Commercial Property (Agenda Item 9)
- Meeting of Governance & Audit Committee, Tuesday, 29th September, 2009 2.30 pm (Item 67.)
- View the reasons why item 67. is restricted
To consider the background to the issues surrounding commercial property investments. The relevant documents are being sent under separate cover for attending members of the committee only.
The Chief Executive explained that the Cabinet had accepted a report from the former Monitoring Officer at its meeting on 4 August 2009, albeit some areas of the report were not completely accurate. The report raised some areas for consideration by the Council as to the way forward and by this Committee as to a review of policies and procedures followed to ensure they were correct and what, if any, lessons needed to be learned for the future.
It was suggested the points as raised in that report gave a good basis for an examination of the matter and it was felt that it would be possible to make some positive responses to the issues raised.
Additional supporting information provided to the Committee included the original reports to Council, independent valuation reports and business lease relating to the property in question.
The Committee then proceeded to examine the issues in detail, particularly in regard to the contract and terms of lease. The position as to the statement of the accounting treatment of the contract was also examined in detail and was clarified and confirmed.
The investment in property involved in this matter had been questioned but it was noted that the Audit Commission’s report “Room for Improvement” made it clear that such investments by local authorities were not unusual and were a valid use of resources.
So far as the risk assessment made at the time of the investment was concerned, it was felt this had sufficiently addressed necessary areas. However, the risk assessment of the investment did not appear to have covered the question of a parent company guarantee for the business concerned. This latter point was something that needed to be provided for as the rule for all investments in the future (as it was for more standard commercial contracts) and any exceptions to this rule to be reported for a decision in each case.
So far as the question of value for money of the investment was concerned, the investment had outperformed similar cash investments and was expected to continue to do. The question of whether the Council had invested too high a proportion of its resources into a single asset was also considered. It was believed not, the value of the sum invested being a small percentage of the Council’s overall investments.
This was also a long-term investment and performance of such would not be judged over a short period of three years.
It was also felt the asset had not lost value, as evidenced by a recent soft marketing exercise.
In answer to the question of whether the investment had impacted on the medium term financial strategy or council tax, the reply was no. The Council’s investments were managed prudently and the Council currently had a healthy £2m commercial property reserve to manage peaks and troughs.
The question was also asked whether a matter from 2006 should influence the Council’s 2009 Use of Resources scores. It was believed it should not and that there did not appear to have been any negative connotations of the Council’s ownership of the property in question.
Other questioning also concerned the level of briefing provided to Members in this case and it was accepted that a more comprehensive briefing should be given before decisions of this magnitude were made in future.
In concluding its examination of this matter, the Committee’s overall assessment was that the Council had received good value for money from this investment.
So far as lessons learned for the future were concerned, the Committee
RECOMMEND TO THE COUNCIL that
commercial property should not normally be let without either a
directors’ or parent company guarantee and any exceptions to
this rule should be brought to the attention of the Lead Member for
commercial property; and
(2) for any report with an associated risk register, the risk register should accompany the report.