Agenda item

To consider a report of the Strategic Head of Estate & Asset Management.

 

The report outlines the extent of the Councils Commercial portfolio, the performance and suitability of the significant assets to support council objectives for the next five years.

 

The Panel is requested to note the content of the report and recommend further areas for review.

 

Contact Officer James Kington on 07815 997564 or james.kington@stockport.gov.uk

A representative of the Corporate Director (Corporate & Support Services) & Deputy Chief Executive submitted a report (copies of which had been circulated) that aimed to outline to the Panel the extent of the Councils commercial portfolio.

 

The Panel were advised that the Council’s commercial portfolio were arranged in two main portfolios, the tenanted non-residential properties and the investment and development account and was considered through three key lenses as follows: -

 

·       Commercial suitability;

·       Capital and revenue costs; and

·       Climate Action NOW (CAN) objectives.

 

James Kington (Strategic Head of Estate & Asset Management, Stockport Council) attended the meeting to respond to Members’ questions.

 

The following comments were made/issues raised:

 

·       The existing tenanted non-residential property portfolio was explained together with the capital asset value and the current rental income.

·       It was clarified that the portfolio included assets which provided a stable and relatively secure income in comparison to others that were more sensitive to economic forces and requiring greater management by the Council as the landlord.

 

Commercial Ground Leases

 

·       Commercial ground leases were of significant duration, commonly 125 years with older agreements being of shorter and many reaching a life where tenants were seeking an extension or renewal.

·       Clarification was sought regarding the number of years left on a lease and the charges incurred. In response, it was noted that the rentals were static and it would be dependent on the lease terms.

·       The Panel enquired about the 204 units generating just under £300m in rental income and whether it was the right thing for the Council to be doing. In response, it was commented that the units were held for historic reasons and would be low intensive to manage and on a day to day basis would not require much work. More work would be required where leases are being renewed, but it was really good to have these assets as a Council.

 

Industrial Units

 

·       The Council has two main estates of ‘nursery’ units occupied by a variety of small businesses who require smaller units.

·       The nature of the tenants can require significant management and the rent arrears has increased due to the recent economic situation.

·       The two estates are now approaching 50 years old with a lack of investment.

·       The units do offer valuable space to businesses seeking to get established in the borough providing employment opportunities and additional non-domestic rating revenue.

·       The Panel enquired about repairs insurance on these units. In response, it was stated that full repair insurance would be sought in most cases but dependent on the leasing arrangements.

·       Clarification was sought on the location of the nursery units. It was commented that one of the nursery units was in Enterprise Centre Two, just off Chester Gate and the other was in Heaton Norris.

 

Retail Units

 

·       Retail units were located across the borough in a mixture of small parades and a single precinct.

·       The units have residential space on floors above which were managed separately by Stockport Homes Limited.

·       The retail units were largely occupied by local retailers rather than national or regional businesses and required significant management to address issue such as rental arrears.

·       The Panel sought clarification on the estates policies being aligned with other policies e.g. Climate Change and Active Travel policy. In response, it was noted that policy alignment was already being progressed and would be looked at further with Stockport Homes.

·       It was commented that consideration would be given to encouraging the district centre work that was currently ongoing with the new district centre managers to bring together the estates and asset management to link in with the vibrant local centres and the active travel policies.

·       Clarification was sought regarding the fairness of the rent and income being generated. In response, it was stated that it was fair for the areas and types of units and that the rents were market tested and were based upon what people could afford.

 

Miscellaneous Commercial Premises

 

·       These assets comprised a range of uses including sports facilities, and children's day nurseries amongst others.

·       Some of the facilities were associated with other Council buildings such as the day nurseries with schools and the sports grounds whilst managed by commercial tenants providing facilities to the wider community.

·       Some of the assets were tenanted by larger enterprises including the hospitality& leisure sectors as well as the telecommunications industry however the majority were small businesses.

·       Clarification was sought relating to telecommunication masts and the agreements involved. In response, it was stated that there would be planning, health & safety and highways considerations to take into account, but not much income was generated. It was also noted that the legislation has changed and favoured the telecoms operators and could be placed without the landowners consent.

 

Agricultural

 

·       The Council had a limited range of agricultural assets comprising one farm in Reddish Vale and land let on an agricultural tenancy in Cheadle

·       Other land comprised individual holdings which could be single fields ranging from an acre in size to larger areas which were let for grazing horses.

·       Much of this land was contained within the Green Belt and its retention within the Councils ownership did provide a degree of protection against development which might be contrary to the Councils polices.

 

Residential Chief/Ground Rents

 

·       Stockport Council hold approximately 488 ground rents and chief rents.

·       Total income derived from Chief and Ground Rents was £1,854 per annum

·       Rent Charges Act 1977 governs the Chief Rents and were given a life of 60 years meaning that they expire in 2037 and were held for historic reasons.

·       The Act also made provisions for the Chief Rent payer to redeem or purchase their Chief Rent for a multiple of the sum which they pay annually.

·       The cost of raising an invoice and collecting payment far exceeds the income generated and the Councils portfolio does not present the same negative characteristics which have been the subject of media interest recently and do not have the ability to be increased.

·       It was commented that there was a project to be undertaken to streamline the portfolio looking into the ground and chief rents.

·       Clarification was sought regarding whether returning the leasehold back to the owners was an option. In response, it was stated it was currently being explored by the legal team with the challenge being the legal fees and the best possible option.

·       The Panel noted that it was a strain on Council services and resources and should be looked into.

 

Issues Facing the Tenanted Non-Residential Property Portfolio

 

·       The age of the assets

·       The income vs invoicing and management costs

·       The reasons for the retention

 

Investment & Development Account (I&D)

 

·       This supports the delivery of the investment strategy including financial return, regeneration and risk.

·       Delivers and hold regeneration projects to support the Council’s aspirations across the borough, address market failure and deliver key economic benefits to the residents.

·       It has 24 assets including a mix of holdings e.g. leisure, retail and industrial.

·       All of the I&D assets have individual borrowing attached which needs to be serviced in line with the associated business plan under which they were acquired or developed.

·       The current assets were at varying degrees of maturity and a number still require further stabilisation.

·       Key assets include Mersey Shopping Centre, Redrock, Grand Central, Aurora, Stockport Exchange, Edgeley Park, Underbanks and Mayoral Development Corporation Assets.

·       The Panel enquired about the operational performance and the discussions that would be held at Board level. In response, it was stated that the discussions were around the financial elements e.g. tenant mix and wider investments including job opportunities.

·       The Panel commentated that the Scrutiny Committee already received an asset management plan on an annual basis, but would propose that some of the issues discussed in this presentation be included in the report to Scrutiny Committee to provide a better understanding of the wider performance.

 

General Estates Issues – Management & Economic

 

·       Current software does not allow effective management.

·       Links to finance and SAP systems is inadequate.

·       Additional staff is needed to support this area.

·       The Coronavirus Act – meant a suspension of the Commercial Rent Arrears Recovery (CRAR) which was extended to 25 March 2022.

·       During Covid a number of Council tenants went into liquidation as a result of the pandemic.

·       The current debt of the tenanted no-residential properties was £1.16m, owed by 189 tenants.

·       The Panel enquired about the debt owed and how it was owed in terms of rent and business rates. In response, it was noted that it was different legal entities to collect the debts and speaking to the debt recovery team and tenants regarding the debt owed whether it is rent or business rates as there are separate routes to get payments.

 

RESOLVED – (1) That the presentation and details provided be noted.

 

(2) That the following draft recommendations be considered as part of the final report: -

 

·       That consideration be given to encouraging the district centre work that was currently ongoing with the new district centre managers to bring together the estates and asset management to link in with the vibrant local centres and the active travel policies.

·       Look at the opportunities to streamline or rationalise the ground rent and chief rent portfolios and what should happen next.

·       Welcome the active approach and what was currently being done in the portfolio with the urgent attention being paid to those areas of concern

·       Look into the estates and property portfolio with the district centre management in terms of portfolio and role as the Council custodian.

·       Look into the fishing rights and why the Council have these and was it still necessary.