School Houses Working Group
Report to Whitestone Parish Council
Terms of Reference. To review our continued ownership of School Houses, other options available and the implications of any changes.
Summary
A professional and independent survey suggests that School Houses will require addition investment over the life of the next Parish Council that is beyond our current resources to finance.
The option to sell School Houses is legal and investing the proceeds in newer property that will need less repair and maintenance expenditure, is economically viable. This option yields an increase in income of £50,166 over a five year period, together with a capital surplus of £35350.
Recommendation
The Working Group, with one abstention, recommends that School Houses should be sold, at an appropriate time, either when the Council acquires Powers of General Competence or following confirmation that capital sums can be held in the accounts for property investment.
That any sale process is preceded by a minimum of three property valuations conducted by competent and qualified professionals.
Cllr Belt, does not support this recommendation and cannot support the sale of School Houses.
Background
School Houses have been in the ownership of Whitestone Parish Council since 1975 and let commercially since 1996. During this period the properties have required significant expenditure on repairs and maintenance such that net income (rental income less Management fees, insurance, repairs and maintenance) has averaged £1145 per annum or £1628 from 2006. (Appendix (1) This is a return on Assets valued (in 2013) at £350,000, equivalent to a yield of 0.46%.
School Houses Working Group initially identified three broad options; to retain or sell School Houses or to find alternative uses for the properties or the capital they represent.
In order to evaluate the retain option it was agreed that a future forecast of income and expenditure was required, the latter validated by a further 3 or 5 year Condition Survey. Similarly the sell option would require identification of costs, tax and legal implications.
Alternative uses for the properties were also discussed but no viable alternatives were identified nor were the School Houses Working Group aware of any projects in Whitestone that required a large capital sum. However at a later meeting it was decided to explore whether there was any potential for joint activity with Teign Housing.
On a number of occasions the Group discussed what capital from the sale option would be used for. The default option would be to re-invest in other property in order to increase income/revenue flow to the Parish. It was noted that new and more modern properties are available in Exeter for a cost equivalent to the value of either of the School Houses. The impact of selling only one property was discussed and the use of a portion of the capital for other purposes has also been evaluated.
Legal Position
School Houses may be sold subject to approval by the Council. No referendum process is required.
Income from such a sale may only be used for capital purposes but interest on the capital sum may be used for any purpose. Each 1% of interest on a capital sum of £350,000 would yield £3,500.
Whitestone Parish Council is not a Housing Authority nor has General Powers of Competence. Appendix (2) and is therefore, at the current time, unable to invest in housing.
Despite this apparent conundrum it was agreed useful to complete the task of the Working Group for the benefit of future Councils and to provide clarity over the current position of the properties.
Teign Housing
This organisation was approached to determine whether partnership working might be a way to address the absence of General Powers of Competence. Teign Housing agreed to inspect and survey School Houses at no charge to the Council. As a result of this survey TH have no interest in School Houses but would be interested to explore future co-operation in the event that the Council sells School Houses and wishes to invest the capital raised in other property. They are willing to meet with Councillors to discuss this option.
Survey Results
The survey conducted by Teign Housing’s Planned Works Surveyor gives a budget cost estimate of £27,250 per property over the next three years in order to bring the properties up to Teign Housing’s standards. This sum is in addition to the £6220 for work identified and included in the Council’s budget for 2014-15 and does not include any allowance for replacement or repair of white goods currently the responsibility of the Council as Landlord.
Retain Option
Three sets of figures have been incorporated in the financial projections for the retain option (Appendix 3)
(i) The Surveyors three year programme (ii) expenditure phased over three years (iii) expenditure phased over four years. These best case scenarios give (i) a surplus of £344 (ii) a deficit of £1062 (iii) a surplus of £13850. Given that these are best case scenarios it would be prudent to assume that in real life projections (i) and (ii) will both result in a deficit and that projection (iii) will show a smaller surplus. In two of the three options therefore, planned expenditure will exceed planned income. This in turn will necessitate an offsetting increase in the precept, a reduction in other outgoings or the utilisation of reserves.
It should be noted that the overhead costs of running School Houses, in the form of Management fees and Insurance costs, have already been cut dramatically and no further savings are anticipated.
Sell Option
Selling, buying and associated legal costs were evaluated (Appendix (4)) together with details of various properties currently for sale and their estimated letting values. Financial outcomes were considered for various scenarios assuming the sale of both School Houses and re-investment of the proceeds in other property (Appendix (5)). Cost and expenditure assumptions were discussed and were felt to be realistic and allowed for annual repair and maintenance which would probably be minimal on a new build property. The level of income would reflect the type and location of properties purchased and at the current time it appears that two cheaper properties are both ‘affordable’ and offer best yields. Over a four and five year period the projection is for a cash surplus of £51,284 and £64,016 respectively, compared with £16,570 in Retain projection (iii). Annualised this is a Net income of £12,621-£12,803 and assumes capital investment of £307,940 and a capital surplus of £35,352. (Appendices (5/6))
Keeping others informed
There was general agreement on the need for ‘transparency’ and keeping our Tenants informed. At the Council meeting on 10th April the new Shorthold Tenancy Agreement will be signed to extend the tenants notice period from one to six months. Additionally, the Working Group recommends that: (i) following discussion of this report, a copy of the draft minute should be provided to the Tenants in advance of normal publication. (ii) copies of this report should be posted on the village web site and hard copies made available to members of the public.
Conclusion
The Working Group recognises the contribution School Houses make to the Architectural landscape of Whitestone and the historic associations of these properties to the village. However the Council’s decision will affect only their ownership not their continued presence.
To retain School Houses will require significant expenditure over the life of the next Parish Council. The extra funding needed can only come from raising the precept or cutting services.
Selling School Houses to invest in further property is not without risk. The property market is not a one way bet. However these risks apply equally to our current position. The sale option shows that income will increase even after selling and purchasing costs have been factored in.
Both the County and District Council’s have experienced a financial squeeze over the past three years that will both continue and intensify after the Parliamentary elections. Whitestone Parish Council may well be asked to contribute to the funding of services under threat. Even if this is not the case, a number of the Council’s three year contracts expire in 2015 and it cannot be assumed that costs will remain static into the future. Additionally, the Parish has experienced minimal Clerking costs over past years due to the generosity of Pat Vaughan and this too cannot be assumed to continue indefinitely.
Working Group Members: Cllrs, Belt, Bramhall, Hickman and Nierop 05/04/2014
Appendix (1)
School Houses Income & Expenditure
1996/97 / 1997/98 / 1998/99 / 1999/00 / 2000/1 / 2002/2 / 2002/3 / 2003/4 / 2004/5Income / 2020 / 1845 / 1829 / 2170 / 2340 / 2426 / 2562 / 3026 / 3120
Expenditure / 300 / 3176 / 5560 / 388 / 1384 / 184 / 1458
Difference / 1720 / 1845 / -1356 / -3390 / 1952 / 1042 / 2378 / 3026 / 1662
Insurance / 258 / 302 / 300 / 336 / 364 / 412 / 455 / 494
Balance / 1720 / 1587 / -1658 / -3590 / 1616 / 678 / 1966 / 2571 / 1168
2005/6 / 2006/7 / 2007/8 / 2008/9 / 2009/10 / 2010/11 / 2011/12 / 2012/13 / 2013/14
Income / 3130 / 2660 / 3778 / 7800 / 14506 / 16251 / 16500 / 16500 / 16680
Expenditure / 365 / 1525 / 11545 / 10971 / 11722 / 9389 / 8757 / 7336 / 16221
Difference / 2765 / 1135 / -7767 / -3171 / 2784 / 6862 / 7743 / 9164 / 459
Insurance / 524 / 545 / 599 / 620 / 670 / 836 / 552 / 544 / 544
Balance / 2241 / 590 / -8366 / -3791 / 2114 / 6026 / 7191 / 8620 / -85
Total 96 – 05 / Total 06 – 14 / Total 96 - 14
Income / 21329 / 97805 / 119134
Expenditure / 12450 / 77831 / 90281
Difference / 8879 / 19974 / 28853
Insurance / 2921 / 5434 / 8355
Net Income / 5958 / 14540 / 20498
Av Net PA / 662 / 1616 / 1139
NB Prior to 2011 Insurance cover included Parish Hall. Insurance costs from 1998-2010 are therefore estimates. These were calculated using the known recent split premiums spent on the Hall, School Houses and general cover, backdated.
Appendix (2)
General Powers of Competence
These powers, including powers to invest, are available under the Localism Act to Councils achieving relevant criteria; percentage of elected members and Parish Clerk qualified in the Localism Act.
Appendix (3) School Houses Projected Income & Expenditure
(i) Surveyors programme
2014/15 / 2015/16 / 2016/17 / 2017/18 / TotalIncome / 17100 / 17100 / 17100 / 17100 / 68400
Expenditure / 7862 / 33974 / 19474 / 5978 / 67288
Difference / 9238 / -16874 / -2374 / 11122 / 1112
Insurance / 544 / 544 / 544 / 544 / 2176
Balance / 8694 / -17418 / -2918 / 10578 / -1064
(ii) phased over 3 years
2014/15 / 2015/16 / 2016/17 / 2017/18 / TotalIncome / 17100 / 17100 / 17100 / 17100 / 68400
Expenditure / 7862 / 19808 / 19808 / 19808 / 67286
Difference / 9238 / -2708 / -2708 / -2707 / 1114
Insurance / 544 / 544 / 544 / 544 / 2176
Balance / 8694 / -3252 / -3252 / -3252 / -1062
(iii) phased over 4 years
2014/15 / 2015/16 / 2016/17 / 2017/18 / 2018/19 / TotalIncome / 17100 / 17100 / 17100 / 17100 / 17100 / 85500
Expenditure / 7862 / 15267 / 15267 / 15267 / 15267 / 68930
Difference / 9238 / 1833 / 1833 / 1833 / 1833 / 16570
Insurance / 544 / 544 / 544 / 544 / 544 / 2720
Balance / 8694 / 1289 / 1289 / 1289 / 1289 / 13850
NB Expenditure includes Management fees at the current level. Projections REPRESENT BEST CASE SCENARIOS and do not include routine costs, white goods replacement, increases in insurance and management fees.
Appendix (4)
Sale costs
Using valuation of 12 March 2013 by Devon Sales & Lettings as a guide:
1 School Houses
Valuation £165,000.00
Solicitors fee (average taken) £765.00*
Estate Agents fee (1.25%) £2475.00*
Total expenditure £3240.00*
Proceeds from 1 School House less expenditure £161,760.00*
2 School Houses
Valuation £185,000.00
Solicitors fee (average taken) £765.00*
Estate Agents fee (1.25%) £2703.00*
Total expenditure £3468.00*
Proceeds from 2 School House less expenditure £181,532.00*
Net proceeds from sale of both properties £343,292.00*
*These figures include total VAT of £1300 approx which is recoverable
Appendix (5)
Projected annual Income & Expenditure Income
Rental on 1 property at £700 pcm £8,400
Less
Management fee of 8.5% £734
Repairs allowance £1,000
Insurance £300
______
£2,184
Income after expenditure £6,366
(No vat included as this would be recoverable)
2 properties of similar value would give an annual income of £12,732
NB. This projection is based on the purchase of 2 properties at a combined cost of £306,000 plus £1940 for Solicitors fees, searches and stamp duty, a total cost of £307,940.
THIS LEAVES A CAPITAL SURPLUS OF £35352.
Appendix (6)
Income / 17100 / 16800 / 16800 / 16800 / 16800 / 84300
Expenditure / 3468 / 3468 / 3468 / 3468 / 3468 / 17340
Difference / 13632 / 13332 / 13332 / 13332 / 13332 / 66960
Insurance / 544 / 600 / 600 / 600 / 600 / 2955
Balance / 13088 / 12732 / 12732 / 12732 / 12732 / 64016
NB Projection assumes Management fees at 8.5% and an insurance costs increase
No allowance made for loss of income between sale of School Houses and purchase
of new properties.
6