Subject:

Subject:		Grant of Option and Lease at Land at Corner of New England Street and New England Road
Date of Meeting:		7 October 2021
Report of:		Executive Director, Economy, Environment & Culture
Contact Officer:	Name:	Angela Dymott Stephen Gwilliam	Tel: 01273 291450 Tel: 01273 291442
	Email:	Angela.Dymott@brighton-hove.gov.uk stephen.gwilliam@brighton-hove.gov.uk
Ward(s) affected:		St Peter's & North Laine;

FOR GENERAL RELEASE

1. PURPOSE OF REPORT AND POLICY CONTEXT

1.1 At Policy & Resources Committee on 8 October 2020, a report was brought to consider options to maximise development potential of the land on the corner of New England Street and New England Road for the delivery of affordable homes. QED Estates own 45% of the site and will not sell their interest, which the council would only be able to acquire through compulsory purchase powers. Property and Housing officers have been working collaboratively with QED to bring forward options to maximise affordable homes at the site, whilst dealing with the relocation of the existing meanwhile residents and commercial occupier.

1.2 It was agreed that a Business Case would be prepared to provide additional information to enable members to be able to make an informed decision to grant a lease to QED Estates to enable them to develop the site known as Richardson’s Yard (aka Cobblers Thumb) land.

1.3 There were three key points to be considered:

· The provision of a business case in collaboration with Housing colleagues for the future development of the land.

· Options for the relocation of Richardson’s Yard metal recycling business to a suitable alternative site.

· Relocation options for the residents housed by Brighton Housing Trust (BHT) currently located on QED’s freehold site that have to be removed to reinstate the land by May 2023 as part of a planning condition on expiry of the planning consent.

1.4 This report seeks authority to proceed with legal agreements with QED Estates, subject to planning, including the sale of a long lease to QED Estates to enable QED to progress the comprehensive development options. The report is complimented by a supplementary Part Two report.

1.5 Without the approval to proceed, QED are unable to commit to the expense necessary to progress the design, planning and development of the proposals for all options to be thoroughly considered for the benefit of the council. All work will be done in complete collaboration with council officers.

1.6 The site has been assessed through the asset disposal process to support the Medium Term Financial Strategy and achievements of capital receipts as approved by March 2020 Policy & Resources Committee and has been identified as surplus to requirements and not required for the council redevelopment of 100% affordable council housing units.

2. RECOMMENDATIONS

That Policy & Resources Committee:

2.1 Grants delegated authority for the Executive Director of Economy, Environment and Culture to finalise legal agreements including an option agreement and the grant of a 250 year lease to QED to facilitate the mixed use redevelopment of the whole site.

3. CONTEXT/ BACKGROUND INFORMATION

3.1 The council owns three parcels of land (55% of the site) and QED own one parcel (45% of the site), all shown on the plan at Appendix 1, which in summary includes:

· Site coloured green: forming approximately half of the site, owned freehold by QED’s investment company and is used in conjunction with the Orange Site. This site accommodates 36 units of residential accommodation installed by QED and managed by BHT under a temporary planning consent expiring 7 May 2023.

· Site coloured orange: Former Cobblers Thumb pub, Leased by BHCC on an Excluded lease to QED Estates Limited until 31 August 2024 for use as either meanwhile residential accommodation or commercial use. The site is currently used to accommodate eight small business units under a temporary planning consent that expires 7 May 2023.

Note: It is a condition of the temporary planning consent that on expiry on 7 May 2023, the green and orange sites be reinstated as cleared land.

· Site coloured pink: Council owned and leased to GE Richardson and Son metal recycling for use as a ‘Metal Merchants’ (metal recycling and waste processing). This lease is protected and expires 31^st May 2063.

· Site coloured blue: Council owned and let under Licence to GE Richardson and Son for use as temporary parking in association with their adjoining lease (coloured pink) as a metal merchants (metal recycling and waste processing). This agreement ends 24 December 2021 but has historically been renewed annually.

3.2 The intention is to relocate the existing uses to alternative sites before the site is redeveloped (see Part 2 Report).

3.3 Due to the layout of the ownerships, options for development are limited and the most logical option is for the council and QED to work together for a comprehensive redevelopment of the sites. Working together will ensure re-location of current residents currently living in accommodation provided by QED and managed by Brighton Housing Trust (BHT), alongside the wider benefits to the city of a comprehensive regeneration of a central Brighton site.

Planning

3.4 The sites coloured pink and blue (the Richardson’s building and adjacent parking) form part of a wider strategic allocation (with the adjoining Enterprise Car Hire/Brewers sites) for 3,000m2 of office and research employment floorspace and residential development within the allocation DA4 of City Plan Part 1(New England Quarter and London Road Area).

3.5 As well as the City Plan, the London Road Central Masterplan (SPD 10) provides further planning guidance covering all of the sites, which also fall within the periphery of a ‘tall buildings node’ as described in supplementary planning guidance note SPG 15 (‘Tall Buildings’).

3.6 The current use as the ‘shipping container village’ was granted a temporary planning consent for interim use, to allow permanent regeneration proposals to be brought forward. It is a condition of the consent (BH2017/02795) that the buildings “shall be permanently removed from the site on or before 7 May 2023 in accordance with a scheme of works which shall be submitted to and approved in writing by the Local Planning Authority”.

3.7 The containers will be refurbished and reused by QED.

3.8 This temporary consent has previously been renewed (January 2018) against national planning policy to extend the temporary use until 7 May 2023. The extension to the temporary planning consent was considered not to prejudice a more comprehensive regeneration of the site with planning officers seeking to encourage a more comprehensive regeneration of the wider area through their comments and report.

3.9 This report proposes a proactive approach to bring forward permanent solutions for regenerating this site through a mixed development to deliver affordable housing, and to avoid the site being held vacant in the future with associated costs. This will allow time for more detailed engagement with all stakeholders, leaseholders, BHT who manage the meanwhile accommodation for QED, as well as local residents and businesses.

3.10 QED have worked closely with BHT on a decant and relocation strategy (see Part 2 report) for the relocation of the 36 residential homes who are all BHT tenants. All tenants will be offered alternative accommodation and the process will be closely managed to ensure this occurs. This process is consistent with the Homeless and Rough Sleepers Strategy approved at Policy and Resources Committee on 9 July 2020.

3.11 The relocation of GEO Richardson metal recycling yard is critical to enabling the development of the site. In collaboration with GEO Richardson, QED have sourced an alternative site for their relocation. More details are provided within the Part 2 report.

3.12 The “start-up” commercial units have proved successful and demand for small commercial space continues. The current intention is for QED to offer a relocation solution for the existing occupiers. However, the use of the commercial space when delivered in 2024 will be determined by demand in the market at the time of provision.

3.13 More detail on the residents decant and relocation strategy and relocation of the metal recycling yard is provided in the Part 2 report.

Planning Considerations

3.14 The current temporary permissions expire in May 2023 and an extension will not be granted. BHT manage the meanwhile accommodation for QED and have alternative accommodation available for the rehousing of the occupants. This is consistent with BHCC Homeless and Rough Sleeper Strategy to ensure full rehousing. More detail is provided in the Part 2 report.

3.15 The respective site ownerships make development by the owners in isolation difficult. It is unsightly and following the grant of planning consent at Longley Industrial Estate and proposals for Vantage Point, this area is one of the few remaining sites that has not been regenerated in the New England Quarter. The combination of residential accommodation and industrial waste processing is not considered to be a complimentary mix of accommodation for a permanent development.

3.16 The site is likely to suffer from historic contamination from its previous and current use. Issues of noise, environment, amenity and contaminated land have been noted and a comprehensive redevelopment of the whole site has been recommended to address these through a permanent scheme of development where costs of remediation can be spread across a greater quantum of development reducing viability issues seen with a smaller development.

3.17 Planning policy also notes that the use of the site for more long term ‘temporary accommodation’ may not be suitable for occupation on a more permanent basis.

3.18 QED

QED is a small family run and owned urban regeneration specialist founded by Chris Gilbert in 1997. www.qedproperty.com

Notable projects in Brighton:

New England Quarter Regeneration

· Comprehensive regeneration of the old Network Rail Goods Yard to the north east of Brighton Station. A 15 acre site that was vacant for over 30 years – implementing a masterplan developed by Urbed on behalf Sainsbury’s Supermarkets Ltd, which won an RICS award.

Sea Lanes

· Regeneration of a vacant site on Madiera Drive to deliver the Sea Lanes – the national open water swimming centre – a 50m open air swimming pool and supporting commercial development.

Proposal

3.19 The proposed structure of the legal agreements with QED is as follows:

- An Option Agreement under which QED can purchase a 250-year lease if they have obtained planning permission which meets the Council’s requirements (Satisfactory Planning Permission).

- A 250 Year Lease.

- Put and call options which enable QED to require the Council to buy the land once developed and enable the Council to require QED to sell the land to it.

3.20 The proposal is to enter a time limited Option Agreement with QED Estates (co-terminus with the current lease agreement on the orange site and shortly after the current planning expiry on the orange and green sites) that will enable QED, in collaboration with the council, to engage pro-actively with the local planning authority and stakeholders. This will lead to the submission of a proposal for the comprehensive re-development of the assembled site (four land plots) under a considered master plan, avoiding piecemeal development of individual sites, to maximise both quantum of development and the value of the sites.

3.21 The proposed subject to planning option is for a period to 31 August 2024 being co-terminus with QED Estates lease on the orange site. There will be the ability to extend the option if planning has been submitted before 31 August 2024 but not yet determined, to a time three months post satisfactory planning approval (including judicial review period) or appeal determination. The site will be leased at a peppercorn rent.

3.22 The sale price will be the residual land value to be determined by a jointly appointed valuer apportioned on a pro rata floor area basis as between the land to be purchased from the council and the land owned by QED. On the basis of the preferred option, a capital receipt of between £750,000 and £1,000,000 dependent on the delivery of an approved development.

3.23 The deal with QED will not place any legal obligation on QED to submit a planning application as this is likely to amount to a contract for services which would need to be procured in accordance with the public procurement regulations. However, if QED do not submit a planning application which meets the Council’s requirements, it will not amount to Satisfactory Planning Permission and the Council will not be required to sell the long lease to them under the Option Agreement.

3.24 Similarly, the lease will not contain an obligation on QED to build the proposed development. If the Council was to place a legal obligation on QED to build (i.e., if this was a development agreement) the contract would amount to a works contract which the council would have to procure. The deal will therefore be structured to ensure that, despite the absence of a legal obligation to build, it is highly likely that QED will do so. They will have expended significant resources in obtaining planning permission so will have a strong commercial incentive to implement it. QED will also have to demonstrate that they have sufficient funding to carry out the development. There will also be a longstop date in QED’s lease so that, if they have not carried out the building works within a reasonable time period, the council will have the right to break the lease and buy back the land.

3.25 The proposal is that Satisfactory Planning Permission would consist of 100% affordable housing. There would be a put option which enables QED to require the council to buy the properties and a call option which requires QED to sell them: the council could either purchase the freehold of the housing element of the scheme or lease the properties for a minimum of 35 years with an option to purchase for £1 at the end of that period with QED retaining the commercial space to let on a full repairing and insuring lease, retaining any rental income arising. These put and call options will be the subject of a further report to Housing Committee which will need to approve their terms.

3.26 Initial high-level discussion has been held with the council’s planning department based on an up to eight storey development of 64 affordable housing units and 386 sq m of commercial space on ground floor. This is consistent with the council’s design advice that combining the four sites for comprehensive redevelopment comparable to the proposals on Vantage Point is the best solution. A letter of support from Planning is provided at appendix 2.

3.27 Affordable housing proposals have been discussed with Housing and a letter of support to work together to progress detailed proposals has been received. The letter of support from Housing is attached as appendix 3.

3.28 Viability for development of the site as a whole is improved with comprehensive development allowing abnormal costs to be spread across a greater development. The more viable the development, the greater affordable housing delivered without additional subsidy. The sites will likely still suffer from contamination (potentially ongoing) from the adjoining pink site meaning likely remediation works for a permanent scheme of development will be required as an abnormal cost in any scheme. The larger the scheme of development, the greater dilution of these costs resulting in an increase in viability. With all schemes, issues with amenity and environment that will need to be addressed are most easily managed in the comprehensive development proposals.

3.29 The Option Agreement will also provide QED Estates with confidence to engage with the long leaseholder of the pink site, GE Richardson and Son, with a view to acquiring the existing long lease of this site. It will also allow QED to incur costs on risk, with certainty that subject to meeting certain conditions, they have the security of purchasing the sites at market value.

3.30 QED Estates are well known to council and have a strong track record of engagement with adjoining landowners and of delivery of mixed-use development within the city. The redevelopment of this final corner of New England Quarter provides the opportunity for positive change, allowing improvements to local air quality, improving access onto The Greenway and provide much needed social housing. QED have confirmed they are committed to reducing carbon emissions which will be informed through pre-planning application discussions. QED are focussed in addressing the whole life carbon footprint of the building, the role embodied carbon plays here and steps that can be taken to reduce upfront and overall carbon emissions using life cycle analysis. QED are aligned with the Council’s target of a carbon neutral city by 2030.

3.31 The Option Agreement will protect the value of the council’s interest on a pro-rata basis, based on an apportionment of the valuation of any final planning consent. The capital receipt received will depend on the extent of the final scheme and will be determined by an independently appointed chartered surveyor, ensuring that the council will receive best consideration.

3.32 Under the 250 year lease, any development proposals for the land in council ownership will require the consent of the council acting reasonably in its capacity as landowner. The proposals will then be subject to public engagement and consultation process with local residents and stakeholders through the planning process.

3.33 Proceeding with the Option Agreement allows QED to commit to the financial requirements of design, surveys, legal costs, pre-planning and planning stages of the development process.

3.34 Brighton & Hove is a city with a housing crisis, with over 5,200 households on the housing register,1,850 homeless households in temporary accommodation and a shortage of affordable homes. The council has to date responded to the housing crisis in a number of ways and supports a wide programme of activity in the city to increase affordable housing supply. The Corporate Plan 2019-2023 and Housing Committee Work Plan 2019-2023 includes commitments to deliver 800 additional council homes and 700 other new affordable homes in the city by March 2023.

3.35 This is an opportunity to develop the last remaining site in the New England Quarter as affordable housing and commercial accommodation. Following expiry of the temporary planning consents, should the land not be developed the site will remain in split ownership and unsightly. The temporary units will be removed as a condition of the planning consent and the site cleared. To maximise their ownership and investment in the site, QED would be left with no option than to pursue their own development on the green land. The council will retain Richardson’s scrap metal merchants and associated car parking on the remainder of the site and a vacant corner on New England Road being the site of the old Cobblers Thumb public house. Any future development would have to be on a piecemeal basis and would not see the benefits of a comprehensive collaborative approach that maximises the development potential of the site.

4 ANALYSIS & CONSIDERATION OF ANY ALTERNATIVE OPTIONS

4.1 Five alternative options are set out below to show benefits and disbenefits.

Options	Benefits	Dis-benefits
1. Council seeks to develop its own sites without purchasing existing long leasehold interest on the pink site or third-party interests.	Council controls delivery of between 4 and 8 homes. Homes can be used for ‘affordable housing’, subject to council business case, viability and available subsidy.	Leads to piecemeal development on constrained development site. Fewer homes delivered. Less economic benefit from smaller development and lower council tax receipts. Does not deliver any new employment space. Viability challenge due to constrained site and abnormal cost spread over least number of homes. No capital receipt received. Professional advice received confirms blue land is not developable in isolation due to identified site constraints. Results in undevelopable parts of the site and significant underutilised space.
2. Council develops all of its sites by seeking to acquire long leasehold of pink site.	Leads to greater development density and home numbers when compared to option 1 above. Council controls delivery of between 14 and 20 units. Generation of more council tax receipts. Homes can be used for ‘affordable housing’ subject to council business case, viability and subsidy.	Leads to piecemeal development. Does not maximise number of homes. Less economic benefit from development. Does not deliver any new employment space. Council required to acquire the existing 42 year lease of the Metal Merchants on the pink site. May not be developable without CPO, adding time and cost to the process. No capital receipt generated. May not be planning policy compliant as does not deliver employment space so housing numbers may be reduced further to meet policy requirements. Site viability is only marginally improved as abnormal costs spread across larger development but not the whole site. Still results in undevelopable parts of the site and significant wasted space.
3. Council seeks to develop the whole site including land not owned by the council.	Will lead to a comprehensive redevelopment and regeneration scheme and the same outputs as the Housing. Will maximise development on the site, council will control development including up to 26 homes and 16,000ft2 of new employment space at maximum density. Homes can be used for affordable housing, subject to council business case, viability and available subsidy. Significant economic benefit of council tax and new employment workspace through increased economic impact, most likely in CDIT sectors. Potential commercial investments generated.	Council is required to buy back the remaining 42-year lease on the pink land and seek to acquire the green QED owned land. QED have indicated they do not wish to dispose of the site, therefore CPO would be required by the Council to acquire QED site. Council would be required to provide demonstrable grounds for CPO but would need to reasonably consider proposals of the green site landowner (QED) which may prevent an acquisition under statutory powers or add costs and delay to the process if successful. Council takes risk of commercial development in addition to residential development. No capital receipt generated. Unlikely to succeed due to site assembly barriers. Site viability greatly improved as abnormal costs spread across larger development.
4. Council dispose of the sites on the open market.	Capital receipt generated.	Likely to prevent future barrier to joined up development on the site, likely to lead to a reduction in number of affordable homes. Future development options to be determined by new owner and planning policy, lack of council control and influence.
5. Joint Venture with adjoining owner.	Council has greater control over development (subject to planning policy). Development risk shared. Wider comprehensive site regeneration achieved.	No commercial justification for complicated joint venture structure on a small site where commercial funding is available in the market. Will add delays and unnecessary cost to the process. Would require additional subsidy for delivery of affordable housing over the policy allocation/site viability. JV to be on market terms so beneficial loan rates are unlikely to apply.

5. COUNCIL’S PREFERRED OPTION - Comprehensive redevelopment of site

5.1 QED Estates have indicated they are not willing to sell their interest shown green on the attached plan, meaning that without co-operation between landowners; a fragmented and piecemeal development is a risk.

5.2 To proceed with a council owned whole site development, the council would need to engage the CPO powers referenced above, something that will add costs and risk to the process. This action is not recommended or required in this case given the willingness of QED estates to work in collaboration with the council to bring the site forward for comprehensive development in line with planning policy and to protect the council’s land value. This willingness and ability to deliver redevelopment may be sufficient grounds to defeat any CPO claim in any event.

5.3 The sites will likely still suffer from contamination (potentially ongoing) from the adjoining pink site meaning likely remediation works for a permanent scheme of development will be required as an abnormal cost in any scheme. The larger the scheme of development, the greater dilution of these costs resulting in an increase in viability. With all schemes, issues with amenity and environment that will need to be addressed are most easily managed in the comprehensive development proposals.

5.4 The council’s design advice confirms that the most economic option would be to combine all four sites which would enable a comprehensive re-development on a scale which would be comparable to the proposals on Vantage Point, the Longley site and the already developed New England Quarter.

5.5 A comprehensive development would allow taller, more efficient footprints, a greater number of homes and the ability to provide further employment space. This advice indicates that the height could possibly be increased to 8 storeys towards the rear of the site which would be at a similar level to the Vantage Point building and matches the height of the former railway sidings/greenway and even a link to it from the roof tops, subject to any necessary planning considerations.

5.6 QED will work in collaboration with the council offering protection at each phase of the development process (plan approval, site appraisal, pre-planning, planning and final agreement of the development scheme) with the council (Housing) purchasing the completed affordable housing element of the completed development, subject to an agreed scheme and relevant committee approvals,

5.7 In order to constitute Satisfactory Planning Permission the design will need to ensure environmental and sustainable standards are delivered in order to help meet the council’s target of becoming a carbon neutral city by 2030.

Benefits

5.8 Granting an Option to a third-party developer with a proven track record of delivery would not preclude the council from re-acquiring built units once constructed for use for its own operational/housing need. Preliminary discussions for acquisition have started that would enable the council to prioritise tenure and use of the sites as required.

5.10 Comprehensive development through land assembly is considered one of the

key benefits to an extensive and joined up redevelopment scheme for which the

benefits significantly outweigh piecemeal development in terms of:

· Planning compliance

· Viability

· Best practice design for a high-quality development without compromise for adjoining retained uses (metal merchants)

· Economic impact on local economy

· Environmental contamination management

6. COMMUNITY ENGAGEMENT & CONSULTATION

6.1 Full engagement has been undertaken in preparation of the business case with officers in Housing, Planning, Legal and Finance, and externally with QED Estates who have collaborated with BHT.

6.2 Full engagement will be undertaken through the planning process with local residents, businesses and stakeholders in due course.

7. CONCLUSION

7.1 The New England Quarter has undergone extensive regeneration over the last 20 years since the masterplan in 2001 and construction starting in 2004. There are few remaining peripheral sites to be regenerated.

7.2 This is an opportunity to work up proposals to bring forward a more comprehensive re-development through land assembly to avoid piecemeal or stalled development in a more efficient manner resulting in more employment space and greater number of residential units.

7.3 By seeking a pro-active approach to regeneration means that plans can be widely consulted on in advance of the current lease/planning permission expiries.

7.4 The council will receive market value for its land as part of the Development Option Agreement and the development will bring forward employment and residential development within the city.

7.5 Whilst this re-development will lead to the loss of the homes provided by QED, this accommodation would not continue past 2023 in any event due to expiry of the temporary planning consent. The loss of office space will be met with new provision within the mixed re-development.

7.6 Given this re-development will meet the core goals to increase housing delivery with 100% affordable units and new employment space, whilst protecting the councils financial interest, we recommend entering into the Option Agreement with QED Estates to progress the development proposals in full collaboration with the council.

7.7 All scheme options will be considered through the design process by

officers in Housing, Estates, Legal and Finance working in collaboration with QED to progress the design, tenant mix, environmental and sustainability initiatives to create 100% affordable homes and commercial space.

8. FINANCIAL & OTHER IMPLICATIONS:

Financial Implications:

8.1 There are no direct budgetary implications directly as a result of this report. By granting the lease to QED they can commit to undertaking the initial feasibility work at their own financial risk.

8.2 Further due diligence on the final housing scheme proposal will be undertaken in consultation with QED with full revenue and capital budget implications presented to a future Housing Committee and subsequently Policy & Resources Committee following approval of the Housing Business Plan.

8.3 The granting of the leases will likely generate a capital receipt for the Council. The value of this receipt is estimated to be between £0.750 and £1.000m, and the timing of this will be dependent on the extent of the final scheme. The net receipt, less any associated costs, will be used to support the council’s capital investment programme over the medium term.

Finance Officer Consulted: Craig Garoghan Date: 20.09.21

Legal Implications:

8.3 The reasons why officers are recommending the legal agreements outlined (rather than entering into a development agreement) are set out in the body of the report. There are measures in place which make it highly likely that QED will develop the site in accordance with the Council’s requirements but they will not be under any legal obligation to build in accordance with the planning permission.

With reference to recommendation 2.1, Section 123 of the Local Government Act 1972 enables a local authority to dispose of land provided it achieves the best consideration reasonably obtainable. The proposed option agreement will allow QED Estates Limited to call on the Council to sell any or all of the sites to them. The Council will be able to comply with the option because it owns the freehold of the sites. Paragraphs 3.21 of this report confirms that at the point when the option is exercised steps will be taken to ensure that best consideration is achieved. It is essential that QED pay the market rate for the land and that all the legal agreements are on commercial terms to ensure that there are no subsidy control concerns.

Lawyer Consulted: Joanne Dunyaglo Date: 15.09.21

Equalities Implications:

8.3 Proceeding with the option agreement leading to the construction of the building will secure new affordable homes and commercial space delivering jobs and affordable accommodation. This will ensure an important source of affordable homes and workspaces for the city’s diverse population.

Sustainability Implications:

8.4 There is a commitment and aspiration to provide carbon neutral new homes and commercial space that will be worked through in the design phase of the mixed-use project. The building will be designed to exceed current Building regulations and will be subject to a BREEAM assessment with an aspiration to achieve an Excellent rating.

Brexit Implications:

8.5 It is recognised that rising supplier and labour costs will impact on the proposed joint valuation and construction and labour costs may be affected by new trade policies when the development commences.

Corporate / Citywide Implications:

8.6 The supply and range of business accommodation and housing accommodation, and the net increase in jobs to be delivered during the construction phase will help to meet key objectives of the Brighton & Hove Economic and Housing Strategies.

SUPPORTING DOCUMENTATION

Appendices:

1. Plan of whole site and respective interests.

2. Letter of support from BHCC Planning Department.

3. Letter of support from BHCC Housing.

Documents in Members’ Rooms

1. None