Agenda item

[Report of the Interim Director for Housing, Regeneration and Planning. To be introduced by the Cabinet Member for Finance and Strategic Regeneration.]

Cabinet is asked to approve the recommendation for the acquisition of the freehold and to delegate final negotiations and approval to the Director of Housing, Regeneration & Planning.  The Council holds a long leasehold interest of Munro Works, and the report will outline the rationale and reason for the acquisition.

The Cabinet Member for Finance and Strategic Regeneration introduced the report which put forward agreement to the purchase of the freehold interest in this property would enable the Council to exit an onerous head lease arrangement, and to support economic development in the Borough in line with the Borough Plan by letting vacant units on this estate. The purchase would also contribute to MTFS savings.

In response to questions from Cllr Cawley – Harrison, the Cabinet Member was not aware of other sites in the borough  where there were similar losses  due to previous  contractual agreements. The intention for the site was for it to be used for commercial purposes.

Further to considering exempt information,

RESOLVED

1. To note the current onerous leasing arrangement of Munro Works and ongoing cost to the Council.

2. To note that the Council has exercised its option to acquire the freehold interest and gives approval to complete the purchase of Munro Works for a consideration not exceeding the value detailed in the exempt section, Part B, of this report; and

3. To give delegated authority to the Director of Housing, Regeneration and Planning after consultation with the Cabinet Member for Finance and Strategic Regeneration and Director of Finance to approve the final purchase price and the Heads of Terms and all other documentation required to give effect to the acquisition as set out in Part B of the report.

4. To note that the capital cost of the purchase and any associated costs of refurbishment, as outlined in the Exempt section of the report, can be funded from the approved capital programme.

Reasons for decision

The Munro Works site is an onerous asset in its current form costing the

Council £92,250 per annum (based on the head rent paid less the income from the sub-letting) in rental terms potentially until lease expiry in 62 years’ time, due to the restrictive covenants on sub-letting in the head lease.

There is clear rationale to purchase the Freehold interest in Munro Works to stem the loss of rental income and business rates, and to achieve control of this investment in the future.

On 10^th April 2014, a Leader decision was taken to exercise the Option to acquire the freehold interest. That Option was exercised on 17th April 2014. However, the acquisition was left in abeyance, as the parties were unable to agree the purchase price at the time. The acquisition of the freehold interest would enable the Council to actively manage this industrial estate, and maximise income potential for the future from efficient estate management and in line with the Council’s Asset Management Plan and MTFS.

Alternative options considered.

The alternative option is not to purchase the freehold interest in Munro

Works and to manage the asset without changing the lease structure. If no action is taken to acquire the Freehold, the Council will continue to suffer a net loss of rental income, as set out below together with a loss of business rates in respect of the unlet and vacant units, currently amounting to a sum set out in

Part B of this report. Further information is set out in Part B of this report.

The Council would continue to suffer an annual net loss which would worsen during the rest of the lease, and be exacerbated at the end of the lease in the likely event that a schedule of dilapidations would be served on the

Council at that time. Moreover, full business rates are payable by the Council on the vacant units at Munro Works (full details are included in the Exempt report).

Another option is the restructuring of the letting arrangements at the estate to achieve a single letting of the whole, as permitted in the Headlease. This would be likely to achieve a lower overall rent than letting individual units, and would increase the Council’s risk with regard to voids, rent arrears and lease default. It is therefore considered an unattractive option.

The Council could surrender the existing headlease and renegotiate terms under a new lease structure. This was previously considered, but would necessitate foregoing the option to purchase and an adjustment to the rent review clause to reflect these changes, which would not benefit the Council.