Gagged

It seems our local Green Councillor has been gagged by TDC. Story here in the IOTG. It beggars belief that TDC could get into such a pickle over some legal advice. The perception, of course, is they have something to hide.

So let us examine what that legal advice may be.

Firstly the background to this is Cardy have approached TDC officers to solve the ongoing saga over SFP Ventures (UK) Ltd as TDC had served a breach notice on the Company due to inaction on their part.

As part of the process of allowing Cardy to take over SFP the Council have requested 3 pieces of information from experts. Firstly a formal valuation of the site by Strutt & Parker. Secondly a full structural survey of the cliff face, and thirdly legal advice from Pinsent Mason (PM). This last it seems is what Ian Driver removed from the Council office and is subject to a Legal Injuction to stop him disseminating the contents.

The valuation, also subject to the injunction,  is hardly rocket science as any competent accountant or estate agent could easily work this out based on the 2005 valuation which, since the then council legal officer announced as no longer on "pink", is in the public domain.

So lets examine just why Ian Driver has been gagged.

The Council Legal Officer, Harvey Patterson, announced at an Overview & Scrutiny T&F group meeting that due to the passage of time all paperwork prior to the 2009 Development Agreement should no more be kept secret so that means the suppressed Legal Advice cannot be anything to do with that. Neither is the prior advice concerning the serving of the breach notice as that seems to have been released into the public domain despite still being on "pink".

So what could this new advice be and just why is it so controversial? Firstly lets see just what the legal advisers were asked to do. To get to a point where PM can give advice they have to test why TDC are in this current predicament, this would indicate they have questioned the officers and examined paperwork to see how the current situation arose. They then would have used that 20/20 hindsight knowledge to formulate their advice.

So discounting their current advice to Council as that may have some confidential aspects however it is widely known that Cardy will be "allowed" to be the Developer once they purchase SFP Ventures (UK) Ltd so it isn't a huge secret and they are "the only game in town" it then becomes apparent that the information given to Pinsent Mason by officers may potentially be "Politically sensitive" or as is more likely highly sensitive to Officers on 2 counts.
Firstly to get to a position where appropriate advice can be given officers may have had to be completely honest to the lawyer and if they had known that information would be leaked they would have been less than forthcoming if they meant they would be perceived as inept.
Secondly it may be that the story being spun would be somewhat scuppered if the real truth was able to be read by the general public hence politically sensitive.
People already have a perception of how incompetently TDC operate however that would be far worse if the real truth came out.

 As an example of what transpired in 2012 FORS discovered that the freehold of the site was being requested by Shaun Keegan and we petitioned to stop it being handed over by TDC until at least the hotel was completed to "Shell & Core" however papers given to me show that the Freehold was going to be handed over for the surrender of the 3 leases (cost £550K) plus a payment of overage £3M plus a payment of £30 (to cover the legal cost of dissolving the leases) making a total of just under £3.6M not far short of the leaked site valuation. This "sale" of the freehold was kept from the public as we were led to believe the leases were important to Keegan on top of the freehold.

Further we are being told that Cardy approached Officers with a deal however what is clear from the leaked "Golden Balls" email it was in fact TDC who made the 1st approach to Cardy in August 2013 and not as we are led to believe Keegan's legal adviser who bought it up in their mediation meeting after the breach notice was served in July 2014. Also the Task & Finish group were aware of this in April 2014.

It is entirely possible that there are other reasons why this legal "advice" is being suppressed however what TDC politicos need to understand is the Public perception of TDC is at an all time low and people have very long memories. Its like the X-Files "the truth is out there".

Cabinet Decisions

16th October 2014 

Cabinet met in open session to discuss approving the officers in finalising a new development agreement with a reputable local builder Cardy Construction Ltd

10.1 It is recommended that Cabinet authorise the project team (in consultation with the S151 Monitoring Officer, Head of Paid Service and Cabinet Member for Finance and Estates) to progress with negotiations involving variations to the existing agreement (or a new agreement as provided for within the existing contract) in respect of Royal Sands. These negotiations will be undertaken in accordance with existing delegations and within the parameters detailed in paragraphs 3 through to 7 provided best consideration is achieved.
10.2 It is recommended that if further information becomes available during these negotiations that would result in there being a significant negative effect on the consideration owed, particularly as a result of the cliff wall surveys, then the matter should be brought back to Cabinet for further strategic review.

Part 1 video here

Part 2 video here

Once you remove the histrionics and the political utterances what is left is mainly centered around whether the £3.79M for the freehold is sufficient and whether TDC's duty of care around any future purchasers of the leases for either the hotel, apartments or commercial shops.

Any "Best Consideration"  must include things other than just cash

"The terms of the Consent mean that specific consent is not required for the disposal of any interest in land which the authority considers will help it to secure the promotion or improvement of the economic, social or environmental well-being of its area. Where applicable, authorities should also have regard to their community strategy. Although these criteria derive from the Local Government Act 2000, their use in the Consent is not confined to authorities with duties and powers under that Act. Therefore, authorities not covered by the 2000 Act can also rely upon the well-being criteria when considering disposals at less than best consideration. It will be for the authority to decide whether these decisions taken comply with any other relevant governing legislation. In all cases, disposal at less than best consideration is subject to the condition that the undervalue does not exceed £2,000,000 (two million pounds)."

Cliff Face

7.1 The area of cliff wall adjacent to the site is approximately 4 meters from the developed out property boundary. The cliff wall forms part of common land and the council recognises its duty to ensure that all reasonably foreseeable steps are taken to ensure it is adequately maintained.

7.2 The council undertakes regular inspections of the cliff wall to monitor the cliff face for movement and repairs. The council will ensure that new detailed surveys are undertaken in the area of cliff wall and all the reasonable concerns that have been raised will be investigated with the outcome published.

7.3 Part of any contractual modifications will require careful consideration in respect of any works required to the cliff wall. Cardy have agreed to make a capital contribution and are also mindful that in order to sell the units they will need to provide evidence to any buyer and their insurers that the cliff wall is safe and there are mechanisms for adequate ongoing repairs.

7.3 Cardy and the council project team, plus external technical civil engineering experts will carefully consider the outcomes of the surveys and work towards a solution that means that the repairing obligations to the council for ongoing maintenance will be kept to a level no higher than that which they would have been should the development not have proceeded.

I might add more later

does it add up

After the meeting with officers Edwina and Mike yesterday at Cecil Square, Margate I though I would stick my accountant hat on to see if the figures for the Royal Sands development add up for Cardy Construction.

As a prelude to this I would just say the building trade and therefore the saleability of the units have change greatly over the last few years and it is apparent that the new development, nearing completion, along the way is suffering as only 2 units so far have been reserved leaving a cash flow issue for that developer.

It is also true that hotels nowadays aren't being built by hoteliers but rather leased from a service company so effectively they are only tenanted and the proposed 60 bed 3* hotel being suggested is likely to go the same way. Its future value is more likely to be determined by its annual lease times 10 than a sale price. The same is likely to occur with any restaurants and coffee bars.

So lets do the sums 107 apartments @ average £300K equals £32M + hotel   + A3 units

assuming to build the hotel and fit out would cost around £5M you would look to a value of £7M to turn a profit, so 60 rooms @ £90 per night with occupancy of 78% equals turnover for rooms @ £1.49M less overheads @ 70%. this 70% would include annual lease of £700K as that's normally how hoteliers work in today's climate. The same would apply to the A3 use. That would mean the site fully developed would have a value of approximately £40-£42M. That on the face of it would be advantageous to Cardy who would expect to spend a further £20M building it all.

This is only half the story as cash flow would be their biggest problem as it is with most developers. Currently Cardy are out of pocket by £1.5M (give or take) and they have yet to pay Keegan what he thinks he deserves and the cost to TDC which in 2012 was just over £3M and is likely to have risen to just under £4m with the latest valuation.

So assuming the saleable element is the 107 apartments we have  £32M less SFP cost (£7M) + £4M (TDC) less build costs (assuming no over runs) makes a margin of £1M.

Assuming again Cardy transfer the A3 and hotel into a service company they will (assuming they do lease the units) have an ongoing cash flow of +£1M per year and not to be sniffed at.

There is however oen more issue as TDC officers understand they have a duty of care which is to divulge any issues that impact on the saleability of the build. In 2008 £900K was spend on cliff works and in 2012 a further inspection was made which had a number of recommendations none of which were started (but I bet the work was costed) As these recommendations are outstanding still the cost needs to be paid and as one of those was the painting had to be redone this is likely to be a future maintenance cost payable by the residents of the apartment owners in with their service charges.

I think that the saleability of apartments depend greatly on the ongoing service charges and this coupled with the damaging sea air would cause a lot of people to shy away from buying causing ongoing cashflow issues.

I am told in Oostende in Belgium there are many units like this already built were the developer has given away apartments to the builders because they cannot afford to pay the builder so they receive a benefit in kind.

Further if painting the cliff becomes a regular maintenance issue we all remember the scaffolding erected in 2008 and the moths of work carried out. On an open site that is a pain however imagine this in a 13ft access road which is the only access for deliveries, car parking and refuse removal.

Questions nothing but questions

A meeting was arranged today the 13th to discuss the following questions.

1.1.    Q&A put out as part of press release:

1.1.1.Point 3: How do you know if Hill & Keegan have a hold over Cardy Construction Ltd if your due diligence is only done on the new entity? You cannot ignore the rest of the company nor can you exclude other access to finance. For instance the deal where Cardy front Colin Hill in Lowestoft.

1.1.2.Point 4: leases can be done back to back, for example the Pavilion

1.1.3.Point 6: DA is being rewritten so yes you could change things and can someone explain why leases were sold on non-existent assets.

1.1.4.Point 7: Why should anyone trust this “due diligence any more than previous occasions? It would be better paying an external Forensic Accountant to answer all our questions surely.

1.1.5.Point 9: The cliff facade questions.

1.1.5.1.              What is the anticipated life of the columns?

1.1.5.2.              And the facade?

1.1.5.3.              How much do you anticipate spending on maintenance over the next 30 years?

1.1.5.4.               You talk about maintenance how much has been spent since January 2010 when one panel cost £20K.

1.1.5.5.              In 2012 the Facade was inspected what money has been spent and how many of the recommendations have been started and/or completed.

1.1.5.6.              What problems and additional expense would occur if the only access for maintenance work was a 13 foot access road?

1.1.5.7.              When was the last time anyone saw behind the facade?

1.1.5.8.              Point 10: Why doesn’t TDC work with Cardy and resolve the cliff facade by removing it completely?

1.1.6.Point 12: Is the EA being consulted as to whether an FRA and its recommendations is necessary rather than a cost to avoid?

1.1.7.Point 13: very nice statement but ignores the fact that they have been sitting exposed to the elements for 4 years, something reinforcing bars are not made for.

1.1.8.Cabinet

1.1.9.Please explain point 3.7

The DA will include a restriction in favour of TDC not to use the hotel site part of the property other than for a hotel.

1.1.10.                        Part 5 “due diligence” questions

1.1.10.1.           How can you guarantee information given to officers re: funding is 1) not forged 2) not linked to previous developer i.e. Keegan and Hill and how can you ensure no other funding hold is made on another Cardy company?

1.1.10.2.           Who “owns” the £1M surety on completion and as proper checks were never carried out by TDC on receipt, how can you ensure you aren’t “laundering” the funds when it is returned?

1.1.10.3.           Why aren’t checks being made by a neutral 3^rd party to ensure complete clarity?

1.1.11.                        Part 7 Cliff Maintenance

1.1.12.                        How can you have an ongoing contract with Cardy for the maintenance if they sell the freehold on and/or go bankrupt?

After spending an hour discussing these and having some questions referred back for answer later the over riding feeling is Officers are trying to do a much better job that in the last 12 years. That is to be applauded.

Should they not be pressured into making a decision due to the political needs of the members then maybe the correct decision be made. Whatever that is??

Freeholder

Having attended the Cabinet meeting in September and listened to the political point scoring from both Labour and Conservatives, One point that escaped the interest of the participants and that concerns the Freehold of the 7 acre former Pleasurama site.

Iris Johnston has said during a further meeting that the Conservatives (Ezekiel & Latchford) walked TDC into giving up the Freehold of the site, and Rick Everitt in his Q&A has clearly stated that:

6. Who will own the freehold once the site is developed?

The current contractual arrangements with SFP entered into in 2006 mean that the Council has substantially disposed of its freehold interest in the land (with freehold transfer provisions documented in the development agreement); the Council’s only continuing legal interest is the right to receive overage payments in respect of the completed units.
There is no change in this situation, the reason it is necessary for the transfer of the freehold is because the arrangement will enable the developer to grant for sale long leaseholds in the finished property.

Is this true? and does the blame for the disposal of the Freehold lie with Ezekiel & Latchford? Well No!
Although the wording in 6 above is true as it did form part of the Development Agreement signed in 2006 and also in 2009, the giving of the Freehold goes back to July/August of 2002.

During the Council Meeting held on the 25 July 2002 under point 41 the Council state 3 things

1. Officers be instructed to inform Ramsgate Boulevard Limited that the Council are not prepared to go forward with their scheme (effectively ending James Godden's interest in the site)

2. Officers be instructed to prepare a marketing brief to enable the site to be marketed as soon as possible. (This document was called "The Ramsgate Rennaissance Commercial Development Opportunity")

3. Officers be instructed to take possession of the site immediately

Now you have to remember that Leader of the Council and his deputy were Richard Nicholson and Iris Johnston and the Council majority was under Labour control. So it was Labour who instructed the Officers to prepare "The Ramsgate Rennaissance Commercial Development Opportunity" and what an opportunity as it is very unusual in Thanet that TDC relinquish the Freehold of a major (7 acre) seafront site but that is what was offered.

"7. Basis for disposal
 7.1 The Council intends to dispose of the identified development site on a freehold basis"

(page 24 of the above document)

So it is completely ridiculous for Labour to blame the Conservatives as it must have been their instructions to Officers which help sell the site to SFP Ventures (UK) Ltd in the first place.

As an aside it also begs the question as to why Ezekiel and Latchford used Leases to enable SFP to own the site as it could and probably should have been the Freehold that was sold in 2009.