Content

Salford
City Council - Record of Decision

 
Title: Transfer of option
properties acquired by the Council from Bellway at the Brackley
Village development to Dérive RP and Dérive
Group
 
I, Paul Dennett, City Mayor, in
exercise of the powers contained within the City Council’s
constitution do hereby;
 

Approve the disposal of 2 initial option properties at the Brackley Village
site to Dérive
(Salford) Group by way of freehold transfers, for
affordable homes that meet Local Authority Housing Fund (LAHF)
grant obligations.
Approve the lending of £278,655 to Dérive (Salford) Group to
fund the acquisition and associated costs of the initial 2
units.
Approve the disposal of up to 18 further option
properties at the Brackley Village site to Dérive (Salford)
Group or Dérive RP by way of freehold transfers for
affordable rent or shared ownership.
Note
the intention to nominate Dérive RP or Dérive
(Salford) Group as the acquiring party for up to 18 option
properties from Bellway as and when they reach practical
completion, subject to the Dérive companies securing the
necessary grant funding.
Approve the combined lending of £3,352,426 to
Dérive (Salford) Group and Dérive
RP to fund the acquisition and
associated costs of 18 further units due for handover from May
2024.
Delegate authority to
the Executive Director Place in consultation with the S151 officer
to: negotiate, agree, and finalise the detailed terms of the
transaction.
Authorise the Shared
Legal Service to prepare all necessary documentation and to take
all steps which are required to give effect to the above
recommendations.

 
 
The
Reasons:                            
 
To authorise the transfer of
initial option properties for affordable housing, note the
availability of LAHF Round 2 funding and nominate Dérive
(Salford) Group and Dérive RP as purchasers of future option
properties from Bellway.
 
Assessment of Risk is MEDIUM 

 
The
source of funding: Housing Capital
Programme, with loan to be repaid by Derive group companies over 40
year term.
 
Legal Advice obtained:  Kate
Bouchier and Kathryn Saldana, Shared Legal Service.
Insofar as the 8 “affordable
housing” units to be acquired by Dérive RP are
concerned, Dérive RP will fund its acquisition of these
units through £1,489,968 of Council Loan funding.  The Council will rely on its powers under Section
22(3) of the Housing Act 1996 to make the SCC Loan funding
available to Dérive RP. The Council will enter into a
facility agreement with Dérive RP in relation to the Council
Loan funding.  The acquisition of the 8
“affordable housing” units are intended to be
part-funded through Homes England Affordable Housing Programme
2021-26 Grant Funding.  It is
anticipated that Homes England will require Dérive RP to
enter into an undertaking to ensure that these units are used as
affordable homes in accordance with Homes England’s grant
funding requirements. Dérive RP will grant the Council a
first-ranking legal charge over these units by way of
security.
 
Insofar as the 2 “Phase 2
LAHF” units to be transferred by the Council to Dérive
(Salford) Group are concerned, Dérive (Salford) Group will fund its
acquisition of these units from the Council through £233,280
of DLUHC Phase 2 LAHF Grant funding and £278,655 of Council
Loan funding.  The Council will rely
on its powers under Section 24 of the Local Government Act 1998 to
make the SCC Loan funding available to Dérive (Salford)
Group.  The Council will enter into a
facility agreement with Dérive (Salford) Group in relation to
the Council Loan funding.  The Council
will enter into a grant funding agreement with Dérive
(Salford) Group in relation to the DLUHC Phase 2 LAHF Grant
Funding.  Dérive (Salford) Group
will grant the Council a first-ranking legal charge over the 2
Phase 2 LAHF units by way of security.
 
Insofar as the 10 “shared
ownership” units to be acquired by Dérive (Salford)
Group are concerned, Dérive (Salford) Group will fund its
acquisition of these units through £1,862,458 of Council Loan
funding. The Council will rely on its powers under Section 24 of
the Local Government Act 1998 to make the SCC Loan funding
available to Dérive (Salford) Group. The Council will enter
into a facility agreement with Dérive (Salford) Group in
relation to the Council Loan funding. The acquisition of the 10
“shared ownership” units are intended to be part-funded
through Homes England Affordable Housing Programme 2021-26 Grant
Funding.  It is anticipated that Homes
England will require Dérive (Salford) Group to enter into an
undertaking to ensure that these units are used as specified in
accordance with Homes England’s grant funding requirements.
Dérive (Salford) Group will grant the Council a
first-ranking legal charge over these units by way of
security.
 
The detail as to the
“financial” legal documents that will be required will
not be finalised until it is clear whether it is the Council or the
Dérive group companies which will be acquiring the units
from Bellway, and whether the Dérive group companies have
been awarded Homes England Grant Funding directly.
 
The Council will need to ensure
that any disposal of the units to Derive Companies are at best
consideration, under the terms of section 123 Local Government Act
1972, irrespective of the intended use of the property for
affordable housing. Given that the houses were obtained from
Bellway at a 20% discount, the Council will either have to be
satisfied that the current prices reflect the unrestricted open
market value or be able to rely on the terms of the General Consent
issued in 2003, which permits disposals at an undervalue, for the
purposes of securing economic, social or environmental well being
of its area provided the overall undervalue does not exceed
£2 million (which would apply to the 20 units as a whole). It
will be important to comply with the remaining conditions of that
consent. In addition, the Council should also ensure that the
disposals are not at an undervalue for the purposes of section 24
Local Government Act 1988. Existing conditions as to use (such as
grant conditions) can be taken into account in calculating market
value.
 
If the
Council intends to restrict use of the properties for
affordable/social housing but proceed by way of a freehold disposal
from SCC to Derive, then consideration will need to be given as to
how best to secure those restrictions (in the absence of leasehold
covenants). This could be imposed through restrictive covenants or
imposed in the facility/funding agreements.
 
Financial Advice obtained:  Alison Woods,
Commercial Finance Manager.
Both
Dérive RP Limited and Dérive (Salford) Group Limited
have fully viable business plans to support the transfer of the 20
properties, which includes the full repayment of the aforementioned
loans to Salford City Council, over a 40-year period at an interest
rate of 4% on an annuity basis.
Dérive RP Limited and Dérive (Salford) Group
Limited have a number of golden rules that ensures that all schemes
it takes on are fully viable without the need for working capital;
this gives the Council assurance that it will be able to meet its
debts in fulfilment of this loan.
Disposal
of 2 Phase 2 LAHF units to Dérive (Salford) Group
It is
proposed that the 2 units on the development will be made available
for the Phase 2 LAHF cohort to be held by Dérive (Salford)
Group. The Council has secured this funding from DLUHC and there is
a commitment to provide Dérive (Salford) Group with
£233,280 of DLUHC Phase 2 LAHF grant, to fund the acquisition
of the 2 units by Dérive (Salford) Group from the
Council.
Disposal
of remaining 18 option units to Dérive RP and Dérive
(Salford) Group

The proposed loans by the Council totalling
£3,352,426 to fund the acquisition of the 18
affordable units by Derive Group companies, assume that the
Dérive group companies and/or the Council (dependant on the
achievement of Investment Partner Status), will be successful in
securing grant funding of £1,080,000, to help deliver the
remaining 18 affordable units.  If the
bid to Homes England is unsuccessful (which is considered to be low
risk) or there is a shortfall in the anticipated grant award, any
additional loan requirement to deliver the 18 units, would be
subject to a further review and a report where necessary, or
otherwise authorised under the scheme of delegation by the
Executive Director Place.

It should also be noted that if Investment Partner
is not secured by Derive Group companies, the default position will
be that the Council will acquire the option properties and will
dispose of the option properties intended for affordable rent to
Dérive RP and the option properties intended for shared
ownership sales to Dérive (Salford) Group at the plot option
price (£241,600) plus plot extras as per a schedule agreed
with Bellway. If the Council directly acquires from Bellway Homes,
the acquisitions would be subject to £7,248 stamp duty per
unit.  This additional expenditure would
need to be met through an increased loan to Derive Group companies,
subject to a further report where necessary, or otherwise
authorised under the scheme of delegation by the Executive Director
Place.

 
Financial
Implications Supplied by:
Alison Woods, Commercial Finance
Manager
Procurement Implications N/A the award of the contract to Seddon
Construction to build the affordable homes was subject to a
separate Procurement Board approval.
 
Climate Change
Implications supplied in consultation with: Mike Hemingway - Principal Officer - Climate
Change
 
HR
Implications: N/A
 
The
following documents have been used to assist the decision
process;
Public
briefing report to Cabinet on 9 April 2024
 
Contact Officer:
John Nugent (Property Services)      
Tel
No0161 779 6072

 

*          
This decision is not subject to consideration by another Lead
Member/Director

*          
The appropriate Scrutiny Panel to call-in the decision is
the
           
Growth and Prosperity Scrutiny
Panel.

 

Signed: Paul Dennett
City Mayor
Date: 09.04.24
 

 

*          
This decision was published on
09.04.24

*          
This decision will come in force at 4.00 pm on 16.04.24 unless it is called-in in accordance
with the Decision Making Process Rules.