The Commerce Commission wasn't told the full story of land covenants that specify where owners buy their building supplies and list their homes for sale
Tim Wilkins is quick to acknowledge his regret, with hindsight, at the restrictive covenants placed on residential land blocks he developed.
He learned development at the feet of his father Kevin, he says; his dad taught him transparency in a business that wasn't known for those values. "Land developers in the old days had a very bad reputation for not paying their accounts, for being shady, not honest. My father taught me honesty, transparency, and loyalty to people."
Wilkins fronted up to Newsroom about the land covenants. In a passing reference in a major report this week, the Commerce Commission this week expressed concern about the clauses that it said were limited to developments in Hawke's Bay – but it seems the commission wasn't told the extent of the ongoing problem.
Contrary to assurances to the commission, these covenants have been enforced by suppliers, their restrictions extend beyond just building supplies, and some developers are still appending them to sale and purchase agreements. Indeed, development, real estate and hardware companies owned by the Tremain and Ricketts families – heavyweight players in local business – are preparing further such covenants to be settled next week.
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Wilkins will have nothing more to do with them. At first, he says, he was comfortable with the covenants that Hawke's Bay building supplies merchant Tumu ITM asked him to place in the sale-and-purchase agreements of about 280 lots sold in Frimley, Arataki and Te Awa.
Those 280 sections were in hot demand; they would sell within one or two days of being released to the market, with hundreds of people missing out. Prices were good; for six years, nobody quibbled over the fine print in the covenants, he says.
Tumu was majority owner of Greenstone Land Developments; last year Wilkins bought out their 75 percent share for nearly $50 million.
It was at that point, he says, that his buyers started knocking on his door, to express their unhappiness at the restrictive terms of the land covenants. These gave Tumu ITM, through Greenstone, first and last dibs on selling supplies for houses built on the three subdivisions.
"It was only in 2021 after the Tumu’s balance shares were sold to me that some members of the public and some building companies mentioned they were not particularly happy with the building supply covenant," he says. "These building supply covenants are not on Greenstone's current unsold sections for sale and our developments under construction."
According to the this week's final Commerce Commission's report on its residential building supplies market study, such land development covenants may be restricting competition between merchants. "These covenants appear to make it more difficult for other merchants to supply building materials for new houses to be built on land."
"These covenants apply to residential land developments and require that a specific merchant be given the first and last option to provide a quote for the supply of building materials. This appears to influence the merchant through which building products are purchased by trade customers wanting to build on the land."
They remove the incentive for a merchant, like Tumu or Mitre 10, to initially quote a competitive price. And, with complete visibility over the counter-offer from competitors, they remove any uncertainty about the price the merchant must quote to win the tender.
"We are concerned about the potential impact on competition of land development covenants and similar clauses in sale and purchase agreements, particularly where they are widely used and require competing merchants’ quotes to be disclosed, the report says.
It's recommending an economy-wide review of land covenants, and suggests this particular, unusual type of covenant be considered within that review.
New law changes will allow the Commerce Commission to prosecute merchants whose actions are anti-competitive – and that's prompted a warning. "We also encourage any merchant or supplier benefiting from these covenants or clauses to review them for compliance with the Commerce Act."
But the commission says it hasn't yet opened a formal investigation into the Hawke's Bay covenants or clauses, because it's been assured by merchants that the houses have already been built, the clauses weren't enforced, and they don't intend to rely on these covenants in the future.
That information appears to be wrong on all counts – which removes all grounds for the commission's decision to not investigate.
According to Wilkins, the Tumu covenants were enforced. Almost all of the 280 houses were built with supplies purchased from Tumu, he says under the terms of the covenant.
Tumu group director Barry O’Sullivan disputes the scale of the company's earnings from the building supplies covenants. "While there may have been a covenant clause, it was not an exclusive supply agreement," he says. "The market remained competitive as the buyers were entitled to seek alternative quotes."
Tumu's six stores and its Hastings frame and truss plant were purchased this year by PlaceMakers, a Fletcher Building subsidiary. "I am yet to read the Commerce Commission report in detail," O'Sullivan adds. "As we are no longer the owner of building supplies stores it has not required my immediate attention as it is no longer applicable to our operations."
But it's not just the Greenstone-Tumu covenants. The chief executive of TW Property confirms his company is using similar clauses, requiring purchasers to buy their building supplies from the local Mitre 10 Mega, and when they sell their properties in the future, to sell them through Tremain Real Estate.
"The first round of settlements of those sections is due next week," chief executive Terry May says.
Mitre 10 owners Graeme and Stephen Ricketts are in business with Simon Tremain and Cameron Ward (who own the property and real estate firms) to build a multimillion-dollar residential subdivision ready for 67 new houses at Te Awa Fields in Napier.
Fronting the Maraenui Golf Club, they say the subdivision will appeal to developers planning spec builds as well as individuals wanting to secure a section for future development for themselves. When the first properties went on the market in 2018, they were selling through Tremain Real Estate for between $279,000 and $339,000.
Tremain Real Estate is 85 percent owned by Real Estate Brands Ltd, whose directors and owners include Simon Tremain and his brother, former National MP Chris Tremain.
