Content

Salford
City Council - Record of Decision
Title: Amendment to tenure mix
for transfer of affordable homes developed by the Council at the
former St Lukes site, Kerrera Drive, Salford 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 62 properties at the St Lukes site
to Dérive
RPby way of the grant of a long
lease for a term of 999 years, for social and affordable
rent.
Approve the disposal of 6 properties at the St
Lukes site to Dérive (Salford) Group by way of the grant of
a long lease for a term of 999 years, initially for affordable rent
to DLUHC Local Authority Housing Fund (LAHF) Round 2
cohort.
Approve the lending of £7,576,205
to
Dérive RP
to fund the acquisition and associated costs of 62
units.
Approve the lending of
£677,792 to Dérive
Group to fund the acquisition and associated
costs of 6 units. As the Council will use DLUHC LAHF Round 2 grant
funding for these 6 units, Dérive Group will be required to
ensure that these 6 units are used in accordance with DLUHC’s
LAHF requirements.
Note the amendments to tenure mix
and transfer values, removing shared ownership properties to be
replaced by a mix of LAHF units to utilise available LAHF Round 2
funding and increasing the number of affordable rent units to be
transferred to Dérive RP by 6.  
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:                           
Amended tenure mix for new
affordable housing delivery to reflect availability of LAHF Round 2
funding.
 
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.
The
Council has the power to provide funding to Derive RP and Derive
Group under Section 24 of the Local Government Act 1988 (LGA 1988),
which allows the Council to provide financial assistance for
privately let housing accommodation. Section 25 LGA 1988 requires
Secretary of State consent to the exercise by the Council of its
Section 24 LGA 1988 power.  Consent C of
the 2010 General Consents under Section 25 LGA 1988 provides the
Council with a broad consent to “provide any person with any
financial assistance for the purposes of, or in connection with,
the acquisition, construction, conversion, rehabilitation,
improvement, maintenance or management…of any property which
is or is intended to be privately let as housing
accommodation”.  The Council will
rely on its power under Section 24 LGA as the legal basis for the
proposed Council loans to Derive RP and Derive Group to enable the
two Derive companies to acquire the St Lukes Estate.
 
The
Council has been awarded £3,510,000 of Homes England AHP
2021-26 grant funding to fund the construction of 56 units at the
St Lukes Estate. The Council is seeking approval from Homes England
to transfer the 56 units which have been funded through Homes
England grant to Dérive RP. 
Homes England will require Dérive RP to enter into a legal
undertaking, whereby Dérive RP will undertake to ensure that
the 56 units are used for the purpose of the provision of
affordable and social rented housing. 
The Council is currently seeking an additional £312,000 of
Homes England AHP 2021-26 grant funding to help deliver the
additional 6 affordable rent units which are to be transferred to
Dérive RP.  If Homes England AHP
2021-26 grant funding is obtained in respect of these additional 6
units, Homes England will require the Derive RP undertaking to
include these 6 units.
 
The
Council has been awarded DLUHC Round 2 LAHF grant funding to
support the Council to deliver 10 Round 2 LAHF homes.  It is proposed that £686,959 of the Round 2
LAHF grant which DLUHC has awarded the Council is used to support
the delivery of 6 of the St Lukes units as Round 2 LAHF
homes.  The Council will require Derive
Group to enter into a legally binding agreement to ensure that
these 6 units are used by Derive Group for the purpose of providing
Round 2 LAHF homes in accordance with DLUHC’s
requirements.
 
The tax treatment of the proposed
Council disposals to Derive RP and Derive Group respectively needs
to be considered and specialist tax advice is required. If the
transactions create tax liabilities within the Derive company group
any available reliefs need to be explored. If none are available,
the implications for the financing of the disposals will need to be
reviewed.
 
In addition,
specialist legal advice is being sought with respect to the
structuring of the transaction.
The disposals should also be structured in a way
which secures legally binding estate management obligations and
service charge contributions to be created as between Derive RP and
Derive (Salford) Group.

 
Financial Advice obtained:  Alison
Woods, Commercial Finance Manager.
The St Lukes
housing delivery scheme forms part of the Council’s approved
housing capital programme.
Both Dérive RP Limited and Dérive
(Salford) Group Limited have fully viable business plans to support
the transfer of the 68 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.

It should be noted that the Council
is seeking an additional £312,000 of Homes England AHP
2021-26 grant funding to help deliver the additional 6 affordable
rent units which are to be transferred to Dérive RP. This
element of the funding has not yet been confirmed by Homes England,
yet there is a low risk of it not being secured.  In the unlikely event that the £312,000
grant is not secured, the loan value to Dérive RP Ltd would
need to increase, to offset the grant shortfall.  A further viability assessment has been carried
out under these circumstances, which demonstrates the scheme
remains viable in the event £312,000 is not
awarded.
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.
Legal Implications Supplied
by: Kate
Bouchier and Kathryn Saldana
 
Financial Implications
Supplied by:
Alison Woods, Commercial Finance
Manager
 
Procurement Implications
N/A
 
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 No
0161 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.