Part 2: Purchasing a house for the Vice-Chancellor

Inquiry into the University of Auckland’s decision to purchase a house in Parnell.

2.1
In this Part, we describe:

A house for the Vice-Chancellor

2.2
During our work, we learned that this was not the first time the University had purchased a house to accommodate a Vice-Chancellor. In July 2004, the University purchased a 404 m2 house in Remuera for $2,050,000. The University told us that “the purpose of the investment was to provide a Vice-Chancellor residence, including facilities for University entertainment purposes”.

2.3
The previous Vice-Chancellor started on 1 January 2005 and moved into the house about the same time. We understand that the University rented the house to the previous Vice-Chancellor for the duration of his term of office, which ended in March 2020 (the term was extended to coincide with the start of the incoming Vice-Chancellor’s term of office).

2.4
Further to rental valuations, rental payments for that property were set at between 50% and 52% of the agreed weekly market rental rate.

The decision to sell the Remuera house and the search for a new house

2.5
The University told us that the Remuera house had weathertightness issues and was no longer fit for purpose (that is, no longer fit for hosting events). The University told us that it had been hosting events in other commercial venues for about two years. In 2018/19, the University hosted 22 donor events.

2.6
The University’s Property Services division did not consider the Remuera house to be a suitable long-term investment. In 2018, the Director of Property Services recommended selling the Remuera house.

2.7
The previous Vice-Chancellor lived in the house during that time and indicated to the University that the most appropriate time to sell the house would be at the end of 2019 (when his term of employment and occupancy of the house was due to finish). The house was put on the market in June 2020 and was sold for $2,965,000 in July 2020.

Purchasing the Parnell house

House selection

2.8
The incoming Vice-Chancellor was appointed in May 2019, and her employment started in March 2020. From June 2019, the University initiated correspondence with the incoming Vice-Chancellor about the new house it would purchase and asked the Vice-Chancellor to provide information about her preferences.

2.9
In July 2019, the University engaged a search agent to locate another suitable three- to four-bedroom house in Parnell or Remuera. The property brief specified that the house had to be within walking distance of the University and have easy access to the bays, cafes, and restaurants.

2.10
The living spaces needed to be large enough to entertain up to 25 people. The house had to have a home office space, good off-street parking and bike storage, low-maintenance grounds, and privacy.

2.11
Because of the University’s experience with the Remuera house, the property brief also specified that the purchaser would not consider plaster-clad homes built during the “leaky homes period” and that the house should not have any major building issues needing remediation.

2.12
The property brief described the client as looking for an executive-level home for a professional couple to be within easy walking distance (two to three kilometres) of the Auckland High Court/Waterloo Quadrant area. The brief continued:

… as our client enjoys outdoor activities including cycling and walking, easy access to the Bays is desirable. Nearby cafes and restaurants would also be beneficial. School zoning is not a particular consideration for our client’s family but we realise these do impact future investment potential.

2.13
The property search agent identified 20 properties. The University inspected 15 of those and narrowed the list to three houses.

Parnell house purchase

2.14
A memorandum dated 21 November 2019 prepared by the former University Director of Property Services for agreement by the Chief Financial Officer, Deputy Vice-Chancellor, and the previous Vice-Chancellor recommended purchasing the house in Parnell. The memorandum noted that the house would be occupied by the incoming Vice-Chancellor when she commenced in March 2020 and used for accommodation, business-related operations, and functions.

2.15
Two other properties were eliminated by the University at this point for a range of factors, including location and distance to the University (Remuera compared to Parnell), privacy, scale, parking, fit-out, building materials, and the need for remedial work that would affect time or cost.

2.16
The University told us that the ability to offer additional guest accommodation was not part of the original property brief and was considered incidental to the purchase, but that the downstairs bedroom in the Parnell house could be used to accommodate officials from other universities.

2.17
In the 21 November 2019 memorandum, the University said that it had maintained active contact with the incoming Vice-Chancellor about the property search process. In the memorandum, the University described the incoming Vice-Chancellor as “being in agreement with” the University’s recommendations. The Vice-Chancellor told us that she was not aware of the 21 November 2019 memorandum nor of how the University described her involvement.

2.18
The rating value of the Parnell house was $3.475 million, with an asking price of $5.35 million. The University’s Property Services division obtained approval from the previous Vice-Chancellor to negotiate a purchase up to the asking price. An initial offer of $4.8 million was made, subject to the University receiving a satisfactory valuation, a Land Information Memorandum, and a builder’s report.

2.19
The previous Vice-Chancellor had financial delegations to commit to unbudgeted capital expenditure of up to $10 million. These financial delegations had been increased from $5 million to $10 million in August 2019.

2.20
The University concluded a sale and purchase agreement on 24 November 2019, with an initial purchase price of $5.125 million. On 26 November 2019, the University had the house valued. The market valuation was between $5.1 and $5.2 million.

2.21
A building inspection on 28 November 2019 identified that remedial work was needed. The University told us that it subsequently spent between $150,000 and $170,000 on the house. The University told us that, because of this, it negotiated the final purchase price down to $5.062 million.

The arrangement with the Vice-Chancellor

2.22
The University told us that the house was purchased as accommodation for the incoming Vice-Chancellor and for business-related operations and functions. The University explained that this primarily included hosting donor functions.

2.23
The University told us that the incoming Vice-Chancellor would need to establish relationships with donors and other key people, and that hosting and hospitality was an important way of doing this.

2.24
The University told us that hosting and hospitality was important:

  • for the Vice-Chancellor to build connections with potential donors and key influencers; and
  • for the University to source philanthropic donations.

2.25
To assess the extent to which the house purchase could be seen to support the University’s business, we wanted to understand how much hosting had been carried out in the Vice-Chancellor’s house in recent years and the level of anticipated hosting in the new house. The University provided us with an indicative list of 14 dinners or events that it anticipated the incoming Vice-Chancellor might host at the house during the next two years.

2.26
The University obtained a rental valuation for the house, which it subsequently used as the basis for how much rent it would charge the Vice-Chancellor. That valuation was on the basis that:

  • the Vice-Chancellor would occupy the house;
  • the value of the home office, downstairs bedroom, and ensuite would be deducted from the market rent; and
  • there would be a further discount for shared use of communal areas for entertaining.

2.27
The rent for the Parnell house was set at 52% of the market rental value, and the term of the tenancy was tied to the Vice-Chancellor’s five-year employment contract.

2.28
We note that, despite the passage of time and the different properties involved, there is very little difference in the rental assessments carried out on the Remuera house in 2004 and 2008, and the rental assessment carried out on the Parnell house in December 2019.

2.29
The rental assessments (carried out by the same valuer) were virtually identical in format and description, as was the level of proposed deductions. All three rental assessments referred to “contractual obligations”, including the provision of a suitable home office (which would also be an appropriate space to conduct interviews) and a suitable accommodation wing or flat. The rental valuation did not indicate the extent of the business-related use nor how the extent of that use underpinned the proposed rental reduction.

2.30
The University furnished all of the house’s communal and outdoor areas, the home office, and the spare bedroom.

2.31
A residential tenancy agreement with the incoming Vice-Chancellor was signed on 12 March 2020. The tenancy agreement specifies that the home office may be required for University-related work and as required from time to time for entertaining University guests or staff, and/or accommodating University guests.