A political insider has given us all the dirt on the scandalous
Centenary House lease which is transferring $36 million from taxpayers
to the ALP over a 15 year period.

Centenary House is located in the suburb of Barton in the ACT,
and is owned by a Labor Party entity called John Curtin House Limited.

Negotiations
over the lease were between the Australian Property Group (for the
Commonwealth) and variety of people and businesses on the ALP side, the
chief one being Lend Lease.

Lend
Lease’s key person involved was Penelope Morris, who apparently also
worked closely with Bob Hogg in the negotiating process. McCann and
Associates also had a role in the negotiations as the ALP’s advisers.

Negotiations
commenced in July 1991 and continued until April 1992. Between March
and April 1992, Lend Lease, Civil &Civic (the project manager),
McCann and Assoc, and solicitors for the ALP and Macquarie Bank all
joined in lease discussions.

The lease with the Australian
National Audit Office (ANAO) was entered into on 23 September 1993, for
15 years. The lease was signed by three directors of John Curtin House
Ltd, somebody named Higgins;
somebody named Wilkinson; and another whose signature is indecipherable, but was definitely not Bob Hogg.

Total
leased area was 6,297 square metres. The lease agreement has a ‘ratchet
clause’ that specifies that the annual rent would rise by 9% or market
rates, whichever is the greater.

The current rate is $871
per square metre, and this will increase to an even more outrageous
$949 per square metre in September 2004, NOT including outgoings.

Recently,
the ANAO has sought to defray their losses by leasing out the top floor
of Centenary House, some 1,678 square metres. The top floor of most
buildings is the ‘prime’ location of that building and it fetched a
total of … $314.65 per square metre.

[Evidence from ANAO officers in Senate Estimates hearings, 29 May 2003]

On
a simple calculation, taking $314.65 as the ‘true’ market rate, the ALP
will be, by the end of this year, ripping off taxpayers by $3.5 million
a year.

Over the 15 year life of the lease, the expected net rip-off (the amount charged less the real market rate) is some $36M.

This is worked out as follows:

YearANAO Contract
(per sq. metre)
Market
(per sq. metre)
ALP WindfallFull cost
1993$367.95$331.64 $228,644.07$2,316,981.15
1994$401.07$337.68$399,138.49$2,525,509.45
1995$437.16$338.83$619,192.79$2,752,805.30
1996$476.51$352.07$783,572.99$3,000,557.78
1997$519.39$361.43$994,683.27$3,270,607.98
1998$566.14$272.91$1,846,448.43$3,564,962.70
1999$617.09$284.52$2,094,186.90$3,885,809.34
2000$672.63$341.28$2,086,492.02$4,235,532.18
2001$733.16$331.12$2,531,667.44$4,616,730.08
2002$799.15$328.75$2,962,097.04$5,032,235.79
2003$871.07$314.65$3,503,785.96$5,485,137.01

Therefore the total cost so far should have been only
$18,049,909.42 instead of $40,686,868.78 – a $22 million windfall to the
ALP.

NOTE: The figure for 2003 ‘Market Rent’ is the actual amount obtained for space sub-let in Centenary House

But it gets worse – this is the projection for the rest of the lease:

YearANAO Contract
(per sq. metre)
Market – 3% growth
(per sq. metre)
ALP WindfallFull Cost
2004$949.47$330.00$3,900,789.34$5,978,799.34
2005$1,034.92$339.90$4,376,540.98$6,516,891.28
2006$1,128.06$350.10$4,898,850.69$7,103,411.50
2007$1,229.59$360.60$5,472,020.90$7,742,718.53

The total cost for this period should be $18,648,201.90 but will be $27,341,820.65 if the current deal remains in place.

The
Audit Office wrote to John Curtin House Ltd in 2002 asking to
renegotiate the lease on proper market terms, and save taxpayers’ money.

However, they
categorically refused and told the Audit Office on 28 August 2002 that
they could not renegotiaite because their mortgage with Macquarie Bank
was based on fixed cash flows generated
by the exorbitant rental increase of 9% per annum.

Again,
on 18 September 2002, the Labor holding company told the Audit Office
that they could not renegotiate the lease because of the strict
mortgage requirement.

And yet again, on 29 March 2003, John
Curtin House Ltd told the Audit Office that “their existing financing
arrangements did not allow the company [ie. John Curtin House Ltd]
flexibility” to renegotiate the
lease on the basis of reasonable market rates.

But
now it seems John Curtin House Ltd, the company that cried
that it was too poor to give the taxpayers of Australia a break, has
donated $1,235,000 to the Labor Party in 2002/2003.

This is simply an outrageous rort!

What
would Labor say if a businessman couldn’t pay his workers
$1.2million in entitlements, but donated that same amount of money
to the Liberal Party?

CRIKEY SAID: “maybe the Government should
simply refuse to pay the rent for the last four years as that would
bring the overall deal back to about double market rates”.

So what can be done? Ask the ALP to renegotiate the lease conditions?

ANOA
have tried to do so many times and have been rebuffed each time. The
problem lies in the fact that there is no incentive for them to do so.

Why?
Because, according to industry sources, the ALP structured their lease
with Macquarie in such a way that repayments over the first 10 years of
the lease were minimal and that the bulk of payments will be made in
the final 5 years.

What about using the Tenancy Tribunal Act 1994 (now repealed) or the Leases (Commercial and Retail) Act 2001?

The
TTA was introduced in 1994 to prevent price gouging by building owners,
and included specific remedies for unreasonable ‘ratchet clauses’.

Relief
under the TTA has been investigated by the ANOA, who found that the TTA
does not apply to the lease on ANAO’s lease on Centenary House because
the ANAO lease was entered into prior to 1 January
1994.

The TTA was repealed by the LCRA on 1 July 2002.

The
LRCA is no help either because the relevant ‘Application’ section of
the Act would appear to exclude and legal remedy for the ANAO’s
situation.

Unilaterally refuse to pay the rent or use and Act of
Parliament to void the lease or pay a reduced rent? The Government
would never support these options because the lease is legal, even if
it is immoral.

But there is the further problem of a s.51
(xxxi): “The acquisition of property on just terms from any State or
person for any purpose in respect of which the Parliament has power to
make laws”.

It is almost certain that any legislative
instrument that amended the lease would be taken to the High Court,
which would find that an acquisition has taken place – in other words
the Government would
still have to pay the amount.

While the ALP would suffer bad publicity from the case, they would still want to go after the money.
And
given that the Commonwealth would certainly lose any case – the lease
is, after all, LEGAL – the Australian Government Solicitor would almost
certainly urge early settlement of the matter because
the Commonwealth is supposed to be a ‘model litigant’.

 =================================

IN DEFENCE OF THE CENTENARY HOUSE LEASE

A Labor supporter writes:

“Your correspondent’s piece on Centenary House neglected to mention
what is the most important fact about the lease negotiated between John
Curtin House Ltd and the Commonwealth Government.

This matter was the subject of the Royal Commission of Inquiry into the
Leasing by the Commonwealth of Accommodation in Centenary House, headed
by The Honourable TR Morling QC.

The Commission found that:

“The terms of the lease of Centenary House are reasonable and are not
unduly generous to the lessor.  The terms of the lease were the
result of arm’s length negotiations between the lessor and the
Australian Property Group”;

“No party to the lease of Centenary House obtained unfair or above-market commercial advantage from the lease”;

The agreed rental “was a fair market rental for accommodation in a
building such as Centenary House.  This was supported by extensive
market evidence and there is nothing to suggest that it was excessive”;

The 9 percent per annum rent escalation factor was “well supported by
historical rent movements” and “the length of the term is not
disadvantageous to the Commonwealth”; and

“All Commonwealth agencies involved in the leasing of Centenary House acted in the best interests of the Commonwealth”.

If anyone is interested in the real truth about the lease at Centenary
House they should refer to the detail of the Royal Commission
report.  The fact that the ‘correspondent’ left this out speaks
volumes about their objectivity.

If your correspondent’s really interested in real estate, perhaps we
could tally up the cost of maintaining two premises for the Prime
Minister, including an amazing $600,000 in renovations over the past
five years, or the more than $2 million spent on his commute from
Sydney to Canberra since he became PM.  How hypocritical that a
Government that has wasted $650 million of taxpayer funds on
self-promotion wants to raise a non-issue that is now eleven years old.

ROBBIE REALTOR RESPONDS

Liberal sympathiser Robbie Realtor responds to the Labor supporter’s attack on his Centenary House piece:

The Royal Commission was a farce. It did not take evidence properly;
there was no opportunity to cross examine witnesses; the Commissioner
sought advice on property valuations from only one person; and, worst
of all, each and every prediction made in the report was WRONG.

Drumroll please maestro…

The Report asserted “the lease contains a provision that if … the
lessee exercises the option of a 5-year renewal, the premises are to be
refurbished at the cost of the lessor. This provision is likely to be
of considerable benefit to the ANAO.”[p.44]; and “The 15-year term and
the option, taken as a package … is likely to prove a distinct
advantage to the ANAO.” [p.44]

FACT: The ANAO has explicitly stated that it will not exercise the option because it is not value for money.

The Report asserted “the average annual growth rate may exceed 9%”
[p.52]; “the best evidence presently available suggests that long-term
rental growth in Barton is likely to be in the order of 9%
per annum” [p.76]; and “it appears that rents are likely to rise at the rate of about 9% in Barton”. [p.100]

FACT: Growth in the intervening period of time has only been 2-3% per annum in Barton.

The Report asserted “that no party obtained unfair or above-market
commercial advantage from the lease of Centenary House.” [p.111]

FACT: $36 million above market rates over the 15 years, all to the benefit of the lessor – the ALP.

The Report asserts: “it is likely that the economic position of the
Commonwealth under the terms of the present lease will prove to be
little different from what its position would have been had the rent
been reviewed to market rates every two years over the full term of the lease.” [p.111]

FACT: If it had been reviewed to market rates every two years, it would
have cost the Commonwealth many millions of dollars less, and this can
be easily seen on the rent matrix.

The Report asserts: “Certainly the lease cannot be described as unfair
to the Commonwealth or unduly generous to the lessor”. [p.111]

FACT: To have to pay out tens of millions of dollars above market rates
over the term of the lease sounds both unfair to Commonwealth taxpayers
and rather generous to the ALP landlords.

You know what that means – every prediction made by the Report was wrong. A 100% record – EVERY prediction was wrong.

And this is the Report which Labor uses to justify the rort, which it
waves around like a ‘get out of jail free’ card, each time this
outrageous deal is exposed.

Peter Fray

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