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COMMUNITIES, HOUSING AND ENVIRONMENT POLICY ADVISORY COMMITTEE |
17th January 2023 |
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Property Acquisition for 1,000 Affordable Homes programme |
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Will this be a Key Decision?
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Yes
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Urgency |
Not Applicable
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Final Decision-Maker |
Executive |
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Lead Head of Service |
William Cornall, Director of Regeneration and Place |
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Lead Officer and Report Author |
Shanaz Begum, Housing Acquisitions Consultant |
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Classification |
Public Report with Exempt Private Appendices The information contained within the Appendices has been considered exempt under the following paragraph of part 1 of schedule 12A to the Local Government Act 1972:-
3 = Information relating to the financial or business affairs of any particular person (including the authority holding that information)
Public Interest Test
On applying the public interest test, the public interest in non- disclosure of the appendices to the report outweighs the public interest in disclosing this information. The reasons in favour of disclosure are the public interest in ensuring value for money and the reasons against disclosure are the harm to the Council’s financial position in respect of a commercial transaction. Any disclosure of such information may compromise the negotiating position of the Council. Keeping the information exempt is therefore in the public interest.
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Wards affected |
Staplehurst |
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Executive Summary |
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The development strategy to deliver 1,000 new affordable homes was agreed by the Policy and Resources Committee on 19th January 2022. As part of the agreed strategy there is an expectation that 50% of affordable homes delivered will be from non-council owned sites.
To support this programme an opportunity has arisen to purchase a site with outline permission submitted, for 10 apartments consisting of 2 x 1 beds and 5 x 2 beds, 3 x 3 beds and commercial space at ground floor .
Once built the apartments will be let at Affordable Rent, with rents set at 80% of prevailing market rent, but capped at Local Housing Allowance.
The committee is being asked to recommend the approval of the purchase of the freehold interest of the site before being passed to the Executive to approve the purchase of the proposed freehold acquisition. The site is tenanted with a 5-year agreement, at a passing rent of £9,000 per annum. A mutual break clause is in place with a 6-month notice period.
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Purpose of Report
Decision
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This report makes the following recommendations to the Committee:
That the Executive be recommended to:
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1. Agree that the financial returns for the proposed acquisition as shown in Appendix 1, which is part 2 of the report, which support the Housing Development and Regeneration Investment Plan and the overall Development Strategy are approved.
2. Agree that the Director of Finance, Resources and Business improvement is granted delegated authority to: a) Negotiate terms for the purchase of the site, for the sum as shown in the Exempt Appendix 1 of this report. b) Procure and enter into all such deeds, agreements, contracts, and documents which may be required to facilitate the purchase of the site and the subsequent redevelopment works required to deliver the scheme referred to in this report. Including (but not limited to) any related appointments such as suitably qualified consultants and Contractor. 3. Subject to satisfactory conclusion of all due diligence to negotiate and finalise and complete all legal formalities, deeds and agreements which may be required to facilitate the purchase. Agree that 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 purchase and construction works on the terms as agreed by the Director of Finance, Resources & Business Improvement. 4. Agree that post completion of the procurement process to employ the necessary consultants to progress the planning application. To appoint a contractor to bring forward for approval to this Committee a detailed project delivery and investment plan (prior to the development itself commencing)
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Timetable |
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Meeting |
Date |
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CHE PAC Committee |
17th January 2023 |
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Executive |
25th January 2023 |
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Property Acquisition for the 1,000 Affordable Homes programme |
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1. CROSS-CUTTING ISSUES AND IMPLICATIONS
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Issue |
Implications |
Sign-off |
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Impact on Corporate Priorities |
The four Strategic Plan objectives are:
· Embracing Growth and Enabling Infrastructure · Safe, Clean and Green · Homes and Communities · A Thriving Place
The purchase of the homes described in this report supports the Councils Development Strategic plan in building 1,000 Affordable Homes, within the agreed capital spend of 200m.
The report recommendations support all four of these.
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Director of Regeneration and Place |
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Cross Cutting Objectives |
The four cross-cutting objectives are:
· Heritage is Respected · Health Inequalities are Addressed and Reduced · Deprivation and Social Mobility is Improved · Biodiversity and Environmental Sustainability is respected
The report recommendations support the achievement of the Deprivation and Social Mobility is improved cross cutting objective by delivering a high-quality development of affordable homes.
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Director of Regeneration & Place |
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Risk Management |
· Refer to paragraph 5 of the report |
Director of Regeneration & Place |
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Financial |
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The cost of acquiring the site as described in the
report will be met from the 1,000 Affordable Homes capital budget agreed by
the Council on 23rd February 2022. The projected return from the
investment meets the criteria set out in the Council’s capital strategy. A
financial summary is provided in Appendix 1. |
Paul Holland, Senior Finance Manager (Client) |
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Staffing |
· We will deliver the recommendations with our current staffing. However, we will employ external consultants to help facilitate and oversee the redevelopment works with the appointed contractor |
William Cornall Director of Regeneration & Place |
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Legal |
· S120(1)(2) of the 1972 Act also enables MBC to acquire land to be used for the benefit, improvement or development of their area or for the purpose of discharging MBC’s functions.
· MBC must follow its internal procurement rules as detailed in the Constitution and comply with all legal requirements as may be applicable from time to time. · Acting on the recommendations is within MBC’s powers as set out in the above statutory provisions.
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Robin Harris Interim Team Leader (Contentious and Corporate Governance) |
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Information Governance |
· The recommendations do not impact personal information (as defined in UK GDPR and Data Protection Act 2018) the Council Processes. |
Lauren Connett Information Governance Team |
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Equalities |
· The recommendations do not propose a change in service therefore will not require an equalities impact assessment |
Nicola Toulson Equalities & Communities Officer |
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Public Health
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· We recognise that the recommendations will not negatively impact on population health or that of individuals. |
Phillip Morris – Head of New Business |
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Crime and Disorder |
· The recommendation will not have a negative impact on Crime and Disorder.
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Phillip Morris-Head of New Business |
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Procurement |
· On accepting the recommendations, MBC will then follow procurement exercises for commissioning consultancy advice to complete delivery of the scheme. We will complete those exercises in line with financial procedure rules. |
Phillip Morris- Head of New Business |
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Biodiversity and Climate Change |
· Providing 1,000 new affordable homes will have a significant impact on the Council’s carbon footprint and 2030 Net Zero commitment. Highly thermally efficient, low carbon heating, and climate adapted housing, as well as consideration for shared heating solutions, renewable energy, active travel, and biodiversity enhancements as part of the development strategy will ensure alignment with the Biodiversity and Climate Change Action Plan. |
James Wilderspin Biodiversity and Climate Change Manager |
2. INTRODUCTION AND BACKGROUND
2.1 An outline planning application was submitted for a potential development site by a third party in 2021 for 2 x2beds, 5x2beds, 3x 3beds and class E commercial scheme at ground floor level. The decision is pending.
2.2 The Council now proposes to acquire the site and deliver the development. The proposed acquisition will provide 10 apartments and commercial space, subject to planning. The application drawings are shown in Exempt Appendix 2.
2.3 The proposed site will be acquired with an existing tenant in occupation, with the benefit of a 5-year lease agreement starting in 2021. The agreement includes a mutual break clause on six months’ notice at any time.
2.4 On advice from the legal team, notice will be served to the existing tenants in order to obtain vacant possession of premises, at the appropriate time.
2.5 It is proposed the development will be delivered as 100% affordable housing. There are 10 proposed car park spaces and the scheme will be designed to national space standards.
2.6 The Council’s offer for the proposed acquisition for the freehold of the site has been accepted (subject to committee approval, satisfactory contract, surveys and RICS valuation). The offer is based on a market valuation.
2.7 The offer is subject to an overage clause of £35,000 per flat, if the scheme is consented for more than 10 flats, not including the commercial space on the ground floor, within 20 years of the acquisition. We are confident due to planning constraints; we do not anticipate additional units.
2.8 A full schedule of accommodation along with the estimated market rent per unit, per calendar month (PCM) and subsequent total gross market rent per unit, per annum is summarised below:
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Accommodation
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Unit Totals |
Unit Size Sq ft |
Market Rent per unit (PCM) |
Total Gross Rent per unit (PA) capped at LHA rates |
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1bed2p flat |
2 |
570 |
£750 |
£6,979 |
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2bed4p flat |
2 |
764 |
£875 |
£8,638 |
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2bed4p flat |
3 |
872 |
£875 |
£8,638 |
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3bed5p flat |
3 |
928 |
£1,025 |
£9,698 |
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commercial |
1 |
3,100 |
£1,437 |
£75,000 |
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Total |
11 |
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All affordable housing will be let as Affordable Rented homes with rents set at 80% of market rent but capped at the local housing allowance as shown in table above. The homes will be let for Affordable Rented Housing to households on the Councils Housing register in accordance with allocations scheme policy.
Financial Return and Commitments
2.8.1 The total Gross Rent for the scheme and subsequent total Net rent for the scheme after the deduction of allowance (before inflation and interest) is £81,924 and £71,347 respectively. The part 2 Appendix 1 shows the relevant financial scheme summary.
2.8.2 The overall returns are reasonable, especially in terms of affordable housing. However, the costs ratio is significantly above the required level mainly due to the unprecedented increase in build costs seen recently in the Southeast.
2.8.3 It is anticipated that part of the Total Scheme Cost will be funded by MBC applying for grant from Homes England as part of the Continuous Market Engagement bid process for the Affordable Homes programme 2021-2026. The remainder of the Total Scheme Cost would be funded from the existing approved capital programme to support the delivery of affordable housing.
2.8.4 The acquisition is financially viable and meets the Council’s minimum internal financial parameters. It will provide much needed affordable homes in the area.
2.8.5 These properties will be managed by MBC Housing Management Team, which is within the Housing and Community Services Department. The team will be responsible for all tenant contact including repairs, voids, maintenance compliance and rent management.
2.9 Proposed Delivery Timescale:
2.9.1 Details of the proposed delivery timescale are given below. The dates should be regarded as indicative at this stage as the Council may need to extend/amend the timetable as necessary.
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Acquisition completion |
February 2023 |
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Planning consent |
August 2023 |
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Start on site |
November 2023 |
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Practical completion |
November 2024 |
3. AVAILABLE OPTIONS
3.1 Option 1: The Committee recommends for approval the purchase of the proposed acquisition. On approval of planning consent to professional consultants and a contractor will be procured to deliver the scheme. This site when built would assist with housing provision for single person and families in need of affordable housing, contributing towards delivering the development strategy of 1,000 affordable homes.
3.2 Option 2: The Committee could choose not to recommend to the Executive the approval of the purchase of the proposed acquisition. The Council would however lose an excellent opportunity to purchase a site close to public transport and other amenities to add to its affordable housing stock. It will assist towards much needed accommodation in the Borough and contribute towards the Council’s target of 1,000 Affordable homes.
4. PREFERRED OPTION AND REASONS FOR RECOMMENDATIONS
4.1 Option 1 is the recommended option. A significant amount of work and negotiation has been completed by the officers to reach this accepted offer stage with the owners. The scheme has a good chance of being granted consent, with some modifications and liaison with the planning department. It represents a good investment opportunity which supports the 1,000 Affordable Homes Strategy. It also offers the opportunity to work with the owners who have several other small sites within the Borough, that could yield more opportunities in the future.
5. RISK
5.1 The risks
associated with this proposal is the increase in build costs since the start of
the pandemic and recent inflationary pressures. Due to supply chains and
shortage of labour construction costs have risen. Initial costings have
been provided by Calfordseadon. The
scheme is of a size to attract the smaller contractors, who have less overheads
and can be competitive with pricing.
5.2 Officers
will monitor the viability, as build costs remain turbulent. Therefore,
post-consent, officers will monitor local rental values and demand. Upon
completion of planning consent, there will be a procurement process to appoint
the contractor. Officers will forward for approval to this Committee a detailed
project delivery and investment plan (prior to the development itself
commencing).
5.3 The
appraisal has assumed some subsidy from Homes England. The housing will be 100%
affordable rent on site. The chances of securing grant are much improved by MBC
having acquired the site.
6. CONSULTATION RESULTS AND PREVIOUS COMMITTEE FEEDBACK
6.1 Previous committee feedback has expressed the desire for MBC to acquire potential housing led sites within the Maidstone Borough to deliver housing for social housing purposes for the benefit of the local community. This proposal achieves that intention.
7. NEXT STEPS: COMMUNICATION AND IMPLEMENTATION OF THE DECISION
7.1 The next steps, subject to the decision made by the Executive, will be to secure the site with exchange and completion of contracts on the terms as agreed by the Director of Finance, Resources and Business improvement, subject to RICS valuation and satisfactory contract. Alongside the acquisition, officers will work alongside planning consultants to ensure a satisfactory consent. Once consent is received officers will work with appointed Employer’s agents to source a suitable contractor within a deliverable price. And will return to Committee with recommendation for the contractor to be appointed and confirmed costs for the build.
7.2 The Head of Mid Kent Legal Services will also be authorised to instruct/appoint the Solicitors to complete the necessary contract documentation, deeds and contracts associated with the purchase.
8. REPORT APPENDICES
The following documents are to be published with this report and form part of the report:
· Exempt Appendix 1: Site Layout
· Exempt Appendix 2: Financial Summary
9. BACKGROUND PAPERS
None