Agenda item - Review of Exeter City Living

To consider the report of the Chief Executive.

Agreed:

RECOMMENDED that Council:-

(1) note the findings of the Local Partnership LLP report presented at the meeting;

(2) note ECL’s achievements to date;

(3) that, notwithstanding the recommendation from Local Partnerships to wind down the operations of ECL, officers recommend that the company be retained for the limited purpose of holding and managing property;

(4) grant delegated authority to the Chief Executive, in consultation with the Leader of the Council to facilitate recommendation no. 3 above to reduce ECL’s activities as follows:

a) the Council enters into a business sale agreement with ECL, whereby the Council acquires all of ECL’s assets (with the exception of the six leasehold flats in the Guildhall Shopping Centre), including any work in progress in return for proper consideration, in the form of a release of ECL from its obligations under the Loan Agreements. The sale agreement shall include a novation of all contracts save those that may be terminated by ECL with the Council’s agreement;

b) in the likely event that the value of the assets to be acquired from ECL is not sufficient to repay the loan to the Council, then delegated authority be granted to the Chief Executive, in consultation with the Leader and Section 151 officer, to write off any shortfall; and

c) thereafter, ECL, in a much reduced capacity shall continue for the purpose of holding and managing property and, in particular, the 6 Guildhall flats.

(5) agree that any staff implications are dealt with in accordance with its Organisational Change Policy;

(6) extend the ECL appointments of the Interim Managing Director and the two non-Executive Directors until such time as they are no longer required to assist with the reduction of the company’s activities, with the termination of those appointments delegated to the Chief Executive;

(7) grant delegated authority to the Service Lead - Legal Services to amend the Management Agreement to reflect the changes to the remit of ECL;

(8) agree that SMB reflect on the Local Partnerships report as well as work being undertaken by the District Councils Network on commercial companies owned by local authorities to produce a report in due course setting out principles for how the Council will enter into any commercial ventures in the future;

(9) agree that the Chief Executive be tasked to liaise with One Public Estate to negotiate an amendment to the grant conditions with the aim of retaining the Brownfield Land Release Funding (BLRF) funding where possible; and

(10) agree to receive a report, if necessary, setting out a site disposal strategy in the likely event of a shortfall on the ECL loan after the Council acquires ECL’s assets.

Reason for Decision: As set out in the report.

The Executive received report which provided a review of the current position of Exeter City Living (ECL), a wholly-owned council housing delivery vehicle which was setup in June 2018. A review was commissioned by the Council following the failure to secure a contract for the redevelopment of the Clifton Hill site and the continued uncertainty around development given the difficult current economic climate. The findings of the review were outlined in Appendix A of the report and as presented at the meeting.

Councillor Vizard, having given notice under Standing Order No. 44, spoke on this item. He acknowledged that the Leader understood the history of the Clifton Hill site and the firm local opposition to development of the green space currently occupied by the Council’s tenants, including the ski slope and golf driving range. He highlighted that under the Leaders’ direction that a good, balanced decision had been made to develop only the broad footprint of the old leisure centre and retaining the rest of the site as public space. He sought reassurance, that in light of the report on Exeter City Living, that the Council had no intention of reconsidering the sale and development of the whole Clifton Hill site, and that a future sale and development would be limited strictly to the land area that was sold to ECL and received planning consent.

The Leader in responding, advised that the land that had been sold to Exeter City Living did not include the Green space behind the former Leisure centre site, nor the Golf driving range or the ski slope and valuations on the site to be acquired by the Council, would be identified. The Council’s aspiration was clear, in that it required housing for people, to include the required social housing requirement to be built on the land where there was already planning permission and that the Council would endeavour to bring forward appropriate proposals as soon as it could.

Councillor Vizard in asking a supplementary question, enquired whether the Leader had concerns on the viability of the sale of the site in its current state?

The Leader advised that he had concerns relating to the impact of the Covid Pandemic on development. There had been many consultations for Clifton Hill and a lot of work had been undertaken to move the proposals forward, to provide suitable housing. Although he had concerns on developing suitable housing in Exeter, the Council would continue to work hard to bring forward plans for the delivery of housing.

The Chief Executive presented the report which outlined issues relating to the financial position of ECL its continued ability to repay its loans to the Council and recommendations to minimise the financial risk to the Council, which had been supported by an independent review by Local Partnerships. Members were provided with a background overview of Exeter City Living, with particular reference made to:-

· ECL was a wholly owned company of Exeter City Council, established in 2018, in which, the Council was the only shareholder. The company was governed through a management agreement, in which the Chief Executive takes on formal shareholder representative role to act at the main point of contact between the Council and ECL;

· The Leader and Deputy Leader provided the Chief Executive with guidance on the direction of the company and the Directors of ECL were then required to deliver, based on the business plan approved by Members;

· there were currently six staff working at ECL, who were employed by the Council;

· the purpose of ECL was outlined to Members in 2018, which was being a vehicle for providing housing in the city to address the housing crisis, delivering affordable homes and creating new sustainable neighbourhoods and communities;

· since 2018, there had been several significant changes in market conditions, including Brexit, the Covid Pandemic and the invasion of Ukraine, resulting in increased inflation rates and costs of materials and labour. These increases had resulted in received tenders being outside the standard pricing level to cover future costs of development. There had also been further issues of borrowing and financing caused by the Bank of England interest rate increases;

· ECL, despite operating in an open market environment, was subject to the public sector ethos of the Council, which had unfortunately created tensions for the company in their operation and alignment with the Council’s multiple objectives;

· ECL had made significant achievements since 2018, which were outlined in Appendix B of the report, but of note, were the 22 new Passivhaus homes developed, 56 new units of social housing and the granting of planning permission for 41 new homes at the Clifton Hill site. ECL had also developed design proposals for a further 92 homes, which are ready to be submitted for planning permission;

· ECL had obtained £7.4 million of brownfield land release grants from One Public Estate government, which had been used at Vaughan Road and Clifton Hill for demolition purposes;

· of the total £25 million loaned to ECL, as agreed by Council, only £10.9 million had been loaned to ECL. To date ECL had repaid £0.8million leaving £10.1 million outstanding;

· The company had an income of £7.2 million from the sale of homes and consultancy services, with £16.3 million in business and development costs, land purchases and loan interests and repayments;

· assets of the company included the Clifton Hill site as well as various liquid assets amounting to £1.8 million; and

· the Council had received a total of £3.4 million from ECL since 2018, for land, services, office rent and reduced the need for the Council in finding savings for the Medium Term Financial Plan.

Members were advised that in January 2023, following a failed tender for the Clifton Hill site, concerns had been raised on the remaining schemes for ECL. With the current challenges to the construction market and ECL incurring additional costs, exposing the Council to an unacceptable financial risk a review was commissioned from Local Partnerships, with the scope of the review being agreed between the ECL Board and the Council. Representatives of both the Council and ECL were interviewed during the review and ECL had been made aware of the findings and recommendations of the review.

Councillor Moore, as an opposition group leader, spoke on this item and made the following points:-

· could confirmation be provided on whether plans to establish a build to rent company would no longer proceed;

· could confirmation on the recommendation for managing properties be provided that the properties would be rented at market level, with no further plans to take on any additional properties?;

· what was proposed to happen to the connected companies related to Exeter City Living (ECL), including Exeter City Group and Exeter City Homes;

· in regards to any disposal strategy for Clifton Hill, having a criteria for protecting the land for community benefit was needed to ensure it was not used for any other purpose; and

· clarification was requested on the Council’s future financial liability costs, the implications of writing off the debts and impacts to the Council’s budget.

Councillor M. Mitchell, as an opposition group leader, spoke on this item and made the following points:-

· he noted that the report showed a loss of income to the Council on the General Fund, and sought clarification on whether the £1 million figure was an annual amount or a fixed period amount?;

· in reference to the accumulated loses in 2023/24 of £6,026 million and 2025/25 rising to £8,934 million, had the liability amount been established if the company was liquidated and what would the liability to the Council be for not liquidating the company; and

· why hadn’t the Council followed the review recommendation of liquidating the company?

Councillor Jobson, as an opposition group leader, spoke on this item and advised her questions had been asked by other opposition Members and thanked officers for the report.

During the discussion the following points were made:-

· the Chief Executive’s report and presentation was commended and the work of those involved had been welcomed;

· the scale of the ambition in building affordable and social homes was commendable but since ECL had been setup it was no longer viable;

· decisions taken by ECL had been made for the right reasons at the time;

· Members and the public should be reminded that ECL had been responsible for the development of several high quality homes for the HRA in the city;

· thanks to both the Chief Executive and previous Chief Executive were made, for the hard work involved in the report and for ensuring the report was presented in public;

· the reason for setting up ECL were commendable and had been a difficult process, but good quality Council Houses had been built through ECL, setting a precedent for housing standards; and

· it was a difficult decision for Members to make, given the financial situation, but appreciation was noted for the work that has been undertaken to date.

In response to questions and points from Members, the Chief Executive and Director Finance advised

· the connected companies related to Exeter City Living, had not been set up by a business case and only agreed in principle, and as such did not require Member approval for winding the companies down;

· the six flats at the Guildhall Shopping Centre were let out at market rent level;

· officers were not putting recommendations forward to liquidate ECL, so that the company could be retained in a reduced form to manage the flats. The Council had no mechanism to hold flats for market rent, which would become Council stock, becoming eligible for the right to buy schemes and could prejudice future projects at the Guildhall;

· the £1 million figure was an annual amount, however the amounts shown in the report were not new savings, but reductions that would have been required when ECL was setup; and

· a benefit of having a controlled winding down of the company allowed the Council to work with ECL to manage their liabilities. ECL would pay its creditors from its existing cash funds, leaving the loan to the Council as the only outstanding liability. Any outstanding loan liability could be written off under delegated authority, giving ECL a positive financial balance to continue trading.

The Leader advised that his commitment to delivering homes for the city had not changed. There would also be further reports coming in due course related to ECL and the future delivery of housing. He emphasised that although disappointing, it was important to not put the Council at continued risk.