THE Barnett government this week broke free of a punitive, 25-year lease contract, closing the chapter on a business deal that dates back to the wheeling and dealing of Bond Corp and the WA Inc era.
The state government estimates it will book more than $1.4 million in savings annually after negotiating a new lease for its office accommodation in the Bunbury Tower in Western Australia’s South West.
Bond Corp built the tower in the mid 1980s, with Brian Burke’s Labor government signing up to a 25-year lease agreement for the entire building in 1988.
The contract was backdated to the completion of the tower in 1986 and covered the entire property, including hallways and toilets, which amounted to far more space than the government actually required.
But it was the rent rate that provided the sting in the tail of this deal.
It was based on a rate of $150 per square metre, which was not far off the average A-grade lease rate for Perth CBD office, which in 1989 was about $200/sqm.
The Bond Corp lease agreement also included 30-monthly rent reviews based on CPI but there was no provision for any market rent reviews.
Following the last of these inbuilt rent increases, the government was paying a net rent of $372/sqm for 8,870sqm of office space in the property.
The new lease agreement with the property’s owner, a company controlled by the family of Gull Petroleum founder Fred Rae, is based on a rate of $256/sqm for just 7,390sqm, a reduction of $116/sqm.
The original contract negotiated by Bond Corp was ironclad and amounted to a guarantee that underpinned the construction of the regional office tower, making it impossible for any subsequent government to renegotiate a better price.
In addition to the high rent, the contract shackled the state government with the maintenance and repair responsibilities for many of the property’s major services such as lifts and air-conditioning. And there were expansive ‘make-good’ obligations that required it to repaint the interior and exterior of the building and share in the cost of new carpet at the end of its lease.
The Barnett government has negotiated a $700,000 settlement to cover these obligations and this work has recently commenced.
Given these punitive conditions and the high rent, it’s no surprise that Bond Corp moved quickly to sell the building once it had negotiated the lease with the Burke government.
Since then, Rae family company Obtala Pty Ltd has bought the property, and the Barnett government said the new lease was a good deal for the tower landlord as well as Bunbury and the state government.
Finance Minister Simon O’Brien said the government had taken advantage of the recent lease expiry to renegotiate the lease on the building at a much reduced rate, which amounted to just $1.9 million a year compared to $3.3 million.
“We have been able to negotiate a market-based rental agreement which will cost 31 per cent less than the old one,” Mr O’Brien said.
“The government has had to pay above-market rental rates for office space and it has also had to rent more space than it has needed because the agreement committed the government to the entire office space of the tower.”
This forced the state government to sub-let the unused portion of the office to the private sector at market rates, with the state government’s Building Management and Works division funding the shortfall between this income and the lease contract rate.
Mr O’Brien said the saving amounted to $1.4 million a year and finally freed the government of a long-standing WA Inc commitment.
