REPORT

TO

EXECUTIVE

DATE: 31 August 2004

HOUSING STOCK TRANSFER

Viewley Centre, Hemlington

COUNCILLOR N. WALKER: EXECUTIVE MEMBER FOR RESOURCES
COUNCILLOR R LOWES: EXECUTIVE MEMBER FOR HOUSING
JOHN RICHARDSON: EXECUTIVE DIRECTOR FOR ENVIRONMENT AND NEIGHBOURHOOD SERVICES

PAUL SLOCOMBE: DIRECTOR OF RESOURCES

PURPOSE OF THE REPORT

  1. To provide background information on the Viewley Centre, Hemlington and to make recommendations on future ownership.

BACKGROUND AND EXTERNAL CONSULTATION

  1. The Viewley Centre is presently held within the Housing Revenue Account. As part of the Housing Stock Transfer process a decision needs to be taken on whether ownership will be retained by the Council or transfer to Erimus. Meetings of the Corporate Stock Transfer Team (25 September 2003), the Asset Strategy Board (6th October 2003) and Corporate management Team (30 October 2003) have considered this issue and support the recommendations in this report.

General Description

  1. Two storey shopping / commercial complex including part first floor residential accommodation and surface parking areas. Plan VAL 4730 shows the land in Council ownership around the Viewley Centre. Adopted Roads and paths are shown hatched.
  1. Originally, the first floor was mainly residential, however, the majority is now commercial. Only 5 residential units remain in one block (nos. 34-42). The Centre is adjoined by Housing Association properties, two churches, St John of God convalescent home and Health Trust accommodation.

Council Operational Use

  1. Hemlington Library can be regarded as part of the centre. If the Council retains the Centre there would be no impact on the operational use of the library. If sold, the library could still remain in the ownership of the Council but there would need to be provision for rights of access etc over any unadopted roads, paths etc.

Housing Stock / Housing Office

  1. There are 5 first floor residential units located above shops, managed by Housing Services and this would have to transfer to Erimus. This could be achieved through a long leasehold disposal for which detailed terms would have to be agreed.

7.The Area 4 Housing Office is presently located in nos. 25-29 on the ground floor and nos. 22-32 on the first floor. No. 20 is under Housing control but presently unused. For continued use of the housing office by Erimus, terms will need to be negotiated for a leasehold disposal.

Condition

  1. Constructed in the late 1970’s, the centre has suffered problems with water ingress and structural defects. In 1997/8 work was undertaken to prevent water ingress and in 1992 external repairs were undertaken to the centre at a cost of £134,000. This included installation of wall ties, repointing and general structural works. More recently there has been further work to prevent the ongoing problem of water ingress
  1. Billinghurst George and Partners were commissioned to provide a survey report recommending remedial action with budget costings to inform this report.
  1. The report concluded that the property was generally in reasonable condition for its age but that works were required to defective roof coverings, flashings, rainwater goods and coverings to walkways and enclosed yards. Additionally, areas of defective pointing require replacement and external doors / windows need attention. Budget costs are based on P1 (urgent works) and P2 (works that should be carried out within 2 years). In addition to this costs have been predicted for future planned maintenance beyond the two-year period to give a worst case financial scenario:
  1. P1 Costs £10,790

P2 Costs £31,730

Roof Voids £35,640 (up to 5 years)

(bracing, ventilation, general repairs)

Car park Resurfacing £80,000 (up to 10 years)

(possibility to recover proportion via service charge)

Window & Door Replacement £57,000 (up to 10 years)

General Maintenance £114,000 (up to 10 years)

£329,160

  1. If the Council retains the premises it is recommended that budgets are structured to provide for a programme of repair and future planned maintenance.
  1. This report has been compiled in consultation with Strategic Resources (Asset Management), Housing Services Stock Transfer Team and input from the Council’s Transport & Design Services on the condition survey.
  1. Residential tenants, through the vote, determined that future management

of the residential units transfer to Erimus but it is for the Council to decide on the principle of sale for the Viewley Centre as a whole.

  1. Shop tenants do not have an entitlement to vote but a general letter was sent to all tenants early in 2003 advising of the Stock Transfer Process, the possibility of sale, and inviting any comments. No material representation has been forthcoming from Viewley Centre tenants.

OPTION APPRAISAL / RISK ASSESSMENT

  1. There are three basic options;

(i) Middlesbrough Council retain ownership of the Centre and enter into a long leasehold arrangement with Erimus for the residential units and, a leasehold arrangement for the Housing Office.

(ii) Transfer the Centre to Erimus

(iii) Market the Centre and seek a disposal to a third Party (subject to grant of a leasehold interest to Erimus for the residential units and housing office as appropriate).

Retention by Council

  1. The Council will retain the asset and income but there must be willingness to re-invest in the Centre. Erimus would take responsibility for the five maisonettes (nos. 34-42) and would have proposals for improvement in accordance with their business plan. They would reasonably expect the Council to improve the physical environment through joint working between the Council and Erimus prior and post transfer.

Advantages / Disadvantages
Council would receive rental income. / Risk on voids of commercial properties lies with Council.
Council has direct influence on the management of the centre as a focal point of the community. / Residential units would have to be transferred to Erimus by way of long leasehold arrangement.
Library is effectively part of the centre and would be retained by the Council. / If Erimus do not continue to use existing Housing Office (and first floor accommodation) it may be difficult to fill voids. Holding costs will have to be met.
The Council / Service Middlesbrough has past experience and knowledge in terms of management of the centre. / Disrepair must be addressed and budget provision made (from rent income?).
Consideration could be given to joint working with Erimus to try and bring vacant first floor units back into use. /

Appropriation to the Council’s General Fund may incur debt charges.

Erimus would in any event retain responsibility (management and financial) for the residential units assuming a positive ballot.

Disposal to Erimus

  1. This would pass all future responsibility to Erimus and bring to an end the Councils involvement in the Centre with the exception of the library where operational use would continue.

Advantages / Disadvantages
Erimus would have majority control of the centre and may be able to bring any vacated maisonettes (e.g. above housing office) into use or fund general improvements. /
The Council would lose influence over future management of the centre and need to rely on main provisions in the main Transfer contract to protect any future windfall gain.
Erimus may have money to invest, to tackle both disrepair and environmental issues. / There are presently only 5 residential units.
Area Housing Office may be required by Erimus. / Council would not receive rental income.
The main business of Erimus will be provision of housing and not management of shops and commercial premises.

Disposal to Third Party

  1. This would generate a capital receipt for the Council with control of the centre thereafter becoming the responsibility of a private third party.

Advantages

/

Disadvantages

Capital Receipt would be generated for the Council.

/ Appropriation to the Council’s General Fund may incur debt charges.

Any disposal could be linked to specific requirements for improvements to the centre.

/

The Council would lose direct management control of the Centre

FINANCIAL LEGAL AND WARD IMPLICATIONS

  1. The occupancy rate within the centre is presently high. All shop / commercial units are presently let. Annual rent income is approximately £138,600 and credited to the Housing Revenue Account. From this would have to be offset provision for outgoings including:
  • Maintenance Programme
  • Maintenance of void properties
  • Empty rates
  • Insurance
  • Maintenance of unadopted areas / car parks.
  • Management costs
  1. Maintenance of the centre (excepting residential units – Housing) is met from the overall repairs and maintenance budget administered for the Council by HBS. The Council’s liability, as landlord, includes the external and structural repairs to the shops (not the pub and social club where the tenants are responsible for all repairs) and unadopted paths / external areas. Costs associated with the upkeep of the car parks and service yards (incl. rates payments) together with landscaping, cleansing and litterpicking can be recovered from shop / commercial tenants by way of a service charge.
  1. Management costs for the centre incurred by HBS e.g. rent reviews, lease renewals and general property management issues are charged to the HRA.
  1. Where assets transfer from the Housing Revenue Account to the General Fund the usual practice is to transfer debt equivalent to 50% of the value of the asset. Annual interest and repayment is charged at 11.9% of the debt.

24.Maintenance of the car parks and open space areas fronting Hemlington Hall Road and Cass House Road is presently charged to Housing. Rates, sweeping, litterpicking within the car park areas are recovered as part of the service charge to tenants within the centre. Costs for open space areas would therefore need to be offset against the gross rental income.

Estimated Summary Financial Position

Estimated £ pa
Gross Rental Income / £138,600
Service Recharges / £6,375
Repairs and Improvements (worst case scenario) / -£35,000
Insurance / -£1,500
Grounds Maintenance / -£2,250
Litter Picking / cleansing / -£4,750
Rates on Car Parks / -£1,500
Management Costs / -£10,000
Holding costs for voids / -£5000
Debt Charge Provision, say (£1,000,000 * 50% * 11.9%) / -£59,500
Net / £25,475
N.B. excludes budgets for Area Housing Office that would become responsibility of Erimus if use continues. (additional rent may be negotiated as part of transfer)
  1. Allowing for any variations it is predicted that the Viewley Centre will remain in profit and generate net income for the Council though there is always risk. Main exposure would be from a decline in the level of occupancy of the commercial units though there is no indication of a significant downturn in the short term.
  1. It is recommended that part of this income be expended on the repair and improvement of the centre to raise it to an acceptable standard and also address issues of security and vandalism. The present condition reflects limited expenditure in the past. To do otherwise would be a missed opportunity. There is scope to work with Erimus who would take responsibility for the residential units.

RECOMMENDATIONS

  1. That the Council retains the Viewley Centre within the Strategic Resources Service area to be managed as part of the Commercial portfolio.
  2. Based on the condition survey, a programme of repairs / investment be established and budget provision made from the rental income.
  3. Terms are negotiated for the transfer of the 5 residential flats to Erimus Housing on a long leasehold basis.
  4. Terms are negotiated for continued use by Erimus of the current Area 4 Housing Office (and first floor accommodation).

REASONS

  1. To deal with the issues surrounding future ownership of the Viewley Centre as part of the Stock Transfer exercise.

BACKGROUND PAPERS

The following background papers were used in the preparation of this report:

  • HBS Property Management (valuation & Estates) management files.
  • Condition Report

AUTHORS: Andrew ArkleDave CousansMartin Shepherd

TEL NO: 729677576960729298

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