PAPER B
COMMITTEE: RESOURCES SELECT COMMITTEE
DATE: 24 APRIL 2002
TITLE: INVER HOUSE, BEMBRIDGE (UPDATE)
REPORT BY THE HEAD OF PROPERTY SERVICES
UPDATE
Since the meeting of the Resources Select Committee in March 2002 with regard to the grant of a long lease for Inver House, a response has now been received from Somerset Care and this is set out below. In addition, independent advice has been received from the Council's Consultants regarding subletting provisions for long lease arrangements.
The letter from Somerset Care requests that Members consider a statement by Somerset Care which is as follows:
1. Inver House is a 32 bed care home for older people which makes it the smallest of the Islecare residential homes and is considerably smaller than the average size of our residential homes in Somerset.
2. In order to secure the long term future viability of the home we need to increase its size to nearer 40 beds.
3. We also wish to improve facilities within the home by installing en-suites wherever possible and upgrading furnishings and decorations.
4. Planning permission has been granted for a first floor extension and we estimate that the cost of undertaking this work, together with the refurbishment works, which will be in the region of £300,000.
5. Negotiations have been undertake with your Authority and a price of £402,000 has been negotiated for the granting of a 125 year lease of the property to the Company.
6. In order to protect the Council's interest it has been agreed that the site can only be used to provide accommodation, living units or facilities for older people who require help and support with their physical or mental needs.
7. From the Company perspective, this project will be a major capital investment and it needs to ensure that the arrangements that it enters into with the Council are flexible enough to allow for the changing needs of older people and other people in need.
8. The Company is totally committed to running Inver House as a residential care home for older people and the substantial investment that we are proposing is designed to enable the home to continue to provide the highest possible standards of care for the people of Bembridge.
9. Over the period of the lease however the requirements of older people could change and the terms need to reflect this. One possibility is that there will be increased demand for extra care housing and a reduction in the need for residential care. If so, the Company might wish to consider conversion of all or part of the building/site for this purpose. Such a change would mean that people living on the site would become tenants, hence our request that the main lease should contain a clause that will enable us to grant sub leases. Any change of use would of course in addition be subject to normal planning consents.
I cannot stress too strongly that we have no plans whatsoever to change the current use of Inver House. Nevertheless, I am sure you will agree that 125 years is a long time and we need to create enough flexibility in the arrangements to ensure that the needs of older people and other people in need can be met in the future. It is my understanding that the ability to create this flexibility through under lettings is standard practice for long-term lease arrangements as proposed".
Advice from Lambournes Chartered Surveyors states:
"It should be stressed that commercial leases as a rule contain clauses permitting the assignment of the whole or part of the premises subject only to the Landlord's approval, and that approval is not to be unreasonably withheld. Leases also contain provisions for the grant of sub-leases usually on the understanding that the leases are taken out broadly in line with the terms and conditions of the head lease. In the circumstances, if your Authority were to impose a restriction on assignment or sub-letting, it is my opinion that the value of your interest would be diminished and I would expect the purchasers to revise their offer accordingly".
Advice from Howard Associates Chartered Surveyors states:
"I would like to make the observation that the value of the Council's interest to be leased for a premium is an open market restricted value based on the ability only to use the demise to provide accommodation, living units or facilities for older people and other people who require help and support with their physical and mental needs. In this respect as the price negotiated by the Council was considered to be of market value, bearing in mind the restricted use, it would be appropriate to enable the proposed leaseholder to assign all or part of the premises, a usual right any estate owner would require, and therefore it does not attract any specific additional value. Clearly, if the Council were to modify the user clause this may have a significant impact on value, but the right to sub-let all or part is merely a usual right expected in the market place. Indeed, should the Council be minded to prohibit assignment, it is my opinion that an open market restricted value in accordance with the specific use would have to be reduced as any potential leaseholder would be denied flexibility in their estate which may be required in the future, subject to changes or fluctuations in the demand and need of elderly care premises".
QUESTIONS FORM THE PREVIOUS MEETING OF RESOURCES SELECT COMMITTEE
1. Property Services estimate the value of the property at £402,000. What two values were used to give us this open market valuation?
The Council's Executive asked that your officers negotiate with the leaseholder. Two valuations were obtained from Lambournes Chartered Surveyors and Howard Associates Chartered Surveyors. The leaseholder also obtained advice from another firm of Chartered Surveyors.
2. If Islecare builds 5 new bedrooms and then rents them at £300 per week the cost of £250,000 would be covered in 3.2 years and thereafter they would make £78,000 per year. On that basis banks would lend the money without a long lease. Why don't we lend the money and up the rent?
This observation is not a sound business statement as not least gross income does not equal net profit. As to the question of a loan, the Council would need to decide the nature of its business, that is, whether it's goal is primarily to trade in property or secure care provision for elderly people. Any loan by the Council in such circumstances would cost against any capital borrowing powers.
3. Why are we selling property from the Operational Asset Register? Policy states we should only sell from the Non-Operational Asset Register.
The property is being operated by a third party under a 30 year lease which means that disposal has already taken place.
4. Why was the fact not disclosed to the Executive, Social Services and Resources that a sub lease had already been agreed?
No underlease has been granted by the current leaseholder.
5. Why is the Council told that the rent for Inver House can only be £11,520 per year when its true market value rent is between £20,000 and £60,000 per year and why have we not had a second opinion on this rent?
The guidance and advice given to the Council, over a year in advance of the rent review, has been accepted by the Council on the basis set out in the earlier report. If other professional advice has been obtained then officers would welcome a copy. The range of £40,000 does appear extremely wide.
6. Who is giving us financial advice to act in the best interest of the people of the Island?
Professionally qualified officers and consultants.
7. We have 24 years to go on a legally binding lease. It is believed this will bring in a minimum rent of £480,000 and, dependant on the true value of the property and true rent, it could be as much as £1,152,000 without taking into account 5 year updates. Why should we sell?
The Council needs to decide the nature of its business. Like many Council operations, the Council does not need to own the property for the service provision to continue, eg Council houses. Equally, the Council needs to decide whether receipts shall be aimed at revenue or capital.
Contact Point : Tony Flower, Head of Property Services ☎ 823263
M J A FISHER
Strategic Director
Corporate and Environment Services