BOROUGH OF POOLE

Decision of the Portfolio Holder for Finance, Operations, Customer Services and Benefits

18 November 2015

Appropriation of Assets between the Housing Revenue Account (HRA) and the General Fund (GF)

PART OF THE PUBLISHED FORWARD PLAN: NO

1.  Purpose

1.1 To confirm the purpose to which various non residential assets are held by the council and to seek approval for their appropriation where necessary.

2.  Decisions required

2.1  The Portfolio Holder:-

2.1.1  Confirms that the purpose for which the assets listed below is as non residential assets and therefore they should not be held in the Housing Revenue Account (HRA).

a)  5-9 Benbow Crescent

b)  Doctors Surgery 325 King John Avenue

2.1.2  Confirms that the purpose for which the Council is holding the assets listed in 2.1.1 above is for income generation or capital appreciation and therefore they should be held as investment assets within the Council’s General Fund (GF).

2.1.3  Approves the appropriation of the assets listed in 2.1.1 from the council’s Housing Revenue Account to the Council’s General Fund.

3.  Background

3.1  The council owns thousands of properties, including over 4,500 council houses, commercial and industrial properties and administrative buildings.

3.2  International Financing Reporting Standards require that these properties are analysed according to the purposes for which the Council holds them. This analysis is reflected in the statement of accounts through differing bases of valuation appropriate to each class of asset. The main categories into which property assets are classified are Property, Plant & Equipment and Investment Properties.

3.3  As part of the council’s continuous review of its assets, several properties have been identified where the council’s reason for holding them has changed since their original acquisition, which requires that the properties need to be moved from one class to another.

3.4  Where the purpose for holding a property is not related to the provision of housing under part II of the Housing Act 1985, the property cannot be held within the Housing Revenue Account (HRA). If a property is currently held within the HRA, usually as a result of being originally acquired under housing powers, it must be transferred (“appropriated”) to the General Fund.

4  Legal Implications

4.1 Appropriation of dwellings from the HRA to the General Fund requires the consent of the Secretary of State under s19 (2) of the Housing Act 1985, whereas appropriation of other property can be effected under s122 of the Local Government Act without requiring consent.

4.2 Since the properties for which appropriation is recommended are currently held as dwellings within the Council’s housing stock, and where rented are let to on a commercial basis rather than as residential leases, it is considered that these are not appropriations of dwellings for which the consent of the Secretary of State would be required.

4.3  Once appropriated these assets would be categorised as Investment Properties. The definition dictates that they are a separate class of property (land or a building, or part of a building, or both) that is;

·  held solely for earning rent or for capital appreciation, or both.

·  are non – operational in nature.

4.4  Appropriation does not require legal transfer and therefore the asset’s legal title does not change. However , as one of the assets transferred is a shop which forms part of a larger block and after a period of time it was decided to dispose of the shop then the appropriate transfer to a third party would be a leasehold.

5 Financial Implications

5.1 The financial consequences of appropriation from the HRA are that the costs and any income relating to the property will subsequently fall on the General Fund, and that the value of the property is deducted from the total value of HRA assets (the “capital financing requirement” or “CFR”) and added to the total value of GF assets. Consequentially there is an impact on the capital charges (depreciation) borne by both these accounts with those for the HRA reduced and the General Fund increased.

5.2 Exhibit 1: Accounting adjustment between the 2 accounts of the authority;

Detail / HRA / General Fund
Opening Capital Financing Requirement 1.4.15 / £96,927,000 / £45,134,000
Market Value of HRA shops etc. / (£190,000) / £190,000
Adjusted Capital Financing Requirement 1.4.15 / £96,737,000 / £45,324,000
Capital Charges Adjustments / 0 / 7,600
Rental Income / £15,500 / (£15,500)

5.3 An added value of the proposal is that due to the accounting adjustments there will now be more headroom within the HRA in relation to the overall debt cap which operates within this account.

6. Risk Management Implications

6.1 The purpose of the appropriation is to improve the accuracy of the statement of accounts.

6.2 Without the appropriation being in place the Council accounts would be open to audit challenge.

6.3 One of the advantages of appropriating these assets is that they can be managed on a truly commercial footing which means that this is a good value for money exercise to complete.

6.4 Management of the appropriated properties will be undertaken by Corporate Estates Financial Services. Whilst the properties listed were, in theory, managed by the Housing Services ALMO, Poole Housing Partnership (PHP), when it comes to any proposed transactions or management of these non – residential assets, PHP have sought the professional advice of the team of surveyors in Corporate Estates Financial Services.

7. Equalities Implications

7.1 The impact of these changes is neutral in terms of social, equality and diversity issues and the appropriation is unlikely to have any negative effect on the environment.

8. Conclusions

8.1 The appropriation of these assets would ensure the Council’s adherence to good accounting practice.

Report Authors

Sarah Varley, Head of Corporate Estates, Financial Services, Ext 1285

Adam Richens, Chief Financial Officer

APPENIDIX A

Property / 5-9 Benbow Crescent
Acquired for / Housing Ancillary purposes
Currently held as / HRA Non Dwelling
Current use / Shop and store
Long term use / Shop and potential flat
Current value / £110,000
Annual Income / £10,100
Action / Appropriate to the General Fund (Investment property)
Property / Doctors Surgery – 325 King John Avenue
Acquired for / Housing Ancillary purposes
Currently held as / HRA Non Dwelling
Current use / D1 use – Medical facility
Long term use / D1 use – Medical facility
Current value / £80,000
Annual Income / £5,400
Action / Appropriate to the General Fund (Investment property)

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