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Decision details

Hertsmere Developments Limited Business Plan and Associated Matters

Decision Maker: Executive

Decision status: Recommendations Approved

Is Key decision?: Yes

Is subject to call in?: No

Decisions:

Decision that:

 

1.          the Hertsmere Development Limited’s (HDL) Articles of Association and Shareholders Agreement (Appendices B and C to the report) be recommended to the Council for approval and authority be delegated to the Corporate Director, in consultation with the Leader of the Council, to make any minor changes to the Governance Agreement prior to that approval by the Council;

 

2.          subject to approval of the Business Plan and an independent site valuation, the Council be recommended to delegate authority to the Leader of the Council and the Corporate Director, as shareholder representative, to transfer the sites listed in Appendix A of the Business Plan to HDL and furthermore to approve that the site/land transfers are held as an equity holding in HDL;

 

3.          the Council be recommended to authorise the Leader of the Council and the Corporate Director to transfer to HDL the freehold of the sites intended for the building of houses for sale and to grant HDL a long lease of a minimum of 125 years of the sites intended for the building of flatted developments for sale;

 

4.          the Council be recommended to authorise the Leader of the Council and the Corporate Director to grant HDL long operational leases of 30 years in respect of sites to be developed for commercial/non-residential ‘build to rent’ and to grant HDL leases of 20 years in respect of sites to be developed for residential ‘build to rent’;

 

5.        delegated authority be sought from the Council to provide loan funding to    HDL not exceeding £50M over the period of its Business Plan, that is    until 2028 and a drawdown facility of no more than £10M in any financial    year, subject to adherence to the criteria specified in sections 3.4.5   and 9 of the Officer’s report.   In addition, all loan funding to be secured as a first charge on the property assets to which the funding relates; and

 

6.        an annual update from the Executive be provided to the Council on   HDL’s operational progress and its utilisation of the sites and funding    allocated to it pursuant to the delegated powers referred to in resolutions        (1) to (5) above.  The first update to be provided at the full Council   meeting in July 2019.

 

Reasons for the Decision

 

In light of the significantly reduced government grants and the strain on the Council’s resources, it was vital that the Council secured the best possible return from its assets.  In order to deliver both residential and non-residential development opportunities, the Council had set up a wholly-owned trading subsidiary, Hertsmere Developments Limited (HDL), for delivering much needed economic regeneration and housing growth as well as assisting to generate additional Business Rates income.

The main purpose of HDL was to concentrate on property development as well as investment, both within and outside the Borough, in order to contribute towards the Council’s revenue budgetary requirements.  Its focus would be on responding more quickly and effectively to commercial opportunities where the Council was more disadvantaged by the regulations on decision making which affected speed of response to commercial opportunities.

 

The transfer of development sites and loan funding arrangements to enable HDL to begin to operate were dependent on approval of a Business Plan which could stand up to robust commercial scrutiny and meet the Council’s entrepreneurial requirements.  The Business Plan also needed to ensure developments proposals were fully compliant in terms of planning regulations and that it contributed towards the Council’s overall vision and objectives whilst not adversely affecting the Council’s reputation.  The decisions would allow the necessary governance arrangements and compliances to be put in place to begin the process of the company’s operation.

 

Alternative Options Considered and Rejected

 

          The decision could have been made to reject the recommendations laid out in the Officer report. However, as this would have been contrary to the Council’s corporate objectives, especially with regard to its entrepreneurial approach to resource management, this option was not supported. 

 

          Furthermore, if support to HDL was withdrawn, the Company would not be able to deliver its objectives including delivery of ongoing revenue generation towards the Council’s financial sustainability. 

 

Key Points Arising from the Discussion

 

·       The Finance and Property Portfolio Holder thanked the Directors and shareholder for their hard work in producing the Business Plan, drawing Members’ attention in particular to report paragraph 3.4.5.3 which referred to establishing the Company in a prudent and controlled manner.  His views were echoed by the Planning and Localism Portfolio Holder who considered that the Company’s activities would be of great benefit to the Borough and accorded well with the Council’s values, including the provision of low cost affordable housing.

 

·       A non-Executive Member said that he greatly welcomed the establishment of HDL which he considered would provide important commercial flexibility and enable the Council to be creative, innovative and commercially productive within the agreed parameters.  In terms of transparency, he added that the Governance Agreement was of critical importance in ensuring local people were able to see what was provided in return for the funding investment made (recommendation 1.5 refers).  The Finance and Property Portfolio Holder clarified that the Executive would hold the loan as the Council looked into developing projects.  He advised that the funding would be used on a project-by-project basis, as was currently managed in-house, and a charge would also be made on the asset.

 

·       The Portfolio Holder for Community and Economic Development raised some concerns about the length of leases referred to in recommendations 1.3 and 1.4 which were clarified by the Head of Legal and Democratic Services and the Property Manager for HDL who was present at the meeting.  The Chairman suggested, and it was agreed, that the words “a minimum of” be inserted in recommendation 1.3 between “…a long lease of” and “…125 years…”.

 

(Action:  Corporate Director)

 

 

Report author: Sajida Bijle

Publication date: 26/06/2018

Date of decision: 20/06/2018

Decided at meeting: 20/06/2018 - Executive

Accompanying Documents: