Middlesbrough Borough Council & Erimus Housing Strategic Partnership Joint Venture

Appendix 1

MIDDLESBROUGH BOROUGH COUNCIL & ERIMUS HOUSING STRATEGIC PARTNERSHIP JOINT VENTURE

HEADS OF TERMS

Organisations

1.  The organisations involved initially are Middlesbrough Borough Council (MBC) and Erimus Housing (EH), ‘the Partners’. Other organisations such as the Homes & Community Agency (HCA) may join the JV in the future but only with the agreement of the Partners.

Objective & Aims

2.  The JV will have two separate strands. Firstly, the creation of a ‘Cash Fund’ to meet jointly agreed regeneration and housing objectives and secondly, the creation of an ‘Asset Transfer Mechanism’ between the Partners with the objective of avoiding the need to make cash purchases between each organisation where possible.

3.  The first objective of the JV Cash Fund is the delivery of the Grove Hill regeneration scheme (initial priorities set out at paragraph 24 below) and agreement is to be made by 30th October 2011 to provide for the release of c. £3.6m cash (c. £1.8m MBC to purchase former RTB’s and c. £1.8m EH to acquire EH tenants and complete clearance) to complete the residential site assembly. The Partners agree that they will both use this funding for site assembly. MBC’s funding will give them 100% ownership of former RTB’s acquired which will subsequently be added to its assets on the Asset Transfer Mechanism.

4.  The Asset Transfer Mechanism will consist of an Asset Log of the assets and their agreed value. Detailed valuation and implementation principles need to be further developed and agreed as the JV develops beyond the 30th October deadline above, but the Partners have agreed that where a property is still standing (i.e. not demolished) the value is based on the net value of the property and not the land foot print value. Where the property has already been demolished the value will be based on the land value.

5.  The Asset Transfer Fund can include any assets owned by the Partners with the Partners agreement. However, it will definitely include the assets listed in paragraph 15 unless the Partners agree to exclude these at a later date.

6.  Longer term, it is an aspiration that the JV will be developed in to a strategic partnership that delivers ongoing physical projects, such as development of community centre and opportunity sites, as well as services, subject to procurement regulations. (We assume that as a result of procurement regulations that the vehicle will only be able to work on sites where EH have a holding or sites which the Vehicle jointly acquires)

7.  Subject to procurement issues, the JV will aim to make the Partners preferred partners and avoid the need for formal procurement if possible where appropriate., subject to procurement regulations. (We assume that as a result of procurement regulations that the vehicle will only be able to work on sites where EH have a holding or sites which the Vehicle jointly acquires)

Assets & Inputs

8.  EH will make a cash payment to MBC, in accordance with paragraph 11, of £TBC in exchange for being released from the ongoing financial commitments of the Stock Transfer Agreement in relation to:

a)  Right to Buy – (Figure to be provided by MBC)£1,154,631

b)  Disposal Claw back Agreement – (Figure to be agreed between the partners based on valuation of the potential claw back payments of the sites that are included in the initial variation of the stock transfer agreement.)

c)  VAT Shelter – (Figure to be provided by MBC)£597,371

9.  A Variation Agreement to the original Stock Transfer Agreement will be made. On signing of the Variation Agreement, EH will make payments to MBC in accordance with paragraph 11 of £TBC. This funding is MBC’s and represents MBCs contribution to the JV Cash Fund. However, it is to be ring fenced for the JV and can only be spent in accordance with the governance arrangements set out at paragraphs 18 to 20 to below.

10.  EH will match the £TBC and also ring fence this funding for the JV (to the same value as the total amount realised in point 8 above). It is only to be spent in accordance with the governance arrangements set out in paragraphs 18 to 20 below. This funding will be available to be spent when required by the Partners.

11.  Payments to MBC from EH are to be via phased payments. (think we need to specify the whole amount Total amount at paragraph 8 to be paid over 12 months and 4 quarterly payments) with the first payment drawn down on the 3oth 30th October 2011. The Partners agree that if the flow of acquisition costs at Grove Hill exceeds the phased payment schedule, then EH will transfer the necessary funds to MBC to meet the cash flow demand over a period of 1 year.

12.  If the JV partnership is dissolved before the phased payments have been paid in full for all of the funds owed in exchange for being released from the Stock Transfer Agreement, EH will pay the balance within 3 months written notice of termination of the JV partnership.

13.  Moving forward, the benefits of a joint JV bank account will be explored and in particular the benefits of any VAT efficiencies for the Partners that can be provided by MBC.

14.  The assets will be valued at the time of signing the agreement.

15.  Other future cash and assets initially identified to go in to either the JV Cash Fund or Asset Transfer Mechanism are:

MBC

a)  Potentially £2m S106 Contributions– this will be subject to future planning consents and be via phased payments as and when received by MBC. MBC, as Planning Authority must have the ability to decide what the funds from the Section 106 payments are spent on.

b)  Former RTB’s previously, and to be acquired in the future by MBC at Grove Hill - MBC will transfer these properties at to EH on request and an agreed notional cash contribution based on the net acquisition price paid at transfer by the Council will be added to MBC’s assets within the Asset Transfer Mechanism.

c)  Any properties or land MBC may hold in relation to the Home Housing stock at Grove Hill.

EH

a)  18 terraced properties with estimated value of c. £1m within the Gresham demolition area - EH will transfer these properties to MBC on request and a notional cash contribution based on the net acquisition price paid at transfer will be added to MBC’s assets within the Asset Transfer Mechanism. The value will be based on the net value agreed between MBC’s and EH’s Valuers in the normal way when properties are acquired for demolition.

16.  The vehicle needs to account for assets going in and coming out and ensure that inputs and outputs are balanced. The parties will need to agree to either refund any imbalance or put funding into the vehicle to balance the other parties input at the time of transfer. This money could be used to by the Vehicle for other projects, subject to procurement issues.

17.  The JV will allow other assets and resources to be added in the future based on the same principles.

Governance

18.  The Partners will have an equal 50:50 position in relation to decision making for JV funded objectives, regardless of the value of the total assets contributed.

19.  A JV Executive will be established with the following membership:

Executive Director of Regeneration MBC

Managing Director EH

Appropriate representatives from the Finance and Legal services of both organisations.

20.  The Executive Member for Regeneration and Economic Development and the Chairman of Erimus will form a Board, which will meet twice a year to oversee accounts and provide strategic direction. The Board will ensure that any imbalances in the asset transfer mechanism are reconciled.

21.  The Partners will get the necessary sign off from their respective organisations as required for any decisions.

Future Asset & Profit Share

22.  Any future assets or profits from the JV are to be shared on a pro rata basis based on the value of inputs from each organisation at the time the assets/profits are shared. A value of the assets and cash at the time they go into the JV will be agreed to enable a straight forward calculation of future assets and profit share.

23.  As MBC will be transferring its properties at Grove Hill to EH through the Asset Transfer Mechanism it will not have a legal position in any future Development Agreement/JV that EH will have a development partner.

24.  However, the JV will need to be reimbursed for funding Grove Hill infrastructure that would have been funded by S106 contributions or capital contributions from the land receipt, in the event that land values at Grove Hill increase above the total value of site assembly costs defrayed by EH. The Partners agree that if this scenario occurs, land receipt profits will be paid in to the JV until the cost of the infrastructure that would have been a S106 or capital contribution has been repaid. Any capital receipts received by EH after this will be for EH retain in full. Further discussion as part of full JV Agreement required on how to agree what would have been funded by capital contributions.S106 contributuions.

Grove Hill Priorities

25.  The Partners have already agreed to release c. £3.6m to complete the residential site assembly as the first priority. Other objectives which will be considered for approval and delivery by the JV Board are:

a)  Provision of affordable housing . Affordable housing should be counted as an asset and MBC should have an equal share if MBC funding/assets have been used to deliver it.

b)  Implementation of the Linear Park

c)  Redevelopment of retail and community facilities

d)  Highways improvements

26.  This list is not exclusive or binding.

Disputes

27.  In the event of any disputes an independent arbiter will be appointed which is agreed by the Partners.

Resolution of JV

28.  Either partner can withdraw from the JV with 6 months written notice but any legally binding contractual arrangements will need to be fulfilled. At the time of resolution (the assets will be valued and the remaining party will have the option to purchase the assets and continue the scheme, alternatively the assets will be sold and a share of assets will be agreed. The Partners will give an undertaking to ensure that neither partner is financially disadvantaged by the early ending of the JV.

29.  If the JV is dissolved before payment in full from EH for being released from the Stock Transfer Agreement, EH will fulfil its agreed obligations in relation to the payment schedule outlined at paragraph 11.