Request to Assign the Lease and Supplemental Leases of the Dolphin Quays Development

AGENDA ITEM 4

BOROUGH OF POOLE

REPORT TO CABINET

5 APRIL 2005

REQUEST TO ASSIGN THE LEASE AND SUPPLEMENTAL LEASES OF THE DOLPHIN QUAYS DEVELOPMENT

PART OF PUBLISHED FORWARD PLAN: Yes

STATUS – SERVICE DECISION

1. PURPOSE & POLICY CONTEXT

1.1. To receive a request to assign the head lease and supplemental leases of the Dolphin Quays Development.

2. DECISION REQUIRED

2.1. To consider and approve the request for an assignment of the head lease and supplemental lease of the Dolphin Quays site to Skelton Poole Limited guaranteed by the Skelton Group Limited.

2.2. To acknowledge and approve the minor changes in the overall area to be incorporated in the further supplemental lease to reflect the identified encroachments.

3. BACKGROUND

3.1. The Dolphin Quays site was originally leased to Orb Developments Limited by a lease dated 14 March 2000 on the basis of :-

(a) Head lease of the main site as indicated edged in red on the attached drawing for 130 years from March 2000. (b) Supplemental lease of the extension of the site along the Quay frontage as edged in green (coloured copies for Members only) on the drawing from 14 December 2000 and to be co terminus with the head lease.

3.2. In June 2003 as a result of Orb Developments entering receivership Messrs Price Waterhouse were appointed as receivers and have been in possession of the Head Lease and Supplemental Lease and have been actively endeavouring to market these leases and dispose of the

1 site. An update on progress with these matters was reported to Cabinet on 27 January 2004.

3.3. In addition as a result of identified encroachments both in terms of pile cap incursions in the ground and bridge and balcony overhangs negotiations took place with the Receiver with a resultant report to Cabinet on 2 November 2004 to approve a further supplemental lease to properly reflect the status of these encroachments.

This issue was subsequently reviewed at the Resources Overview and Scrutiny Group at the meeting on 4 January 2005. This supplemental lease remains to be completed and a further update on this is provided in paragraph 5 below.

4. REQUEST FOR ASSIGNMENT

4.1. The Council has now received from the solicitors acting on behalf of the Receiver a formal request to assign the benefits of all these lease agreements to a company in the name of Skelton Poole Limited.

4.2. Clause 4.16 of the Head Lease of 14 March 2000 requires that :-

The lessee shall not assign the premises without the consent of the Council as landlord, such consent not to be unreasonably withheld or delayed.

4.3. It is normal and reasonable practise in such an instance therefore to undertake appropriate company and financial searches to determine the ability of the proposed assignee to meet its obligations under the lease to be assigned.

4.4. Company searches have been undertaken on the status of Skelton Poole Limited. This company was incorporated on 9 February 2005 (number 5358762) and that no further information is available at this time from Companies House. The parent company is Skelton Group Limited (registration number 3194228) who will stand as guarantor for Skeleton Poole Limited in the assignment.

4.5. In financial terms the current obligations by way of annual rental of the leased sites is £68,000 per annum. Financial searches have revealed that the most recently reported turnover of the Skelton Group was £4.6 million with profit after tax of £3.0 million. Current assets are £10.9 million, which significant exceed liabilities of £2.2 million, suggested credit limit in monthly terms of £150,000 is given.

4.6. The Skelton Group was set up in 2001 as a commercial property company.

2 More detail about the structure of the company and their operations is provided on the attached appendix.

4.7. In addition because of the status of the new company it has been considered appropriate to request some further operational references to obtain a greater understanding of the Skelton Group’s track record from the receivers solicitors.

Any relevant information received will be circulated to members of Cabinet at the meeting.

5. LEGAL ISSUES.

5.1 The Council as landlord must act reasonably in determining whether to grant or withhold consent to assignment. The purpose of the control granted to landlords by covenants relating to assignment has been set out by the Court of Appeal as being to prevent premises being used in an undesirable way or by an unsuitable tenant. The grounds upon which consent can be withheld must relate closely to the Landlord and Tenant relationship and nothing else. Personalities and other extraneous considerations are irrelevant.

5.2 On the basis of the information set out in paragraph 4 above it would appear that the Skelton Group would be suitable tenants from an estate management point of view subject to the references and other matters referred to elsewhere in these paragraphs. Consent to assign if granted would of course be conditional on the payment of any outstanding rent, charges or other amounts validly owed to the Council as Landlord of the premises.

5.3 Should consent to assign be unreasonably withheld the Tenant (or in this case the Receiver) would be entitled to go to the Court to seek both a declaration over the reasonableness of the Council’s actions and if successful, damages. The Council in this case is acting in its capacity as Landlord and should put aside considerations relating to its additional statutory role as planning authority unless they are relevant to the Landlord and Tenant relationship.

5.4 A point has also been raised with regard to possible unfulfilled flood protection obligations with regard to the premises. A check has been undertaken but no unfulfilled obligations have been discovered. It is understood, however, that the Environment Agency has recommended that in the light of the latest flood predictions and the expected rise in sea levels over the next 200 years that a prudent occupier should undertake a range of waterproofing and other building related flood measures.

3 6. ENCROACHMENTS

6.1. The report submitted to Cabinet on 2 November 2004 informed members of the actions taken and the outcome of the Mediation process and to recommend an appropriate basis on which to properly regularise the position.

This consisted of a supplemental lease of an area measuring 238 m2 around the frontage of the development. This does not effect the council’s ownership of the sub soil or the highway status on and over the land in question.

6.2. As a result of minor revisions in the identified strip around the frontage of the development and the need to include overhangs on the eastern side of Fisherman’s Road and the part of East Quay road which is public highway, the sub soil of which roads remains in the ownership of Poole Council, an amended overall area of 257m 2 has now been calculated. Due to the minor change in overall area and taking into consideration the basis of the original agreed payment settlement as reported to Cabinet on 2 November 2004 in relation to the level of values calculated prior to the mediation process, the District Valuer has advised that the agreed figure remains an acceptable consideration to reflect the overall area of land to be included in the additional supplemental lease.

BACKGROUND PAPERS

Resources & Overview Scrutiny Committee Report 4 Jan 05 Cabinet Report 2 Nov 04 Cabinet Report 27 Jan 04

Helen Harbour BSc (Hons) MRICS MBA Head of Property Services

Tim Martin Head of Legal & Democratic Services

Bob Jackson Head of Financial Services

NAME AND TEL NO OF OFFICER CONTACT Michael Moysey - Estates & Valuation Manager Tel 01202 261280