Agenda item

[Report of the Assistant Director  for Economic Development and Growth. To be introduced by the Leader of the Council.]Cabinet to consider the sale of the Fairfax Hall property currently occupied by the Kurdish Community Centre to the Kurdish Community Centre (KCC).

(Clerks note - Councillor Demirci left the meeting at this point, following a declaration of a personal interest at the start of the meeting).

 

The Leader of the Council introduced the report which sought approval for the disposal of the Council’s freehold interest in the Kurdish Community Centre. This proposal was guided by the principles of the Council’s Community Asset Transfer policy, safeguarding the building for future community use.

 

The Kurdish Community Centre made a significant contribution to the community and the organisation had already funded and completed significant improvements to the building. They had further been continuing to fundraise, over a number of years, to acquire the building.

 

The Leader referred to the safeguards in place, following the proposed transfer of the freehold. These were set out at paragraph 4.7 and included:

 

·         A covenant to ensure that no redevelopment of the site and building can take place.

 

·         A covenant restricting use of the site and building to community use only.

 

·         An option that the Council would have first right of refusal to re-purchase the site if the organisation is no longer able to manage or maintain the condition of the site and building. If this happens at any point in time in the future, then the re-purchase price would be at the same consideration sum that Yek-Kurd CIC paid the Council plus an on a RPI increase.

 

RESOLVED

 

1.    To declare the Kurdish Community Centre site (as shown in the red line Plan in Appendix 1) surplus to requirements.

 

2.    To authorise the disposal of the Council’s freehold interest in the Kurdish Community Centre site to Yek-Kurd CIC for a sum of £593,000 (Five Hundred and Ninety-Three Thousand Pounds) for the reasons set out paragraph 4 of this Report and on the terms and conditions set out in Appendix 2 of this Report.

 

Reasons for decision

 

The Kurdish Community Centre have long expressed a desire to acquire the freehold of the Kurdish Community Centre site. In the event that the Council would support such a position the organisation has systematically fundraised to enable them to purchase the building with the aim of continuing to provide social and economically beneficial services to the Kurdish Community and run the Centre for general Community Wellbeing.

The Cabinet on 3^rd July 2017 approved a Community Asset Transfer (CAT) Policy which generally supports the transfer of Community Buildings on a leasehold basis where it can be shown that:

a)    there is a social and economic benefit,

b)    where communities can be enabled to take a long term interest in the building

c)    organisations can be better enabled to take attract long term funding

 

In preparation for the acquisition, a separate community asset company, Yek-Kurd CIC has been set up KCC. The Community Interest Statement states that:

 

 “the company will carry on its activities for the benefit of the community, or a section of the community. The company’s activities will provide benefit to Kurdish people living in London and the United Kingdom. Yek-Kurd aims to provide services to meet the social, cultural and legal needs of Kurdish people. These services also include working with other organisations in the UK to build a greater network to support its activities for helping people in difficulty in the UK.”

 

Freehold disposal

 

KCC have requested the acquisition be agreed on a freehold basis in the light of the significant improvements they have made to the building; they are however very willing to accept restrictive covenants to ensure that that the building remains in community use.

 

The Council has the powers under section 123 of the Local Government Act 1972 to dispose of land in any manner it wishes, including sale of its freehold interest. The only constraint is that a disposal must be for the best consideration reasonably obtainable, otherwise the Council must obtain the consent of the Secretary of State.

 

The Kurdish Community Centre have demonstrated a significant contribution to social and economic outcomes in the borough (as set out in paragraph 4.9) and have secured external funding from the National Lotteries Board to enlarge and improve the condition of the building for the benefit of the community. In 2015 KCC fundraised to refurbish the canteen/kitchen area which is being used by a local women’s Kurdish group who provide meals on wheels’ services.

 

It is proposed that in this case the Council transfers the freehold interest to KCC’s newly formed Community Interest Company. To safeguard the continued community use of the building in the context of the freehold transfer it is proposed to impose conditions on the sale in line with those set out in the CAT Policy which will include:

 

a)    A covenant to ensure that no redevelopment of the site and building can take place.

b)    A covenant restricting use of the site and building to community use only.

c)    An option that the Council would have first right of refusal to re-purchase the site if the organisation is no longer able to manage or maintain the condition of the site and building. If this happens at any point in time in the future, then the re-purchase price will be at the same consideration sum that Yek-Kurd CIC paid the Council plus an on a RPI increase.

 

Community Benefits:

            KCC provides significant socio-economic benefits to the Borough. The site is identified as a key area of community space in the Borough and the terms of the transfer will safeguard this use. The aims and objectives of KCC is to:

 

·                     To relieve poverty and have provisions to provide advice in areas such as immigration, welfare rights, housing, health and education.

·                     To work towards the preservation and promotion of Kurdish language, art, literature and cultural heritage.

·                     To assist Kurdish children in their mainstream education by running a supplementary school to develop their core subjects.

·                     To encourage adult education, increase access to employment and enable Kurdish people to gain confidence by providing language courses and information technology training.

·                     To improve the social and cultural lives of the Kurdish community by organising entertainment events.

·                     To divert the Kurdish youth from crime by providing social, cultural and educational activities for them.

·                     To provide advice & advocacy, educational, and cultural activities for adults and children throughout London.

 

Below briefly describes the social and economic benefits KCC provides to the community in line with the Council’s Corporate Plan and Priorities:

For Community Resilience - KCC provide:

• Sources of general information, advice and guidance to the Kurdish and wider local communities on benefits, immigration, employment, and housing – this project supported 650 clients between September 2016 to July 2017.
• Housing related support and interpreting services is available free to local residents
• Access to free English classes/courses – approx. 200 clients
• Kurdish language classes are offered – approx. 55 children attending

 

For Community Participation - KCC work with a wide network of members offering peer support and engagement in community activities.

 

For Community Health and Wellbeing - KCC provides:

• Free nutritious meals are available in a community setting to improve health and reduce social isolation for older and disabled community members
• Turkish and Kurdish talking therapy sessions for those suffering with mental ill health

 

For Community Identity and Cohesion - KCC is a base for Kurdish cultural events and lessons i.e. folk dance classes which has 45 community members

 

For Community Asset - KCC provides free access to small local community groups to use meeting spaces in the Centre and to local residents to host family events at an affordable cost.

 

KCC’s Improvements

 

Historically, the Kurdish Community Centre (KCC) occupied the site (being the former Fairfax Hall building) under a Tenancy at Will (TAW) from 31^st December 1997. On 20^th August 1998 the main hall of the building was severely damaged by fire and the cost of the reinstatement works for the building were recoverable under the Council’s Building Insurance policy.

 

As the building had to be largely rebuilt, KCC wanted to take the opportunity to carry out improvement and refurbishment works to the building in parallel to the insurance works.

 

During 1999, KCC had in principle secured funding in the sum of £180k from the National Lottery for the planned improvements works. It was a requirement of the community fund that the organisation had a formal lease in place for the building for a term of 25 years. As a result, a full repairing lease dated 20^th December 2001 was entered into with KCC for a term of 25 years from 20 December 2001 at an initial annual rent of £22,000 exclusive (current rent payable is £32,200 per annum).

 

In addition, the Council entered into a Collateral Agreement with the National Lotteries Board which covered repaying back the community fund in case the Council exercised the Landlord’s option to break the Lease within the duration of the lease term.

 

Landlord’s formal consent was granted and documented under a Licence to Alterations dated 18^th July 2003 to enable KCC to undertake the improvement works. Essentially, the works included extending the first floor to create more teaching classrooms, library space and a new roof.  KCC also appear to have invested some funds raised directly by the community into improving the ground floor space.

           

The Lease states that the cost of improvements is not to be reimbursed to KCC if the lease terminates, therefore, any increase in capital value as a result of the KCC’s improvements made to the building is to the benefit of the Council as the landlord. Nonetheless, KCC also benefits as under the Landlord and Tenant Act 1927 tenant’s improvements are to be disregarded upon rent review for a period of 21 years, during which time the newly assessed rent per annum should reflect the value of the unimproved building.

 

Valuation of the site

The Council instructed Property Consultants GL Hearn to value the building based on its existing use. The main factor affecting value is that the property must only be used as a D1 Community Centre.

 

The market valuation for the Kurdish Community Centre site is £829,000 (Eight Hundred and Twenty-Nine Thousands Pounds). The valuation remains the same whether the transfer is freehold or leasehold because the use will remain restricted to D1 – Community Centre. 

 

 

The current rental value payable for the building excluding the tenant’s improvements is £32,200k per annum. This rent was being supported through circular funding, a policy which is now being phased out across Haringey’s community buildings, meaning KCC would have to pay the rent from 1^st April 2019.

 

The rental value of the improved space (tenant’s improvements) has been assessed at £33,750 per annum but this is currently disregarded as set out in para 4.14 above.

 

 Sale value

 

Notwithstanding the provisions of Section 123 of the Local Government Act 1972 (see para 4.5) the Council may, under the General Disposals Consent Order (England) 2003, dispose of assets for less than market value where it considers that the disposal would help secure the promotion or improvement of the economic, social or environmental well-being of the area.

 

It is recommended that the site is offered to KCC at an undervalue as it fully meets the requirement of providing a significant contribution to the promotion and improvement of the area in socio-economic terms as set out in paragraph 4.8 of this Report.

 

In order to calculate the value of any discount applied to the market price, account is to taken of the substantial investment secured and made by KCC in the fabric of the building. The methodology for the discount calculation is to capitalise the annual rental disregard to which KCC would have otherwise been entitled if they had continued to rent the building.

 

There are seven years remaining of the disregard period. The aggregation of the rental discount over seven years of the current lease is £236k (£33,750 per annum x 7 years = £236k). The net present value (NPV) of the discount sum in seven years’ time has been calculated at £121,105. For the purpose of this report, it is recommended that the sum of £236k is reflected and reduced from the capital valuation (i.e. £829k - £236k = £593k).

 

It is recommended that KCC is offered the Council’s freehold interest of the site at an undervalue in a sum of £593,000 (Five Hundred and Ninety-Three Thousand Pounds).

 

Where the Council decides to dispose of an asset at undervalue a clear rationale must be evident. In this instance the rationale for the undervalue is the socio economic contribution made by the organisation in question.

 

The undervaluation calculation is made possible by a fairly unique set of circumstances in the borough in that this organisation has carried out improvements by investing a significant amount of money, effectively increasing the floor space of the building by 100%.

 

Alternative options considered

 

The following alternative options have been considered:

 

·         Do nothing: under this option the KCC would pay the phased community market rent then move onto full lease terms upon lease renewal;

• Disposal via a 125 lease as per the CAT policy at market value;
• Disposal via a 125 lease at an undervalue;

·         Disposal via freehold at full market;

• Disposal via freehold at an undervalue value (CAB report of July 3^rd July 2016states that there can be a freehold disposal but certain conditions must be met such as investment not being available unless there is a freehold transfer).

 

Given the significant improvements KCC have made to the building and having regard to the organisation’s social and economic impact, it is considered appropriate to dispose of the freehold interest rather than a leasehold interest, therefore 5.1.1, 5.1.2 and 5.1.3 are not suitable options. Freehold disposal at market value has been considered however given the reasons as set out in section 4.20 above option 5.1.5 is considered to be appropriate. KCC have stated that they are able to fundraise better and leverage more community funds if the building is freehold. They have already raised the capital funds form the Kurdish community to purchase the building freehold. 

 

In order to safeguard the Asset for community use and purpose the freehold disposal will also contain restrictive covenants and conditions as per the CAT Policy. The main covenants being that a) no redevelopment of the site and building is permitted, b) the site to be used for community use only and c) a requirement that the Council would have first right of refusal on the site if the organisation is no longer able to manage and maintain the condition of the building and site. 

 

If the freehold disposal does not proceed then KCC will remain a tenant under the terms of the existing lease. The rental value of the tenant’s improvements would only be taken into account after year 2025 which would be upon the next rent review or lease renewal date. The current Lease expires on 31 March 2027 and KCC have security of tenure giving them a legal right to renew the lease.