee was responsible for:

  • completing the purchase of the land;
  • recommending interim management/use of the land;
  • facilitating investigations into possible uses;and
  • liaison with Community Clubs and Organisations.

Vendor of the Sherriff Block leases it back for grazing

2.6
The title for the Sherriff Block was transferred to the Council on 1 April 2001. The sale and purchase agreement provided:

The Vendor to lease such parts of the property as the Purchaser [i.e. Council] may not immediately need to use for a five year term from possession date upon such terms and conditions negotiated.

2.7
We were told that there was no written agreement or lease formally outlining the terms and conditions (as referred to in the sale and purchase agreement) negotiated between the vendor and the Council.

2.8
On 7 March 2003, a Council officer from the Mercury Bay Service Centre wrote to the vendor and outlined the following terms and conditions between the vendor and the Council, effective from the purchase date and expiring on 1 April 2006 (recognising the terms and conditions of the lease started on 1 April 2001):

  • The vendor “continues to graze the land as part of his farming operation”.
  • The vendor “pays the rates”.
  • The Council will notify the vendor “when the land is required to be used by the Council or its agents”.

2.9
The letter noted that the vendor had the right to graze two other lots of Council-owned land that are not part of the Sherriff Block; Lot 3 DPS 54407 – the Whitianga bike park land, and Lot 8 DPS 54407 – the district’s dog pound land. Grazing arrangements are considered to be the secondary use for both of these blocks of land.

2.10
The letter also stated that the Council was prepared to discuss continuing the current arrangements with a new owner of the vendor’s farm. We understand that this undertaking was obtained by the vendor because they were considering selling their farm and wanted to confirm that the grazing arrangement would continue for a new owner.

Mr Dirk Sieling takes over the lease for the Sherriff Block

2.11
Mr Sieling purchased the vendor’s farm on 30 May 2003. As part of the purchase, Mr Sieling took over the lease of the Sherriff Block.

2.12
On 7 April 2003, a Council officer from the Mercury Bay Service Centre wrote to Mr Sieling to advise him that the Council was preparing a formal lease between the Council and Mr Sieling for the Sherriff Block. The letter included the following terms and conditions for the lease of the Sherriff Block:

  • Term – 3 + 3 + 3 with a right of renewal each term. [The first three-year term started on 1 April 2003.]
  • Review – The rental and term will be reviewed every three years.
  • Rental – Shall be determined by valuations.
  • The land shall continue to be farmed in a husbandlike manner.
  • At the review period, Council may, in consultation with the lessee, take back some of the land that may be required for their purpose…
  • During the term of the lease, should Council through agreement require land for short term periods… such access shall not be unreasonably withheld.

2.13
No formal lease was prepared or signed. This was confirmed by all parties who were involved. However, Cr Sieling told us that he had verbally agreed to the terms and conditions with the Council at the time.

Attempts to formalise the lease for the Sherriff Block

2.14
Mr Sieling and his lawyer made requests to the Council on 5 May 2003 and 16 February 2005 for information about the status of the drafting of the lease.

2.15
Correspondence from the Council noted that drafting was in progress, and that the matter had been passed on to a Council officer based in the Council’s Thames Office. All previous correspondence had been with the Council’s Mercury Bay Office.

2.16
Mr Sieling kept in verbal contact with Council staff. He advised us during our inquiry that he was repeatedly told that the lease was being drafted.

2.17
There was a large amount of correspondence about the lease of the Sherriff Block. However, the correspondence between the Council and Mr Sieling ceased from March 2005 until the matter was raised again in the later part of 2007, when Mr Sieling was elected as a Councillor.

2.18
We understand that Mr Sieling continued to use the land for grazing during this period, on the basis that:

  • There was no rental to be paid on the lease, as agreed by the previous vendor, until at the earliest 1 April 2006 (the renewal date).
  • The land shall continue to be “farmed in a husbandlike manner”.

Rates not paid or asked for

2.19
Mr Sieling did not pay rates on the Sherriff Block during this period, nor was he sent any rates notices by the Council.

2.20
Mr Sieling asked the Council about the rates requirement. However, the Council officers he asked were not clear on whether rates needed to be paid because the land was owned by the Council and they would need to confirm its status as a reserve. The Council officers did not provide Mr Sieling with that confirmation.

Mr Sieling sub-lets the Sherriff Block for share farming

2.21
On 2 June 2006, Mr Sieling entered into a share farming lease with a third party. The lessee agreed to lease the Sherriff Block and another block of land held by Mr Sieling for a one-year term, with a right of renewal of two years. The lease provided for rental to be paid to Mr Sieling.

Proposal to use the Sherriff Block for music festivals

2.22
In the lead-up to the 2007 Local Elections, Mr Sieling was aware that Mr Echave was proposing to hold music festivals in Whitianga, and the preferred location was the Sherriff Block. He informed Mr Echave that he needed the Council’s permission to hold the events on the Sherriff Block.

2.23
In September 2007, Mr Echave advised the Mercury Bay Community Board that he wanted to bring two music festivals to Whitianga (a New Year’s Eve concert and a Blues Festival).

2.24
The Council granted permission for the two musical festivals to be held on the Sherriff Block. The New Year’s Eve concert was later cancelled because of adverse weather. However, the Blues Festival occurred as planned.

Mr Sieling elected to Thames-Coromandel District Council

2.25
Mr Sieling was elected to the Council in the October 2007 local body elections.

2.26
He told us that when he was elected he again raised with the Council the matter of drafting a lease for the Sherriff Block, and asked for this to be dealt with as a matter of some urgency.

2.27
We note that Cr Sieling took steps to remove himself from discussions about the Sherriff Block in his role as a Councillor. For example, the minutes of a Mercury Bay Community Board workshop on 11 December 2007 to discuss possible options for the Mercury Bay multi-sport complex note that Cr Sieling declared an interest in this item, did not attend, and took no part in the discussions. We understand that this was because Cr Sieling was aware that the proposed location for the complex was the Sherriff Block.

Council responds to a new proposal to lease the Sherriff Block

2.28
On 25 February 2008, Mr Echave submitted a proposal by email to the Council to lease the Sherriff Block. Mr Echave did this on the understanding that the Sherriff Block was being leased on a month-by-month “grace and favour” basis by Cr Sieling. His understanding was based on advice from Council staff. Mr Echave’s email also outlined the arrangements for a Blues Festival to be held in March 2008.

2.29
Council staff responded to Mr Echave’s email on 29 February. The email addressed the proposal in two parts:

  • the Blues Festival; and
  • the proposed lease of the Sherriff Block.

The Blues Festival

2.30
The email from Council staff noted that:

  • the Blues Festival was to be treated as a “one off” event (outside the proposed lease submitted by Mr Echave);
  • a fee of $40,000 was to be paid (and was paid) by Mr Echave’s company upon receipt of an invoice from Cr Sieling; and
  • the Council would not charge a fee for the Blues Festival event.

2.31
Correspondence between the Council and Mr Echave outlined that Cr Sieling would liaise with the sub-lessee of the Sherriff Block to provide compensation to the sub-lessee for loss of production suffered as a consequence of the Blues Festival.

Proposed lease of the Sherriff Block

2.32
The second part of the Council’s email response dealt with the proposed lease of the Sherriff Block. Council staff noted in the email to Mr Echave that he would be offered a lease for a period of one year with a right of renewal for two one-year periods, subject to the Council’s approval.

2.33
It also noted that Mr Echave would allow Cr Sieling to use the land for grazing during periods when there were no events taking place.

2.34
Mr Echave raised concerns about the agreement in his correspondence with the Council, specifically noting that the lease agreement was not tenable in the long term because the current share farming arrangement was a full production-aligned commercial dairy lease. Mr Echave’s proposal to hold events on the property could have conflicted with the intentions of the share farmer to maximise production.

2.35
We considered a series of emails that were sent between Mr Echave and the Council officer responsible for managing this process, and decided not to outline them in detail in this report. In our view, this email correspondence was not relevant to our inquiry.

2.36
In carrying out our inquiry, we have not set out in this report or considered the lease arrangements offered by Mr Echave. However, we note that during negotiations with Mr Echave, Council staff advised him that any future lease between him and the Council was subject to Council approval.

The Council’s Service Delivery Committee considers options for the Sherriff Block

2.37
An agenda paper item for the public-excluded session of the Council’s Service Delivery Committee of 14 May 2008 outlined Mr Echave’s lease proposal and recommended four options for the Sherriff Block:

  • do not lease the land;
  • lease the land to Mr Echave for the purpose of providing concerts;
  • lease the land to Cr Sieling for agricultural purposes; or
  • use the land for alternative unspecified outcomes.

2.38
In the agenda paper, Council staff recommended that the Service Delivery Committee approve a lease to Mr Echave. One condition of the lease agreement was for the lessee to allow Cr Sieling (or his representative) to graze the land during periods when there were no events taking place.

2.39
We note that some of the background information in the agenda paper was not accurate. For example, the agenda paper referred to the Sherriff Block arrangement with Cr Sieling as a “grace and favour” arrangement, and that he had been advised of the termination of this agreement in a letter on 1 April 2008.

2.40
However, the letter of 1 April 2008 to Cr Sieling had actually terminated arrangements for another block of land (Lot 8 DPS 54407, which is not the Sherriff Block). Not only were the lease terms and conditions wrong, but Council staff also consistently referred to and terminated the wrong lease.

2.41
The background information in the Service Delivery Committee agenda paper also noted that Cr Sieling had approached Council staff in November 2007 wishing to continue with the grazing arrangement on the Sherriff Block on a more formal basis. This was shortly after Cr Sieling’s election to the Council.

2.42
The Council, in response to Cr Sieling’s request, sought a valuation of the land in accordance with its leasing policy and revenue and financing policy. The valuation for agricultural purposes was obtained.

Cr Sieling’s involvement in discussing the options for the Sherriff Block

2.43
As a Councillor, Cr Sieling received the full agenda papers for the Service Delivery Committee’s meetings.

2.44
During the Service Delivery Committee meeting on 14 May 2008, which considered the Sherriff Block, Cr Sieling declared an interest in the matter. The minutes of the meeting confirm that he did not take part in discussing the matter.

2.45
Cr Sieling then made a presentation at the public forum part of the meeting, as a member of the public, advising the Service Delivery Committee that he had a lease on the Sherriff Block and wanted to continue this arrangement.

2.46
Cr Sieling also tabled a paper to the Committee, in which he noted his view that he had a lease with the Council and that, although not formalised, a letter (dated 7 April 2003) from the Council created both a moral and a clear legal obligation to commit to a lease (see paragraph 2.12).

2.47
Cr Sieling also noted that he disagreed with the Council’s valuation of the land, and outlined his reasons.

2.48
During our discussions with Cr Sieling, he noted that he decided to speak at the public forum of the Service Delivery Committee because he felt it would have been inappropriate to discuss the matter in the public-excluded session. He was also of the view that discussing the matter in the public forum was the only way he could prevent his rights as a private citizen being overridden by the Council’s actions. He knew that the Council had been provided with incorrect or incomplete information and believed that speaking publicly was his only option to correct the situation.

Cr Sieling indicates possible legal action over a Council decision to put the Sherriff Block “out for tender”

2.49
During the public-excluded session, the Service Delivery Committee resolved to put the Sherriff Block out for tender as soon as possible.

2.50
After the Service Delivery Committee meeting, Cr Sieling wrote to the Chief Executive, noting that the Committee’s decision to put the Sherriff Block out to tender was a shock to him.

2.51
The letter notes that because he had purchased the vendor’s farm, had in place an agreement (documented in the letter of 7 April 2003) to lease the Sherriff Block, and had subsequently contracted a share farmer, Cr Sieling felt he had no option but to seek an injunction and take legal action to protect his business and contractual obligations if the Service Delivery Committee’s decision was ratified by the Council.

2.52
The lease of the Sherriff Block was also considered at a full Council meeting on 21 May 2008, where it was resolved that the matter be addressed by the Service Delivery Committee.

2.53
The Service Delivery Committee considered the matter further on 25 June 2008. In the Committee agenda paper it was noted that the Council had obtained a legal opinion as a result of Cr Sieling threatening legal action.

2.54
The legal opinion noted:

… from the materials and information we have received … it appears to us that Council may be at risk of a claim bought by Mr Sieling for: a. specific performance of the 7.4.03 letter as constituting an agreement to grant a lease and/or b. a claim for damages if Mr Sieling suffers loss and can prove that loss.

2.55
Questions have been raised with us about the legality of these matters, including whether the letter to Cr Sieling of 7 April 2003 was a legal and binding contract to the Council and whether Cr Sieling was legally entitled to sub-let the Sherriff Block. We have not sought to form a view on these matters. It is not the Auditor-General's role to determine whether a council has acted lawfully in a particular situation. This is a matter for the courts.

Terms for lease of the Sherriff Block offered to Cr Sieling

2.56
The Service Delivery Committee resolved that, subject to checking the legal opinion it had received, and specifically considering previous non-payment of rates, a lease be entered into with Cr Sieling. It suggested the following terms:

  • Lease term 5 + 3 + 3 starting 1 April 2001.
  • Rates paid from grazing occupancy of 1 April 2004 [sic – we note that the date should have been 2003].
  • Lease rental Market Value respective from 1 April 2006.
  • Payment to Council from Bluesfest.

2.57
On 10 September 2008, Geoff Tizard of Curnow Tizard Limited, acting on behalf of the Council, emailed the Council to advise that he and Jim Glenn (Jim Glenn Valuers, acting on behalf of Cr Sieling) had met and recommended to their respective clients a settlement at an annual rental of $19,000 plus GST. We note that the practice of each of the two parties involved in any rental negotiation obtaining a valuation to establish a market rental for land is common and good practice.

2.58
On 28 January 2009, the Council wrote to Cr Sieling and outlined the position reached in relation to leasing the Sherriff block. The following was outlined:

  • Rates would be paid from the time of possession of land, being 1 April 2004 (again, we note that this date is in error, and should have read 2003). At the date of the letter it was noted that the Council had billed, and Cr Sieling had paid, rates up to June 2008.
  • Rental to be paid for the period 1 April 2006 to 30 June 2008.
  • Market rental from 1 July 2008 would be determined by valuation and Cr Sieling would sign a lease on that basis.

2.59
The Council now has a formal lease agreement in place with Cr Sieling for the Sherriff Block, all rates and water charges have been settled, and rental has been agreed to apply from 1 July 2008. The Council is yet to settle the final market-based rental for the 1 April 2006 to 30 June 2008 period with Cr Sieling.

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