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MAIDSTONE BOROUGH COUNCIL
RECORD OF DECISION OF THE EXECUTIVE
Decision Made: 21 December 2022
Granada House Refurbishment
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Issue for Decision
The decision proceeds with the refurbishment works for Granada House with the preferred contractor for the total scheme cost as outlined within Exempt Appendix 1 – Financial Summary to the report.
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Decision Made
That
1. The proposed refurbishment works to Granada House up to the Total Scheme Cost as outlined in Table 1 withing the Exempt Appendix 1 – Financial Summary to the report be carried out; 2. Contract be entered into, in consultation with the Leader of the Council and the Lead Member for Housing and Health, with the preferred contractor to carry out the refurbishment works to Granada House; 3. a) Officers explore fully with Pelling’s (the appointed Employers Agent) and the appointed contractor the merits of providing solar PV to the property as a way of off-setting electrical use; b) This option and additional expenditure (as outlined in Table 2 within Exempt Appendix 1 – Financial Summary) is only pursued after consultation, post contract award with the Lead Member for Housing and Health; 4. The Director of Finance, Resources and Business Improvement is granted delegated authority to enter into any related appointments, legal actions, deeds, contracts and agreements which may be required to facilitate the refurbishment works required; and 5. The Head of Mid Kent Legal Services is authorised to appoint the Solicitors required to negotiate and complete the necessary contract documentation, deeds and agreements associated with the refurbishment works on the terms as agreed by the Director of Finance, Resources and Business Improvement. |
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Reasons for Decision
1.1
The Council purchased Granada House back in 2016. It contains 20
apartments and some commercial units at ground floor level. The purchase
price was £3.5m and the rental income from the residential and the commercial
elements were similar, hence the purchase price of the apartments can be
deemed to be circa £1.75m (£87.5k each). 1.2
Granada House is a building of high significance to the character and
appearance of that part of the Maidstone Centre conservation area centred on
Gabriel’s Hill. This is perhaps the key building in the Gabriel’s Hill street
scene due to its width and mass and also its central location. 1.3
The original strategy when Granada House was purchased was for it to
be demolished to make way for the wholescale redevelopment of The Mall
shopping centre. The owners of the Mall, Capital & Regional opted not to
advance these ideas, and so the Council has been renting the apartments at
market rents through Maidstone Property Holdings Limited (MPH). The
apartments have rented reasonably well, but at quite modest rents with an
annualised gross rental income of £136k (average £566pcm) to reflect their
current condition, which is broadly similar to the commercial units. 1.4
Since the acquisition, the Council has only undertaken responsive
repairs on the apartments, and they are now in an extremely poor condition
and fall short of meeting the Decent Homes Standard. MPH as the landlord has
a duty to ensure that all of its properties meet the Decent Homes Standard
for letting purposes. The "A Fairer Private Rented Sector White
Paper" published on 16th June 2022, outlined the government's
plans to legislate and introduce a legally binding Decent Homes Standard to
the private rented sector (PRS) for the first time, under the Renters' Reform
Bill. 1.5
If landlords are in
breach of this requirement to ensure their property meets the Decent Homes
Standard, this would be a criminal offence and it can be dealt with by either
issuing a civil penalty or undertaking a prosecution in the magistrate’s
court. The Government recognise that they propose some significant changes,
and therefore propose a phased approach or transition period. This would
allow local councils time to prepare for Decent Homes Standard enforcement
and landlords additional time to comply with the Decent Homes Standard.
Further details and information are awaited on this and timescales for
implementation. 1.6
From 2025 all newly rented properties will need to achieve an Energy
Performance Certificate (EPC) rating of C or above. The flats at Granada
House currently have a range of ratings from C to E. There is therefore a
pressing need to carry out the required refurbishment works to Granada House
as outlined in this report. 1.7
Granada House was identified as one of the five Town Centre
Opportunity sites for a roof top extension to the existing building and a
planning guidance document was produced to help inform and shape development
design proposals to be taken forward. However, after a lot of detailed design
work, this particular opportunity was rejected by the Policy & Resources
& Committee, who decided they favoured just a comprehensive refurbishment
of the existing accommodation. 1.8
It was agreed that a tender procurement process be undertaken to
choose a suitable Contractor and Employers Agent (with hybrid of services
such as Clerk of Works and Principal Designer) to undertake and oversee the
necessary refurbishment works required. With a follow up report being
presented outlining the results from the tender procurement process and to
approve the financial commitments required to complete the refurbishment
works. 1.9
Pelling’s were duly appointed as Employers Agent (including Clerk of
Works and Principal Designers services). They assisted Officers in preparing
a schedule/specification for the works and overall tender pack for procuring
a contractor, as well as the evaluation and scoring of tenders once they were
received back. 1.11 The
Council therefore has commenced a fresh procurement exercise to appoint a
suitable contractor at the target price (as outlined in Exempt Appendix 1 –
Financial Summary, to the report). 1.13 The rental income for the flats will also be increased once the refurbishment works are completed, recognising the significant scope of improvement works undertaken. Once refurbished the flats will let for an annualised gross rental income of £196,800 (average £820pcm), so £254pcm more than previously. This is a further £60k per annum of gross income, and if this were capitalised at 5%, this equates to value creation of circa £1m (net of ongoing management and maintenance costs.
1.14
Given the state of repair of the flats, they are now largely void in
readiness for the refurbishment works to be carried out. The decanting of the
building has been done in a planned and co-ordinated manner adhering to the
correct legislation, providing move on support to those tenants who may have
required it during the 6-month notice period that was given. 1.15 There are no works proposed to the Commercial units on the ground floor, but some of the refurbishment works to the flat roof and deck above the commercial units at the rear of the building will be contributing towards the upkeep of these units and safeguarding the commercial rental income.
1.16
A visual inspection and intrusive survey of the existing apartments
has been undertaken to help inform the proposed schedule of refurbishment
works of which is based on an All-Electric specification. This includes
modern oil filled electric wall mounted radiators as the heating solution,
with small point of use electric water heaters in the kitchens and bathrooms,
plus electric showers. 1.17
This will eliminate the need for piped heating systems and gas fired
boilers. This is beneficial with regard to the servicing costs and
maintenance and replacement costs. Gas installations require annual
servicing, at an assumed cost of around £2,000 to £3,000 per year for the
building, and mean the whole flat being without heating and hot water in the
event of a boiler failure or breakdown. This proposal would allow single
elements to be repaired or replaced as appropriate upon failure, with the
added benefit of maintaining heating and/or hot water in other parts of the
flat if one unit was to fail. Repairs will be much cheaper and quicker to
fulfil. 1.18
The decarbonisation opportunity with this option is substantial. The
elimination of gas use means that no fossil fuels will be used to heat the
building or water used within and if a green energy provider is used to
provide the electricity demand, there would effectively be no carbon emissions
through heating and hot water. Although this option would have a higher
running cost due to the reliance on higher cost electricity, the efficiency
of the heaters and upgraded thermal performance of the building will limit
this. 1.19
In order to minimise further the cost impact on future tenants of the
building, it is recommended that a solar photovoltaic (PV) system be
installed on the roof of the second floor and configured to offset the
electrical use in the building. How this works in practice will need to be
fully explored, and it may be necessary to have a single meter, with charges
paid by the Council and recovered via an all-inclusive rental arrangement.
Whilst this option is likely to require a UKPN upgrade to incoming supply
heads, it is believed that this will be a small-scale upgrade to the existing
infrastructure and will not require any incoming cable upgrades or works to
the sub-station. This is to be confirmed by the contractor’s design team once
appointed. 1.20
This all-electric approach is expected to easily achieve an EPC rating
of C once the refurbishment works are completed and could exceed this with
the solar PV option included. Officers will fully
explore the merits of this further with Pelling’s and the Contractor and will
only go ahead with this option and additional expenditure (as outlined in
Table 2 within Exempt Appendix 1 – Financial Summary, to the report) in
consultation, post contract award, with the Lead Member on the Executive for
Housing and Health. 1.21
The initial proposed refurbishment works are thorough. They include
full roof and window replacements, external brick and concrete repair and
clean. Replacement of kitchens, bathrooms, new flooring, internal front
doors, alarms, emergency lighting, heating, electrical rewires and internal
re-decorations within the flats and communal areas. 1.22
When considering the cost of the proposed refurbishment works referred
to within Exempt Appendix 1 – Financial Summary, to the report, it is important
to note that: · There has been virtually no planned maintenance work to the building undertaken ever, only piecemeal responsive repairs have ever been done. · The original Crittall windows are in poor condition, with broken mechanisms and in some instances broken glass. These are incredibly poor in terms of thermal performance and without replacement for double glazing the EPC rating of C could not be achieved, which will be required from 2025. · The internal finishes of the flats that have been inspected and are very poor - predominantly woodchip wallpaper and damp stained plaster ceilings. The original woodwork throughout is discoloured, damaged, and covered in many layers of paint. · Existing heating systems are original or 50s/60s retrofits at the latest. The radiators are old panel style, which are large and inefficient. The pipework and radiators will be heavily oxidised and filled with sludge. · Generally, the flats are in poor condition and in some cases have unresolved rainwater ingress causing dampness, mould, and other related defects. Fire safety is an obvious risk that the works will rectify too. · The proposed refurbishment works are considered to be fundamental in order to meet Decent Homes Standards and ensure the long-term efficiency, sustainability and economic future for the building. 1.23
The works planned will be to a high quality and will significantly
improve the buildings appearance. Undertaking these works will also benefit
residents by improving internal living conditions, increase energy
efficiency, thereby reducing bills, as well as contributing to the future
long-term sustainability of the building and presenting a far more attractive
offering to existing and new potential tenants. Any refurbishment works will
also add value to the property through targeted investment. 1.24
The breakdown of the Total Scheme Cost and financial commitments for
the refurbishment works is shown at Exempt Appendix 1 – Financial Summary, to
the report. 1.25
The proposed schedule of events if proceeding with the refurbishment
works is given below. The dates should be regarded as indicative at this
stage (with the exception of the Committee and Executive approval dates) as
we may need to extend and /or amend the timetable as necessary.
1.26 The preferred option is Option 3 below. This will result in refurbishment works being undertaken of which will significantly improve the condition of the building both internally and externally. It will allow the Council as owners of the building and MPH as landlords to comply with the Decent Homes Standard and EPC requirements. 1.27 If the preferred contractor cannot deliver our initial specification within our budget inclusive of their design fees and on-costs, we will value engineer the specification with them to keep within our cost envelope. 1.28 Due to the extent of the refurbishment works required the majority of the properties are currently void, ready for the contractor to begin works. The rents will be increased to reflect the scope of the improvement works undertaken. 1.29 Officers will fully explore the merits of installing Solar PV’s as a means of off-setting electrical use with Pelling’s and the Contractor and will only go ahead with this option and additional expenditure in consultation, post contract award, with the Lead Member on the Executive for Housing and Health. 1.30 Taking into account the purchase price referred to, plus the total scheme costs for the refurbishment works as set out in Exempt Appendix 1 – Financial Summary, to the report it is demonstrated that the Council will not be spending more than the likely end value of circa £4m (£200k per flat). Consultation Results and Previous Committee Feedback 1.31 The Policy and Resources Committee previously agreed that a tender procurement process be undertaken to choose a suitable Contractor and Employers Agent to undertake and oversee the necessary refurbishment works required to Granada House. 1.32 The Executive were consulted on the initial preferred contractor tender sum price. There was concern about value for money and the total costs associated for the scheme relative to likely end values for the flats. A re-procurement is therefore taking place for the reasons set out above. 1.33 The Housing Team have been previously consulted on the impacts of the refurbishment works to Granada House and in particular the issue of decanting/moving on the existing households of which this process has already been undertaken with the building largely vacant and ready for works to begin. 1.34 This issue was considered by the Communities, Housing and Environment Policy Advisory Committee on 13 December 2022 and the Committee supported the recommendations.
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Alternatives considered and why rejected
Option 1: Choose to
do nothing on this property. This is not recommended. The Council and
occupiers of Granada House would not realise the benefit of improving the
value, appearance and general living conditions and standard of the market
rental accommodation within Granada House. Maidstone Property Holdings (MPH)
has a duty as the landlord to ensure the property meets the Decent Homes
Standard. If landlords are in breach of this requirement, this would be a
criminal offence and it can be dealt with by either issuing a civil penalty
or undertaking a prosecution in the magistrate’s court. This would cause
significant reputational damage to the Council as owners and to MPH as the
landlord. If the Council don’t do the
refurbishment work, and decide to just sell for example, this could be viewed
as a negative and poor response by the Council in terms of our town centre
strategy and climate change commitments. There would also be a high degree of
uncertainty as to what would happen to the building once it is not in our
ownership. Improvement works might not take place or to the required standard
and the Council might have to take enforcement action against the new owners. Option 2: To carry out the proposed refurbishment works for a lower or higher total scheme cost. This is not recommended. If the total scheme cost is reduced this in turn will affect the level of specification which will undermine the long-term rental demand for the flats and will also drive up responsive repair costs once relet.
The initial specification is thorough and adequate allowance needs to be provided for replacing all the kitchens and bathrooms, windows, rear walkway, roof repairs and full electrical, plumbing and heating systems of which are considered to be key priority areas of work. Pelling’s have not selected a high-end specification, the standard is middle to lower range, whilst still being of good quality, durable and suitable for the end use.
A markedly higher total scheme cost is not recommended to avoid incurring a total scheme cost greater than the likely end values for the flats.
Option 3: To carry out the proposed refurbishment works for the Total Scheme Cost (or lower if this can be achieved by reasonable value engineering) as outlined in Table 1 within Exempt Appendix 1 to the report. With Officers exploring fully with Pelling’s (the appointed Employers Agent) and the appointed Contractor the merits of providing solar PV to the property as a way of off-setting electrical use.
This is the preferred option. The properties would continue to be used for market rental purposes after completion of the refurbishment works, with the rents increased accordingly to reflect the scope of the improvement works undertaken.
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Background Papers
None
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I have read and approved the above decision for the reasons (including possible alternative options rejected) as set out above. Signed:_____ Leader of the Council
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Full details of both the report for the decision taken above and any consideration by the relevant Policy Advisory Committee can be found at the following area of the website
Call-In: Should you be concerned about this decision and wish to call it in, please submit a call-in form signed by any three Members to the Proper Officer by: 5pm 4 January 2023 |