Request for approval to dispose of Rennet’s Wood House, Bexley Road, Greenwich, London, SE9 2NE

Report: 12
Date: 20 October 2011
By: Director of Resources on behalf of the Commissioner

Summary

This report requests Members approval to dispose of the long leasehold interest in Flats 1-12 Rennet’s Wood House, Bexley Road, Greenwich, London, SE9 2NE following an open market tender.

A. Recommendations

That members

1. Approve the disposal of the long leasehold interest in Flats 1-12 Rennet’s Wood House, Greenwich at the value and to the bidder identified in Exempt Appendix 2 following an open market tender;
2. Note the disposal is consistent with the approval in principle decision made by the Committee on 16 December 2010, and
3. Note that the capital receipts from the disposal will support the 2011/12 Capital Programme
4. Note that approval is sort for disposal to an alternative bidder to that previously approved by the Committee on 15 July 2010

B. Supporting information

1. The Corporate Real Estate (CRE) Major Change Programme aims to i) ensure the MPS estate is fit for purpose and to enable high quality policing in London, ii) optimise the efficiency of the MPS estate, making best use of accommodation and disposing of assets where appropriate and iii) achieve cashable savings to ensure officer/staff roles are protected.

2. Rennet’s Wood House is a block of 12 flats constructed in the 1960s located in Eltham in the London Borough of Greenwich close to its border with Bexley. The flats are arranged over three floors on a site of 0.52 acres. The MPA hold a long lease on the 12 flats which expires in January 2054. The freehold interest is owned by The Crown Estate. Ten of the flats are vacant. The other two flats, Flat 6 and Flat 11, are occupied under long residential subleases granted by The MPA. Three of the unoccupied flats have been damaged by water ingress and the MPA’s insurer has agreed to meet the cost of repair. The property has never been used for operational police purposes. The property is considered surplus to requirements and can be released.

3. External consultants Drivers Jonas Deloitte provided formal valuation advice that the MPA would achieve the greatest potential disposal receipt if its leasehold interest was disposed of in a joint sale with the Crown Estate’s freehold interest rather than an individual sale of its leasehold interest or sale of the 10 remaining flats on individual leases. Drivers Jonas further advised that due to the difficulty associated with acquiring mortgages on leases below 90 years, and in this case 43 years, a joint disposal of the combined interests offers least risk in the market. The valuation provided an appropriate split of 83% of proceeds from the joint sale to the MPA and 17% of the proceeds to the Crown Estate.

4. The property was originally marketed in a campaign between March and May 2010 by agents Knight Frank and a purchaser was approved by the Committee in July 2010. Subsequent to the approval The Crown Estate as freeholder withdrew its consent to the disposal of the freehold interest. The approved purchaser declined to purchase the long leasehold interest only and pulled out of the transaction.

5. Revised terms for the joint disposal of the freehold and long leasehold interest were agreed in principle with The Crown Estate in July 2011 subject to formal documentation. To reflect the diminishing term of the MPA’s long leasehold interest, the value of the MPA’s interest has been assessed at 81.5% of the joint value and the Crown Estate’s interest has been assessed at 18.5% of the joint value, subject to a minimum payment to the Crown Estate which is detailed in Appendix 2 (Exempt). In addition, it was agreed that the property would be offered on the condition that the sale will include a forward sale clawback provision. to ensure that the MPA and Crown Estate benefits from any additional value that may arise from planning consent/redevelopment.

6. The Crown Estate confirmed that as a condition of the joint sale, the property had to be offered with the requirement that in the event that the property is redeveloped within 80 years of the sale and that 50% of the enhanced value would be paid to The Crown Estate and the MPA. The split between The Crown Estate and MPA has been valued at 75% Crown Estate and 25% MPA. This is based on independent valuation advice. In essence, as the sale of the MPA’s leasehold interest, the MPA would have no rights over the land. However, the Crown Estate can only sell their interest and release value now by disposing with the MPA. None of the costs of any future sale would be met by the MPA/MPS.

7. The joint interest was re-marketed in a campaign between July and September 2011. Knight Frank as agents acting on behalf of the MPA and The Crown Estate placed advertisements in the national property press, hosted details of the property on their website, distributed particulars of the property to interested parties and placed a marketing board at the property. Bids for the property were invited to be received by the agents no later than midday on 9 September 2011.

8. All bids were invited on an unconditional basis and were subject to the five year forward-sale clawback clause and the required redevelopment clause. Bidders were also advised to consider including provision for additional sales overage.

9. Seven bids were received by the deadline. The results of the seven bids are shown in Appendix 1 (Exempt). The bids were then evaluated to determine which bids offered the highest value (taking into account any additional sales overage) from a credible purchaser (taking into account the availability of funding). All bidders were invited to provide further information and submit their best and final offers by midday on 15 September 2011. The results of the second stage bids are attached in Appendix 2 (Exempt).

10. With external advice from Knight Frank, Property Services recommend Members approve the sale of the property to the party identified in Appendix 2 (Exempt). Under the terms of the joint sale The Crown Estate will have to give its formal approval to proceed with the recommended purchaser. Should approval be granted Property Services will proceed with the completion of this matter and report the transaction in the next quarterly Estate Update Paper.

C. Other organisational and community implications

Equality and Diversity Impact

1. In line with corporate real estate principles; maximising the use of space and minimising costs, it is essential that those buildings provided for longer-term use (enabling the release of surplus assets) are fit for use, compliant and provide suitable accessibility. Following an Equality Impact Assessment (EIA) completed at a strategic level and screenings undertaken on each property selected for disposal, looking at Equality and Diversity issues from both a community and MPS staff perspective for this site, there are considered to be limited equality or diversity issues arising as a result of this proposed disposal. Any issues that do arise will be dealt with at a local level with the learning reflected within the EIA.

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.

Consideration of MET Forward

4. This paper aligns with the strategic intent of Met Forward section 7, Met Support - in particular the Estates Programme. The recommendation is to dispose of surplus properties to meet the Capital Programme budget and also deliver revenue savings.

Financial Implications

5. The 2011/2012 Capital Receipts budget is set at £40m. This budget is to be achieved through the disposal of operational and residential properties that are surplus to requirements.

If approved, the receipts generated from the disposal of the freehold will be allocated to 2011/2012 capital programme.

6. The revenue costs related to the maintenance of this property based on 2001/11 costs are detailed below. Maintenance/repair works have been kept to a minimum.

 Costs to hold the property in the longer term have not been included within Property Services future budgets as approved within the 2010/13 Business Plan; a longer term hold will require funding to be provided through future business planning processes.

Legal Implications

7. The MPA powers to dispose of the freehold by way of sale are contained in s123 of the Local Government Act 1972.

8. Property Services consider the disposal of the freehold to the bidder identified in Exempt Appendix 2 achieves best consideration that can reasonably be obtained in all of the circumstances, having followed an open and transparent marketing and tendering exercise, and having sought professional advice from independent Property Agents. On the basis of the information contained within this report and discussions with Property Services, DLS are supportive of the proposed recommendations.

9. The MPA, in exercising its discretion to dispose of the property, must have regard to its obligation to do so fairly having regard to established policy and procedure. On the basis of this report, the recommended disposal by way of sale of the freehold is considered by DLS to be compliant with the MPA’s Standing Orders relating to Property disposals, set out in section 10 of Part F.

10. The recommendation is subject to contract, and external lawyers have been instructed through MetLaw (DLS) to complete the conveyance and to ensure the MPA’s interests are protected.

11. The appendices are considered to contain exempt information in accordance with paragraph 3 of the Local Government (Access to Information) (Variation) Order 2006, as it relates to information relating to the financial or business affairs of any particular person (including the authority holding that information).

12. Members have delegated authority to approve the recommendations contained within this report under the terms of reference of this committee.

Environmental Implications

Risk Implications

13. With continued general financial uncertainty and on-going difficulties in obtaining funding for both commercial re-developments and residential mortgages there is a risk that the sale will fail to complete and / or the purchaser will look to renegotiate the purchase price.

D. Background papers

• Request for Authority to Dispose of Surplus Properties in 2011/2012 - MPA Finance and Resources - 16 December 2010
• Residential Estates Strategy - MPA Finance - 16 February 2006 (Exempt)

E. Contact details

Report authors: Jane Bond, Director Property Services, MPS

For more information contact:

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

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