Is a kiwifruit licence part of the rateable value?
Is a kiwifruit licence part of the rateable value?
Tuesday 11 October, 2022
A recent High Court case approving a new approach to valuing gold kiwifruit orchards for rating purposes will interest councils with gold kiwifruit orchards within their boundaries. This case was a test case in which the Gisborne District Council appealed a Land Valuation Tribunal (LVT) decision that the value of a licence to grow SunGold kiwifruit should be deducted from the capital value of the property.
Background
SunGold is the dominant gold kiwifruit variety in New Zealand, as it is Psa-V resistant. Growers must hold a licence from Zespri to grow it. The licence is not legally an estate or interest in land; it is a personal contract between the grower and Zespri and relates to a specific area of land. The main way to obtain a licence is to buy a SunGold orchard and have the licence transferred. Zespri must approve the licence transfer and will enter into a new contract with the purchaser after 30 days.
In this case, Gisborne District Council assessed the capital value of the property, a SunGold kiwifruit orchard at $4.1 million. The value of the land without the licence was around $2.9 million.
Land Valuation Tribunal decision
Most districts in New Zealand use the capital value as the rateable value when setting rates. Capital valueof land means the amount it would sell for (assuming no mortgage) if offered for sale on reasonable terms and conditions to a willing seller. Capital value is made up of the land value and the value of any improvements.
The LVT held that s 20 of the Rating Valuations Act 1998 meant the land value did not include the value of the kiwifruit vines, but they did constitute an improvement to the land, so were included in the capital value of the property. However, the LVT considered that the licence was not an improvement to the land, rather it was a business asset, like plant and machinery, so not part of the capital value.
High Court decision
The High Court started by pointing out that capital value is a proxy for fair market value. If a SunGold orchard is sold, the seller and buyer would both expect the sale to include the licence, and that the purchase price would reflect the value of the licence. This is consistent with current practice, where the value of the licence is priced into the property’s market value. The Court considered that the licence is “intrinsically part of the land asset which gives the ability to grow and sell this variety of fruit”, so is included in capital value for rating purposes. The Court considered that if Zespri stopped approving all licence transfers, this would be reflected in the market value of the property.
The Court held that it is irrelevant whether the licence is an improvement to the land, as improvements are irrelevant to the statutory definition of capital value. Improvements are the difference between land value and capital value, but capital value is a proxy for market value, and does not require that improvements be valued.
Next steps
Councils with gold kiwifruit orchards in their districts are likely to reconsider their approach to valuing those orchards based on this decision. However, councils may want to proceed cautiously, as New Zealand Kiwifruit Growers Inc is bringing judicial review proceedings in relation to this new approach to kiwifruit valuation.
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