MANSFIELD DISTRICT COUNCIL
Head of Finance, Property & Revenue Services
To
Executive Mayor
on
21 March 2014
PROPERTY TRANSACTION REPORT (5803A) –
APPROPRIATION OF GENERAL FUND ASSETS TO THE HOUSING REVENUE
ACCOUNT AND ACQUISITION OF COMMERCIAL PROPERTY
1.
SUMMARY
This report seeks approval to appropriate ten sites, comprising of land and buildings,
from the General Fund (GF) to the Housing Revenue Account (HRA) and that the
capital transferred is used to acquire additional commercial property within the United
Kingdom.
In view of the urgency of the decision to enable the transaction to be completed, the
Head of Paid Service has agreed that the call in provisions be waived in accordance
with Para 5.14.2 of the Constitution.
Key Decision:
This is a key decision and has been included in the Forward Plan.
2.
RECOMMENDATIONS
To be resolved by Executive Mayor
(i)
That the General Fund (GF) appropriates ten sites identified in paragraph
3.4 to the Housing Revenue Account (HRA) in line with the date of
acquisition and at the valuations shown in Appendix A.
(ii)
That the proceeds from the land appropriated by the Housing Revenue
Account are invested in acquiring commercial property identified in
Appendix D.
(iii)
That in order to ensure the conditions of the transfer of a going concern are
met, authority be given to elect to tax the subject land and buildings to be
acquired as outlined in red in Appendix E.
3.
BACKGROUND
3.1
The Executive Mayor took an Executive Decision 9th July 2013 that can be
summarised as follows:-
MANSFIELD DISTRICT COUNCIL
(i)
That the Council declares the Freehold interest of a site subject to a long
ground Lease investment at Oak Tree Lane, Jubilee Way South, Mansfield,
Notts. NG18 3RT, surplus to requirements and be disposed of.
(ii)
That the Council, after undertaking the appropriate procurement process,
instructs a firm of Chartered Surveyors to act as its Agents in the disposal.
(iii)
That the General Fund appropriates a number of sites to the Housing
Revenue Account.
(iv)
That the Council obtains an independent valuation of the property to be
appropriated.
(v)
That the proceeds from the land appropriated by the Housing Revenue
Account are invested in acquiring commercial property within the United
Kingdom.
3.2
The project has been successfully progressed to date as follows:(i)
The Oak Tree Lane ground Lease investment was sold by formal tender
following an advertisement in a leading national property publication for
£13.86M in January 2014.
(ii)
The above sale was handled in-house by Property Services rather than
through external agents with a saving of Surveyor’s fees of £130,000.
(iii)
A review of assets held within the General Fund has identified additional
sites to be appropriated. These sites have been identified as suitable for
residential development and either feature within the Strategic Housing Land
Allocation Assessment (SHLAA) or that there is a strategic/synergistic
benefit of them being held by the Housing Revenue Account for future
purposes. These additional sites are as follows:

Former Mansfield General Hospital Site
West Hill Drive, Mansfield, Notts. NG18 1PL

Former Horticultural Nursery
Windmill Lane, Carr Bank, Mansfield, Notts. NG18 2AL

Cattle Market Tavern
Nottingham Road, Mansfield, Notts. NG18 1QA
These sites, together with the sites previously identified, will be formally
appropriated at a date to be determined linked to the acquisition of
commercial property.
The site known as Land at Brick Kiln Lane has now been identified as already
being within the HRA and will not require appropriation and its value excluded
from the transaction.
MANSFIELD DISTRICT COUNCIL
(iv) In order to maintain openness, transparency and to ensure the Council
operates within the Capital Accounting Guidelines and to satisfy the scrutiny of
the external auditors, an independent valuation was conducted by HEB
Chartered Surveyors of 17 The Ropewalk, Nottingham NG1 5DU. The
valuation of each site is listed in Appendix A. The value of Land at Brick Kiln
Lane is to be excluded and thus the land value to be appropriated is £6.58M.
(v) A search for suitable commercial property was undertaken by Property
Services. Contact was made with external agents at a local, regional and
national level. The Council’s property acquisition criteria were provided and a
number of suitable properties were identified, some where available on the
open market, some were ‘off market’. The properties covered a variety of
sectors and location, but they all met the Council’s requirements, namely level
and longevity of rental income, potential for rental growth and strength of
Tenant covenant. The investment criteria are detailed in paragraph 3.7.
3.3
PROPOSAL – APPROPRIATION OF LAND
3.4
It is proposed that, as part of this property transaction that the General Fund
(GF) appropriates £6,580,000 worth of residential development land and
property to the HRA. The valuation of these sites is identified in Appendix A
and a brief outline of each site is as follows:-:
Land at Redruth Drive/Old Newark Road, Notts. NG18 4QB
The site is located in the south east of the district, on the Bellamy Road Estate.
The site is currently cleared land and extends to approximately 4.76 hectares
(11.76 acres) of land adjoining an existing residential area. Outline planning
consent was granted on the 25th October 2011 (Ref: 2011/0254/ST) for the
erection of ninety nine residential dwellings and associated public open space.
Land at Brownlow Road, Mansfield, Notts. NG19 6BS.
The site is located to the south of the Town centre, fronting Chesterfield Road
South. The site is currently cleared land and extends to approximately 2.04
hectares of land in an existing residential area. The site is listed in the SHLAA
(site 34) for the provision of 61 dwellings and is developable in the next 5
years. Part of the site has already been identified as part of the Council’s
commitment to an elderly care scheme with the County Council.
Clumber House, Clumber Street, Mansfield, Notts. NG18 1NY
The subject property is located within the town centre, between Leeming Street
and Regent Street. It comprises four commercial units on ground floor,
extending to 2,150 sq. ft. and 6,000 sq. ft. of vacant office space, on the first,
second and third floors. The ground floor has a current rental value of circa
£40,000 per annum and is fully let, whilst the upper floors have the potential to
generate £30,000 per annum, but are vacant. The upper parts of the property
lend themselves to residential conversion, and conceivably nine two bed
MANSFIELD DISTRICT COUNCIL
apartments could be provided in the space available. The property currently
benefits from a lift to all upper floors.
Land at Sandy Lane, Mansfield, Notts. NG18 2LT
The General Fund element of the subject property comprises of a former Area
Housing Office, a Doctors Surgery let to a third party and 0.6 hectares of land
capable of residential development. The two properties have a current rental
value of £11,750 and £26,000 per annum respectively. It is envisaged that
eighteen houses could be built on the land, subject to necessary planning
permissions. The site is listed in the SHLAA (site 86) and is developable in the
next 5 years. The remainder of the Sandy Lane site already falls within the
HRA.
1A Grove Street, Mansfield, Notts. NG18 1EL
The subject property is located on the periphery of the town centre, on the
junction of Grove Street and Nottingham Road. It is a detached, three storey,
brick built building, which is currently used as offices. The floor area is 2,140
sq. ft. The subject property has a current rental value of circa £10,000 per
annum. The property would lend itself to residential conversion, and could
conceivably provide three two bed apartments in the space available. The
property currently benefits from on site car parking provision for nine cars. The
plot size extends to 6,080 sq. ft. and if combined with the adjacent Grove
Street Car Park, would provide a 0.29 hectare (0.72 acres) strategic
development site.
Land at Moor Lane, Mansfield, Notts. NG18 5SF
The subject site, which includes the former Moor Lane Pavilion and part of the
park, forms part of a larger potential development site. It is referred to as a
‘ransom strip’, as the subject land, although small in area, is vital for the
cohesive development of the larger site known as Victoria Court flats. The site
is listed in the SHLAA (site 114). The rear part of the site is in the process of
being re-acquired by the Council for housing purposes.
Land off Rosemary Street, Mansfield, Notts. NG19 6AB
The subject site is located next to the Civic Centre and Fire Station, and
extends to 0.274 hectares. The site has historically been used as an allotment,
although the site is currently unused. The site is listed in the SHLAA (site 121)
for the provision of 8 dwellings and could be developable within the next 5
years.
Land at Spider Park, Mansfield, Notts. NG18 4BE
The subject land extends to 2.74 hectares and was acquired from Mansfield
Sand Limited in during the 1920’s. The site was recently been occupied by
Mansfield Town Football Club by way of a short term lease. The site is listed in
the SHLAA (site 120) for the provision of 117 dwellings. The land adjoins the
MANSFIELD DISTRICT COUNCIL
former Mansfield Sand Ltd factory, which has planning consent for residential
development and could form part of a joint development, either for housing in
totality or for housing and a high quality landscaped public realm. The site
could be developable in the next 5 years.
Former Horticultural Nursery, Windmill Lane, Mansfield, Notts. NG18 2AL
The former nursery is now surplus to requirements and together with a site
already within the HRA to the rear forms a potential residential development
site. Two potential access points have been identified. The site in totality
extends to 1.25 hectares, with the General Fund element accounting for 0.6275
hectares.
Former General Hospital Site, Mansfield, Notts. NG18 1PL
The former hospital site was acquired by the General Fund in June 2013 and is
subject to an existing Council enabled regeneration scheme. The site area
extends to 1.12 hectares.
Cattle Market Tavern, Mansfield, Notts. NG18 1QA
The subject property has recently been re-let as a restaurant producing an
income of £12,000 per annum. An appropriation to the HRA would result in an
additional income stream, but a loss of income to the General Fund not
previously accounted for within existing budgets. The terms of the Lease
include an option to purchase the Freehold interest by the Tenant on the 29th
September 2015 and at yearly anniversaries thereafter, and could provide a
capital receipt to the HRA at that time. The initial purchase price is £125,000
and increases by £2,500 per annum annually.
3.5
The appropriation of the land and buildings from the GF to the HRA would
result in an increase in commercial income to the HRA of £88,000 (actual) per
annum / £129,750 per annum (potential), but a corresponding loss of income to
the General Fund.
3.6
As previously advised in Property Transaction Report (9th July 2013 refers) the
appropriation of this land from the GF to the HRA will reduce the Capital
Funding Requirements (CFR) for the GF and increase the CFR for the HRA by
an equal amount. This transaction will result in a net nil impact on both funds.
3.7
PROPOSAL – PROPERTY INVESTMENT RATIONALE
3.8
The GF has a budgetary requirement from 2014 -15 onwards of an additional
£484,000 per annum. After due consideration, it was proposed that this
requirement should be met by a proprietary asset or assets, capable of
producing a stable income stream of extended duration, capable of periodic
increase.
MANSFIELD DISTRICT COUNCIL
3.9
3.9.1
In consideration of the Council investing in such commercial property it was
proposed that an objective set of criteria will used to identify and grade a
potential asset. The sieving mechanism was referred to as the Five Q’s, Q
standing for ‘Quality’. This was designed to address what was believed to be
the constituent and salient characteristics of an investment that matched the
Council’s requirements. The criteria and weighting for each ‘Quality’ focused on
the strength of the following:
Income
45%
The income produced by the asset was viewed as being the most important
element of a potential acquisition. The income is governed by the Lease
currently in place. To assess this, the category of income was split into sub
categories:
Lease Length:
The length of the current contractual agreement in
place and the period of time over which rent is paid.
Longer agreements were viewed more positively
than shorter ones, with twenty five years
aspirational.
Rent Review Pattern:
The frequency and methodology by which the
passing rent is reviewed. This represents the
number of times during the term of the Lease that
the rent can have the potential to be increased. It is
the norm within the commercial property market that
the rent is reviewed either to the current Market
level or in line with the Retail Price Index. If there
has been no increase in rent levels between the
reviews, then the rent will not be increased. The
more frequent the rent review, the more opportunity
for the rent to increase, and were thus viewed more
favourably. Rent reviews linked to the Retail Price
Index (RPI) were desirable.
Break Option:
The ability of the Tenant to end the Lease before its
contractual end date is becoming more common in
commercial Leases. They have the effect of
guaranteeing the income only for the period up until
the next Break Option. A lack of Break Options
within a Lease was viewed as desirable.
% of Floor Area:
The percentage of a building’s floor space that was
occupied by a particular Tenant. In a multi let
property, it was important that reference be made to
the areas occupied by specific Tenants, meaning
that appropriate weighting to income would be given
if, in a 10,000 sq. ft. building 1,000 sq. ft. was
occupied by a Tenant of international repute and
MANSFIELD DISTRICT COUNCIL
9,000 sq. ft. was occupied a small scale, local
operator.
3.9.2
Vacancy:
The occupancy level of the properties under
consideration was assessed as part of the scoring
matrix. It was deemed prudent to purchase a fully
occupied property, and one that did not have the
risk of long term vacancy and the resultant pressure
of re-letting vacant space. Fully let properties were
scored more highly than vacant/part vacant ones.
Management:
The intensiveness of the property’s management
was also assessed. A property let to a single
occupier on a Full Repairing & Insuring Lease,
whereby all responsibility for external and internal
repair and insurance rests with the Tenant, would
be, theoretically the least involving of properties,
with multi let Tenants on internal repairing and
insuring being the most intensive. The interaction
between geographic location and management
intensity is a significant consideration.
Tenant
25%
The financial standing and viability of the Tenant was also considered and
objectively scored using the Dun & Bradstreet ratings. Dun & Bradstreet are an
internationally recognised financial referencing agency.
3.9.3
Location
10%
Location was deemed to be an important consideration when critiquing the
asset. It is important to acquire an asset in an area that is viewed to be
economically buoyant and has the ability of sustainable financial and economic
growth, over the life time of the asset. To this end, areas were categorised as
sub regional, regional cities, secondary cities, prime cities and capital cities.
Greater scoring weight was given to capital cities.
3.9.4
Sector
10%
The sector that the property traded in was also deemed to be of significance.
The strength of the sector was viewed in relation to its location, rather in
isolation. Theoretically, a hotel in Leicester would be scored lower than a hotel
in London, as the investment market would view that, although operating in the
same sector of the economy, that the interaction between sector and location
meant that one was far more desirable an asset than the other.
MANSFIELD DISTRICT COUNCIL
3.9.5
Building
10%
The age and construction of the building was also reviewed and taken into
account in the decision making process. The potential for future structural
repair, retro fit and refurbishment expenses for both the Council and the
Tenant, should be limited as much as possible. A modern, well-constructed,
energy efficient building was scored highly. Mansfield District Council did not
wish to purchase a property let on a long term, which would not structurally
last the duration of that period.
A scoring matrix (Appendix B) based on these factors was produced and was
utilised in identifying a suitable commercial property to acquire for the Council.
A scoring matrix for the subject property identified in 3.10 onwards is shown
Appendix C.
3.10
PROPOSAL – COMMERCIAL PROPERTY ACQUISITION
3.11
Following a review of the commercial properties identified in Appendix B and
the application of the scoring matrix, a property identified in Appendix D was
selected as the most appropriate against the Council’s criteria.
3.12
Subsequent discussions were held with the Investment Agent representing the
vendor, in order to secure the subject property on an ‘off market’ basis, and
prevent the vendor offering it for sale on the open market. The strategy was
designed to pre-empt any bidding war which may proved disadvantageous to
the Council, due to finite funds and limited timescales.
3.13
In order to take the subject proposal forward and give further consideration to
the proposed acquisition, the following matters have been identified as being
necessary and prudent:(i)
Appointment of a Scottish Legal Firm – there are differences in the
ownership of land and property in Scotland and Scottish law in general
and thus it was considered necessary to appoint a Scottish legal
practice to act on the Council’s behalf in the acquisition. A firm has been
appointed directly by Property Services.
(ii)
Appointment of External Valuer – Whilst the Council has been able to
negotiate the purchase of the property off market and that in the opinion
of the Corporate Asset Manager the purchase price represents Market
Value, it was considered prudent that an external valuer be appointed.
The identified property falls within the hotel sector of the leisure market
and a specialist valuer in this field has been appointed to advise the
Council on the Market Value of the subject property.
(iii)
Building Survey – a building survey has recently been undertaken of the
property and has revealed there to be no significant structural issues at
the subject property.
MANSFIELD DISTRICT COUNCIL
(iv)
Environmental Survey – an environmental survey has recently been
undertaken and has concluded that the site is of low risk.
(v)
VAT Advice – The property has been elected for VAT and it anticipated
that the sale will be treated as a transfer of a going concern.
Accountancy has sought the advice of LAVAT (the Council’s VAT
specialist advisors) on this matter and their advice has been
incorporated within this report. A consequence of this advice is that the
Council must elect to “Opt to Tax” prior to acquisition for VAT purposes.
3.14
VAT Implications Option to Tax
3.15
The Council has been advised that the property has been elected for VAT and
it is envisaged that the sale will be treated as a transfer of a going concern
(TOGC). A TOGC is the sale of a business including assets which must be
treated as a matter of law, as ‘neither a supply of goods nor a supply of
services’ by virtue of meeting certain conditions. Where the sale meets the
conditions then the supply is outside the scope of VAT and therefore VAT is
not chargeable. [VAT (Special Provisions) Order 1995, Article 5]. The UK law
is derived from Articles 19 & 29 of the Principal VAT Directive (Directive
2006/112/EC).
3.16
The TOGC rules are compulsory and the Council is not allowed to ‘opt out’.
Incorrect treatment could result in corrective action by HMRC which may
attract a penalty and or interest, for which there is no budget. If all the
conditions are met the TOGC rules apply and VAT must not be charged or
accounted for on the assets transferred. It is the seller’s responsibility to
ensure that all the conditions have been met and that a TOGC exists. If all the
conditions are met the Council must continue the same business under the
same VAT treatment. As the seller has elected to tax the property and
therefore makes a taxable supply to the tenant, so must the Council. To
enable the Council to make taxable supplies, permission has to be granted by
HMRC. To do this an application has to be submitted to elect to tax before the
property is transferred or any deposit paid.
3.17
The seller will ask the Council to provide evidence that the election to tax is in
place by the relevant date. Without this, they would not have sufficient
evidence to prove that a TOGC exists which would result in VAT being
charged on the purchase price. Without the election in place, the income due
from the rent would be exempt from output tax. The combination of input and
output tax transactions would cause a breach in the 5% partial exemption limit
and would result in significant sums of exempt VAT being due to HMRC, for
which there is no budget.
3.18
Supplies of land and buildings, such as Freehold sales, leasing or renting are
normally exempt from VAT. This means that no VAT is payable and the VAT
incurred on any associated expenditure can only be recovered if the 5% deminimis limit is not breached. The VAT regulations permit the Council to elect
MANSFIELD DISTRICT COUNCIL
to tax land and property. Electing to tax turns most sales and leases on nondwellings from an exempt supply to a taxable (standard rated) supply. This will
ensure that the purchase has no impact on the Council’s 5% de-minimis limit.
3.19 The election to tax must be notified to HMRC in writing no later than the
relevant date and must apply from that time. The relevant date is the time of
the supply, which is the date of transfer. The notification must be completed
and posted to HMRC before the relevant date. The election to tax once granted
by HMRC cannot be revoked unit at least twenty years have passed.
3.20 The principal Heads of Terms of the property to be acquired are shown in
Appendix D.
3.21 TOTAL ACQUISITION COSTS
3.22
In addition to the purchase price of £7,650,000 (seven million, three hundred
and seventy five thousand pounds) the Council will have to pay the following
costs relating to the acquisition:(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
Stamp Duty Land Tax at 4%
Land Registration Fee
External Legal Fees
External Valuation (DTZ)
External Valuation (HEB)
Assignment of Building Survey
Assignment of Mechanical & Electrical Survey
Assignment of Environmental Survey
Heads of Expenditure
Purchase Price
Stamp Duty Land Tax @ 4%
Land Registration Fee
External Legal Fees
External Valuation (DTZ)
External Valuation (HEB)
Building Survey
M & E Survey
Environmental Survey
Total Acquisition Cost
3.20
Cost £’s (excl. VAT)
7,650,000
306,000
7,518
7,500
7,500
4,500
TBC
5,000
TBC
5,000
TBC
5,000
7,998,018
Financial provision of £8.1M has been approved by Council Capital
Programme report 4th March 2014
MANSFIELD DISTRICT COUNCIL
4.0
OPTIONS AVAILABLE
4.1
There are 3 options available: -
4.2
Option A – Appropriate identified Land & Buildings from the GF to HRA
and acquire commercial property. (Preferred Option)
4.3
The recommendation proposed represents a proactive use of the Council’s
assets and re-aligns them in a way which is beneficial for both the GF and HRA
in the short to mid-term for residential purposes. The proposal to acquire
commercial property also supports the Council’s Medium Term Financial
Strategy in securing a significant revenue income stream to the General Fund.
An income stream of £484,000 had been identified in the 2014-2015 budget
and the proposed acquisition would produce an income stream of £546,258 per
annum (an additional £62,258 per annum). The rental is subject to review in
June 2018.
Option B – Do Nothing.
The 2014-2015 approved budget includes an additional income of £484,000 to
maintain a balanced budget. Failure to appropriate land to the HRA from the
GF and its subsequent re-investment in commercial property would result in a
shortfall to the Council budget which would have to be made from other
savings or additional income sources.
4.4
Option C – Appropriate identified Land & Buildings from the GF to the
HRA and acquire other commercial property
Other commercial properties were identified as being suitable within the
selection process, but scored lower than the subject property based on the
critieria. Members may wish to invest in other identified properties, but need to
account for the different risk factors associated with other properties.
Furthermore, the attempted acquisition of other property is not guaranteed and
may not be completed until mid 2014.
5.
RISK ASSESSMENT OF RECOMMENDATIONS AND OPTIONS
Option
Option A –
Purchase
the subject
asset
Risk Type
Strategic
Risk
Risk
Assessment
Outside
administrative
district
Risk
Level
Low
Risk Detail
The strategy of reinvestment has been
designed to utilise the
best available assets
regardless of location.
The Council intends to
maximise the longevity
and safety of income
streams
and
those
investments are not
available
within
the
MANSFIELD DISTRICT COUNCIL
Management Knowledge
Risk
Gap
Low
Operational
Risk
Legal system
Low
Financial
Risk
Constitutional
change
Medium
Strategic
Risk
Business
failure of
current Tenant
Low
Strategic
Risk
Sector failure
of Tenant
Low
administrative
boundaries
of
the
district.
The subject property is
of a type, quality and
Tenant profile that is not
replicable locally and
has not been previously
been owned by the
Council. However, the
property is let on Full
Repairing and Insuring
terms and issues are
capable of being dealt
with
by
Property
Services.
Scotland operates under
a different legal system.
The
Council
would
procure suitable Legal
Advice from a practice of
standing and repute in
all
matters,
from
acquisition onwards.
A
possibility
of
Independence
exists,
however this should not
impact upon the area of
business that the subject
property operates within.
The subject property is
located in a desirable
area of Edinburgh that
contains other hotels
and boutique B&B’s. If
the current Tenant were
to cease trading, there
would be considerable
interest in continuing a
Hotel business from the
subject property.
The subject property is
located in an area of
high value residential
properties. As a worse
case scenario, Planning
Permission would be
sought for change of
use, and the properties
MANSFIELD DISTRICT COUNCIL
Strategic
Risk
Missed
opportunity
High
Operational
Risk
Property
Management
Problems Accessibility
Low
Operational
Risk
Knowledge
Gap
Low
Financial
Risk
Failure to Opt
to Tax
High
converted into flats. Two
bed apartments in the
locality are currently for
sale at circa £700,000.
The subject asset is
currently
viewed
as
extremely attractive by
the investment market,
due to length of Lease,
passing rent level and
RPI linked rent review
pattern. Acquiring the
subject
property
represents an opportune
moment to purchase ‘off
market’.
Representatives
from
Property
Services
inspected the subject
property, travelling by air
from
East
Midlands
airport. The visit was
completed
within
working hours.
As
mentioned
previously,
all
proprietary
matters
arising
from
the
ownership of the subject
property are capable of
being dealt with by the
Council’s
Property
Services
section,
rd
however 3 Party advice
can be sought, as and
when,
from
the
Edinburgh
property
profession.
Do nothing and the
conditions of the TOGC
will not be met. This
would result in VAT
being added to the
purchased price and no
VAT being charged on
the rental income. This
would risk breaching the
partial exemption limit.
This option is not
recommended.
MANSFIELD DISTRICT COUNCIL
Option B –
Do Nothing
Option C –
Acquire an
alternative
Asset
Financial
Risk
Opt to Tax
Low
Financial
Risk
Reduced
income level
High
Strategic
Risk
Non
appropriation
of developable
land
High
Reputational
Risk
Perceived
inactivity
High
Financial
Risk
Level of
income
Medium
Elect to tax the property
as
shown
on
the
boundary
map
in
Appendix
D,
which
would
enable
the
conditions of a TOGC to
be met and reduce the
risk of breaching the
partial exemption limit.
This is the preferred
option.
The
2014
2015
approved
budget
includes an additional
income of £484,000 to
maintain a balanced
budget.
Failure
to
appropriate land to the
HRA from the GF and its
subsequent
reinvestment
in
commercial
property
would result in a shortfall
to the Council budget
which would have to be
made from other savings
or additional income
sources.
The strategic housing
ambitions of the Council
will unable to be met, as
land
capable
of
residential development,
currently held in the
General Fund will not be
appropriated into the
Housing
Revenue
Account,
enabling
residential development.
Mansfield
District
Council disposed of a
proprietary asset for
£13.8m and would be
liable for criticism if part
of the money was not reinvested.
The alternative asset
might not possess the
same level of passing
rent and the Council’s
MANSFIELD DISTRICT COUNCIL
Financial
Risk
General Fund
Capital
Receipt
Medium
Reputational
Risk
3rd Party
criticism
High
Strategic
Limited asset
Asset
availabilty
Management
Risk
Medium
Strategic
Poor asset
Asset
selection
Management
Risk
Medium
Reputational
Risk
Medium
Area of
property
acquisition
budgetary requirements
would not be met.
The alternative asset
might not possess the
same risk profile as the
subject asset, and the
Council’s income stream
may not be guaranteed.
There may be a delay in
acquiring another asset.
The
Council
has
budgeted for the income
to commence on the 1st
April, monthly delays will
cost the Council £40,333
per month.
The Council has been
advised by a number of
parties that the type of
asset it is looking for is
one which is in high
demand. If Mansfield DC
does not acquire the
subject asset, it is
possible that it will
struggle to acquire a
similar.
Mansfield
District
Council may be forced to
acquire a number of
disparate
assets
to
match its requirements;
this would place undue
pressure on the current
in-house
service
provider.
Property
Services possess the
requisite
qualifications
and
experience
in
acquiring
proprietary
assets. However, if it is
felt that any knowledge
gaps exist, 3rd party
specialist advice will be
sought.
Public perception of the
external acquisition of
assets
may
cause
concern, but in the
current
local
and
MANSFIELD DISTRICT COUNCIL
Operational
Risk
Property
management
Medium
Financial
Risk
Asset
selection
High
national
economic
climate, it represents
prudent
asset
management.
The
ownership
of
properties outside of the
administrative boundary
would lead to increased
management
costs.
However, these would
be mitigated by the type
and location of the
property.
Mansfield only has a
finite
supply
of
proprietary
resources
and the return needs to
be maximised. Confining
the investment to the
administrative
boundaries, would not
achieve this.
6.
ALIGNMENT TO COUNCIL PRIORITIES
6.1
In order to deliver its Corporate Plan and Medium Term Financial Strategy, the
Council has to ensure its land and property assets are used effectively for the
delivery of services either directly in the case of operational properties or
indirectly with non-operational properties. The appropriation of land and
buildings from the General Fund to the Housing Revenue Account, together
with the acquisition of other commercial property would assist in delivery of
these objectives.
7.
IMPLICATIONS
(a)
Relevant Legislation -
S.123 Local Government Act 1972
The Local Authorities (Capital Finance
Accounting) (England) Regulations 2012.
and
(b)
Human Rights - The Human Rights Act 1998 is not contravened as an
individual is not directly affected by the recommendation.
(c)
Equality and Diversity - It is considered that the proposed actions are fair and
equitable in their content and are not discriminative on the grounds of equality
and human rights.
(d)
Climate change and environmental sustainability – No implications on the
Council.
MANSFIELD DISTRICT COUNCIL
(e)
Crime and Disorder -
No implication
(f)
Budget /Resource -
Detailed in report
8.
COMMENT OF STATUTORY OFFICERS
Head of Paid Service: No Comments
Section 151: This proposal would contribute towards the £4.7m General Fund deficit
by generating an improved return on commercial assets within the portfolio.
The
acquisition of additional commercial property asset and appropriation of land from the
General Fund to the Housing Revenue Account are in line with the Capital Accounting
Regulations. The income anticipated to be generated from the transactions will
contribute towards the £4.7m General Fund deficit up to 2017/18.
VAT implications: These are covered in the report .
Monitoring Officer:
In addition to S123(1) of the Local Government Act 1972 which empowers a principal
council to dispose of land held by them in any manner they wish under the general
power of competence set out in Section 1 of the Localism Act 2011 below:
(1)A local authority has power to do anything that individuals generally may do.
(2)Subsection (1) applies to things that an individual may do even though they are in
nature, extent or otherwise—
(a) unlike anything the authority may do apart from subsection (1), or
(b) unlike anything that other public bodies may do.
(3) In this section “individual” means an individual with full capacity.
(4) Where subsection (1) confers power on the authority to do something, it confers
power (subject to sections 2 to 4) to do it in any way whatever, including—
(a) power to do it anywhere in the United Kingdom or elsewhere,
(b) power to do it for a commercial purpose or otherwise for a charge, or without
charge, and
(c) power to do it for, or otherwise than for, the benefit of the authority, its area or
persons resident or present in its area.
The Council would have all the necessary powers to purchase assets anywhere in the
United Kingdom. Any disposal of land would need to comply with the obligation to
achieve the best consideration that can reasonably be obtained.
Any procurement of expert estates or property advice would be a Part B Service
under the Public Contracts Regulations 2006 (The Regulations). Although any
procurement would fall below the current threshold for a service contract of £173,934
MANSFIELD DISTRICT COUNCIL
and the Regulations themselves do not require any form of prior advertising or
competitive tendering of Part B services it would be prudent to ensure that any
procurement of services on a key project complies with the general obligations of
transparency, equal treatment, non discrimination and proportionality that derive
directly from the Treaty on the Functioning of the European Union.
9.0
CONSULTATION
9.1
None
10.
BACKGROUND PAPERS
Property Services File:
External Valuation Report:
HEB Chartered Surveyors, 17 The Ropewalk,
Nottingham. NG1 5DU
External Valuation Report:
DTZ, One Edinburgh Quay, 133 Fountainbridge,
Edinburgh. EH3 9QG
Building Survey:
DTZ, One Edinburgh Quay, 133 Fountainbridge,
Edinburgh. EH3 9QG
Environmental Survey:
EDCM Building Services Consulting Engineers Ltd,
Aspect Court, 4 Temple Row, Birmingham. B2 5HG
Report Author
Designation
Telephone
E-mail
- Philip Colledge
- Principal General Practice Surveyor & Corporate Asset
Manager
- 01623 463231
- [email protected]
MANSFIELD DISTRICT COUNCIL
APPENDIX A
VALUATION OF LAND & BUILDINGS FOR APPROPRIATION. UNDERTAKEN BY
HEB CHARTERED SURVEYORS, 17 THE ROPEWALK, NOTTINGHAM. NG1 5DU