Purpose

The Britannia Masterplan contains four residential blocks; two of which will be handed over to Hackney Housing Services, to be managed as part of the Housing Revenue Account (HRA). The other two, containing the private / shared ownership homes, will be run via a new Management Company, to be set up in readiness for the mobilisation of the Managing Agent and Customer Care team.

Decision

RESOLVED:

1. To approve the incorporation of a Council-owned Management Company, limited by guarantee, to manage the common parts and structure of the properties at 1 Brafa Square and 2 Brafa Square.
2. To approve the appointment of the Group Director Finance and Corporate Resources nomination as the Intelligent Shareholder of the Management Company.
3. To delegate authority to the Intelligent Shareholder to nominate three officers to fulfil the roles and responsibilities of the Council as Directors of the new management company.
4. To authorise the Director of Legal Democratic and Electoral Services to incorporate the new company, including entering into all necessary agreements and documentation including, but not limited to, the memorandum of association, articles of association, and shareholders agreement.
5. To authorise the grant of a lease of the common parts and structure of the building to the Management Company following the last private apartment sale at 1 Brafa Square and 2 Brafa Square.

ReasonS for decision

This business case recommends that Hackney Council establishes a wholly owned Company Limited by Guarantee to manage two new residential blocks at Shoreditch Parkside (1 Brafa Square and 2 Brafa Square), which is the final phase of the Britannia masterplan development.

The Council’s constitution sets out a protocol on the setting up of new subsidiary companies (“Part 9D - Protocol on the Governance of Council Interests in Companies”). This requires it to establish a robust business case.

In line with this protocol, the case for the setting up of the Management Company (ManCo) is as follows:

Objectives. The objective of the proposed Management Company is ‘to act as Landlord and provide a high-quality property management service to the residents of 1 and 2 Brafa Square’. It is proposed that after a transitional sales period, the ManCo is granted an Intermediate Lease, and this approach is assessed as the recommended option in the Options Appraisal.

Investment and resources required to achieve the objectives. The business case proposes that a ManCo Manager is appointed to work across this and the Council’s other management companies (one Manager to three companies), with a ‘common approach’ whereby the same directors sit on each board, working with the S151 officer, as the Council’s Intelligent Shareholder. This simple structure allows sharing of skills and learning without the added bureaucracy of a holding company.

The expected financial results of the business. The ManCo is a not-for-profit entity, tasked with managing the blocks and collecting service charges. It should therefore break even as all reasonable costs are charged to leasehold owners. There is a period in which the Council as developer must bear the management costs for unsold properties. This is an existing ‘developer’ risk in line with the original financial business case for the Britannia masterplan (as set out in April 2017), and progressed to the delivery stage in the award of a design and build contract to Ardmore Construction Group Ltd in March 2023 for the 371 homes and associated public realm.

Any risks the business might face and how significant these risks are. The risks which the company may face are set out in the Risk Analysis section of the report. The key risks are a failure to discharge the obligations of Accountable Person (AP) in relation to the Building Safety Act, and poor management performance leading to higher costs / under-collection of service charges. These risks, including the others noted in the risk section will be monitored through the ManCo Manager, reporting to the board on a quarterly basis.

Other relevant outcomes that the business is expected to achieve. The ManCo is designed to follow a market-standard approach to property management, and after the sales period should reach a business as usual ‘steady state’. It is not profit-making and there are no proposals to expand the business. The objectives set out are consistent with the Council’s approach to managing its other property management companies and this business case sets out an efficient approach to this.

The creation of a management company is required in order to manage the obligations of the Freeholder with private leaseholders in an industry recognised and standard manner.

This provides a recognised, accountable and transparent structure for the management of services to leaseholders on behalf of the freeholder, and adherence to best practice.

In order to maintain a competitive offer to potential buyers, the Council must act in line with buyer expectations and industry norms; the provision of management services without the comfort of a ring fenced development management company, would be detrimental to sales and risk the overall financial objectives of the masterplan.