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Agenda item

Development Company

In order to maximise revenue opportunities for the Council, the Executive’s approval is sought for the establishment of a wholly owned and controlled Property Development Company limited by shares.

 

Minutes:

Decision that:

 

1.     in order to maximise revenue opportunities, the Council establish a wholly‑owned and controlled Property Development Company limited by shares;

 

2.     authority be delegated to the Chief Executive, in consultation with the Finance and Property Portfolio Holder, to promote and establish such a vehicle with the Council as sole shareholder, including the content of the Memorandum and Articles of Association and the terms of a Governance Agreement intended to regulate the commercial relationship between the company and the Council as owner and sole shareholder;

 

3.     the principle be endorsed that the Governance Agreement requires the following:

 

·       the Company to submit an Annual Business Plan for approval by the Executive;

·       the Company to submit quarterly financial and performance reports to the Executive;

·       the Company to comply with the requirements of the Local Authorities (Companies) Order 1995;    

·       transactions between the Council and the Company to be ‘at arms length’ and on commercial terms;

·       disposals of housing land by the Company to be at open market value;

·       acquisitions of land and interests in land by the Company to require the prior consent of the Council;

·       the Directors to be required to declare pecuniary interests and conflicts of interest and to take no part in Board decision-making where such interests have been declared;

·       the Council’s rights as shareholder to be exercised by the Chief Executive in consultation with the Executive Leader or such other Portfolio Holder as shall be nominated by the Executive Leader; and

 

4.     budgetary provision of £100,000 towards the initial set up costs of the company be approved; and

 

5.     following the incorporation of the Company, an outline business case be developed and submitted to the Executive for approval. 

 

Reasons for the Decision

 

As a result of increasing financial pressures, the Council needed to act more commercially and explore more creative ways of generating revenue income to meet its local priorities.  It was considered that creating a wholly-owned company limited by shares (CLS) would enable the Council to finance and build both residential and non-residential properties for rent, thus generating reliable revenue streams.  As the CLS would be formed for revenue generation purposes, all properties would be let at market rates and the CLS would seek registered housing provider partners to develop and/or manage the affordable housing required to be provided in accordance with any grant of planning permission.

 

In accordance with both the Local Government Act 2003 and the Localism Act 2011, a wholly-owned and controlled property development company limited by shares was considered to be the most appropriate corporate vehicle for providing additional revenue streams to support the Council’s General Fund.

 

Alternative Options Considered and Rejected

 

Do nothing/maintain the status quo 

 

This option was not favoured by Members as the way forward to achieve financial sustainability and was therefore not supported.

 

The Council to build housing stock

 

This was not considered possible due to the Council’s status as a strategic housing authority and would warrant opening a Housing Revenue Account (HRA) which had its own disadvantages, including the borrowing cap, rent freeze and the limited ability to transfer funds from the General Fund into the HRA for house‑building activities.  However, authority had been sought from the Secretary of State to increase the Council’s threshold from 50 to 200 units which would not require a re-opening of the HRA.  If such permission were granted, the Council would be able to build out to this threshold.  However, capital values and rental income would still be at risk due to rent freeze and the Right to Buy.  This option was therefore not supported.

 

Key Points Arising from the Discussion

 

·        The proposal was welcomed by non-Executive Members present at the meeting.  Responding to a non-Executive Member’s question on the type of affordable housing to be provided, the Chief Executive explained that the proposed company’s aims included developing for rent, at a level to be determined by the Council, meaning that in effect the Council would become a private landlord.

 

·       The Housing and Economic Development Portfolio Holder expressed his strong support for the proposal which he considered had the dual advantages of assisting with housing provision and aiding the local economy.

 

(Action:  Chief Executive)

 

Supporting documents: