To consider Exempt Report No. REG2542 (copy attached), which sets out options for the disposal of 82 residential units contained within the Union Yard scheme in Aldershot.
Presented By:Cllr Gareth Williams, Leader of the Council
Minutes:
The Cabinet considered Exempt Report No.
REG2542, which set out options for the
disposal of 82 residential units contained within the Union Yard scheme in
Aldershot town centre. The Leader of the Council welcomed
Cllr M.J. Tennant who had requested to address the Cabinet on this issue.
Members were reminded that, at its meeting
held across 8th and 14th April, 2025, the Cabinet had resolved to dispose of
the units to Prime Developments Limited.
Work had commenced to effect that decision when, on 11th November, 2025,
Prime had notified the Council that the company were not in a position to
proceed with the acquisition. It was for this reason that the matter was back
in front of Members. It was considered that the remaining alternative options
had not changed materially since they had previously been evaluated. The Cabinet had previously considered and
discussed the risks of each option and had decided that disposal to Rushmoor
Housing Limited (RHL) had carried a significant short-term risk to the Council’s
revenue account, meaning that this option had been the least favourable in
terms of short-term financial risk. The Cabinet had agreed, therefore, to
discount this option and it was not felt that this option had become any more
viable over the following time period. The options relating to the direct sale
or rent of the units to the open market had been discounted as it had been
considered that this would carry a high risk in terms of potential delays in
receiving the capital receipts when compared to the other options. There had
been a further risk in respect of the future sales of the units not achieving
the same value as agents had forecasted. For these reasons, those options had
also been discounted. Although it was acknowledged that, since that time,
optimism within the sales and rental market had increased, it was not felt that
this was sufficiently substantive to make these options viable in terms of risk
at this time. The remaining option was for the disposal of the units to a named
registered housing provider. When considered previously, this option had been
narrowly ruled out in favour of the Prime Developments key worker option. It
was considered that this now offered the most viable option for the disposal of
the units.
The Cabinet heard from Cllr Tennant, who
expressed concern that the report did not contain new financial information on
the impact of this matter on the Council’s Medium Term Financial Strategy
(MTFS). He suggested that the adversity of the Council’s financial position had
been exaggerated over the previous two financial years and that each year had
ended up in surplus. It was also felt that there was a lack of evidence as to
the urgency of the disposal to help to deliver financial sustainability to the
Council. Cllr Tennant explained that it was the belief of his Group that there
was sufficient time to explore the alternative options more fully, with fresh
financial modelling being carried out. In particular, it was suggested that the
rental market was more buoyant now and that the Council retaining the units and
renting out might provide the best return. Cllr Tennant urged the Council to
consider carefully before making a decision that he felt was being
unnecessarily rushed.
The Leader thanked Cllr Tennant for his
contribution to the meeting and the Cabinet proceeded to discuss the issues.
In discussing the disposal to the named
registered provider, Cabinet Members confirmed that constructive meetings had
taken place in recent weeks and there was now more confidence that the
placemaking aspects of the site management arrangements would be suitably
addressed than there was when this option was first considered. A major
advantage over this option was that all 82 units would be used to reduce the
Council’s social housing waiting list, which was one of the Council’s most
important priorities.
In response to some queries, the Council’s
Corporate Manager – Legal Services and Interim Monitoring Officer provided the
following clarifications:
·
The opinion was held
that the offer under consideration would satisfy the Best Value requirement.
·
The process to obtain
the agreement of the Secretary of State was expected to take around six weeks
but the Council could carry out work to progress matters during this period.
·
It was thought that
other parties would not have the opportunity to make representations to the
Secretary of State during this process.
·
In relation to the
Council Constitution’s Overview and Scrutiny Committee (OSC) Rules at paragraph
11, this matter was considered to be both a key decision and urgent and, as
such, would not be subject to call-in. It was confirmed that the requirements of
the Constitution had been fulfilled and that the permission of the Chair of OSC
and the Mayor had been obtained, with notice of the decision to be made
advertised appropriately. The urgency related to the need of the registered
provider to get the matter to its January Board meeting to facilitate
completion of the acquisition in the 2025/26 financial year. To achieve this,
the registered provider would need the agreement of Heads of Terms by 17th
December, 2025.
·
Due to the matter not
being subject to call-in, a special meeting of the Council’s Audit and
Governance Committee had been convened for 11th December, 2025 to allow matters
in relation to the disposal to be scrutinised in a cross-party setting. The
Corporate Manager – Legal Services read out a statement from the Committee
Chair that expressed broad approval for the process that had been carried out
in relation to the disposal of the units.
Lambert Smith Hampton (LSH) had been
commissioned to prepare a short report as to the current state of the market.
It was confirmed, however, that more detailed analysis would carry costs that
were considered to be prohibitive, especially as it was not considered that
this exercise would reveal anything new or of significance in deciding this
matter.
LSH had originally been commissioned with the
sale of Blocks C&D. The advice given by LSH based upon consultation with
its investment business was that the asset would not be of interest to the open
market, such as wealth funds, due to being a “disparate” asset and advised of
an approach to locally based property companies resulting in a list of bids
that were evaluated in the April Cabinet Report. LSH were approached again to advise on the
current marketing conditions. It transpired, as set out in the current Cabinet
Report, that there might be, potentially, more interest from the market. I was
confirmed, however, that values would not be any different and were described
by LSH as “stagnant”, though there was a possible upturn in rental values over
the following year.
A red book valuation was obtained, based upon
market rent expectation, discounted by 15% for the sale as a block, producing a
yield of around 5.5%. The red book valuation rental increase was not materially
different from the previous valuation and on a par with the LSH net operating
income, after allowing for around 20-25% operating costs at a similar yield.
LSH had advised a market value of between
£14m and £15.5m based upon a mix of market rent and affordable rent (i.e.80% of
market rent). The red book valuation indicated £16.4m based upon 100% market
rent. Effectively the valuations based upon end market tenure were consistent
and reasonable.
LSH had advised that pursuing a new buyer on
the open market would not see a materially different sale value and this had
been confirmed by the red book valuation. Every £1m increase in capital value
(i.e. capital receipt) would deliver circa 4.8% saving on the revenue account,
namely an annual saving of £48k. By comparison, the annual cost of the units
was £1.26million of unrecoverable unbudgeted revenue, at a time when the
Council already had a deficit on its revenue account and was relying upon its reserves
to fund that deficit and manage risk events and key priorities.
The original offer from RHL was documented in
the Cabinet papers and was summarised at the meeting. A sale to RHL would
require the Council to loan RHL £16.4m for an indeterminate number of years.
This loan would be impaired every year, based upon the overall recoverability
determined by the underlying value of RHL as an entity (namely whilstever RHL
was in negative equity and/or not generating sufficient cash to be
self-supporting). This impairment would be set against the future loan balance
(a deferred capital receipt). In addition, the Council would at the same time
make a financial commitment to support RHL with working capital for 27 years
until it generated sufficient operating profit to repay the borrowing interest.
This would amount to a total of £10m, also to be impaired every year by around
the amount of interest that was accrued by not being paid in cash and set off
in the Council’s revenue account, making it a real cost to the Council.
Members were informed that the Council had to
take account of its current financial position. The Council’s agreed priority
was to preserve its revenue reserves, manage financial risks and preserve
services for residents by ensuring it maintained sufficient reserves to manage
financial shocks. Property speculation was not one of these priorities.
In summary, the Leader expressed regret that
more value could not be extracted from the disposal of the units at this time
but reasserted that the offer from the registered provider represented the best
value to the Council, a view that was corroborated by the Council’s Corporate
Manager – Legal Services and Interim Monitoring Officer and the Executive Head
of Finance and S151 Officer. The Members of the Cabinet expressed support for
the suggested approach to dispose of the 82 units to the registered provider.
The Cabinet RESOLVED that
(i)
having revisited the
options appraisal for the disposal of Blocks C and D in light of the withdrawal
by Prime Developments and considering the Council’s current financial position
and the current market position, the acceptance of the renewed offer by the
registered provider, as set out in Exempt Report No. REG2542, be approved;
(ii)
the Executive Head of
Property and Growth, in consultation with the Leader of the Council, the
Economy, Skills and Regeneration Portfolio Holder, the Executive Head of
Finance and the Corporate Manager – Legal Services, be authorised to enable the
disposal of the 82 residential apartments in line with the approach set out in
the Exempt Report and subject to agreement being received from the Secretary of
State; and
(iii)
the disposal would also
be subject to revised Heads of Terms, ensuring that no unreasonable
restrictions would be placed on the use of the commercial units involved.