TC98/04

PROPERTY DEVELOPMENT PROJECTS SUPPORTED BY A PRECOMMITMENT TO A GOVERNMENT FLOOR SPACE LEASE

Summary:

The Budget Committee has agreed that where approval is sought for private property development on Crown Land and the development is supported by a precommitted government floor space lease, the proposal is to be assessed in accordance with the Guidelines for Private Sector Provision of Public Infrastructure.

Approval to enter into the precommitment is required from the Budget Committee of Cabinet, prior to an agency seeking proposals from the private sector. This is essential because a precommitment to a floor space lease has the potential to create public assets and impose long term financial obligations on Government.

In general, accommodation leasing proposals should:

• Be made on commercial terms;
• Have an appropriate sharing of risks between the parties;
• Be an operating lease; not a finance lease; and
• Result in a net benefit to the public sector.

In the preparation of submissions for Budget Committee, attention is drawn to the requirements of the Guidelines. In particular proposals should:

• Be consistent with the Government's Accommodation Strategy;
• Include fully developed performance specifications for the project;
• Take into account consultation on inter agency impacts;
• Establish that there is a net benefit to Government from pursuing the precommitment;
• Ensure adequate resourcing and a realistic implementation timetable;
• Identify all substantial land use planning, environmental and regulatory issues;
• Include economic and financial appraisals for all feasible options;
• Include a review of contingent liabilities of the project and preliminary assessment of the way in which the project might be accounted for; and;
• Assess the potential risks to the parties involved and include a risk management plan.

Where the property development project is supported by a precommitment to a floor space lease which has a capital value less than $5 million, approval is needed by the Treasurer in accordance with Treasury Circular TC 98/05.