Bit of a council U-turn here, I wonder if it’s a vote winner, it seems to back on with The Royal Sands, no flood risk assessment, the council get full liability for the cliff for the life of the development, and from the bandstand we get to look a 100 feet of corrugated rubber, instead of the beach and harbour.
This is what they have to say:
Royal Sands Development
To: Cabinet – 11 September 2014
Main Portfolio Area: Cllr Rick Everitt, Cabinet Member for Finance & Estates
By: Edwina Crowley, Head of Economic Development & Asset
Summary: Further information has become available since Cabinet adopted
the recommendations of the Overview and Scrutiny Panel on 20th
February. Cabinet are asked to consider this information and
determine the resolution.
1.0 Introduction and Background
1.1 On 20th February Cabinet made a number of decisions based upon the
recommendations of the Overview and Scrutiny Panel which it received and adopted.
2.0 The Progress since the Decision on 20th February
2.1 Since the Cabinet report of 20th February there has been a change in project team as
Edwina Crowley Project Lead, Head of Economic Development and Asset
Steven Boyle Interim Legal Services Manager
Mike Humber Technical Services Manager
Grant Burton Capital Development Manager
2.2 The team is supported by Stuart Wortley and Luke Miotte of Pinsent Masons (legal
advice) and Tim Mitford-Slade of Strutt and Parker (valuation advice). The project team
have re-visited the site and reviewed the documents and correspondence.
2.3 Acting on the recommendations contained in the Cabinet report made on the 20th
February the Council served Notice on the developers legal advisor requiring remedy
of the breach of the agreement.
2.4 Following the service of the Notice the development agreement contractually provides
for parties to enter into mediation when there is a significant dispute and therefore on
10th July, a without prejudice meeting took place at the offices of Pinsent Masons.
2.5 At this meeting the Developer informed officers that they had been approached by
Cardy Construction Ltd to acquire the share capital of SFP (Ventures) Ltd thereby
proposing to take ownership of all SFP contractual obligations (including this
development agreement with the Council) and that in principle, the Developer is keento accept the offer. This would mean that Cardy Construction Ltd would become
responsible for finishing the construction works in accordance with the planning
2.6 Furthermore Cardy Construction Ltd would amalgamate this company into the
established parent group of companies which has an long history of successful
performance with such schemes.
2.7 Additionally, Cardy Construction Ltd are, in principle, in a position to enter into an
agreement which, subject to successful negotiations between the parties, would mean
the Council would not only receive the overage payments in advance of completion of
the construction but also provide additional benefits for the Council.
2.8 Cabinet is asked to note at this point that the current contractual arrangements with
SFP entered into in 2006 mean that the Council has substantially disposed of its
freehold interest in the land (with freehold transfer provisions documented in the
development agreement); the Council’s only continuing legal interest is the right to
receive overage payments in respect of the completed units.
2.9 Notwithstanding the problems that the developer has outlined which they state have
caused a problem in developing out this construction (see 3.2.3) if the matter
progressed to Court, the Courts would expect the Council to undertake an objective
assessment of all reasonable offers put forward in order to complete this construction
project and by doing so receive the overage payments owed to them.
3.0 The Current Situation
3.1 In light of this offer advanced through the mediation process, the council development
project team has reviewed all the documents and correspondence and can provide
the following comment on the position.
3.2 It is clear following legal advice that terminating the development with SFP would not
be straightforward for the following reasons:-
3.3 Notwithstanding the expiry of the date for compliance contained within the Notice
served on the developer’s legal advisors, the procedure for terminating the
development requires the service of 3 additional separate notices. The Notice served
referred to the breach committed and had to allow the developer reasonable time to
comply with performance documented in the notice. The developer may comply in full
or in part, and at the end of the period for compliance the developer would be allowed
further time to proceed to the next phase of works.
3.4 To continue down this route of performance management means the process will be
likely to be drawn out over a number of years.
3.5 Furthermore, SFP (Ventures) Ltd could at any stage decide to contest any attempt to
terminate the development agreement by formal action on the basis of several
arguments. Whilst there are varying degrees of merit to these potential challenges
they might include:-
a) some of the delays to the development were caused by matters outside of their
control and therefore may validate the request by SFP to extensions of time, for
example the problems with the cliff face wall, access and egress restrictions.
b) SFP have also made allegations about the actions of a particular Councillor
trying to undermine its attempts to fund the scheme and promote the
development (including its attempts to identify a suitable hotel operator).
c) Notwithstanding the programme of works agreed at the time of the 2009
variations required the developer to build in an illogical manner because the
hotel could not sensibly be opened with the residential still underway; the
highways issue in 2010 made it practically impossible too for the reasons
documented in (d) below.
d) A review of the programme of works in light of the access/egress restrictions
mentioned means that it would be extremely difficult to follow in a safe and
practicable manner (given that if the hotel was built first in accordance with the
programme, access to the remaining site would be obstructed by the hotel), and
Health & Safety Construction Regulations require adjustments to works
programmes where there is a safer way of delivering the project.
3.6 SFP claim to have invested significant sums of money in the development, accordingly,
they are likely to fight very hard to protect SFP's interest in the development site.
3.7 For these reasons, any formal attempt to terminate the development agreement would
undoubtedly take a considerable time and there is always a risk with litigation that the
Council may be unsuccessful and at the very least the outcome would be uncertain.
Contentious litigation would be very likely in this case and progressing with such action
would be expensive (with uncertainty as to where the Court would award the costs) and
could tie the development site up for many years.
3.8 The Council's decision through Cabinet to terminate the development agreement on
20th February 2014 was reached on the basis of a summary of Pinsent Masons' legal
advice. Issues which have been raised by Parry Law in response to the Notice served
for the breach have resulted in amendment to the original advice, including (as
requested by Members) a review of the comments around the absence of a long stop
date being a “material defect”
3.9 There was no one off long stop date in the development agreement whereby if the
developer had not performed the Council would have step in rights to get the site back.
The agreement did however have several performance indicators; failure to perform
one of them would trigger a review of the agreement with the Council taking action as
appropriate. In light of the amount of money that the developer would have invested at
each stage, Pinsent Masons advise it is unlikely that they would have been agreeable
to a long stop date when the contracts were being negotiated in 2006.
4.0 Cardy Construction Ltd
4.1 Focusing on the present situation, it is clear that circumstances have materially
changed in that there is now a reputable and established construction company,
willing to take over SFP and they in turn have indicated they are willing to transfer
their interest to this company. Upon completion of company transfer contracts
between SFP and Cardy Construction Ltd, the current owner of SFP would have no
further involvement with the development.
4.2 Cardy Construction Ltd have in principle funding in place to complete the
development within a reasonable time frame. Furthermore, they are of a sizable
nature, have proven technical expertise and a consistent record for delivering quality
projects of this type and scale. 4.3 It is also proposed that the Cardy Construction Ltd will employ local tradespeople for
this project and engage apprentices. A construction project of this scale will employ
up to 200 people on this project when in full operation, there is also the ongoing
opportunity for jobs aligned to the hotel trade, commercial units and servicing of the
residential common parts.
4.4 Overall, Cardy Construction Ltd is therefore considered a much stronger covenant for
the development and for this reason are able to attract funding for the scheme,
making delivery viable.
5.0 Commercial Considerations
5.1 The project team had been asked to consider the present value of the site and what
the implications would be if the council was able to buy the site from the developer.
Valuation experts Strutt and Parker were asked for advice on the present value of the
5.2 Strutt and Parker advised that the site is worth a significant amount of money even in
its part developed state.
5.3 The Council does not have the funds to buy the site back (see section 7.1 below)
even if the developer was willing to sell the site. The market value of the scheme is
the value added by the granted planning permission for the finished scheme.
5.4 Even if the Council was able to buy back the site then the Council would still be
required to secure an alternative developer, in order to secure the best financial value
for the site, so it is likely that the same scheme or a scheme of similar type and scale
would be developed out.
5.5 Therefore, the offer by the Cardy Construction Ltd to finish the scheme and
compensate the council for the overage money owed is considered to be a good
solution. To get the site developed will not only bring financial return to the council but
will support regeneration in Ramsgate, both by direct and indirect employment
5.6 The project team have considered the benefits of receiving the overage payment in
advance of completion of the development. The project team are also confident that
they can negotiate better contractual terms for the council to include a call in option
5.7 The offer from the Cardy Construction Ltd to build out the site in a timely manner is,
subject to successful negotiations, considered by the project team to be acceptable in
6.1 It is therefore recommended that Cabinet authorise officers to defer the
recommendations of the Cabinet paper dated 20th February whilst positive
6.2 Furthermore, that Cabinet authorise the project team (in consultation with the S151
Monitoring Officer, Head of Paid Service and Cabinet Member for Finance and
Estates) following due process and procedures to progress with negotiations;
6.3 That a report be brought back to Cabinet in October, documenting the outcome of the
negotiations for final decision.
7.0 Corporate Implications
7.1 Financial and VAT
The Royal Sands development is currently accounted for within the Council’s asset
register and subsequently within the Balance Sheet. The financial implications of the
aforementioned have been detailed below:-
To receive the overage monies owed to the Council would result in a substantial
capital receipt that would be used to fund council’s capital expenditure programme.
It is noted that preliminary investigations were held by the project team to get an
indicative present value for the site and that this amount is a considerable sum. There
is no allowance in the budgets to take this action, it would constitute as capital
expenditure for acquisition of the rights bought back that had previously been sold.
There has been a decline in capital receipts over the past few years due to the
economic downturn and the need to achieve best value. Currently the council does
not hold sufficient funds in the unallocated capital receipt reserve to fund such
expenditure as it has been fully committed to fund the existing capital programme. It
is likely the Council would need to borrow to facilitate the purchase of the leases,
which would result in increased revenue costs for the Interest on borrowing and the
minimum revenue provision for principal repayment.
Once agreement has been sought on which option would be the most appropriate
then specialist VAT advice will need to be sought.
The legal issues are broadly as outlined within this report.
There are processes to be followed to seek to terminate the existing agreements as
outlined. There is likely to be a challenge to this process which will be costly and time
Careful attention needs to be made to any action taken either to terminate the existing
agreement, purchase the leases or seeking to sign a new agreement to ensure the
Council’s legal position is secured.
Appropriate advice has been sought at all stages so far to ensure that the Council’s
position is sustainable.
As outlined within this report the position has changed materially since the Cabinet
Decision was taken in February.
Given that there is now an alternative which may bring about a solution to the
problem avoiding the legal challenges it is appropriate that members are given the
opportunity to consider this and to take a decision based upon all of the options.
7.4 Equity and Equalities
If Cabinet agree to taking this forward, all discussions and agreements are subject to
a Council equity and equalities assessment.
8.0 Decision Making Process
8.1 This is a key decision subject to call in.
Contact Officer: Edwina Crowley, Head of Economic Development and Asset
Reporting to: Madeline Homer, Acting Chief Executive
Corporate Consultation Undertaken
Finance Nicola Walker, Finance Manager - HRA, Capital & External Funding
Legal Steven Boyle – Interim Legal Services Manager & Monitoring Officer