23/11

DECISION UNDER DELEGATED POWERS DECISION CANNOT BE TAKEN BEFORE FRIDAY, 8 JULY 2011 Title FORMER WHIPPINGHAM PRIMARY SCHOOL - APPROVAL OF PURCHASER AND FINANCIAL OFFER REPORT TO THE DEPUTY LEADER AND CABINET MEMBER FOR THE ECONOMY AND THE ENVIRONMENT.

Report Author

PURPOSE 1. To select the purchaser for the former Whippingham Primary School on the basis of a conditional exchange of contracts, subject to vacant possession, Department of Education approval, and approval of the financial offer.

CONFIDENTIAL / EXEMPT ITEMS 2. Appendices 2, 3 and 4 are confidential and are exempt by virtue of paragraph 3 of part 1 of Section 12A of Local Government Act 1972 because they, relate to financial or business affairs of any particular person. In this case they comprise details of the bid submitted confidentially by the proposed purchaser, which if made publicly available may prejudice both the on-going position of the Council in respect of the conditional exchange of contracts, and the parties current business activities as they have clearly stated that their interest should be treated in the strictest of confidence.

BACKGROUND 3. The Isle of Wight Council is currently undertaking a School Re-organisation Programme, creating a two tier system from the current three tier system. This will enable the refurbishment/redevelopment of new schools, and result in some school buildings becoming surplus to requirements. As part of this programme, the School Re-organisation Team has identified in a disposal plan the sites which are due to become surplus, and available for the Council to sell. This includes the former Whippingham Primary School (currently occupied by the Queensgate Foundation Primary School), a site plan for which is attached at Appendix 1. This disposal plan is currently in draft form, and is due for final approval shortly. This site is being disposed of in advance of this paper being approved due to the timing of the proposed purchasers legal and academic requirements. This is explained in more detail in the confidential Appendix 4. The sale proceeds from the disposal of surplus school property assets are to be ring fenced, and reinvested in the School Re-organisation Programme to help fund the 1

4.

5.

refurbishment and redevelopment of the remaining schools portfolio. This was approved by Cabinet, the details of which are set out at the end of this report (paragraph 43). 6. When school sites become surplus, they are passed to the Strategic Assets Team (SAT) for disposal at open market value. Prior to marketing commencing, the purchaser approached the Council in 2010 regarding the possibility of purchasing a future surplus school asset for a private school. The Schools Reorganisation Team then met with the purchaser in late 2010 and early 2011, and passed the contact to SAT to progress negotiations. As a result, SAT has now received an offer for the freehold interest in the former Whippingham Primary School, and therefore seeks the Councils approval to dispose of the site at the agreed price. The proposed purchaser is a provider of private education, and intends to provide private education from the former Whippingham Primary School site. Accordingly, there are a number of benefits to selling the former Whippingham Primary School to this purchaser, which are set out in paragraph 12 below. The proposal is for the Council to sell the freehold interest of the former Whippingham Primary School, with exchange of contracts as soon as possible subject to vacant possession and Department of Education consent, with completion of the sale when Queensgate vacates, relocating to the Osborne School site at Easter 2012. A purchase price has been agreed in principle with the proposed purchaser at open market value, based on unrestricted use, which accords with two independent valuations. It is not therefore based on the value of the site restricted to school use only. An extract of the valuation report illustrating the open market valuation is attached as a confidential appendix, Appendix 3. To complete their purchase of the former Whippingham Primary School, the proposed purchaser must exchange contracts by August 2011 for legal and academic reasons. This is explained in more detail in the attached confidential appendix 4. If the Council wishes to openly market the premises, the process would take around three months, meaning that an exchange of contracts could not reasonably take place until November 2011 at the earliest. As the purchaser must exchange contracts with the Council by August 2011, there is insufficient time for the Council to both openly market the property, and take advantage of the current offer. Accordingly, if the Council chooses to openly market the property, the current offer (already at open market value on the basis of unrestricted use) and all the benefits of this offer (listed below) will be lost. The Council derives the following benefits from this sale: The former Whippingham Primary School remains as a school facility, increasing the choice of educational opportunities to the children and young people of the Isle of Wight. Preserving educational choice on the Isle of Wight encourages competition with other providers, keeping costs down as far as possible, and ensuring value for money for Isle of Wight residents. 2

7.

8.

9.

10.

11.

12.

There is no risk to the sale associated with the planning process, as planning consent is not required. If a potential purchaser was seeking to use the building for alternative use, planning permission for a change of use would be required, which would introduce delays and risk that permission would not be granted. In this instance, the risk of vandalism and holding costs to the Council would increase. Early exchange of contracts means that the Council has the security of a sale, and therefore a capital receipt, within an agreed (contractual) time scale. The only reason that this would not be achieved is if the purchaser cannot/chooses not to complete (and in that situation it would be in breach of contract and responsible for any associated costs incurred by the Council), or if the Council did not vacate the school within the timescale agreed (this would also create a breach of contract and the Council in this instance would therefore be responsible for the purchasers costs associated with this). The risk of vandalism to the building and the Councils holding costs are minimised, as under this proposal the property will be occupied between school closure and completion of the sale.

STRATEGIC CONTEXT 13. The effective reuse of this site falls within one of the Councils eight key corporate priorities, Regeneration and the Economy. The rationalisation of the Councils property assets also forms part of one of the Councils other seven key corporate priorities, namely Delivery of budget savings through changed service provision. Lastly, the reinvestment of funds released from the sale of this site into the school re-organisation programme meets a third Council priority, Raising Educational Standards. The disposal of surplus assets is covered by the Councils Strategic Asset Management Plan.

14.

CONSULTATION 15. The sale of this property to a third party without open marketing has been discussed with the relevant Cabinet Member/s, on the basis that the sale is agreed at open market value on an unrestricted basis, and is supported by two independent valuations. In the light of the confidentiality of this offer, consultation has been restricted to relevant Cabinet Members and officers.

FINANCIAL / BUDGET IMPLICATIONS 16. 17. The financial offer is attached as Appendix 2, as a confidential document. The financial offer accords with the valuation of the site with unrestricted use as confirmed by two independent valuers, which is attached as a confidential Appendix 3. These valuations were instructed by the Council for the benefit of the Council, but were paid in full by the purchaser. The total cost of phases 1 3 of the schools re-organisation programme will cost approx. 25.5m over two years, as approved by Cabinet decision 69 (10/11). Funds released from the sale of surplus school assets will contribute towards the future phases (currently phases 4 and 5) of the schools re-organisation programme. 3

18.

19.

The capital receipt achieved for the site will be reinvested into the school re-organisation programme, enabling the new/refurbished schools to be provided. The annual revenue commitment by IWC to own and maintain this building will be saved once the property has transferred from the Councils ownership.

LEGAL IMPLICATIONS 20. Under Section 123 of the Local Government Act the Council is obliged to obtain best consideration for the disposal of land and buildings. The Isle of Wight Council will transfer its freehold interest in the property to the third party, in return for best consideration, based on the open market value of the property for unrestricted use. The Councils disposal of a school asset requires Department of Education consent. This has been applied for and is expected to be granted within the next few weeks, but there is a risk that it may not be given.

21.

22.

PROPERTY IMPLICATIONS 23. The site is currently occupied by the Queensgate Foundation Primary School, which is able to remain in occupation until the refurbishment of Osborne School is complete. At that point, the Queensgate Foundation Primary School will relocate to the Osborne site, enabling the Council to sell the former Whippingham Primary School site with vacant possession. The Schools Reorganisation team has declared the former Whippingham Primary School as surplus to the Councils property requirements, and therefore should be sold in accordance with corporate priorities.

24.

EQUALITY AND DIVERSITY 25. The council as a public body is subject to general and specific duties under equality and diversity legislation and as such has a duty to impact assess their services, policies/strategies and decisions with regard to diversity legislation race, disability, gender, age, sexual orientation and religion/belief. The disposal of this property for continued educational use is not believed to prejudice any of the relevant groups. Indeed, it is believed that by continuing educational use, it is enabling more opportunities for childrens education on the Isle of Wight and therefore will be of benefit to Isle of Wight residents. There is no loss of educational opportunity to school children who currently attend the school at Queensgate, as this school will simply be relocated to the nearby Osborne site at Easter 2012, and therefore will still be accessible to the children. Any Equality and Diversity issues as a result of the principle of the closure of the school to local authority use will be dealt with separately by the Schools Reorganisation Team in declaring this school site surplus.

SECTION 17 CRIME AND DISORDER ACT 1998 26. The may be a risk of vandalism if the site is not sold soon after it is vacated by Queensgate.

OPTIONS 27. The following options are available to the Council in respect of the former Whippingham Primary School site: (a) Complete the sale to the proposed purchaser on the terms set out in the paper. Complete the sale to the proposed purchaser on alternative terms to those set out in the paper. To openly market the site in the hope that a higher value will be achieved than that offered by the proposed purchaser. Not to sell the site, and retain it in the Councils ownership.

(b)

(c)

(d)

RISK MANAGEMENT 28. There is a low risk of the sale not completing (for example if the purchaser cannot raise the funds) and therefore that the money will not be received/the building with remain unoccupied. This would lead to the council incurring abortive legal costs to date (up to 500) and having to commence a marketing campaign to sell the property to an alternative purchaser. There is a medium risk of the Council being in breach of contract with the proposed purchaser if it cannot give vacant possession of the property by the agreed (contractual) date. The potential costs to the Council associated with this are very large, because if the Council cannot allow the purchaser to occupy, the purchaser could potentially sue the Council for costs associated with this, including ultimately loss of their business if the business were to fail as a result. This is explained in more detail in confidential appendix 4. Accordingly it is absolutely vital that the Council ensures that vacant possession is available by the agreed (contractual) date at the very latest. The schools re-organisation team is working closely with all parties involved to ensure that the contractual dates can be achieved. There is a low risk that open market value is not achieved if the property is not fully marketed. However, as the sale is agreed at open market value which accords with the open market value based on unrestricted use as stated by two independent valuers, the risk of this is minimal. In addition, the further costs associated with marketing, owning the property for a longer period of time, the risk of not obtaining planning permission for alternative use, etc may negate any additional value that may or may not be achieved by openly marketing. There is also the risk that in the current economic climate, a lower purchase price may be achieved. There is a very high risk of the proposed purchaser falling away if the council chose to fully market the property, due to the purchasers legal and academic requirements. This would prevent the proposed purchaser from purchasing this property. In addition an immediate cash receipt would be lost to the Council There is a high risk that the funds necessary for the reorganisation of schools will not be realised if the building is retained in the Councils ownership. Also the council would incur additional unbudgeted revenue costs in continuing to occupy the building. 5

29.

30.

31.

32.

33.

There is a low risk that Department for Education approval for the sale will not be given in time or at all.

EVALUATION 34. The sale of the site on the terms set out could be considered an appropriate reuse of a surplus Council building, with limited delivery risks. The only real risk to the Council is in the identified purchaser having sufficient funds, and not completing the sale. If this does occur, the Council will simply commence the marketing of the property, with minimal abortive costs having been incurred. There are no other risks which might otherwise exist around obtaining planning permission for change of use, which would exist if a sale were agreed to a purchaser for a non-educational use. Offering the site for open offers may achieve a higher capital receipt to the council. It may also realise a lower receipt than the current offer. The current sale price agreed accords with the open market value on the basis of unrestricted use, as stated by two independent valuers. If a slightly higher price were achieved, the additional cost to the Council of maintaining ownership for an extended amount of time while the sale is achieved (any sale for a non-educational use would require planning permission for change of use) and marketing the property to attract an alternative purchaser would lead to delays to the sale (and therefore the capital receipt) and could lead to substantial delays and risks (Officer time, holding costs whilst the property remains empty, time to gain planning permission, a need to remarket if planning permission is not granted, potential vandalism to the building, etc). Retaining ownership of a building which the Council has no requirement for will incur holding and occupational costs for the Council. These will be a new corporate cost, as they are currently being met from the schools budget, but once the building ceases to be a school, the holding costs will revert to the Councils general revenue account. If no alternative use can be found, retaining ownership will also be in breach of corporate policy and the Strategic Asset Management Plan, which encourages rationalisation of the portfolio and requires property to be sold when it becomes surplus. IWC has considered the reuse of the building for council purposes and has concluded that it has no realistic alternative use for it, particularly in light of the major rationalisation programme which is in hand and, even if an alternative use was conceivable it is unlikely to be financially viable due to the costs of converting a primary school into some form of corporate council use.

35.

36.

37.

RECOMMENDATION 38. It is recommended that the Council adopts Option (a), and agrees to complete the sale to the proposed purchaser on the terms set out in this paper.

APPENDICES ATTACHED 39. 40. 41. APPENDIX 1 Site Plan APPENDIX 2 Purchasers offer letter (CONFIDENTIAL) APPENDIX 3 Extract of the independent valuation, confirming the open market value of the property (CONFIDENTIAL) APPENDIX 4 Background information (CONFIDENTIAL)

42.

BACKGROUND PAPERS 43. Decision reference 76/07 approves funds released from the sale of surplus school assets to be ring fenced for reinvestment into the schools re-organisation programme.

Contact Point: Andrea Jenkins, Senior Surveyor, 01983 826232 e-mail andreajenkins@iow.gov.uk STUART LOVE Strategic Director Economy and the Environment Decision Signed Date COUNCILLOR GEORGE BROWN Deputy Leader and Cabinet Member for the Economy & the Environment