In
summary the offending clauses are:
1.
Change of use for Trust land requires
consent from the Royal Borough as
landlord when in addition they have some
control through the planning procedure.
The Trust requires the addition of
"not to be unreasonably
withheld" to the clause requiring
consent as landlord. This would allow the
Trust redress outside the Royal Borough
should consent ever be refused by our
landlord, much the same as one can appeal
against a planning decision.
2.
For every letting to a tenant on Trust
land we have to get the formal consent of
the Royal Borough. This requirement was
actually waived by a side letter about 10
years ago but the same letter reserved
the right of the Royal Borough to
re-impose it at any time. The clause
should be deleted from the lease.
3.
The Trust is not allowed to borrow any
money without the express consent of the
Royal Borough. The Trust is now well able
to make its own borrowing decisions and
the clause should be deleted.
4.
The Trust has no right to surrender any
of its holdings back to the landlord. In
strict terms this means that should the
Trust ever get into really serious
trouble there is simply no escape for
Trustees and formally any liability would
continue on a personal basis until the
end of the lease in about 100 years time.
A new clause giving the Trust the right
to surrender in whole or part should be
inserted into the lease.
5.
The Trust has no right to assign any of
its land to a third party. Over the next
100 years the Trust might wish to split
itself up, for example, into a charity
pure and simple and a trading company or
it might wish to hand over all or part of
the asset to a sister trust or a housing
association etc etc rather than giving
anything back to the Royal Borough.
Without the right to assign the Trust
always has to stay in the frame until the
end of the lease. A new clause giving the
Trust the right to assign in whole or in
part should be inserted into the lease.
Clearly
the above alterations to the Trust lease
require the agreement of the Royal Borough
and obviously would have some sort of
monetary value. In premium terms an amount
would have to be added to the bedrock figure
of £160,000 previously quoted. If a premium
figure was agreed with the Royal Borough to
buy out rent reviews and buy in lease
alterations, then a further monetary
consideration would have to be added to cover
what is known in the trade as the
"uncertainty factor". The
uncertainty factor is in fact a judgement
made about certainty. It is certain that
professional fees would have to be spent on
every rent review. To give an example, it is
likely that fees of between £50,000 and
£70,000 would be incurred if the 1993 rent
review went to full arbitration. It would be
likely to last 5 days and involved senior
counsel to lead for the Trust. By not having
to spend that kind of money through the
certainty created by a premium buy out of
rent rewiews, it is normal practice for a
tenant to increase the premium offer to a
landlord to reflect long term saving for the
tenant.
After
the Royal Borough had struck its deal with
the Department the Director contacted its
Chief Executive to enquire where the
£500,000 had come from - "petty
cash" was the answer! Somewhat naively,
the Director took this as a good omen because
if the view in the Town Hall was so casual
then the negotiations would not be hard on
the Trust. In reality the opposite was true
because it was subsequently made clear to the
Director that as much of the £500,000 as
possible was to be extracted from the Trust
if it wanted to benefit from a buy out of its
own rent reviews and all of the £500,000 was
mentioned a starting figure!
One
possible way of looking at the matter was to
consider the ratio between the existing rents
of RBCK £22,000 and NKAT £16,200. Under the
deal struck with the Department this creates
RBKC £500,000 and NKAT £370,000. Whilst
plausible at first glance it suffers from the
defect that the original ratio of rent was in
fact a carve up between bureaucratic
surveyors in the Town Hall and their opposite
numbers in the GLC (the original freeholder
before the Department of Transport). That
deal was simply not negotiated by the Trust
and never considered by a commercially
experienced surveyor acting for the Trust.
The
Director was getting nowhere with senior
officers in the Town Hall and the gap
(£160,000 plus some NKAT versus £370 -
500,000 RBKC) was too large to bridge.
Throughout all of this the advice from Gooch
and Wagstaff was utterly rejected and
wilfully so by Council officers. It was
therefore decided that the Chair of the Trust
[Judge
Gerald Gordon] should meet with
the Leader of the Council with nobody else
present to try and arrive at an acceptable
deal. A proposal, and it is simply that, has
emerged to settle the matter by the Trust
paying a premium of £280,000.
Subsequent
discussions have been held with Gooch and
Wagstaff who have verbally confirmed that if
Bay 37 is handed over to the Trust at a
peppercorn; the 1993 and all subsequent
reviews are voided and if the required
additions and deletions are made to the
existing lease then £280,000 would be a fair
and reasonable price to pay having regard to
all the circumstances.
Ultimately
it is for the Trustees to decide this
somewhat ticklish matter which has been a
potential time bomb ticking away for the last
25 years and which has seriously and
substantially pre-occupied the Trust over the
last four years. In arriving at a decision
Trustees should be aware that they have the
benefit of some of the best professional
advice available in the shape of Gooch and
Wagstaff.
Having
lived with the matter for some considerable
time the Director is satisfied that this is a
good deal for the Trust and greatly adds to
its long term security. Accordingly he recommends
that he be authorised to:
a)
obtain a formal letter of advice from
Gooch and Wagstaff confirming their
professional opinion.
b)
inform the Royal Borough that a premium
will be paid upon exchange of documents
voiding all rent and rent reviews, the
required deletions/additions to the lease
and the transfer of bay 37 at a
peppercorn.
c)
seek ways of finding £280,000 preferably
by way of fundraising but also arranging
a loan as a back-stop position if
necessary.
For
decision
RM
8/5/97