report for Cabinet 10th November 2004

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TARGET="_top" TITLE="David Greens finance Questions"><U>David Greens finance Questions</U></A>   |   <A HREF="id40.htm" TARGET="_top" TITLE="Ken Gregory"><U>Ken Gregory</U></A></div> <div> </div> </td> </tr><tr> <td valign="top" height=398 BGCOLOR="#FFFFFF" TEXT="#080000"> <div> <I>report for Cabinet 10th November 2004</I></div> <div> Msftedit 5.41.15.1503;<FONT SIZE="1" COLOR="#000000" FACE="Arial" >JS/SDF/007-6</FONT></div> <bR> <div> DISPOSAL OF THE EX-PLEASURAMA SITE</div> <bR> <div> To:     <B>Cabinet - 10</B><FONT SIZE="1" COLOR="#000000" FACE="Arial" ><B>th</B><B> November 2004</B></FONT></div> <bR> <div> Main Portfolio Area:     <B>Regeneration</B></div> <bR> <div> By:     <B>Strategic Director (Finance)</B></div> <bR> <div> Classification:     <B>Unrestricted</B></div> <bR> <div> Ward:     <B>Eastcliff</B></div> <bR> <bR> <div> <B>Summary:     This report presents information in respect of the disposal of the former Pleasurama site, and recommends Cabinet decide if they wish to dispose of the site under the terms indicated.</B></div> <bR> <div> <B><U>For Decision</U></B></div> <bR> <div> <B>1.0     </B><B><U>Introduction</U></B></div> <bR> <div> <FONT SIZE="3" COLOR="#000000" FACE="Arial" >1.1     Following repossession by the Council, the former Pleasurama site was marketed towards the end of 2002, and the selection of SFP Ventures Ltd (formerly SFP Venture Partners Ltd "SFP") as the Council's preferred development partner for this site was agreed at full Council on 5</FONT>th December 2002.</div> <bR> <div> 1.2     Following the repossession of the site in 2002, the Council agreed to actively market the site through open invitation.  An advertisement was placed in <I>Estates Gazette</I>, which yielded six expressions of interest which were shortlisted.  One of those shortlisted choose to partner with one of the other parties, and three were unable to continue to develop their proposals, by the deadline, for a variety of reasons.  This left two companies to submit their formal proposals and financial offer to the Council.</div> <bR> <div> <FONT SIZE="3" COLOR="#000000" FACE="Arial" >1.3     The consideration of the proposals was made against various criteria, with a heavier weighting towards the quality of the proposals over the financial offer.  Members making the assessment agreed that the better scheme was the one submitted by SFP.  Cabinet on 21</FONT>st November 2002 recommended that the Council accept the offer and proposals for the site made by SFP.  Council on 5<FONT SIZE="1" COLOR="#000000" FACE="Arial" >th December 2002 agreed that the SFP offer and proposals for the site be accepted subject to satisfactory resolution of the legal documentation.</FONT></div> <bR> <div> <FONT SIZE="1" COLOR="#000000" FACE="Arial" >1.4     There has been considerable public interest in the development, and the matter was discussed at full Council on 1</FONT>st April 2004.  This resulted in the recommendation that "Members endorse the continuing efforts of officers and Cabinet Members to bring a satisfactory development about, which meets the original concept accepted by Council on 5<FONT SIZE="1" COLOR="#000000" FACE="Arial" >th December 2002, with a view to completing the necessary legal paperwork with SFP within a two month timeframe and that the agreement of Cabinet be required to the final terms for the disposal and development of the site, including budgetary element".</FONT></div> <bR> <div> 1.5     This report presents information on how the developer's proposals are considered to meet the "original concept", outlines the key features of the Development Agreement and recommends that Members consider if they now wish to agree the sale of the Ramsgate Boulevard site (ex-Pleasurama site) to SFP under the terms outlined.</div> <div> <B>2.0     </B><B><U>Design of the Scheme</U></B></div> <bR> <div> <FONT SIZE="3" COLOR="#000000" FACE="Arial" >2.1     The current design of the scheme has planning permission as granted at Planning Committee on 28</FONT>th January 2004.  However, concerns were expressed at Council on 1<FONT SIZE="1" COLOR="#000000" FACE="Arial" >st April 2004 about matters such as the proposed height of the development, and referred officers and members to the "original concept" accepted by Council on 5</FONT><FONT SIZE="1" COLOR="#000000" FACE="Arial" >th December 2002.  A paper was presented to Cabinet on 13</FONT><FONT SIZE="1" COLOR="#000000" FACE="Arial" >th May to allow Cabinet to consider whether the current scheme was consistent with that original concept.  In the officers' opinion, the best description of this original concept is contained within the `key design features' section of the SFP submission to Cabinet on 21</FONT><FONT SIZE="1" COLOR="#000000" FACE="Arial" >st November 2002.  There were 4 of the 14 key design features which appeared other than completely consistent with the original concept:</FONT></div> <bR> <div> <TABLE BORDER="2" CELLPADDING="1" CELLSPACING="1" WIDTH="573" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP BGCOLOR=#F2F2F2 HEIGHT= 20 WIDTH="395"><div> <B>Original key design feature</B></div> </tD> <tD VALIGN=TOP BGCOLOR=#F2F2F2 WIDTH="163"><div> <B>Comment</B></div> </tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 76 WIDTH="395"><div> The height kept to a minimum to ensure views to and from Wellington Crescent and the gardens, and Kent Terrace are retained</div> <bR> </tD> <tD VALIGN=TOP WIDTH="163"><div> The development does extend above the cliff line in parts.</div> <bR> </tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 95 WIDTH="395"><div> The design and height will provide a positive impact on the conservation area and listed buildings.  Three blocks extend towards the sea but are cut back at the upper levels to give articulation.</div> <bR> </tD> <tD VALIGN=TOP WIDTH="163"><div> Opinions may differ about the impact.  The design does give articulation.</div> </tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 152 WIDTH="395"><div> The use of rooftop gardens to ensure a continuation of the landscaped feel from atop the cliff face.  The enclosed proposals indicate the strategic approach in the landscape scheme to relate to the structured nature of the existing gardens.</div> <bR> </tD> <tD VALIGN=TOP WIDTH="163"><div> There are rooftop gardens to some of the design.  The roof treatment will be dealt with via variation to the existing planning permission.</div> <bR> </tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 114 WIDTH="395"><div> The provision of a public children's play area within the scheme area is positioned centrally on the Esplanade at ground floor to derive the optimum supervision opportunities and to give the best proximity to the beach access point.</div> <bR> </tD> <tD VALIGN=TOP WIDTH="163"><div> Amended - the play area is now positioned at the end of the building.</div> </tD> </tR> </TABLE></div> <bR> <div> 2.2     Through the developer's agent, the developers have proposed that the Development Agreement include a side letter.  This would mean that the developer will seek a variation to vary the roof details, and so that the hotel lift-tower and shelter over the steps be similarly varied to reduce their height.</div> <bR> <div> <B>3.0     </B><B><U>The Development Agreement</U></B></div> <bR> <div> 3.1     The Council has sought to negotiate a development agreement which will be binding on both parties.  This protects the Council's interests in a number of ways and is instrumental in ensuring that the development takes place as envisaged and within a reasonable timescale.  </div> <bR> <div> 3.2     The main elements of the development agreement are:</div> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.gif" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">a deposit amount to paid to the Council on exchange of the development agreement.</div> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.gif" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">the transfer of the freehold interest in the site to SFP only on completion of the development at a fixed price.</div> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.gif" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">further payments to the Council as set out in the financial implications.</div> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.gif" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">until the development is completed SFP will be granted a site licence which would allow access to the site during construction work.</div> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.gif" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">the Council can repossess the site if SFP fails to comply with the terms of the development agreement.</div> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.gif" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">it provides for the hotel element to be completed before the retail and leisure parts.</div> <bR> <div> 3.3     As SFP is an off shore company it is a condition of the development agreement that it enters into a performance bond to protect the Council against default in respect of certain elements of the development agreement.  The performance bond is in the sum of £5,600,000 which is in respect of the developer's obligations in relation to the hotel and retail construction.  In effect, this protects the Council against the failure of the developer to provide a hotel and retail units as designed, and would give funding for the Council to commission such works elsewhere in the event of failure of the developer.</div> <bR> <div> 3.4     The development brief states clearly that, once the development agreement becomes unconditional, the Council will expect the developer to start on site within three months.  The development agreement contains an agreed period for the completion of the development, timed from the date that conditions relating to planning are fulfilled, or the date the agreement is signed, whichever is the latest:</div> <div>      </div> <div> <TABLE BORDER="2" CELLPADDING="1" CELLSPACING="1" WIDTH="576" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP BGCOLOR=#F2F2F2 HEIGHT= 20 WIDTH="263"><div> <B>Type of works</B></div> </tD> <tD VALIGN=TOP BGCOLOR=#F2F2F2 WIDTH="130"><div> <B>start date</B></div> </tD> <tD VALIGN=TOP BGCOLOR=#F2F2F2><NOBR><div> <B>practical completion</B></div> </NOBR></tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 19 WIDTH="263"><div> Hotel works</div> </tD> <tD VALIGN=TOP><NOBR><div> within 6 months</div> </NOBR></tD> <tD VALIGN=TOP WIDTH="163"><div> within 42 months</div> </tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 19 WIDTH="263"><div> Residential works</div> </tD> <tD VALIGN=TOP><NOBR><div> within 9 months</div> </NOBR></tD> <tD VALIGN=TOP WIDTH="163"><div> within 57 months</div> </tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 19 WIDTH="263"><div> Retail works</div> </tD> <tD VALIGN=TOP><NOBR><div> within 6 months</div> </NOBR></tD> <tD VALIGN=TOP WIDTH="163"><div> within 30 months</div> </tD> </tR> </TABLE></div> <bR> <div> 3.5     The Council's interests are further protected in that the freehold of the land will not be transferred until the completion of the project.</div> <bR> <div> 3.6     If accepted by the Cabinet, at the same time that the Development Agreement is exchanged a side letter will be effected which would require the developer to submit the necessary variation for the alterations and prepare the necessary plans, to vary the roof treatment, remove the stair shelter and reduce the height of the hotel lift tower, per paragraph 2.2 above.  </div> <bR> <div> <B>4.0     </B><B><U>Best Consideration</U></B></div> <bR> <div> 4.1     The Council is required under the Local Government Act 1972 not to dispose of land for a consideration less than the best that can reasonably be obtained.  Best consideration for the site can be achieved by ensuring that the best bid was chosen, and that the subsequent negotiations have protected or strengthened the Council's financial position.  </div> <bR> <div> 4.2     Following the process detailed in paragraphs 1.2 and 1.3 of this report, the best financial bid, from SFP, which also represented the "better" of the two competing schemes, was the one chosen by the Ramsgate Renaissance Group and recommended to Cabinet and selected by Council.  The exempt Annex A details the original competing bids.</div> <div> 4.3     The exempt Annex A of this report also details the likely financial contribution to the Council for disposal of the land to SFP.  It must be emphasised that any prediction of future income and costs, such as build cost, or sale value, for residential or retail, can only be a `best guess'.  The Council has to strike a balance between the certainty of receipt and the possibility of future gains and losses if a `percentage' deal is struck.</div> <bR> <div> 4.4     The developers have requested that in determining whether the offer represents best consideration the Cabinet take into account the following:</div> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.gif" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">SFP Ventures Partners (sic) have obtained planning consent on the site for the Council at considerable cost to them, which has enhanced the value of the site.</div> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.gif" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Since making the original offer two years ago, public steps to link Marina Esplanade and Wellington Crescent are to be provided at request of English Heritage, also at substantial cost.</div> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.gif" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">If the site had to be re-marketed, this would involve the Council in additional costs.</div> <bR> <div> 4.5     However, the Council has obtained recent valuations, reported in the exempt Annex A, which when compared to the current offer, indicate that the sale may be at an undervalue.</div> <bR> <div> 4.6     The Council has the ability to dispose of the land at less than best consideration under the General Disposal Consent and accompanying OPDM Circular 06/03 which confirms that the Council can dispose of their surplus land at an undervalue where the disposal is likely to contribute to the promotion or improvement of the economic, social or environmental well-being of the whole or part of its area and the difference between the best price reasonably obtainable for the land and the consideration to be received ("the undervalue") does not exceed £2m.  This is the situation which appears to apply here.  The implications of this are more fully explained in the exempt Annex A.</div> <bR> <div> <B>5.0     </B><B><U>Options</U></B></div> <bR> <div> 5.1     The following options exist for the Council:</div> <div> Disposal of the land at Ramsgate Boulevard to SFP Ventures Ltd, under the terms set out in the Development Agreement, supplemented by the side letter to have the effect of the developer seeking a variation to reduce the height of hotel lift-tower, the staircase shelter, and vary the roof treatment.</div> <div> Disposal of the land at Ramsgate Boulevard to SFP Ventures Ltd, under the terms set out in the Development Agreement, without a further side letter, with the development to go ahead under the current planning permission.</div> <div> Not to agree the disposal of the land at Ramsgate Boulevard to SFP Ventures Ltd. </div> <bR> <div> 5.2     Option (c) is not favoured as it is believed that this development is likely to contribute to the promotion or improvement of the economic, social or environmental well-being of the area.  If the deal does not go ahead the area is likely to be derelict for some time.  The Council would incur costs in remarketing the site, which would also take considerable officer time.</div> <bR> <div> <B>6.0     </B><B><U>Corporate Implications</U></B></div> <bR> <div> 6.1     Financial Implications</div> <div> 6.1.1     The Council has been constrained by commercial confidentiality but has always sought to place as much information as possible in the public domain.  The financial implications are explained in detail in exempt Annex A.</div> <div> 6.1.2     Some matters relating to the financial transaction are in the public domain.  The developer will make a contribution of £727,600 as a commuted sum in respect of affordable housing at a rate of £6,800 per unit of residential property, and with the current planning permission for 107 flats.</div> <div> 6.1.3     Should the developer fail to bring the development to completion, the Council's interests are protected in the form of a development bond in the sum of £5,600,000 which could be used to enable the development through other means.</div> <div> 6.1.4     If the sale of the site does not go ahead, the Council would face the loss of a significant capital receipt, and there is a possibility that the Council may be liable to challenge and possible subsequent compensation payments, should the developer take legal action.</div> <div> 6.2     <U>Legal Implications</U></div> <div> 6.2.1     The Monitoring Officer has confirmed that the power in Section 123 of the Local Government Act 1972 for principal councils to dispose of land is an executive function.</div> <div> 6.2.2     This report is about a legal document, the development agreement, and the implications for the Council, including relevant information is contained in the body of the report itself.</div> <div> 6.2.3     The Local Government Act 1972 provides that "a council shall not dispose of land….for a consideration less than the best that can reasonably be obtained".  However, the Council has the ability to dispose of the land at less than best consideration under the General Disposal Consent and accompanying OPDM Circular 06/03 which confirms that the Council can dispose of their surplus land at an undervalue where the disposal is likely to contribute to the promotion or improvement of the economic, social or environmental well-being of the whole or part of its area and the difference between the best price reasonably obtainable for the land and the consideration to be received ("the undervalue") does not exceed £2m.</div> <div> 6.2.4     The Council is receiving legal advice on the sale of the site and development agreement from Eversheds, the cost of which is being met by the purchaser.  There are no legal impediments to the sale of the site.</div> <div> 6.2.5     Should the sale of the site be prevented by action of the Council, there is a possibility of legal challenge from the developer, who has already incurred significant costs in the form of professional fees and costs associated with putting the bid together.</div> <div> 6.3     <U>Corporate Implications</U></div> <div> 6.3.1     The Ramsgate Boulevard site is of major importance to the Council and securing appropriate development there is in support of one of the Council's corporate aims, "improving the look, cleanliness, vitality and safety of the Thanet street scene particularly in town centres and coastal areas."  The Council has had a long standing commitment to seek a high quality, mixed use development on this site to contribute to the regeneration of Ramsgate, capitalise on the marina and Royal Harbour assets and fill identified gaps in the hotel sector.</div> <div> 6.3.2     Should the sale of the site not go ahead, the area will continue to be derelict, with consequent losses to local trade, and impact on the visual amenity.  The site would have to be marketed again, and there is a major risk that alternate developers would be unwilling to get involved in the costs and effort of a proposal, having seen another development fall at the final hurdle.</div> <div> 6.3.3     Should the sale of the site to SFP not proceed for any reason, the Council would be required to undertake a completely new tendering procedure, involving significant officer and member involvement for the disposal of the site.  There is no question of award to the other tenderer.  It would not be possible to award the site to the second company considered in the November 2002 process without undergoing a new external competition.</div> <div> <B>7.0     </B><B><U>Recommendation</U></B></div> <div> 7.1     That Cabinet confirm which of the options laid out below they wish to adopt:</div> <div> <I><B><U>either</U></B></I></div> <div> Disposal of the land at Ramsgate Boulevard to SFP Ventures Ltd, under the terms set out in the Development Agreement at the consideration shown in exempt Annex A, supplemented by the side letter to have the effect of the developer seeking a variation to reduce the height of the hotel lift-tower, the staircase shelter, and vary the roof treatment  <I><B><U>OR</U></B></I></div> <bR> <div> Disposal of the land at Ramsgate Boulevard to SFP Ventures Ltd, under the terms set out in the Development Agreement, at the consideration shown in exempt Annex A, without a further side letter, with the development to go ahead under the current planning permission.  <I><B><U>OR</U></B></I></div> <bR> <div> 7.2     That Cabinet note the likely total financial receipt laid out in the exempt Annex A and accept that this represents the disposal of this site at an undervalue because the disposal is likely to contribute to the promotion or improvement of the economic, social or environmental well-being of the whole or part of the area and the difference between the best price reasonably obtainable for the land and the consideration to be received ("the undervalue") does not exceed £2m.</div> <bR> <div> <B>8.0     </B><B><U>Decision Making Process</U></B></div> <bR> <div> 8.1     These recommendations involve the making of a key decision which is in the Forward Plan.</div> <bR> <div> 8.2     These recommendations are within the Council's Budgetary and Policy Framework and the decision may be taken by Cabinet.</div> <bR> <div> 8.3     The decision may be subject to the call in process.</div> <bR> <div> Contact Officer:     Jennifer Seeley - Strategic Director (Finance) - Ext:  7003</div> <bR> <bR> <bR> <div> <I>Background Papers: (note some elements may be exempt)</I></div> <div> <FONT SIZE="3" COLOR="#000000" FACE="Arial" >Planning Committee papers 7</FONT>th and 28<FONT SIZE="1" COLOR="#000000" FACE="Arial" >th January 2004</FONT></div> <div> <FONT SIZE="1" COLOR="#000000" FACE="Arial" >Council papers 5</FONT>th December 2002, 1<FONT SIZE="1" COLOR="#000000" FACE="Arial" >st April 2004</FONT></div> <div> <FONT SIZE="1" COLOR="#000000" FACE="Arial" >Cabinet papers 21</FONT>st November 2002, 13th May 2004</div> <div> <FONT SIZE="1" COLOR="#000000" FACE="Arial" >Executive Scrutiny Panel papers, 3</FONT>rd / 4<FONT SIZE="1" COLOR="#000000" FACE="Arial" >th June 2004</FONT></div> <div> Officer working papers</div> <bR> <div> H:\SHARON\Cabinet\Reports\2004\04 november 10\Ex Pleasurama Site - public.doc</div> <bR> </td> </tr></table></body>