Request for authority to dispose of additional surplus properties in 2011/12

Report: 14
Date: 23 June 2011
By: Director of Resources on behalf of the Commissioner

Summary

With the introduction of Corporate Real Estate principles, and further to the MPA Finance & Resources Committee approval in December 2010 to the disposal of certain assets, this report recommends the proposed disposal of a number of additional properties during 2011/12 at a value equal to, or in excess of, the current estimated Market Value.

A. Recommendations

That members

1. Note the 2011/12 Capital Programme Receipts budget of £40m to be generated through the disposal of surplus assets;
2. Note the properties approved in principle for disposal by the MPA Finance and Resources Committee in December 2010 and the current position in regard to these, attached in Appendix 1 (Exempt).
3. Approve the additional four disposals proposed in 2011/12 attached in Appendix 1 (Exempt).)
4. Note Members will receive separate reports for approval in regard to those individual property disposals which exceed £1m in value or the property disposal possesses unusual features or arouses public interest in accordance with the MPA Standing Orders.

B. Supporting information

1. The Capital Programme for 2011/12 to 2017/18, as approved by the MPA full authority on 24 February 2011 details a capital receipts budget of £40m, generated through the disposal of surplus assets, for the financial year 2011/12. The timing of sales and subsequent receipts is dependent upon operational requirements and the corporate real estate programme. In accordance with MPA Finance Regulations, this report has been prepared detailing those additional properties that will be available for disposal in 2011/12 and the estimated values of those assets.

2. All former operational properties that are surplus to operational requirements and those surplus residential properties with a value in excess of £1m, are marketed and sold in accordance with the established MPA disposal procedures as set out in the MPA’s standing orders. Sites are marketed for a minimum of four weeks, with advertisements placed in the national and local property press, and where possible, a board placed on site. Previously, the MPA have sought best bids, unconditional upon the receipt of planning permission. The MPA approve the terms of each disposal over £1million and former operational properties of a novel or contentious nature with a value less than £1m, on an individual basis. Arrangements for disposals of less than £1m are set out in B5.

3. Conditional bids (i.e. subject to the grant of town planning consents) are not usually invited as part of the disposal process, as there are a number of disadvantages to the MPA in accepting such offers:

1. There is no guarantee that the scheme as proposed will be granted planning permission.
2. If planning consent is not granted the purchaser will either seek to renegotiate the purchase price (to a lower figure) at a later stage, or may withdraw from the purchase altogether.
3. Any prolonged downturn in the commercial or residential market will affect a developer’s profit margin and may adversely influence a decision to proceed with the purchase.
4. There is a high degree of risk in accepting a conditional bid, where there is no certainty of realising the proposed purchase price.
5. Funds would not be received until receipt of planning permission and no certainty can be placed on the time scales to obtaining planning consent.

Previously, market conditions have generated offers that match or exceed “conditional” offers. However, the present uncertain market conditions, have seen such offers decline.

4. Any offers considered must reflect the MPA/MPS’s standard requirement for a 5 year forward-sale clawback clause; to enable the MPA to benefit in any uplift in value in the event that the purchaser subsequently sells the property at a price in excess of that paid to the MPA within the agreed duration. Where appropriate, planning “overage” is also put in place.

5. Those residential properties with a value below £1 million are under existing delegated authority, sold at auction, with a number sold by private treaty. Properties sold by auction will be marketed by the auctioneer appointed to dispose of the property/properties, and will be listed for sale at a particular auction. Reserve values are placed on each property. If an offer is made at auction in excess of this reserve the property is sold and the purchaser will have 28 days to complete the transaction. Reserve values are based on two independent (ie excluding the auctioneer) valuations undertaken on behalf of the MPA and the reserve set is the higher figure. The Property Services representative in the room is in contact with the Director of Asset Management and has delegated authority to agree to offers within 5% of the reserve value, if appropriate.

8. To ensure those properties sold at auction reflect best value, a number of residential properties are sold by private treaty; the results of which are benchmarked to monitor / compare the results from the auction route. Such properties include sales to existing occupiers or those properties which have failed to sell at previous auctions.

9. In December 2010, the MPA approved, in principle, those properties detailed in Appendix 1.

10. Through the rationalisation of the estate and maximising the use of core properties, a further five properties will be surplus to operational needs in year and are available for disposal in 2011/12. These are detailed in Exempt Appendix 1 and summary schedules.

11. The valuation figures shown in regard to the operational estate are based on a mixture of Discounted Replacement Cost and Open Market valuations based on RICS standards. The valuation figures for the residential estate are based on market valuations. All valuations must be treated as guide values only; all values are subject to prevailing market conditions.

12. In accordance with the existing MPA Finance Regulations any sales with a value up to £1 million are dealt with under delegated powers and reported retrospectively via the appropriate Estates Update Paper at the earliest opportunity. For the sites where the proposed receipt exceeds the delegation threshold a report will be presented to the MPA Finance and Resources Committee at the appropriate time for approval.

C Other organisational and community implications

Equality and Diversity Impact

1. There are considered to be limited equality or diversity issues arising as a result of these proposed disposals.

2. Private treaty disposals are open market sales making the properties available to all members of the public.

3. In the event of residential redevelopment of the operational sites, the provision of key worker or social housing accommodation at a site will need to meet the requirements of the Local Planning Authority, as and when granting planning consent for development.

4. The police stations/offices referred to in the disposal programme either have no front counters or already have an alternative provision in place. Hence there is considered to be no direct Citizen Focus impacts.

5. No operational front counter will be disposed of without suitable alternative provision nearby that is compliant and provides at least equivalent facilities as the site being replaced. Local community, stakeholder and MPA link member to be have been engaged and consulted, as appropriate.

Consideration of MET Forward

6. This paper aligns with the strategic intent of Met Forward section 7, Met Support - in particular the Estates Programme. The recommendation is an opportunity to realise capital receipts and revenue savings by the earlier closure and disposal of five buildings than previously planned.

Financial Implications

Capital

7. The Capital Programme for 2011/12 to 2017/18 as approved by the MPA on 24 February 2011 details a capital receipts budget of £40 million for 2011/12. Receipts are generated through the disposal of surplus assets, including real estate assets. Appendix 1 (Exempt) highlights the current disposal status of those properties previously approved for sale in 2011/12. It is unlikely that three of the sites can be sold in year, and there are risks with the timing of the sale of a further site in Westminster. Including these additional properties in the 2011/12 programme will assist in mitigating the risk of the delivery of the receipts budget.

Revenue

8. The reduction in annual revenue spend as a result of these additional disposals is estimated at £454k. A breakdown is detailed in exempt Appendix 1. The reduction in revenue spend is reflected in the 2011 - 2014 Business Plan.

9. All costs associated with the above activities are covered by existing budgets as agreed in the latest version of the Medium Term Finance Plan.

Legal Implications

10. The MPA’s powers to dispose of land are contained within s123 of the Local Government Act 1972. This provision states that land can be disposed of in any manner by the Authority, so long as the disposal is not for less than best consideration that can reasonably be obtained. However, the duty to obtain best consideration is not required where the disposal is for a lease less than 7 years, or alternatively the Secretary of States’ consent is obtained.

11. The MPA’s standing order under Part E, Financial Regulations, set out the internal governance arrangements for the disposal of surplus property. This makes clear that all properties with a value that exceeds £1 million or which raises questions of principle or financial policy, possesses unusual features or involves particular difficulty, or may arouse particular public interest/publicity, will need to be approved by the MPA. Whereas, un-contentious property disposals under the above threshold can be dealt with under the scheme of delegation by the Director of Resources. The MPA will also need to ensure all disposals are consistent with any agreed strategies in relation to property disposals.

12. The MPA Financial Regulations under clause 10 also requires the Director of Resources to submit to the MPA prior to the beginning of each financial year, a schedule of proposed disposals for the forthcoming year with an estimate of £1 million or more. Whilst the surplus properties that are the subject of this report were not included in the original schedule, this report satisfies the requirement of notification to the Authority.

13. The terms of reference for this Committee enable Members to approve the recommendation set out in this report, as the Committee has overall responsibility for the oversight and management of the capital and revenue budgets and other resources such as estates.

Environmental Implications

14. There are not considered to be any significant environmental implications to these disposals.

15. Sales entailing potential refurbishment, conversion or redevelopment will create adverse environmental impacts during the construction phases. On completion of construction, however, the ongoing use of the buildings would probably significantly improve the long term environmental / sustainability performance situation.

Risk Implications (including Health and Safety)

16. With continued general financial uncertainty and difficulties in obtaining funding there is a risk that sales fail to complete or that transactions take far longer to progress. With additional properties available to dispose of in the year there is greater certainty of meeting the capital receipts target.

D. Background papers

• Finance and Resources Committee -Request for Authority to Dispose of Surplus Properties - 16 December 2010

E. Contact details

Report authors: Jane Bond, Director of Property Services, MPS
Contact: Roger Harding, Divisional Director Construction, Property Services, MPS

For more information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

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