The
path is smooth that leadeth on to danger
Venus and Adonis, line 788
Provision for township leases is a policy innovation
introduced into the NT Aboriginal Land Rights Act (ALRA) in late 2006 by the
Howard Government in the last year of its time in Government.
The township leasing provisions are an important reform,
because there is no market for residential or commercial land in most remote NT
communities, and this is itself an impediment and constraint on economic development,
and in particular on the capacities of external parties, whether government or
private, to fund infrastructure and other developments utilising commercial
sources of finance.
Under ALRA, there is a capacity under section 19 of the
legislation for traditional owners to lease their land to third parties. This
allows both public and private interests to obtain secure tenure over portions
of Aboriginal owned land, which is owned communally and is inalienable (ie
cannot be sold). This thus allows governments to build infrastructure needed to
provide government services for community residents, and in theory at least,
individuals whether from within or beyond the local community, to build and own
housing, other facilities, or merely use the land for individual purposes.
Section 19 leases are quite common in remote NT
communities located on Aboriginal land, but mostly for public purposes. Private
or commercial leases are more common in the larger tracts of Aboriginal land
beyond communities. Traditional owners, represented and assisted by the
relevant land councils, are quite used to negotiating arrangements for the use
of Aboriginal lands for private commercial purposes, including section 19
leases, mining exploration arrangements, licences for pet meat harvesting of
feral livestock such as donkeys and buffalo, and in a small number of cases, agreements
for major resource developments.
Each section 19 lease requires the proponent lessee to
approach the traditional owners through the land council, detailed
consultations, and consequential negotiations (if any) and the various legal
and administrative steps required to formalise the lease, including in the case
of more significant leases ministerial approval by the Minister for Indigenous
Affairs.
So what are the problems with section 19 leases under
ALRA?
There are a number, some of greater salience than others.
Of most concern are the arrangements for dealing with land within communities.
In my view, the provisions of ALRA, including section 19, operate reasonably
well for land beyond community boundaries.
The first issue relates to transaction costs. The cost of
consulting traditional owners for a suburban block in say Maningrida may well
outweigh the notional value of the land. These costs fall on the Land Councils,
but also traditional owners (their time is valuable), and also the proposed
lessee, since delays will have financial implications, and in some cases, land
councils require lease proponents to underwrite the costs of consultation.
These costs can be termed ‘transaction costs’.
There are also what might be termed ‘queueing costs’
insofar as land council consultation resources (both financial and human) are
limited and delays in finalising consultation are inevitable, particularly for
small portions of land, and particularly if demand for consultation were to
grow to multiple requests in scores or even hundreds of community locations
across the NT.
There are also potential systemic costs (or the cost of
foregone benefits) insofar as to the extent that potential lessees are
discouraged from even seeking a lease by the transaction and queuing costs in
circumstances where the traditional owners would have agreed in return for a
lease payment, the overall economic welfare of the traditional owners will
suffer, and the potential lessee will divert resources to her second best
opportunity, and thus also bear a cost.
These economic costs feed into higher level policy costs.
For example, to the extent that policymakers are keen to maximise homeownership
opportunities (a policy I consider to be flawed, but that is a discussion for
another day), transaction costs, queuing costs and systemic costs constrain
opportunities.
Similarly, to the extent that a public or private
leaseholder wishes to access borrowings secured by a mortgage over the land
involved, there are two challenges. First, the limited terms of most section 19
leases which are designed to avoid the operation of section 5(3) of the NT Planning
Act (link
here)
which defines leases with terms over 12 years to be part of a subdivision, thus
invoking a range of other planning requirements and their consequential costs. The
second challenge is the inalienability of the underlying title. Both these
challenges work against the preparedness of banks and other financial
institutions to provide debt finance.
In turn, at a systemic level, the cumulative effect of
the various economic costs of doing business and the policy challenges which
deter lending for commercial or residential assets is that there is no market
for residential and commercial blocks of land in most remote communities in the
NT. In economists’ shorthand, there is deep seated market failure.
This in turn disadvantages the significant numbers of
Aboriginal citizens who reside in particular communities, but are not traditional
owners for that land. In effect, without an effective market in residential
leases, those people are perpetual visitors without substantive rights of
residency. The land councils are institutions designed to represent and advocate
for traditional owners, but there are strong policy grounds for governments to
ensure that long term residents are provided with some level of security in
relation to their place of residence. Indigenous interests are heterogeneous,
not uniform.
From time to time, various interest groups and individuals
have argued for the ALRA processes related to communal decision making over
land use, and inalienability of the underlying title to be ‘streamlined’ or
weakened in various ways. To date, these arguments have failed to obtain traction,
at least in relation to ALRA. Native title is perhaps a different story. See
for example my recent posts on the processes for approving some Indigenous Land
Use Agreements in native title contexts (link here and
here)
where I argued that the Parliament was incrementally undermining the communal
nature of native title rights if it
proceeds in accordance the bipartisan approach recommended by the Senate Legal
and Constitutional Affairs committee in relation to their inquiry into the Bill
drafted to respond to the Federal Court decision in McGlade.
I take the view that there are strong grounds for
maintaining the communal and inalienable nature of Aboriginal land. While some
commentators argue that these characteristics are inappropriate constraints on
Indigenous rights to deal with their property, my pragmatic view is that the
risks of permanent loss of substantial tracts of the Indigenous estate, and
respect for continuing traditional Indigenous conceptions of their relationship
to the land over much of remote Australia, outweigh the philosophical arguments
for change at this point in time.
While undoubtedly Indigenous citizens have the largest
stake in this issue, it is worth remembering too that there is a national
interest in ensuring sustained land justice for the nation’s Indigenous
citizens. Non-Indigenous Australians have a responsibility in relation to these
issues too. In fifty years’ time, the case for change to the underlying nature
of Aboriginal property rights may well be stronger.
Nevertheless, while communal and inalienable title is in
my view an extremely important element of ensuring land justice for Indigenous
citizens, and particularly Aboriginal land owners in the NT, the shortcomings
identified above in relation to the operation of section 19 within remote communities
demanded a response. This was the genesis of the township leasing arrangements
(sometimes referred to as section 19A leases) implemented by the Howard
Government, albeit in the face of opposition from the two largest NT Land
Councils, and also at the time from the federal Labor Party.
In summary form, the township lease model created a
mechanism whereby a headlease over the whole of a community could be granted by
the traditional owners to a Commonwealth Government entity established by
legislation (the Executive Director of Township Leasing or EDTL) for a long
term of up to 99 years which in turn would issue sub-leases, consistent with
the terms of the headlease, over small portions of the headlease area to third
parties without the necessity to substantively consult further. The terms of
the headlease can provide for payments to traditional owners linked to the
extent to which sub leases are granted. Importantly, take up of township leases
was voluntary. The township lease provisions also over-ride the NT Planning Act
provisions on subdivisions: see section 19D of ALRA.
Since the introduction of the township lease provisions
in 2006, progress has been slow and patchy.
So while the relatively small Tiwi and Anandilyakwa Land
Councils have negotiated township leases within their jurisdictions (on the
Tiwi Islands and Groote Eylandt respectively), the two mainland Land Councils
have until recently resisted implementing the model, and presumably advised
communities in their respective jurisdictions against adopting it.
The rationale for the land council opposition seems to rest
on concerns that while township leases reduce transaction costs, they also reduce
the capacity of land councils and traditional owners to negotiate progressively
better terms based on an incremental ratchet of terms and conditions over time
(as has occurred with section 19 leases over the past decades). They also
appear to articulate concerns that the headlease is being held by a government
entity and not an Aboriginal corporation.
The Federal Government has recently announced a number of
‘historic’ township leases on the mainland at Gunyangara (link here
and here)
and Mutitjulu (link here
and here).
The historic breakthrough appears to relate to the Federal Government decision
to no longer insist on the headlease being held by a government entity.
It is not clear to me what mechanism has been utilised in
relation to the Gunyangara lease to place it in the hands of a local
corporation. It may be that the EDTL first takes the headlease and immediately
subleases it to the corporation. Unfortunately, despite a request for access to
the lease, the Minister and his Department have so far refused to release it.
The Mutitjulu leases are based on a relatively recent 2015
amendment to the section township leasing and EDTL provisions (link
here) which has the effect of allowing the EDTL to receive a sublease (from
the Director of National Parks who holds a lease from the traditional owners)
and ultimately for the sublease to be transferred and held by a local
Aboriginal corporation rather than the Commonwealth statutory entity, the EDTL.
The design problem I foresee arising from the new ‘historic’
policy is that while the lease to an Aboriginal corporation may overcome the
transaction cost and queuing cost issues, in order to sign up the land councils
and relevant traditional owners, the Federal Government has given away an
element of tenure security which may well make the difference between whether a
bank or other financier will lend or not.
In particular, the bank’s recourse to its funds over time
is dependent on the robustness of the market for the relevant sublease. This in
turn is a function of the term of the sublease, the level of demand for the
lease from other potential leaseholders, and crucially, to the robustness of
the corporate governance of the owner of the headlease.
To the extent that there is a possibility that a
corporation will go into administration or insolvency, there is a possibility
that the sublessee’s landlord may change and along with that the approach to administering
the sublease terms and conditions, both in formal and informal terms. While a
bank has formal certainty that the sublease terms will be honoured by any new
headlease owner, the practical realities
are that potential lenders will no longer have the security and confidence
provided by the knowledge that the headlease is being administered by a government
entity.
To take an example from the mainstream, Canberra
residential leases are 99 years, with the underlying title being held by an ACT
Government entity. Canberra residents assume that future governments will
always renew the leases because they are subject to democratic pressures which would
make any alternative approach politically suicidal. Were Canberra’s residential
leases granted by a private sector corporation, with none of the democratic
pressures facing governments, unknown future Board composition, and unknown
future shareholders, it seems likely both that Canberra residents would feel
much less secure about their leases (and prices would reflect that) and banks
would likely adopt a more risk averse approach to lending funds secured by
those leases.
Time will tell whether my concerns about the current Government’s
‘historic’ reforms are borne out in the real world. It is however ironic that
it was the former Labor Government which stood its ground on this issue against
sustained pressure from the two major land councils, whereas the Liberal
National Party Government currently in office, and traditionally much more focussed
on driving economic reform on Aboriginal land, has taken the course of least
resistance.
Of course, compromise is the sine qua non of politics. However, the art of politics, and
especially the art of effective policy reform, lies in knowing when to
compromise and when to stand firm.
The risk here is that notwithstanding the fact that the township
lease provisions continue to address transaction and queuing costs, the failure
to provide absolute certainty to potential lenders will deter such lending,
with the result that the systemic reform opportunities inherent in township
leasing will not be grasped. These risks will be exacerbated if the Tiwi and
Anandilyakwa people decide (or are persuaded) that they too wish to remove the
EDTL from their existing township leases.
The case by case negotiation of township leases occurs slowly,
with only eight completed in the last ten years. It may well be another decade
or more before it becomes apparent whether the compromise adopted by the
current Government to kick start the take up of these leases has been successful
or not. The risk, indeed in my view the likelihood, is that it will constrain
access to mortgage finance on remote communities which adopt the compromise
model, and consequently will continue to make commercial and residential investment
in these places extremely difficult. If I am right, Aboriginal people will be
the losers, and the compromise will be seen to be ‘historic’ for all the wrong
reasons.