Agenda item

To consider the report of the Shadow Director.

The Shadow Director presented the report which sought Member’s approval for the establishment of a group of wholly-owned Council companies to be collectively known as Exeter City Group Ltd (ECG). The four companies would be comprised as follows:-

·           Exeter City Group Ltd – (the holding company);

·           Exeter City Living Ltd – (the development company);

·           Exeter City Homes Ltd – (the residential property company); and

·           Exeter City Living Property Ltd – (the commercial property company).

The Shadow Director confirmed that Exeter City Homes Ltd and Exeter City Living Property Company Ltd would not be in operation until approval was received from Council to be able to operate based upon sound and viable business cases.  The structure would be made up of Exeter City Council Group Ltd (the holding company) with the three subsidiaries operating under the parent company. The Council would own 100% of the shares in Exeter City Group Ltd and 100% in all of the subsidiaries. She explained the reasons for setting up the ECG, which included the acute need for housing where home ownership was out of the reach for many local people and private rents were increasing; and, although the demand for affordable homes had grown, existing approaches to the building of new housing were increasingly not delivering affordable homes of the type and quality required by the city’s residents. The City Council sought to deliver more affordable homes themselves through developing new council homes through the HRA but this was not enough to meet the housing need. Finance available to the HRA in terms of borrowing had been capped preventing new council homes being built.  More than 150 local authorities had created a wholly owned housing company and the Government supported local authorities in establishing such companies to provide well designed high quality homes in a range of tenures. 

The report set out the strategic and Year One business case and included the structure, governance and operational arrangements which had been designed with the assistance of external legal support.  A Steering Group had been set up to ensure the Council’s interest for retaining the necessary level of control over ECG, and the need to ensure that it had the autonomy to carry out the proposed actions in the Year One business case. The group consisted of the Leader and Deputy Leader of the Council, Portfolio Holder for Economy, Culture and Chair of Planning, Portfolio Holder for Housing and Revenue Account, Portfolio Holder for City Transformation, Energy and Transport, Portfolio Holder for People. The Group also included City Solicitor, Head of HR Services and the Chief Finance Officer.  The governance structure also included the appointment of shareholder representation to support the Council and scrutinise and manage its interests as a shareholder. A key responsibility of the Shareholder Representative’s Group would be to review the draft annual business case and recommend approval of the final business case to Members. The report also included the detail of the Management Agreement which provided detail of the contractual relationship between the Council and the Group of Companies, and the process for developing, reviewing and formally adopting the business case each year.

The first business case for 2018/19 would require an investment of £4.35 million in order to deliver its first year activities, and include the purchase of HRA land and start the on-site construction of 44 new homes along with office, staff and operational costs. It also included the costs for establishing a pipeline of further development sites for consideration in its second year business case.  In addition to this funding, Members would be asked to consider earmarking a further sum of £499,999 from the Council reserves to allow the Shareholder Representative to agree additional expenditure outside of the agreed Business Case in accordance with the Shareholder Representative Delegated Powers document which was attached as an appendix to the report.  A comprehensive Risk Register had also been prepared within the Business Plan with an evaluation of all of the risks and any measures to mitigate that risk. The respective Group Company Boards would individually and collectively maintain the risk registers to monitor and manage any risks associated with the business activity. 

The Corporate Manager Democratic Services and Civic Support responded to a Member’s comment on the interest declared by the Chief Executive & Growth Director and clarified that the future sole Director would be able to participate fully in all discussions at Committee.

A Member commented on the vision for the Exeter Living Company to “work with Exeter City Council and others to build more and better homes to address local housing need and contribute positively to Exeter” as set out in the report and commented on the 35% limit of affordable homes to realise a developer’s usual 20% profit target.  The Shadow Director stated that there was full access to the development application of the sites with the premise that ECG should remain financially viable and raise only minimal profit.

A Member also voiced his general support for the scheme, but was concerned that the overall premise was to offer social housing, rather than for business opportunity and he commented on the decision making process going forward. He wanted to ensure that Year One business case would be credible.

The following responses were given to Members by the Shadow Director:-

·         the maximum partnership was in relation to the Council’s position as a Registered Provider and to the Business Plan, which included all works conducted exclusively with public sector finance. Some sites on a larger scale may be considered as part of a joint-venture opportunity, but not in Years 1 or 2 and only when in the best interest of the Council.

·         staff employed as part of the Exeter City Group (ECG) and would not be working exclusively for the company, but be seconded from the City Council. Their participation would be determined by role and job description. The Managing Director of ECG would have a legal obligation to act in the best interests of the Company. The Managing Director will work closely with the Shareholders Representative and Shareholder Representative Group who will assisting in setting the strategic direction of the Company and overseeing the operational running of the Company. The Business Case documentation includes a Management Agreement which specifically sets out the relationship and obligations between the Development Company and the Council, this provides clarity in terms of the Council’s control over the Development Company’s activities and also states what standards the Development Company should conform to such as ensuring that there is no net loss of social rent homes over a business plan period.

·         the Year One Business Case will be for the open market but in the future a business case will be developed for houses to  be delivered for market rent and retention by the City Council. There was no currently no intention for ECG to develop any commercial build.

·         three of the four sites were open for market sale with sites in Anthony Road, Bovemoors Lane, Thornpark Rise, and five shared ownership units in Hamlin Gardens. These sites had planning approval and full consultation had taken place with the existing tenants.

·         there would be no social rent build in the first year, but funds would be set aside for future site delivery in excess of hundred new homes to include the 35% level of affordable housing with the remainder for social rent.  There was a greater need for social rent, than shared ownership and the Steering Group had set tight constraints for what housing could be brought forward. 

·         the viability of the development was necessary to develop a creditable business case for open market housing to cross subsidise other sites for future development by ECG.

·         local authorities had to be mindful of state aid rules in respect of the company.  ECG would be offered a loan facility at a commercial rate. Staff, all on costs and services provided would be charged at the market rate to ensure that the projects remained within state aid rules.

Members suggested the following additional recommendation that a Registered Provider of Social Housing (RP) will be developed to take ownership of any social housing created as a result of Exeter City Living Ltd works, subject to a satisfactory business case demonstrating the RP’s viability being developed.  The Registered Provider would be established and functional in advance of the availability of the social housing.  The two work streams to be linked to ensure appropriate staging would coincide. The Chief Finance Officer advised that the City Council would not be able to set up organisations without assessing the viability or any potential impact on the Council.

Corporate Services Scrutiny Committee noted the report and requested Executive recommend Council approval for the following:-

(1)    the establishment of Exeter City Group Ltd and Exeter City Living Ltd;

(2)    that whilst Exeter City Homes Ltd and Exeter City Living Property Ltd have already been registered at Companies House, no approval was being sought for the Companies’ activities as their financial impact on the Council had not yet been assessed;

(3)    the Year One Business Case at Appendix A to be implemented by Exeter City Living Ltd for the period August 2018 to the end of March 2019;

Members suggested the following additional recommendation - 

(4)   a Registered Provider of Social Housing (RP) will be developed to take ownership of any social housing created as a result of Exeter City Living Ltd works, subject to a satisfactory business case demonstrating the RP’s viability being approved by the Council. The Registered Provider would be established and functional in advance of the availability of the social housing.  The two work streams to be linked to ensure appropriate staging would coincide;

(5)   a loan of £4.35 million pounds to Exeter City Living Ltd in order to implement and complete the year one Business Case set out in Appendix A;

(6)   the Management Agreement set out in Appendix B;

(7)   delegated authority to the Director (David Bartram) to agree any necessary amendments to the Management Agreement in consultation with the Leader of the Council, the Chief Finance Officer and the appropriate three Portfolio Holders (currently the Portfolio Holder for Place and Commercialisation; the Portfolio Holder for Economy and Culture and in addition the Portfolio Holder Housing Revenue Account) and three Members of Scrutiny as appropriate;

(8)   the Articles of Association for Exeter City Group Ltd and its subsidiary companies as set out in Appendix C;

(9)   delegated authority to the City Solicitor & Head of Human Resources in consultation with the City Surveyor to sell at open market value any council owned land identified in the Year One Business Case; and

(10)delegated authority to the appropriate Director (currently David Bartram) to act in the role of Shareholder Representative and to undertake the activities and decisions as identified in the Shareholder Representative Delegated Powers Document (Appendix D), including the ability to financially commit up to £499,999 funding for use by Exeter City Living Ltd for matters not in the Year One Business Case (August 2018 – end March 2019).