Understanding the key factors that influence land values is essential for making informed decisions. By Jeff Tikitau Elite Management.

Last week, we explored two major drivers— commercial vs. residential usage and lease terms. This article examines the often-overlooked impacts of lease quality and land characteristics on lease values.

Quality of Lease

A lease’s value heavily depends on its quality. Factors like how the lease was drafted, maintained, and understood can significantly impact its worth. Older leases, shaped by their history, may contain ambiguities in clauses like rental reviews, subleasing, or the process of reassigning (selling) the lease. These ambiguities can create uncertainties, potentially impacting the lease’s value today. Over time, some leaseholders may lose track of the details or obligations in their agreements. Key aspects like periodic rent reviews may be left unaddressed, which might lead to unpaid liabilities. These issues may come to light during a sale, affecting the value a leaseholder can achieve. The situation can become more complex when multiple landowners are involved. Differences in opinions about subleasing, assignments, or rent reviews, can create delays and uncertainties, further reducing the lease’s appeal. A clear well-structured lease benefits everyone. It simplifies processes, reduces uncertainty, and makes the lease more valuable to investors. Clarity and consistency unlock the lease’s full potential.

Land Characteristics

Land characteristics are a key but often overlooked factor affecting lease values. Physical features like slope of land, proximately to streams/ water bodies, land stability, geotechnical aspects, neighbouring land use, shape and access, all play a significant role in determining value. For example, land with a gentle slope may attract more interest than land with a steep incline due to the costs of development. A 15% incline can increase building cost by as much as 30%, while steeper slopes of 20% or more could double those costs as builders invest in terracing, structural reinforcements, and specialised equipment. Coastal land near the Mean High Water Mark (MHWM) also comes with added expenses. Building in these areas requires climate resilient elements like shore protection, elevated foundations, and the type of materials to address incremental erosion, rising sea levels, and frequency of storm events and their sudden effects.

Final Thoughts

To determine the true value of Cook Island land leases, it’s important to take a holistic view. The lease and the land characteristics should be assessed not only as individual parts but also as interconnected elements. Each drives its own value while influencing the other. Grasping these subtle but impactful factors calls for an approach that surpasses generic valuation methods. It demands expertise, experience, and a nuanced perspective to determine fair and accurate market values in this diverse landscape. By gaining a deeper understanding, you can maximise your asset’s potential, paving the way for long-term sustainability and success for future generations. For professional guidance, connect with the team at Jeff Tikitau Elite Management today.