North Hertfordshire District Council s3

*PART 1 – PUBLIC DOCUMENT AGENDA ITEM No. 11C

TITLE OF REPORT: ITEM REFERRED FROM CABINET: 11 DECEMBER 2012 – FUTURE OFFICE ACCOMMODATION PROVISION

The following is an extract from the Draft Minutes of the Cabinet meeting held on 11 December 2012.

99. FUTURE OFFICE ACCOMMODATION PROVISION

The Portfolio Holder for Finance and IT presented a report of the Strategic Director of Finance, Policy and Governance in respect of proposals to develop a long-term office accommodation solution for the Council, in accordance with the resolution of the Cabinet meeting held on 20 March 2012. He referred to the recommendations from the meeting of the Overview and Scrutiny Committee held on 13 March 2012, which supported the proposals outlined in the March 2012 report.

The Portfolio Holder for Finance and IT advised that the report outlined the options open to the Council in respect of the previous decision to remain in the District Council Offices (DCO), Gernon Road, Letchworth Garden City, namely purchase of the DCO (more specifically, the head-lease, as the freeholder was the Letchworth Garden City Heritage Foundation) or lease of the DCO. The landlord (Standard Securities) had indicated that they would be prepared to sell their long leasehold (head lease) interest in the property at a value which was set out in the Part 2 report. This was the option recommended by Officers.

The Portfolio Holder for Finance and IT stated that, should the recommendation to purchase the head lease be agreed, a number of refurbishment works would need to be carried out to the DCO. These were summarised in the report, with detailed costings included in the Part 2 report. A full structural survey of the building had been undertaken, which had not identified any issues of material concern.

The Portfolio Holder for Finance and IT commented that the proposed scheme included improvement items identified to provide a refurbishment of the office accommodation on the Second, Third and Fourth Floors of the DCO. These works would be spread over at least two financial years, as the work programme would be based on a floor by floor approach to maintain the building in an operational state overall and minimise staff disruption. Other cost items, such as lift refurbishment, boiler replacement, stairs/landing refurbishment and refurbishment of the other floors of the building had been identified for separate capital bids at a later date.

RECOMMENDED TO COUNCIL: That, subject to Part 2 considerations, the purchase of the long-leasehold interest (head lease of 90 years) in the District Council Offices, Gernon Road, Letchworth Garden City, be approved, in principle.

RESOLVED: That, subject to Part 2 considerations, the outlined refurbishment plan to the District Council Offices be approved, in principle.

REASON FOR DECISION: To secure longer-term accommodation provision for the authority and reduce pressure on revenue budgets, and to ensure that appropriate investment can be made in the DCO building to implement energy efficiency and improvement measures and to provide good quality accommodation for staff.

COUNCIL (13.12.12) The following is the report to be considered by Cabinet at its meeting to be held on 11 December 2012.

TITLE OF REPORT: FUTURE OFFICE ACCOMMODATION PROVISION

REPORT OF THE STRATEGIC DIRECTOR OF FINANCE, POLICY & GOVERNANCE PORTFOLIO HOLDER: COUNCILLOR T.W. HONE

1. SUMMARY

1.1 The purpose of this report is to update Members on the proposals to develop a long-term office accommodation solution and seek approval in principle for capital expenditure.

2. FORWARD PLAN

2.1 This Report contains a recommendation on a key decision that was first notified to the public in the Forward Plan on the1st September 2012.

3. BACKGROUND

3.1 At the Cabinet meeting held on 20th March 2012, it was resolved:

(1) That, in the light of the current financial position, the option of purchasing the District Council Offices (DCO), or remaining on a longer lease (e.g. 25 years), be taken forward as the primary office accommodation option;

(2) That a full structural survey be commissioned, at an approximate cost of £7,000, and any major issues or difficulties emerging, which would require additional investment to that outlined in the report, are reported back to Cabinet before any expenditure on a design and specification is incurred;

(3) That, provided no major structural issues are forthcoming, external expertise be engaged, at an estimated cost of £20,000, to prepare an outline design and specification for refurbishment works to achieve environmental sustainability and improve the building condition, as estimated in Appendix A1 to the report, including measures to reduce running costs for the building;

(4) That a further report be brought to Cabinet to outline the findings of the resolutions (1), (2) and (3) above;

(5) That the option to share facilities with another public body in the North Hertfordshire District be kept under review.

REASON FOR DECISION: To allow negotiations to proceed with the landlord to secure longer-term accommodation provision for the Authority; and to ensure that appropriate investment can be made in the DCO building to implement energy efficiency and improvement measures and to provide good quality accommodation for staff.

3.2 The Chairman of the Overview & Scrutiny Committee also presented the following recommendations to Cabinet:

“(1) That the recommendations contained in the report entitled Future Office Accommodation Provision be supported;

COUNCIL (13.12.12) (2) That any investment in the building is critically assessed in terms of value for money as part of the design and specification work and subsequently by Cabinet;

(3) That estimated revenue savings arising from refurbishment options and environmental sustainability are clearly identified in any future report;

(4) That in considering the acquisition of a long lease or purchase of the building, the details of improvements, flexible use of the building and opportunities for income generation be assessed;

(5) That there was no benefit in separating the costs of refurbishment of different areas of the building as this will be the subject of detailed assessment and management of contracts.”

4. ISSUES

4.1 Purchase of the DCO (more specifically – acquiring the head-lease)

4.1.1 The landlord (Standard Securities) have indicated that they would be prepared to sell their long leasehold interest (head lease) at a value which is reported in Part 2. This leasehold interest runs until 2102, i.e. 90 years remaining. The Agent for the landlord has undertaken to prepare some draft Heads of Terms for circulation and has been provided with contact details for the NHDC Legal Team.

4.1.2 If the Council proceeds with this capital purchase, this would have the beneficial revenue impact of removing the annual rent liability, currently £219,000. This would, however, also adversely impact on the Council’s annual investment income as the capital expenditure required for the purchase would reduce the Council’s overall investment sum. A purchase would also bring with it the requirement to pay ground rent to Letchworth Garden City Heritage Foundation in the region of £11,000 per annum. Overall however, the net annual revenue saving at current estimates would be in the region of £130,000.

4.1.3 In addition to purchase costs, should the Council wish to proceed, there will also be a requirement to make a one-off payment in respect of Stamp Duty Land Tax (SDLT) at the rate of 4% on the purchase price.

4.1.4 Purchase of the DCO is the option proposed by Officers.

4.2 Lease of the DCO

4.2.1 Members will be aware that NHDC entered a new five year lease, ending December 2016, and we have engaged the landlord in meaningful discussions regarding the purchase of the head lease/long leasehold interest (4.1). The landlord is a family trust that does not usually engage in buying/selling assets on a regular basis. Instead they prefer to purchase a long interest and then benefit from regular annual income. On that basis the landlord would prefer to enter into a long-lease agreement, rather than to sell the DCO, however they are less interested in investing significant sums in the building.

4.2.2 The current five-year lease could be considered the starting position for a longer-term lease, although five-year reviews would continue and in the longer- term the annual figure would be expected to rise. However there are some significant factors to consider. Elsewhere in this report a range of building works are identified as either necessary or beneficial in terms of the Council’s future use of the building. The degree of contribution to these costs that the landlord was prepared to make would have a direct impact on the ongoing rent

COUNCIL (13.12.12) agreement, i.e. the more funding the landlord provided then the higher the ongoing rent expectation and vice versa (however the Landlord is very unlikely to wish to do this). On the other hand, if the Council signed up to a new long- lease, the landlord would benefit from a guaranteed cash-flow for the period of the lease which would strengthen the Council’s hand in negotiating a new rental figure.

4.2.3 Should NHDC decide to enter a new long lease (e.g. 25 years) then Stamp Duty Land Tax (SDLT) would be due at 1% of the total lease value over the length of the lease.

4.3 Full Structural Survey

4.3.1 A survey was undertaken and did not identify any issues of material concern or that would require a fundamental re-assessment of the broad proposals previously put forward. This survey comprised a general condition report together with an indication of future key costs in connection with maintenance and repair of the building fabric, which is also incorporated into the design and specification works.

4.3.2 The most significant cost estimates arising from the survey are consistent with work areas previously identified for improvement works. The highest cost areas identified from the survey being for initial works to external glazing/insulation, ventilation improvements and internal re-modelling to increase the amount of open-plan office space, which will improve overall heating/ventilation performance of the building.

4.4 Outline design and specification for refurbishment works

4.4.1 As no major structural issues were identified by the structural survey, work has been carried out by Quantity Surveyors, Building Engineers and Property Services to prepare an outline design and specification for refurbishment works to include the feasibility of introducing measures to increase overall comfort levels within the office, whilst also reducing both energy consumption and carbon emissions. It should be noted that the building is currently prone to significant overheating (referred to further in 5.6 and 5.7). The outline design also incorporates flexibility to accommodate future changing needs for space use, whether by NHDC or in terms of leasing out office space to 3rd parties and hiring out meeting facilities.

A High level summary of the Proposed Initial Refurbishment is as follows:

4.4.2 The intention is to provide flexible working areas, which maximise hot desking provision and space utilisation, and also to improve office temperatures to address the extremes that can be experienced.

4.4.3 Floor by Floor refurbishment of the second, third and fourth floor is initially proposed, including the creation of open plan offices with meeting space, centralised storage and also kitchen and print areas on each floor designed to maximise the use of natural daylight, cross ventilation and reduce heat gain from glazing and electrical equipment.

4.4.4 New lighting and power networks would be installed, along with intelligent lighting controls utilising a mixture of motion and daylight sensors. Modelling suggests that this may reduce lighting energy consumption by over 50% (which could save up to £7k pa – included in Table 2 (10.2)). The current heating system mechanics would be replaced with floor by floor controls, with forced extraction linked to CO2 and heat levels, allowing for day time heat

COUNCIL (13.12.12) release and night time cooling. These improvements could save up to £4k pa on current gas costs (also included in Table 2 (10.2)).

4.4.5 Floor by floor occupancy levels would be set to balance the need for a maximum number of workstations, whilst optimising staff comfort by reducing over crowding. Every effort will be made to re-use existing equipment, and re- provision of storage and Office/kitchen equipment, where necessary, will ensure the refurbishment would be complete for each floor addressed without the need for subsequent works.

4.4.6 Allowances are made for secondary glazing and applying insulation to external walls. The effects of applying shading to the curtain walling to reduce solar gain have been assessed, but discounted. Solar thermal heating has been investigated for hot water supply, although it does not currently provide sufficient savings on energy consumption to warrant the investment due to the low demand for hot water within the offices.

4.4.7 Sustainable cooling systems, such as chilled beams on the ceiling of each office area, would be applied in addition to passive cooling measures.

4.4.8 The specific solutions to heating/cooling issues considered are:  Improved thermal insulation  Internal window blinds  Enhanced natural ventilation measures  Night-time ventilation to pre-cool the building interior  Creating open plan spaces to improve natural ventilation

4.4.9 Further measures with a specific positive impact on energy efficiency are:  New lighting provision  Intelligent lighting controls  Improved heating controls

5. COSTING ASSESSMENT

5.1 The broad initial costing exercise provided to Cabinet in March 2012 had estimated for a wide range of potential works, including environmental improvements, with a corresponding wide spread of potential costs ranging from £227k if the Council was only in occupation for five years, through to £1.975 million (excluding preliminaries, fees and VAT) if long-term occupation was to be required. One item of inescapable expenditure recorded in the cost options has now been included in the capital programme, namely the re- roofing over the Council Chamber (£150k).

5.2 The elements identified in the Design and Specification proposal are provided in the Part 2 Report. The proposed scheme includes the improvement items identified to provide a refurbishment of the office accommodation on the 2nd, 3rd and 4th floors. The refurbishment funding requested is for those elements of work that will directly facilitate a step-change in office utilisation and meet the requirements set out in 4.4.1.

5.3 Remaining in the DCO has been identified as the primary office accommodation solution (3.1.1) and therefore refurbishment plans have been developed to introduce more open plan office space and improve the internal temperatures of the building. As a result certain items of expenditure, e.g. ceilings and flooring, are regarded as essential because the removal of internal partitions and re-modelling to create open-plan space will directly impact on the current ceiling and floor coverings.

COUNCIL (13.12.12) 5.4 The initial budget requirement would be spread over two+ financial years, as the work programme would be based on a floor by floor approach to maintain the building in an operational state overall and minimise staff disruption. Other cost items, such as lift refurbishment, boiler replacement, stairs/landing refurbishment have been identified for separate capital bids at a later date.

5.5 The initial design work carried out is for an entire office refurbishment and incorporates flexibility in layouts so that future/different accommodation requirements can be met. This design can be referred to for future phases of work if funding is made available. These future options include the potential to incorporate the Print Room into the Ground Floor, and also offers the possibility to provide facilities for other bodies that could sub-lease office space from NHDC. This would provide an additional income stream, as would the increased ability to hire out meeting rooms if facilities are upgraded. This could be achieved in either of the long-term options under consideration in 4.1 and 4.2, provided the office space is refurbished (and landlord’s consent was obtained if the Council continues to lease), although no estimate for these income streams is provided at present.

5.6 The Quantity Surveyor’s report has identified that summer peak temperatures within the DCO reach between 32°C and 37°C. Creating an open plan office reduces the peak temperature to around 31°C.

5.7 Excessive heat can cause ill health and is one of the key reductions in satisfaction levels identified from the Staff Survey (7.4, table 1); however, there is no statutory maximum internal temperature in the current UK Building Regulations or health and safety guidance. It is recognised, however, that at higher temperatures heat stress can occur, so reducing the body’s performance, and this is particularly acute above 34°C.

6. ENVIRONMENTAL/GREEN ISSUES

6.1 The Council’s Climate Change Strategy - The Council’s aspiration to reduce greenhouse gas emissions by at least 26% by 2020 and 80% by 2050 (measured against our 1990 levels) were aligned with the Climate Change Act which came into force in November 2008. The Council is now required to reflect the intentions of the national Memorandum of Understanding made between national and local government in March 2011, those proposals informing councils' carbon reduction programmes to 2015.

6.2 The Nottingham Declaration adopted by the Council in 2007 has been replaced with ‘Climate Local’, a Local Government Association initiative. This initiative requires Councils to adopt and publicise targets and aims to support and drive council action to reduce carbon emissions and also to improve resilience to climate change. The benefits or risks of adoption of ‘Climate Local’ will be considered by the Council as appropriate in due course, and in particular once the funding position and criteria surrounding the proposal are better known.

6.3 NHDC is subject to financial constraints and must ensure it retains a focus on actions that in their implementation make more immediate financial or measurable carbon reduction benefits, such as reducing energy use, reducing its carbon footprint and encouraging environmentally sensitive behaviour in its staff, partners and as a community leader. The Dept of Energy and Climate Change (DECC) monitor energy use and emissions related to those local communities within 'council control and influence' and together with emission data from the councils’ own estate and operations, are reported annually through the Climate Change working group and also on our website.

COUNCIL (13.12.12) 6.4 Implications of Green Issues on the refurbishment proposed can be summarised as follows:-

a. Meeting CO2 gas emission requirements for commercial offices will become increasingly difficult to achieve as energy conservation regulations are strengthened.

b. The period within which strengthening of regulations is likely to happen will become shorter and shorter as the overall targets become increasingly difficult to achieve.

c. The cost of achieving a sustainable option will require the widespread use of new energy saving technologies, which will add to initial costs.

d. Carrying out these proposals will demonstrate the council’s role as a community leader in tackling climate change by reducing its own carbon footprint, one of our Priorities for the District

6.5 The proposals outlined in this report are informed by the points above and the preparation of an outline design and specification for refurbishment works is specifically targeted at achieving environmental sustainability and improving the building condition.

6.6 There may be an option to finance energy efficiency improvements with the new 'Green Deal' that comes into effect in January 2013, although the precise terms would need to be compared to the self-borrowing funding solution. The Green Deal is a new finance framework that will provide householders and businesses with the upfront capital to carry out energy efficiency improvements to their properties and repay through their energy bill.

7. HUMAN RESOURCES IMPLICATIONS

7.1 Staff expectations relating to the new office accommodation need to be managed and staff communication relating to the long-term provision of office accommodation requires careful consideration.

7.2 Staff have embraced the rationalisation in office accommodation and working practices necessary to achieve this. These changes have increased the problems around temperature control within the DCO building and refurbishment needs to take place to improve this and create more open space, now that the longer term aim to remain in the DCO is confirmed. Issues regarding heat gain and loss are specific concerns regularly raised by staff members via the Staff consultation Forum.

7.3 In the 2012 Staff Survey, staff were asked how satisfied they are with key elements of office accommodation provision. The results strongly suggest that staff are much less satisfied with their workplace than they were in 2010, (although in the intervening period the council has consolidated all staff into the main council offices, with increased facility to work from home too):

 15 out of 20 elements saw a drop in satisfaction levels since 2010  only three saw an increase (two new elements were introduced in the 2012 survey)  most decreases were by 5 percentage points or more  three elements have satisfaction levels of 40% or lower  however, there has been a significant increase in satisfaction with recycling facilities and the provision of meeting rooms

COUNCIL (13.12.12) 7.4 The table below shows the elements where satisfaction levels have increased and those with the largest % point decrease:

Table 1 - Satisfaction with key elements of office accommodation % point Element 2007 2010 2012 change since 2010 1 Provision of meeting rooms 46% 47% 62% +15% 2 Provision of recycling 35% 33% 71% +38% receptacles 3 The appearance of the main 73% 67% 76% +9% reception area 4 Temperature at your 51% 46% 33% -13% workplace on hot days 5 Temperature at your 68% 52% 40% -12% workplace on cold days 6 Lighting levels at your 71% 77% 66% -11% workplace 7 The space where you work 80% 75% 67% -9% 8 Provision of quiet working 48% 45% 36% -9% areas 9 Provision of kitchen facilities 83% 80% 71% -9% near workplace 10 Cleanliness in kitchen area nearest your workplace during 68% 61% 55% -6% the last 2 months 11 Provision of toilet facilities 78% 77% 71% -6% near workplace

A number of these factors would be addressed by the capital investment in, and subsequent improvements proposed to, the Council’s existing office accommodation.

8. EQUALITIES IMPLICATIONS

8.1 The Equality Act 2010 came into force on the 1st October 2010 The Act also created a new Public Sector Equality Duty, which came into force on the 5th April 2011. There is a General duty that public bodies must meet, underpinned by more specific duties which are designed to help meet them.

8.2 In line with the Public Sector Equality Duty, public bodies must, in the exercise of its functions, give due regard to the need to eliminate discrimination, harassment, victimisation, to advance equality of opportunity and foster good relations between those who share a protected characteristic and those who do not.

8.3 In terms of this report, a relevant consideration in the provision of any new office accommodation will be that of the equality of physical access, for both customers and staff, and at such time any refurbishment or alteration does take place, ensuring that the latest statutory access requirements are fulfilled.

9. LEGAL IMPLICATIONS

9.1 Cabinet’s terms of reference include the responsibility “to manage and maintain the Authority’s accommodation”.

9.2 There are no specific legal implications arising from the further investigation of proposals at this stage. Legal input will be provided where required in the

COUNCIL (13.12.12) discussions with Standard Securities regarding purchasing the DCO head lease for 90 years or securing a longer term lease, e.g. 25 years. Legal Services will be responsible for safeguarding the Council’s interests in any subsequent transaction arising out of these discussions.

9.3 The instruction of external consultants and surveyors will need to be made in line with the Council’s Contract Procurement Rules.

9.4 The Council has a right to extend its current lease of the DCO offices under the Landlord & Tenant Act 1954. This requires the Council to serve notice on the landlord prior to expiry of the lease. Commonly this is agreed by negotiation between the parties prior to expiry, but if necessary the Council can enforce its right through the Courts. The law surrounding the power of the Courts to extend the lease is too extensive to be considered in this report.

9.5 The approval of Full Council is required for the acquisition of land or buildings where the capital sum or annual rental value exceeds £1 million.

10. FINANCIAL & RISK IMPLICATIONS

10.1 The authority needs to make considerable revenue budget savings over the next few years and therefore a proposal to purchase the building, which reduces the net revenue expenditure for the authority, should be seriously considered. It has previously been concluded that a “new build” option, which would be considerably more expensive than purchasing an existing building, could not be justified.

10.2 A refurbishment scheme will also require investment and will include measures to reduce ongoing running costs to provide further revenue savings following the initial capital investment. The potential annual revenue savings (at current energy prices, noting that prices are about to rise again) arising directly from refurbishment and environmental sustainability options under consideration are estimated at £19k, and are outlined in the table below:

Table 2: Annual direct operational revenue savings

Budget Heading Budget £000’s Estimated % reduction reduction £000’s

Electricity 47 7 15 Gas 33 4 12 Water 4 Marginal 0 Maintenance 31 8 25

Total 115 19 17

10.3 There is currently a Top Risk relating to Asset Management that is owned by Cabinet. This risk includes the failure to develop a long-term solution for office accommodation for the Council. The consequence of this would be that the authority is left without any resilient office accommodation plan after the expiry of the current lease in December 2016, as we would be relying solely on the provisions of the Landlord & Tenant Act.

COUNCIL (13.12.12) 11. CONSULTATION WITH EXTERNAL ORGANISATIONS AND WARD MEMBERS

11.1 The Portfolio Holder for Finance & IT has been consulted regarding this proposal.

12. RECOMMENDATIONS

12.1 That Cabinet recommends to Council that the purchase of the long-leasehold interest (head lease of 90 years) in the DCO is approved in principle, subject to the Part 2 report.

12.2 That Cabinet approves the outlined refurbishment plan in principle, subject to the Part 2 report.

13. REASONS FOR RECOMMENDATIONS

13.1 To secure longer-term accommodation provision for the authority and reduce pressure on revenue budgets.

13.2 To ensure that appropriate investment can be made in the DCO building to implement energy efficiency and improvement measures and to provide good quality accommodation for staff.

14. ALTERNATIVE OPTIONS CONSIDERED

14.1 Alternative options have been considered in previous reports, but ultimately discounted in favour of the DCO options.

15. CONTACT OFFICER

Andy Cavanagh, Head of Finance, Performance & Asset Management Tel: 01462 474243 Email: [email protected]

CONTRIBUTORS

Ian Davis, Senior Building Surveyor Tel: 01462 474340 Email: [email protected]

David Charlton, Senior Estates Surveyor Tel: 01462 474320 Email: [email protected]

Anthony Roche, Acting Corporate Legal Manager Tel: 01462 474588 Email: [email protected]

Kerry Shorrocks, Head of Human Resources Tel: 01462 474224 Email: [email protected]

16. APPENDICES

COUNCIL (13.12.12)