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