Members considered the comprehensive report of the Director – Place and Climate Change which provided an update on the progress of the Blackfriars Infrastructure and Housing project and the latest financial position. The report also outlined some recommended amendments to the Shareholders Agreement between the Council and Rother District Council Housing Company Ltd (the Company) and the Company Articles of Association.  The report demonstrated that positive progress had been made with the infrastructure scheme on this historically stalled site, however, the biggest risk to the project was the marginally viable status of the site, compounded by increased infrastructure costs and challenging market conditions.

At the time of reporting, the Company Board’s approved housing delivery option of 130 affordable homes and 70 open market sale, was now not viable.  This would leave no surplus available to help absorb the deficit on the infrastructure delivery or to manage the ongoing project risk of further cost increases.

Whilst the Company had considered various options to demonstrate a profit-making scheme required of a commercial entity, the only viable option to provide sufficient business justification to continue the housing project at this stage, was to formally submit a Financial Viability Assessment to Planning to determine the removal of the s106 planning obligation, with the view to delivering 100% open market sale.  This enabled the Company to proceed with a scheme and to secure the necessary loan funding arrangements for continued business justification and to achieve the business aim of increasing supply of housing.  The various options considered by the Company were detailed in the financial appraisal contained within confidential Appendix 5 to the report; Members did not go into confidential session to discuss the confidential Appendix.   

It was noted that the option to sell the whole site to a registered provider for 100% affordable housing had been considered and ruled out as an unviable option but had not been included in the options appraisal; details of this option would be circulated separately to Members to demonstrate why it was not viable.  It was further noted that if this option was viable, the Council would not lose nomination rights, however, many registered providers had curtailed their building programmes due to the current economic viability constraints. 

The local Battle Members were disappointed that the affordable housing element had been removed and that this would not be a popular decision locally within Battle, where there was a real need for affordable homes.  However, positively, it was noted that all the housing in the new scheme would be Energy Performance Certificate rated B and A, if economically viable.

Members were reassured that the delivery of an element of affordable housing on this site was still very much the intention of the Housing Company and that every effort possible would be made to achieve this at some point.      

The Council and Company continued to work collaboratively to improve the overall financial performance of the project and the key activities and resources involved in this process were explored in detail in the report. It was noted that there was a need for an additional contingency of £1.1m for the delivery of the infrastructure, increasing the estimated cost reported to Members in July from £19.9m to £21.0m which represented a 5.5% contingency.

The Company had also undergone a review and refresh of previously agreed governance documents from 2018 and a small number of amendments had been agreed in principle, to incorporate in the Shareholder Agreement and Articles of Association, subject to Member approval.  The changes had been reviewed by both the Company and Council's respective legal teams and were detailed at Appendices 1, 2 and 3 to the report.

Members were also advised that the Council and the Company were working on finalising a Working Capital Agreement and wider Development Funding Agreement with legal advisors and this provided a further opportunity to review and assess governance arrangements.  The Service Level Agreement was also in the process of being finalised and it was hoped that this could be agreed and signed off by both parties by the end of the year.

RECOMMENDED: That:

1)        the updated capital budget requirement for the Blackfriars Infrastructure scheme of £21m be approved, to be funded as outlined within paragraph 15 of the exempt report (confidential exempt Appendix 5 to the report); and

2)        the Council’s Chief Executive be granted delegated authority in their capacity as the Company Shareholder Representative to finalise and agree the proposed amendments to Rother District Council Housing Company Ltd Articles of Association and Shareholder Agreement proposed in Appendices 2 and 3 to the report as submitted.

AND

*RESOLVED That:

3)        the position in respect of the Service Level Agreement and Working Capital Agreement be noted; and

4)        the recent Housing Company Board decision to apply to the Planning Committee for removal of the Section 106 planning obligation and to deliver 200 market homes and the potential impact this has on the scheme financing be noted. 

(The Confidential Appendix in relation to this matter, as set out at Agenda Item 14 was considered exempt from publication by virtue of Paragraph 3 of Schedule 12A of the Local Government Act 1972, as amended).

(Councillor Coupar declared a personal interest in this matter as a Council appointed Director of Rother DC Housing Company and in accordance with the Code of Conduct remained in the room for the considered thereof).

(Councillor Thomas declared a personal interest in this matter as Chair of Rother DC Housing Company and in accordance with the Code of Conduct remained in the room for the considered thereof).

*The RESOLVED parts of these Minutes are subject to the call-in procedure under Rule 16 of the Overview and Scrutiny Procedure Rules.