SETTLEMENT AGREEMENT between SCOTTISH BORDERS COUNCIL, a local authority constituted under the Local Government etc (Scotland) Act 1994 and having their headquarters at Council Headquarters, Newtown St Boswells, Melrose TD6 0SA (“SBC”) and SCOTTISH BORDERS HOUSING ASSOCIATION LIMITED, (registered number 2573R(S)) a body constituted under the Industrial and Provident Societies Act 1965 and having its Registered Office at South Bridge House, Whinfield Road, Selkirk TD7 5DT (“SBHA”) (together “the Parties”) WHEREAS: A. SBC entered into a transfer agreement with SBHA for the transfer of its housing undertaking to SBHA by Agreement dated 26 February 2003 (“The Transfer Agreement”); B. In terms of Clause 10.2 of the Transfer Agreement SBC granted in favour of SBHA certain indemnities as set out and subject to the terms of Schedule 3 of the Transfer Agreement (“the Indemnities” but such term shall specifically for the purpose of this Settlement Agreement exclude the following indemnities: (i) the Title Indemnities (Part A of Schedule 3); (ii) the Environmental Indemnities (Part B of Schedule 3); and (iii) the Business Indemnities (but limited to Paragraphs 1.2, 1.3, 1.4, 2 and 6 of Part C of Schedule 3) (together “the Excluded Indemnities”) ), including in respect of the accuracy of information and statistics supplied by SBC in respect of the transfer and in respect of the adoption of roads and footpaths; C. SBHA have claimed that certain information regarding (i) historical repairs costs (“the Preliminaries Claim”); (ii) disclosure of the extent of unadopted roads, footpaths and other assets, including streetlights (“the Undisclosed Assets Claim”); (iii) estimation of costs relative to unadopted roads, footpaths and other assets, including streetlights (“the Underestimated Costs Claim”); (iv) tree maintenance costs (“the Tree Maintenance Claim”); (v) housing services liabilities (“the Housing Services Claim”); (vi) status and income from eight garage sites at Kirkland Street, Peebles (“the Kirkland Claim”); and (vii) potential employee liabilities (“the Employee Claim”) was inaccurate, contained omissions, or gave rise to a claim under the Indemnities or otherwise gave rise to a claim against SBC in respect of the Transfer Agreement (together, subject to Recital F, “the Dispute”); D. By Summons dated 22 February 2008, SBHA raised an action in the Court of Session (case reference A115/08) against SBC in respect of the Dispute, claiming payment of the sum of £15.23 million plus interest and costs from SBC (“the Court Proceedings”); EDIN 3256156 v 1 E. By Notice of Arbitration dated 20 February 2008, SBHA gave notice of its submission and reference of the Dispute to arbitration, claiming payment of the sum of £15.23 million plus interest and costs from SBC (“the Arbitration Proceedings”); F. Subsequent to the raising of the Court Proceedings and the Arbitration Proceedings SBHA have provided further specifications and variations of the subject matter of the Dispute and the Parties agree that the Dispute shall be construed accordingly and includes the whole subject matter of SBHA’s claims, as so varied and further specified to the date of this Settlement Agreement; G. The Parties agreed to settlement of the Employment Claim in the sum of £1,155.96 in April 2009. The Parties agreed to settlement of the Kirkland Claim in the sum of £7,799.70 in June 2009. Both sums have been paid. SBHA no longer insist upon the Tree Maintenance Claim. H. The Parties now wish to settle all liabilities in respect of the Dispute or otherwise arising under the Indemnities on the terms set out in this Settlement Agreement. NOW THEREFORE, the Parties agree as follows: PAYMENT 1 In addition to the sums paid and recorded in Recital G above, SBC will, in full and final settlement of any and all liability by SBC to SBHA arising in respect of (a) the Dispute; (b) the Court Proceedings; (c) the Arbitration Proceedings; and/or (d) otherwise arising out of or under or in connection with the Indemnities: (i) make payment to SBHA of the sum of TWO HUNDRED AND FIFTY THOUSAND POUNDS (£250,000) Sterling (which sum shall, for the avoidance of doubt, be exclusive of any VAT which may be payable thereon and which, in the event that VAT is deemed to be payable, will be paid by SBC) (“the Settlement Sum”); and (ii) accept certain liabilities more particularly set out in paragraph 3 below. 2 SBC agree to make payment of the Settlement Sum on or before 30 April 2011 (“the Payment Date”) and agree to payment of interest at the rate of 4% above the Bank of England base rate per annum on any outstanding balance from the Payment Date until payment. EDIN 3256156 v 1 RESPONSIBILITY FOR ASSETS 3 The Parties agree as follows: 3.1 SBC shall, in perpetuity and at its expense, repair, maintain and be responsible for the running costs (including electricity costs) associated with, all those 1280 assets listed in the excel table a CD copy of which is marked Schedule A1, docqueted and signed as relative to this Settlement Agreement, excluding for the avoidance of doubt the 126 assets marked as unknown (“the Streetlights”), in accordance with the normal SBC maintenance regime (applicable from time to time) for street lighting. SBHA hereby confirm to SBC that they are not aware of any outstanding issues arising in relation to the Streetlights, and, on such basis, SBC’s said responsibility for the Streetlights shall be deemed to have commenced on 26 February 2003. 3.2 SBHA grants SBC and all other persons authorised by SBC the following rights: the right to enter the streets and/or footpaths, residential dwellings or others in order to inspect, maintain, repair, connect, remove, lay, renew, relay, replace with others alter or execute any works whatsoever in connection with the Streetlights and the assets and services thereto relative to this clause 3, on condition that it shall make good any physical damage thereby caused; declaring that where such access is required to residential dwellings reasonable prior notice shall be given except in cases of emergency. 3.3 Subject to Clause 3.4 below, SBC undertakes within 3 months of the date of this Settlement Agreement to adopt for maintenance purposes: 3.3.1 2 elongated entrance roads leading to garage courts (but not the garage courts themselves); 3.3.2 35 car parks; and 3.3.3 2 lay-by type parking areas; all as more particularly referenced and specified on the Schedule A2 annexed to this Settlement Agreement. For the avoidance of doubt, and notwithstanding that adoption may not take place until 3 months from the date of this Settlement Agreement, SBC shall assume responsibility for the maintenance of these assets from the date of this Settlement Agreement. 3.4 SBHA undertake to pay to SBC 25% of the proper and reasonable maintenance costs incurred by SBC from the date of execution of this Settlement Agreement in respect of the car park with Asset Ref No CH3-G36 at Howden Drive, Jedburgh within 30 days of written demand by SBC. 3.5 “Asset Ref No” for the purposes of this Settlement Agreement means the asset with the corresponding reference number described within Schedule A2 and as shown and defined within the plans, site notes and photographs relative to each asset reference number at Schedule A3, docqueted and signed as relative to this Settlement Agreement. EDIN 3256156 v 1 DISPUTE RESOLUTION 4 Any dispute arising under this agreement (“a Settlement Dispute”) may be referred to expert determination (and the parties agree that a Settlement Dispute shall not be referred or submitted to any other form of dispute resolution) as follows: 4.1 Either party may, at any time, by notice in writing to the other (“the Notice”), require a Settlement Dispute to be determined by the Expert. 4.2 The Notice shall provide the names of two persons proposed to act as the Expert. Parties will endeavour to agree to the appointment of the Expert within 7 days of the issue of the Notice. 4.3 In default of agreement between SBC and SBHA on the appointment of the Expert within 7 days of the issue of the Notice, the Expert shall be appointed by the Chairman of the Royal Institute of Chartered Surveyors (Scotland) (“the Chairman”) on the written application of either party, such application to be made not later than three months after the date of the Notice. 4.4 The Expert shall:- 4.4.1 act as an expert; 4.4.2 invite SBC and SBHA to submit to him, within such time limits (not being less than 15 working days) as he shall consider appropriate, their statement of position accompanied by such written submissions, representations and such supporting evidence as they may respectively wish; 4.4.3 within 60 working days of his appointment, or within such extended period as SBC and SBHA shall jointly agree in writing, give to each of them written notice of determination of the Settlement Dispute (“the Determination”), together with reasons if reasons are requested by either party. 4.5 The Determination shall be final and binding. The parties agree to registration of the Determination in the Books of Council and Session for preservation and execution. 4.6 The fees and expenses of the Expert, including the cost of his nomination, shall be in the award of the Expert and, failing such award, the same shall be payable by SBC and SBHA in equal shares and they shall each bear their own costs, fees and expenses. 4.7 If the Expert fails to give notice of his determination within the time aforesaid, or if he dies, is unwilling to act, or becomes incapable of acting, or if, for any other reason, he is unable to act, either party may request the Chairman to discharge the Expert and appoint another Expert in his place to act in the same capacity, which procedure may be repeated as many times as necessary.