THE COPELAND CENTRE AND MORESBY PARKS DEPOT LEASE OF PART EXECUTIVE MEMBER: LEAD OFFICER: REPORT AUTHOR: Councillor Lena Hogg (Land and Property). Fiona Rooney, Director of Commercial and Corporate Resources. Martyn Morton, Property Programmes Manager. WHAT BENEFITS WILL THESE PROPOSALS BRING TO COPELAND RESIDENTS? These proposals form part of the Council s accommodation initiative under its Working Differently agenda and contribute to the financial savings targets set by the Council. They will achieve a significant reduction in the Council s accommodation footprint at the Copeland Centre and provide cover for a significant element of the Council s current accommodation costs, as well as realising income from property assets that are presently unused. WHY HAS THIS REPORT COME TO THE EXECUTIVE? In accordance with the Council s Contract Procedure Rules the Executive must approve leases where the rental exceeds 100,000 per annum. RECOMMENDATIONS: (1) that the Executive approve the proposal to enter into the leases and agreements reflected by the Heads of Terms attached to the report in Part II of the agenda to this meeting and to the incidental matters arising therefrom including any variations necessary to the public finance initiative agreements to reflect the arrangements; and (2) the Executive approve the appointment of Pinsents, solicitors, under the terms of the North Western Legal Consortium framework for the purposes of conducting the legal work associated with the conclusion of the matters referred to in (1) above, including, if required, the finalisation of a deed of variation to the terms of the PFI agreement relating to the Copeland Centre. 1. INTRODUCTION 1.1 As part of the Council s wider accommodation strategy negotiations have been ongoing with Sellafield Limited for them to take up occupation of further parts of the Copeland Centre, part of the Moresby Depot and,
incidental to the proposed increased occupation of the Copeland Centre by SL, additional car parking provision in the town centre. Sellafield Limited already occupy parts of the Copeland Centre. This occupation is either by way of licence from the Council (former Environmental Health offices and café room on the first floor) or by an assignment of a sub underlease from the Department of Works and Pensions (first floor above job centre). 1.2 This report relates to a proposed underlease of the ground floor reception area, all of the first floor except for the former printing room which Keir Facilities Management will occupy and the area assigned by the Department of Works and Pensions, all of the second floor and that part of the third floor which comprises of office accommodation. Additionally it provides for Sellafield Limited to occupy a limited number of spaces on the Copeland Centre and Moresby Parks depot car parks and for an agreement to provide up to 80 car parking spaces within the town of Whitehaven for the use of Sellafield Limited. 1.3 These negotiations have resulted in the conclusion of Heads of Terms which reflect the matters agreed between the parties. These are attached as appendices A, B and C to the report in part II of this agenda. The parties are now in a position where the provisionally agreed terms can be progressed to leases and ancillary agreements arising therefrom. 1.4 This report summarises the current position to the Executive and seeks approval to conclude these heads of terms and to engage external solicitors for that purpose. 2. NEGOTIATIONS 2.1 Agreement has been reached with Sellafield Limited. The main heads of terms are: The Copeland Centre (a) Sellafield Limited to occupy the areas referred to in paragraph 1.2 above; (b) (c) (d) The Council will remain in occupation of part of the ground floor area only and have access to the third floor archive areas; The lease terms will be linked to the private finance agreement for the 13 years remaining; There will be break clauses at 5 and 10 years;
(e) (f) (g) (h) The rent will reflect 28 per square foot; The overall effect of the arrangement in financial terms will be to reduce the Council s public finance initiative ( PFI ) costs by approximately 650k per annum. Previously only 160k was received from Home Group Limited for their area; The above figures exclude VAT and energy costs which will be charged separately; The Council will undertake the following works: Moresby Depot Physical changes required to the building to meet Sellafield Limited s requirements including alterations to provide more open plan offices space and provision of new furniture, ICT and telephone services; Sellafield Limited has agreed to pay the cost of changes required for their occupation; The Council will act as enabler, through the PFI contract, for cyclical maintenance, redecoration, replacement carpeting, lighting, etc. A contribution from the PFI provider towards the cost of new furniture is anticipated. The suitability of heating, ventilation and air conditioning systems has also been considered. They will need to be adapted to suit the new layouts, and a design consultant is required to confirm requirements. In association with this a value for money review of the facilities management services area of the building will be undertaken in mitigation. (a) (b) (c) Sellafield Limited will occupy the former Copeland Homes accommodation to the right of the entrance doors. It shall include both ground and first floors and the stores behind along with an external compound. The Council s occupation of the depot will not be affected; Subject to (c) below the rent will be a proportionate market rent per annum, subject to rent reviews and a term of 25 years; During the 13 years that SL has at the Copeland Centre, and for so long as it remains in substantial occupation of the Copeland Centre
an incentive shall be offered representing up to 50% discount to Sellafield Limited from the market rent. After that date the rent shall be at full market value. (d) (e) (f) This rent is exclusive of all running costs and they shall be charged to Sellafield Limited at cost, as an additional service charge. Sellafield Limited will undertake a programme of extensive refurbishments throughout the accommodation at its own cost to bring the facility into use. A small part of the first year s rent may be subject to an overage provision under the terms of a previous agreement from when the Council acquired the building. The overage period expires on the 4 th January 2017. Car park provision (a) (b) (c) (d) (e) (f) As part of the lease arrangement for the Copeland Centre, Sellafield Limited require 130 car parking spaces and there is an insufficient number on site; Therefore, 50 car parking spaces will be provided on site and a further 80 at a location yet to be identified. There shall be no rent payable for the car park as its value is considered to be integral to the lease at the Copeland Centre. This lease shall be co-terminus with The Copeland Centre lease. Sellafield Limited shall only have access on Mondays to Fridays leaving the car park free and available for alternative use over weekends and at Bank Holidays, adding vibrancy to the town and as an additional resource for special events. A pro rata amount of any running costs will be charged to Sellafield Limited. 3. STEPS UNDERTAKEN SO FAR 3.1 The negotiation of heads of terms for all three properties is completed (subject to a location being identified for the car park). 3.2 Because of the PFI contract and standard of accommodation required by Sellafield Limited, the rent level required to recover costs is relatively high,
and exceeds that which would be achieved in the offices market around Whitehaven. Even with the discount offered in respect of Moresby Parks overall rents for both building still exceed market rent. 3.3 It is considered that there is no other organisation of Sellafield s size in the area capable of taking a lease for the available accommodation. The opportunity was not advertised and the transaction will be demonstrated as best value to meet audit requirements by independent valuation and advice has already been taken. 3.4 In anticipation of the requirement, the Council has already embarked on downsizing, by relocating many staff to the Market Hall and the remainder in the Copeland Centre. 3.5 Whilst Council payments to the PFI Provider continue, there is loss of rent income from the former Home Housing accommodation and ongoing costs in the areas vacated by Council staff. The need to reinstate an income flow is fairly urgent to stem high running costs presently. 3.6 The availability of surplus accommodation at Moresby Depot was timely. It has been marketed on several occasions over the last few years without any success of finding a buyer. 3.7 The availability of car parking is limited at the Copeland Centre and it became apparent in negotiations that additional parking provision would need to become available to secure the lease with Sellafield Limited. 3.8 The apparent erosion of some savings at the Copeland Centre by development of a car park has allowed the lease to reach a position where it can proceed. 3.9 A pragmatic approach to negotiations of all three properties between the Council and Sellafield Limited has enabled a realistic offer to be secured. 4 Legal Representation 4.1 The work involved in concluding the leases and making any changes which are necessary to the PFI agreement may be significant. The Legal Services Manager does not have the resources to undertake this work. Variations to the PFI agreement are also likely to be complex, requiring specialised input, and it may be beneficial to use the same national firm of solicitors who originally negotiated that agreement (Pinsents). 4.2 The Council is a member of the North West Legal Consortium, a framework arrangement that provides access for public sector
organisations to specialist external legal advice at competitively tendered rates. 4.3 Pinsents are listed on the framework agreement and have agreed to act for the Council in this matter. 5. CONCLUSIONS 5.1 Officers have undertaken prolonged negotiations to secure a realistic and fair outcome with Sellafield Limited and believe that the proposal represents best value to both parties; this will be supported by independent valuation for which advice has already been taken to ensure this is confirmed. 5.2 It is recommended that the Executive: (i) (ii) Approve the proposal to enter into the leases and agreements reflected by the Heads of Terms attached to this report and to the incidental matters arising therefrom including any variations necessary to the PFI terms to reflect the arrangements; and approve the appointment of Pinsents under the terms of the NWLC framework for the purposes of conducting the legal work associated with the conclusion of the matters referred to in (i) above, including if required the finalisation of a deed of variation to the terms of the PFI agreement relating to the Copeland Centre. 6. STATUTORY OFFICER COMMENTS 6.1 The Monitoring Officer s comments are: The Council has a duty to obtain best consideration in granting leases of this length. Paragraphs 3.2 and 5.1 of the report confirms that this is being achieved. Legal issues arising with the leases and deed of variation to the PFI agreement will be dealt with by external solicitors. Attention is particularly drawn to item (b) under car parking. Once the Council has entered into the leases it will be under an obligation to find car parking, off site, for an additional 80 cars for the period of the lease. 6.2 The Section 151 Officer s comments are: The 2016/17 budget assumes an income target of 500,000 from the Accommodation Strategy element of the Working Differently Programme which was initially established as part of the 2014/15 Medium Term Financial Strategy. The net impact of the financial proposals included in this report and the Heads of Terms will
achieve this target in full on an annual basis. 6.3 EIA Comments: Sellafield Limited are satisfied with the accommodation being provided from an EIA perspective and will address any issues arising separately. 6.4 Other consultee comments, if any: None. 7. RESOURCE REQUIREMENTS 7.1 As outlined above, the subject matter of this report. is part of a wider strategy for which resources have already been confirmed. 8. HOW WILL THE PROPOSALS AND RISKS BE MANAGED? As outlined above, the subject matter of this report is part of a wider programme which has its own governance arrangements. 9. WHAT MEASURABLE OUTCOMES OR OUTPUTS WILL ARISE FROM THIS REPORT? 9.1 Income and expenditure as outlined in the report. 9.2 Securing a long term tenant for a competitive rent.. 9.3 Achieving best value. List of Appendices As contained in the Part II report: Appendix A - Heads of Terms for The Copeland Centre Appendix B - Heads of Terms for Moresby Depot Appendix C Cost calculations