SUMMARY/PURPOSE

1. This report brings to the Executive recommendations for the letting of Enterprise House, Newport, including sub-letting arrangements, use of the property for Council training and on-going marketing.

REASON FOR URGENCY

2. Although the subject of Enterprise House does not appear in the current Forward Plan Members will be aware that Enterprise House has been offered for lease for some time. Because of that marketing exercise it is difficult to know precisely when an offer would be received but this has now happened. The company putting forward their offer would like a decision as soon as possible and would prefer to be operating by 1 July 2003. By waiting for the next Forward Plan to be written then a report would not be programmed until 4 June. The proposals set out in this report have been considered by the Accommodation Task Group in its review of corporate office accommodation.

BACKGROUND

3. The offices of Enterprise House comprise of some 10,000 square feet of space and are leased to the Isle of Wight Partnership for 15 years from January 2001 at a rent of £135,000 per annum subject to rent reviews every five years. The Isle of Wight Council is guarantor for the rent and Members may recall that when the decision was made to provide this guarantee it was on the basis that the starting rent was a build cost rent and that encouragement should be given to developing the St Cross area to bring forward high standard and quality accommodation previously not available on the Isle of Wight. Now almost 2½ years on, the passing rent of £13.20 per square foot is being caught up with other market rents in the order of £12.50 per square foot. However, Enterprise House probably still remains the best office space on the Island and as such leads the field in terms of quality facilities and services available.

4. In January 2002, the Isle of Wight Partnership working in conjunction with the Council decided to consolidate the Partnership’s operations into the adjoining Innovation Centre leaving Enterprise House vacant. As with any such on-going lease arrangements, the options were to re-use the property, assign the lease or sub-let all or part of the property.

5. Since April 2002, the property has been offered for rent on the open market through mainland and local agents in the hope that it might be possible to attract inward investment to the Island or alternatively provide accommodation for a local company seeking to expand. Running parallel with this marketing exercise, the Council has explored its own options for use of all or part of these offices by an in-house Council service.

6. Unfortunately, whilst the marketing exercise has not brought forward a company seeking to relocate to the Island, several local firms have indicated an interest in the property and have been asked to put forward their best and final offers.

7. The best offer to be received is from Douglas Stafford International Ltd. The company is looking to take over all the first floor of the property and will pay a rent of £70,000 per annum, subject to a rent holiday for the first six months. The proposed lease would be for ten years commencing as soon as possible.

8. This company has been on the Island for over seven years having chosen to relocate to the Island from Northampton. The company provides exhaustive market research for major car manufacturers and suppliers in both the United Kingdom and North America. The company currently has 34 employees and is investing in a significant expansion of the company’s market research work, training and support to its clients which will include a further 5-8 new employees. The Directors of the company have wide experience in their field and have sufficient confidence and financial support to expand the company and are happy to maintain that expansion on the Island. The replacement of the company’s existing offices in Shanklin is a key part of this strategy and the first floor offices at Enterprise House fit well with the re-branding now underway.

9. There will be a need to be an underlease to be granted by the Isle of Wight Partnership who would maintain the existing 15 year lease and the Council would still stay as guarantor for that rent until January 2006.

10. The owner of the property will need to give consent for this sub-letting and it is understood that such consent would be forthcoming.

11. After sub-leasing the first floor, this provides an opportunity to consider the remainder of the ground floor, approximately half of which is already set out for conferencing and training with the latest technology installed. This provides an excellent chance to relocate the Council’s training from Bugle House, Newport, and that service is currently apportioned on costs for the space leased in the centre of Newport. This cost is £25,000 per annum based on 43% of the floor area.

12. This arrangement would also fit well with the accommodation review policy and has been agreed with members of the Accommodation Task Group. By vacating part of Bugle House, it will provide space for the setting up of the initial call centre by September this year.

13. In addition this will provide a significant opportunity to consolidate all training throughout the organisation. At the present time the Council as an organisation is spending in excess of £20,000 per annum hiring premises for training and similar activities due to the lack of capacity at the Bugle. In the future all training facilities should be organised through the Training Manager and in the first instance Enterprise House should be the preferred option with costs being apportioned accordingly to provide a discount upon the current expenditure. The rent to be apportioned to training at Enterprise House for the ground floor would be £34,000 per annum plus £12,000 per annum for outgoings with the initial lease period to run until January 2006.

14. The remainder of the ground floor will continue to be offered for lease on the open market and the Council’s agent believes that because of the size it should attract good local interest and the passing rent would be sought at £32,000 per annum.

CONSULTATION

15. In bringing forward this proposal, consultations have been on-going with the Isle of Wight Partnership, the Council’s agents and the members of the Accommodation Task Group.

16. No objections have been received to the proposals set out.

FINANCIAL/BUDGET IMPLICATIONS

17. By sub-letting these offices, the Council will be reducing its liability in terms of the rent obligation amounting to some £135,000 per annum. The Council will also in effect be granting a local company a one-off rent concession of some £35,000. It is understood that this has only been recommended following extensive advertising and on the basis that this is the best arrangement available to the Council.

18. In terms of training, the Council is presently incurring some £25,000 per annum providing a training facility at Bugle house, and at least another £20,000 per annum hiring other premises when Bugle House is unavailable or has insufficient capacity. Relocating the training service to Enterprise House and making it the preferred option for Council training should balance use of the existing resources.

19. A further one-off cost estimated at £10,500 will be required to upgrade Training’s ICT link. It is proposed that this be funded from the ring-fenced accommodation review budget.

20. Copies of the company’s accounts have been received and are considered satisfactory.

LEGAL IMPLICATIONS

21. The Isle of Wight Partnership solicitors will need to set up new sub-lease arrangements and confirm the landlord’s consent.

OPTIONS

(a) That the Council fund six months’ rent for the named new sub-tenant at Enterprise House at an amount of £35,000 and the Council take a sub-lease from the Isle of Wight Partnership for training purposes of the ground floor premises for the remaining period of the rent guarantee term. That the Isle of Wight Partnership be recommended to continue to market the remaining offices at Enterprise House.

(b) That the Council and the Isle of Wight Partnership continue to market the availability of all the offices at Enterprise House in the hope that one tenant can be found for all the accommodation.

EVALUATION/RISK MANAGEMENT

22. In guaranteeing the rent for the Isle of Wight Partnership, the Council has always been at risk in the catch-up period between the initial at build cost rent and the trend in market rents on the Island. Clearly this gap has almost closed but this will still continue to depend on local economic activity and confidence in the market place. The Council is also at risk in providing a rent support to a young evolving local company when that company is beginning to grow. The usual references have been obtained in respect of Douglas Stafford International Ltd as well as reports and financial statements of the company’s operations and there is nothing to suggest or indicate that the Council would not be acting reasonably in pursuing the grant of a sub-lease at this time.

23. This matter is a commercial decision and given the time taken to market the property throughout the region and locally and given that the offer now put forward has been tested is the best available in the market place today.

24. In terms of the Council’s corporate strategy, progressing Enterprise House in terms of the proposals set out meets with the agenda for employment and economic promotion on the Island as well as the best use of resources.

25. There are no apparent human rights or equalities issues in this case that need to be brought to Members’ attention.

26. Directors of the Partnership have considered the ongoing management of Enterprise House and because existing staff resources are committed, Directors have asked that Property Services take on the management of Enterprise House as part of their day-to-day management of property.

RECOMMENDATIONS

27. That Option (a) be adopted.

BACKGROUND PAPERS

28. Policy Committee – 3 April 2000.

Contact Point : Tony Flower, ( 823263, e-mail: [email protected]

M J A FISHER

Chief Executive Officer and Strategic Director of Corporate Services

R R BARRY

Portfolio Holder for Resources