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KEY DECISION No DATE ADDED TO FORWARD PLAN April 2006 CABINET 10 JULY 2006 PROPOSED HOUSING STOCK TRANSFER TO CHESHIRE PEAKS AND PLAINS HOUSING TRUST LTD SPECIFIC WARDS AFFECTED All EXEMPT/CONFIDENTIAL ITEM No 1 DECISION REQUESTED Cabinet is requested to recommend to Council: 1.1 To dispose of its housing stock to Cheshire Peaks and Plains Housing Trust (CPP) subject to CPP being registered by the Housing Corporation prior to the transfer and subject to the Secretary of State for Communities and Local Government granting all necessary statutory consents in respect of the Council. Details of the proposed transfer value will be provided at Cabinet. 1.2 That delegated authority be given to the Chief Executive, or her nominee, to enter into final negotiations with CPP and its funders and to conclude the terms of the transfer including the terms of any warranties offered to CPP and its funders; 1.3 That it authorises the Corporate Manager (Legal and Democratic Services) to take any necessary steps to complete the transfer following the satisfactory completion of negotiations and receipt of the necessary consents; 1.4 That it agrees to meet the costs of the pension fund deficit for staff transferring to CPP (circa £1,400,000). 1.5 That it notes the requirement to set aside significant resources each year in respect of potential financial claims under the warranties to be offered to CPP and its funders and (i) requests the Corporate Manager (Finance and Assets) to make proposals as to an appropriate level of set aside each year as part of the budget process and (ii) authorises the Corporate Manager (Finance and Assets) to obtain insurance in respect of the Council’s potential liabilities under the warranties subject to the Corporate Manager (Finance and Assets) being satisfied that the cost of such insurance offers value for money. 1.6 That it transfers 120 Cumberland Street to CPP for £175,000 and grants the lease and licences to CPP as identified in the report. 1.7 That it enters into the service level agreements and Housing Agency Agreements as identified in the report. 2 JUSTIFICATION FOR THE DECISION 2.1 The Council resolved to seek a place on the Housing Stock transfer programme following consideration of a stock options study, to seek to transfer the Council’s housing stock to a newly created local housing company to be set up by the Council. Such a transfer would allow the new landlord the ability to access additional resources not available to the Council to bring the Council’s homes up to a modern day standard which is at a higher level than that required under the Government’s basic Decent Homes Standard. An application was made to the Office of the Deputy Prime Minister (now known as the Department for Communities and Local Government (DCLG)) seeking a place on the Government’s housing stock transfer list for 2004-6 which was approved by the Minister in May 2004. 2.2 As members are aware the Council has subsequently undertaken a thorough review of the basis of its financial position in relation to this proposal including a new stock condition survey which was carried out by Savills – the results of which were reported to Cabinet on 24th November 2004. The financial analysis was undertaken by PricewaterhouseCoopers. 2.3 A shadow board of 15 members has been established to represent the interests of the new housing organisation, CPP. The board comprises of five Council nominees, five tenant nominees and five independent people who have the necessary skills to help set up and develop the new organisation. 2.4 The transfer could only take place following a majority of tenants voting in favour of the proposal through a secret postal ballot, which was undertaken by an independent balloting organisation (The Electoral Commission) and which was run over a four week period. 2.5 Before a transfer to Cheshire Peaks and Plains Housing Trust could go ahead, the Council had to formally consult with the tenants affected by the transfer. The Government set down a formal two stage process for consultation: Stage 1 – the Council issues a formal consultation document to all tenants explaining the transfer proposal and how it will affect tenants and inviting their comments. This is also known as the “Offer Document”. The Council then consider tenants’ comments before it can proceed to Stage 2 Stage 2 – The Council notifies tenants of any changes to the proposal as a result of tenants’ comments. The Council will also hold a ballot during this stage to test tenant support. DCLG guidance states that whilst a ballot is not a legal requirement, they consider a properly conducted formal ballot, carried out by an independent body is an effective way to demonstrate the level of support from tenants on the transfer proposals. It has now become the accepted way to demonstrate the extent of tenant’s support. The Secretary of State cannot grant consent to a transfer if it appears that the majority of tenants are opposed to it. 2.6 The ballot of tenants was successfully concluded on August 17 th 2005 and at the meeting of the Council’s Cabinet on 31st August 2005 the following was resolved: (i) To note the result of the tenants’ ballot in respect of the proposed transfer to CPP. (ii) To proceed with the proposed transfer to CPP Trust subject to the Council’s final approval of the valuation, the terms of the transfer contract and to the obtaining of all necessary statutory consents. (iii) To apply to the Office of the Deputy Prime Minister for all necessary statutory consents in respect of the proposed transfer at the appropriate time. (iv) To give the authority to the Council’s Chief Executive in consultation with the Cabinet Portfolio Holder for Housing to consider and resolve all matters on behalf of the Council in relation to the proposed transfer to CPP subject to the Council’s final approval of the valuation and the terms of the transfer contract. 2.7 This report sets out the issues for consideration for the proposed transfer of the Council’s housing stock to the specially created Cheshire Peaks and Plains Housing Trust. The report details the legal, financial and staffing implications of the transfer and sets out what services will be provided to and from the Council to CPP. The report also explains what else is included in the transfer by way of related functions and assets, most notably the Council’s Buildings Services, some estate shops and other matters. The report identifies the result of the negotiations with CPP and its advisors and specifically brings forward for decision, a number of matters. 3 FACTS SUPPORTING THE PROPOSED DECISION 3.1 Terms of the transfer The main terms of the transfer agreement provisionally agreed with CPP are set out below. These represent the outcome of a lengthy negotiation process which has sought to balance the financial interest of Macclesfield Borough Council and the needs of CPP’s business plan. VAT shelter This allows CPP to reclaim VAT on improvement works by scheme the Council using CPP as its development agent. The Council has taken independent advice from specialist VAT advisors on the appropriateness of the VAT Shelter and the setting up arrangements. The total VAT included in the VAT Shelter, based upon the current improvement programme, amounts to £13.794m. Of this sum, £3.4 m will be top-sliced to meet the cost of service improvements agreed by the Council and CPP to be included as additional promises in the offer document. A further £3.4 m will be top-sliced to finance the cost of converting older persons sheltered bedsits to a more modern standard in line with the Council’s Older Person’s Housing Strategy. The balance of the VAT shelter recovery will be shared equally between the Council and CPP. Receipts from For the first five years post transfer, the Council will share the Right to Buy Right to Buy receipts on 50/50 basis after CPP has taken sales account of net income foregone – i.e. the amount of money it will lose due to the loss of rent from the property. The Council and CPP have agreed that : (a) CPP’s share is utilised for the provision of affordable housing within the boundaries of Macclesfield Borough Council, which will be subject to the nomination agreement between the Council and CPP (b) after the five years and for the life of the business plan the proceeds are fully retained by the Council apart from the administration charge and net income foregone. Provision for CPP has agreed to allocate £3,992,000, at 2006/07 prices, in its asbestos business plan to fund asbestos remediation as a result of the remediation stock condition survey. If CPP finds asbestos when carrying out renovation works it will meet the cost of remediation up to this amount, with the Council being responsible for any remediation costs incurred in excess of that figure. This arrangement reduces the risk of the Council being asked to find money to fund remediation of asbestos in the future to a manageable and acceptable level Environmental The Council has sought advice on whether to obtain Warranty insurance to cover its potential liability under the insurance environmental warranties required by CPP and its funders. The extent and level of insurance cover available and the level of cover is currently being clarified. It is likely that the Council will need to self insure some or all of its exposure in this area and a suitable annual contribution from the Council’s Revenue Budget to a reserve will be required for the next 10 to 15 years to cover this potential risk. This will need to be included in the Budget proposals for 2007/08. The Council will also use the provision already contained within the set up costs to provide cover so as to minimise exposure against these risks. Land to transfer It is proposed that the Council will transfer all of its housing stock and agreed associated open spaces etc. with the exception of those properties at Oakdean. This will enable the Council to apply to the Secretary of State to close down the Housing Revenue Account. Maps of all lands to transfer have been available for inspection by Members of the Council. In addition the Council will transfer 120 Cumberland Street (used by Community Support) to CPP for the market value of £175,000. Oakdean Court As previously agreed by the Cabinet (17th March 2006) this sheltered housing scheme in Lacey Green, Wilmslow is to be excluded from the Transfer and it was further agreed that: the Director (Community) was to enter into a re- housing and management agreement with Cheshire Peaks and Plains (CPP) for Oakdean Court for up to 12 months post transfer, should this be necessary. The current situation is that whilst the numbers of tenants still remaining are relatively few it is unlikely that they will all have been re-housed by the date of the transfer and as a result an agreement as set out above will be be incorporated into the final documentation for a fee. The financial items which have not yet been concluded and which are therefore subject to final negotiation are set out below. Non-traditional Discussions with CPP have been proceeding regarding a certain properties types of construction which occur within the housing stock to be transferred and whose special requirements were either omitted from the stock condition survey and/or were understated within the survey. The properties affected are known as the West Pennines (22 units in total on the Weston and Upton Priory Estates); the Range & Pennine tower blocks (172 units on the Hurdsfield Estate) and the “No-fines” (186 units on the Upton Priory Estate). Discussions are ongoing in relation to these properties. Moss Estate In certain localised areas there have been complaints from time groundwater to time of high groundwater levels on this estate. Work is currently underway to identify the potential for future occurrences and the extent of the effect upon property. An indemnity will be put into the transfer agreement from the Council to CPP in order to take account of any future remedial costs which are not at present allowed for in their business plan. Other assets to The Council has valued the other assets to transfer (this transfer includes furniture, computer equipment, plant, DSO stores etc.) The final value is subject to negotiation between the two organisations. Service Level & A variety of services will be provided by the Council to CPP for a Other short period of time (mostly 12 months) in order to help facilitate Agreements a smooth handover of operations to the new organisation. These include payroll; ICT; grounds maintenance; cash collection etc. There are also other agreements regarding various services which will be ongoing, these include emergency planning support by CPP; housing benefits and out-of-hours contact services etc. Where appropriate costs for these are being set to reflect either the Council’s or CPP’s outlay for this provision. Housing In addition to the above SLA’s the Council is negotiating the Agency following Housing Agency Agreements (subject to an acceptable Agreement fee) : Homelessness/Temporary Accommodation. Nominations/Waiting List. Basically these will cover the provision of these services to the public by CPP on behalf of the Council and the detailed terms of this arrangement will be set out and contained within the overall Transfer Agreement (see Appendix A). Use of CPP will be using the following accommodation: Accommodation Churchside Cottages for a short period under licence Continuation of the use of the ground floor of the Town Hall by housing management staff for a short period under licence Use of the Weston Depot for parking for 6 months under licence with provisions to renew. Lease of the Green Street Depot for a period of 6 years subject to an annual break clause exercisable after March 2008. The homeless hostel in Roe Street will be managed by CPP on behalf of the Council but not transferred or leased to them. Sale of tenant Current tenant/leaseholder arrears will be transferred to CPP at arrears their arrears value at the date of transfer less a provision calculated in accordance with an accepted formula. Former tenant/private individual arrears will be retained by the Council. 3.2 The main terms of the transfer agreement are summarised in Appendix A. 3.3 The Council’s negotiations with CPP are agreed with regard to the main terms of the transfer agreement as outlined above. Negotiations are still on going with regard to agreeing a final figure for the Net Capital receipt to take into account the issues with the non traditional properties as identified above. The most current figures will be distributed to Cabinet as soon as they are finalised.. However, it is recommended that delegated authority be given to the Chief Executive or her nominee to finalise the terms of the transfer agreement should the need arise. It is usual to have such a delegation to deal with any last minute issues raised by the Funder. 3. 4 MISCELLANEOUS MATTTERS 3.4.1 Impact on Strategic Housing role The transfer of the housing stock will bring about a step change in the Council’s housing function. The Council will no longer be a direct provider of housing and will rely upon housing associations and other partners to meet identified housing needs. The Council’s relationship with CPP will be particularly important. As well as being the largest landlord in the borough CPP will over time seek to develop new housing. Indeed this was one of the drivers for transfer. 3.4.2 Department of Communities and Local Government – Consent process The Council has progressed all necessary steps to obtain the consent of the Secretary of State to transfer. All submissions have been made and DCLG has raised no major issues arising from the information submitted. 3.4.3 Cheshire Peaks and Plains – Housing Corporation Registration CPP submitted all the necessary information to comply with the Housing Corporation registration process in time for the Registration Assessment Committee (RAC) to consider the matter in June 2006 and this stage was passed satisfactorily. The final hurdle to obtain registration will take place on 11th July 2006. The initial feedback regarding this appears to have been positive. 3.4.4 Consultations Various methods have been used to inform and consult tenants and other interested parties particularly during the preparation of the “Offer Document” as well as the pre- ballot process and this was set out in detail in the Cabinet report following the Stage 1 consultation process on 11th July 2006. Officers from departments across the Council; Members of the Council through their involvement in the 8 specially established offer document working groups which drew up proposals concerning issues such as anti-social behaviour; the new tenancy agreement; improvements etc.; Tenants’ through the 8 working groups; Tenants’ through the Tenants’ Panel who have met on a large number of occasions to consider the document and who have made a particularly valuable contribution to its formulation; The Independent Tenants’ Advisors (TPAS); The Shadow Board of Cheshire Peaks & Plains Housing Trust who have approved the contents of the Offer Document on 14/04/2005 and are confident that they will be able to deliver the promises contained in it; The Housing Corporation; The Community Housing Task Force (for the Office of the Deputy Prime Minister). All tenants through the Offer Document and a wide variety of other means including newsletters, roadshows, home visits, freephone etc. Since the result of the ballot the Council and CPP have continued to keep tenants informed of progress towards transfer and the Tenants’ Panel have played a key role in assisting CPP with the formulation of its new policies etc. 4 RISKS ASSOCIATED WITH THE PROPOSED DECISION It is considered that stock transfer continues to represent the best way forward if the Council is to meet the Government’s Decent Homes Standard by 2010. The proposal outlined in this report is considered to be the best option available for tenants and the whole community. 4.1 The Pension Deficit The transfer of the Stock to a new Registered Social Landlord (RSL) will create a liability for the Council of approximately £1.4m in relation to the pension deficit for those employees transferring to CPP. This liability arises as the Council is legally required to transfer an amount to the new RSL Pension Fund, which meets the level of funding required for the acquired pension rights of the staff transferring. The deficit occurred whilst the staff were employed by Macclesfield Borough Council and therefore the Council is responsible for funding this deficit. The funding requirement has been taken into account in the Transfer price. The main risk for the Council is in relation to the level of the Pension Fund deficit, which will vary right up to the day of the Transfer and remain unknown precisely for some time after the Transfer date until the Actuary produces the final figure. The Council will make funds available to CPP for the payment of the Pension Fund Deficit. 4.2 Environmental Warranties The Council is required by both the new RSL and its funders to covenant that in relation to the property: it has and is in compliance with all applicable Environmental Laws; it has and is in compliance with all Environmental Approvals; it has no Environmental Claim current or pending against it; there is no part included on or referred to in any register of contaminated land nor is there any facts, etc likely to lead to such registration; and there is no dangerous substance present at, on or under the Property which may have been disposed of, generated stored, transported, dumped, released, deposited, burned or emitted at, on or under the Property. This is an onerous warranty which potentially could place the Authority at considerable risk of claim in the future. This is because while the probability of receiving a claim is small, the likely value could be very high—as the Council could be required to meet the costs of a major environmental pollution clean up on a substantial piece of land or properties and this could cost a very significant sum. To limit the Council’s exposure in this area, the Council will be seeking appropriate environmental insurance, which may include self-insuring, as appropriate. The cost of the environmental insurance will be met, as far as practical, from the set-up costs which will be reimbursed through the Capital Receipt for the Stock Transfer. Self insurance will be funded via a set-a-side provision from the Revenue Budget and reviewed annually to determine the level of risk and whether more needs to be set aside in future years. The length of the warranty is yet to be finally negotiated. We expect that the Funders will require a 30 year warranty. The warranty in connection to CPP is expected to be less than this period In relation to Asbestos CPP has £3.992m worth of costs built into its Business Plan. If the cost of dealing with Asbestos exceeds that amount, the Council becomes potentially liable for all costs beyond the first £3.992m spent . The risk is that the actual cost for the removal will be in excess of this amount. The Council is looking at obtaining insurance and/or setting aside funds as identified in the report. These warranties on environmental issues therefore place a potentially large financial liability on the Council should they ever be activated. The insurance we obtain and the internal set aside should help alleviate the risk to the Council’s overall financial position—particularly if no claims are made in the early years of the new RSL— allowing the Council to build up its financial cover in this area. 4.3 Other Warranties The Council will also have to provide a number of other warranties to CPP and its funders. These will include warranties around staff and ownership of the property titles for the assets transferred. In general they do not create a significant financial liability for the Council. (Please see Appendix A for more information.) 4.4 Other Liabilities The Council’s General Fund currently recharges to the Council’s Housing Revenue Account for the provision of support services. The value of the recharges is approximately £1,366,000 a year and covers a variety of services such as Legal, Property, ICT, HR, Audit/Accountancy, Financial, Grounds Maintenance and general Corporate including accommodation. With the creation of a new RSL, this recharge relationship has to end (apart from short-term arrangements covered by Service Level Agreements) and this leaves the Council with the residual costs around these functions without the ability to raise a charge against them. Altogether the Council has identified 6 officers from support services who will transfer to CPP leaving residual costs of approximately £500,000. A proportion of the net capital receipt from the transfer will be invested to partly fund these residual costs. The Council must set challenging targets for the reduction of administration and support services costs in order to ensure that in future years all investment income can be applied to capital investment in accordance with the Council’s policy. 5 OTHER IMPLICATIONS Financial - The financial implications included in the above sections of the report are all subject to change up to the date of transfer. Staffing - 174 staff (which includes the Homlessness and Housing needs Service) will transfer to CPP under TUPE provisions, assuming that no staff leave prior to the completion of the transfer. Staff have been kept informed throughout the process and the Unions have been fully involved. A protocol for transferring staff has also been created to provide extra reassurance to those “TUPEing” to CPP. The Council will apply the principles set out in the Cabinet Statement of Practice on staff transfers (and the Annex to A Fair Deal for Pensions) and the Code of Practice for workforce matters set out in Annex D of the Best Value Circular (DCLG 03/2003) in relation to this transfer. This means the Council will comply with best practice guidance in respect of avoidance the future development of a “two tier” workforce within CPP. In addition, CPP has developed a staff pledge that sets out its terms and conditions post transfer. CPP is also seeking admitted body status to the Cheshire County Council Pension Fund, which will enable transferring employees to remain in the LGPS post transfer. Legal - A transfer can only go ahead if the Secretary of State grants consent to it under sections 32-34 and/or 43 of the Housing Act 1985. Section 32 enables an authority to transfer land held for the purpose of part 2 of the Housing Act 1985; whereas section 43 enables an authority to transfer housing which has not been acquired or appropriated for the purposes of part 2 of the same Act. It is considered that the Council will be able to provide all the information required by DCLG to enable the required statutory consents to be given within the timescale for the transfer. The Council and CPP will enter into a legally binding transfer agreement as a result of the deal proposed. The Council must enter into the development agreement shortly before entering into the transfer agreement, in order to implement the VAT shelter arrangements. Assets - The Council will also benefit from any Housing Revenue Account residual balances, once the HRA is finally closed. The intention within the General Fund Budget 2006/07 is to take these to the General Fund Reserve Account. The estimated level of residual balances, based on the position at 31st March 2006, is £746,000. The property to transfer to CPP is identified in the report. Policy - As identified in the report Equality - As identified in the report Crime and Disorder - As identified in the report Other implications - As identified in the report 6 ALTERNATIVE OPTIONS AND IMPLICATIONS THEREOF 6.1 Various options in respect of the future management and refurbishment have been considered in detail over the last two years as part of the process described in paragraph 3. 6.2 A full option appraisal was carried out by HACASChapmanHendy and considered by full Council on 23rd October 2003. Alternative options were considered and discounted at that time. 6.3 The Council could choose not to transfer its Housing Stock to CPP but this would be contrary to the majority of the tenant’s wishes as demonstrated in the previous ballot. By not transferring its Housing Stock the Council would not have the funds to deliver on the promises made to the Tenants to the Offer Document. 7 APPENDICES Appendix A - The Transfer Agreement Cabinet Member : Councillor Fitzgerlald Tel Ext No: 4164 Corporate Director Helen Oakley Tel Ext No: 4500 The Contact Officer for this report is Barry Khan Tel Ext No 4250. TRACKING/PROCESS: Consultation Ward Members Partners Please see paragraph 3.4.4 Panel Overview & Scrutiny Cabinet Council See background See background papers listed below papers listed below BACKGROUND PAPERS The following list of documents were used to complete this report and are available for public inspection for four years from the date of the meeting from the Contact Officer named above. Local Government (Access to Information) Act 1985 1. "Building Sustainable Communities" Office of the Deputy Prime Minister, Feb 2003. 2. "Housing Transfer Manual 2005 Programme" Office of the Deputy Prime Minister, October 2004. 3. Housing Stock Transfer Formal Consultation Document: “Offer Document on Macclesfield Borough Council's proposal to transfer its homes to Cheshire Peaks and Plains Housing Trust” 4. Reports to Cabinet and Council as follows: A. 7th October 2003 – Housing Review Committee – Housing Stock Options Appraisal Resolved: a. That the Housing Review Committee take the view that, in principle, LSVT is the best options for tenants and the whole community of the Borough. b. The Housing Review Committee support the principle that any Registered Social Landlord, created to deliver a Large Scale Voluntary Transfer should comprise of the Borough Council’s Housing Department, including Building Works. c. That the Review Committee recommend to Cabinet and Council that the Council, in September 2004, consider applying for a place in the annual disposal programme for 2005. B. 8th October 2003 – Cabinet Housing Stock Options Appraisal Resolved: Cabinet recommend that Council at its meeting on 23 October 2003, agree to apply for a place in the annual disposal programme for 2004/5 C. 23rd October 2003 – Council – Housing Stock Options Appraisal Resolved: a. That the Council seek a place on the 2004 Housing Stock Transfer Programme b. That the Council support the principle that any Registered Social Landlord created to deliver a Large Scale Voluntary Transfer should be the existing Borough Council Housing department including Building Works. D. 17th December 2003 – Cabinet – Housing Stock Transfer Resolved: a. That approval be given to the Project Initiation Document and Timetable for the Stock Transfer Proposal as appended to the report. b. That approval be given to the establishment of effective arrangements for the involvement of Elected Members, Tenants and Employees in the development of proposals for: (i). The future management of the housing stock (ii). The future management of the Council’s strategic and community housing function. These arrangements were to include the establishment of a Housing Transfer Members Panel as reported above. c. That approval be given to the release of previously identified reserves in order to appoint consultants to progress the stock transfer proposal, and that this be included in the forthcoming budget process. E. 11th July 2005 - Cabinet Resolved: (a). Cabinet notes the responses of tenants to the offer document (b). Having taken into account the views and comments received in Stage 1, Cabinet agrees that apart from a minor change to the proposed tenancy agreement as set out in this report no further amendments to the offer document are required. (c). Cabinet authorises the Chief Executive once practical arrangement permit, to proceed to State 2 of the ballot process by issuing a formal stage 2 letter to the Council's secure and introductory tenants confirming: (i) the terms of the Council’s offer as set out in the formal (Stage 1) consultation document (the “offer document”); (ii) the right to communicate objections to the Council’s proposals to the Office of the Deputy Prime Minister within 28 days of receipt of the Stage 2 Letter; (iii) the ability of the Deputy Prime Minister as First Secretary of State to withhold consent if a majority of affected tenants do not wish the transfer to proceed; (iv) that the Council will only proceed with the transfer if a majority of tenants who vote in the ballot vote “yes” to the proposal. (d). Furthermore the Cabinet authorises the Chief Executive to commission Electoral Reform Ballot Services Ltd to undertake a formal secret ballot of tenants in respect of a transfer to Cheshire Peaks & Plains Housing Trust. (e). Cabinet confirms that the tenants eligible to vote would be those who have been secure or introductory tenants for approximately two weeks prior to the issue of the Stage 2 notice: Resolved: F. 31st August 2005: Cabinet: Housing Stock Transfer Outcome of Stage 2 Formal Consultation (The Ballot) and Post Ballot Resolutions (a). That the result of the tenants’ ballot in favour of the proposed transfer to Cheshire Peaks & Plains Housing Trust be noted. (b). That agreement be given to proceed with the proposed transfer to Cheshire Peaks & Plains Housing Trust, subject to the Council’s final approval of the valuation, the terms of the transfer contract and to the obtaining of all necessary statutory consents. (c). That an application be made to the Office of the Deputy Prime Minister for all necessary statutory consents in respect of the proposed transfer at the appropriate time. (d). That approval be given for the Council’s Chief Executive, in consultation with the Cabinet Portfolio Holder for Housing, to consider and resolve all matters on behalf of the Council in relation to the proposed transfer to Cheshire Peaks & Plains Housing Trust, subject to the Council’s final approval of the valuation and the terms of the transfer contract Appendix A: The Transfer Agreement MACCLESFIELD BOROUGH COUNCIL REPORT ON TRANSFER AGREEMENT INTRODUCTION Following the successful ballot of tenants, Macclesfield Borough Council (the "Council") and Cheshire Peaks & Plains Housing Trust Limited ("the Trust") now need to enter into a formal contract to complete the housing stock transfer. The Transfer Agreement is the contract which sets out the rights, responsibilities, covenants and requirements of both parties. It also contains all of the necessary arrangements to enable the Trust to receive and manage the properties and the Council to enforce the promises made to tenants during the consultation period. THE TRANSFER AGREEMENT The Transfer Agreement takes the form of a contract for sale with numerous schedules and annexes containing supporting information. In particular, the agreement contains: i. covenants by the Council and the Trust in favour of each other; ii. an Assignment of Rent Arrears which will be entered into within 28 days of the completion of the transfer; iii. a Nominations Agreement giving the Council the right to make nominations into 75% of the transferring dwellings as they become vacant; iv. a housing register services arrangement whereby the Trust will administer the Council's housing register on behalf of the Council; v. employment provisions in respect of the Council's staff transferring to the Trust. These include warranties that the Council has given the Trust all material facts and records relating to transferring staff and that there will be no employment related claims made against the Trust following the transfer; vi. provisions dealing with the ongoing contractual obligations of the Council with third parties which are relevant to the stock being transferred; vii. provisions for the actual transfer of the tenanted dwellings and any associated land; viii. title warranties by the Council in respect of the property being transferred; ix. a Right to Buy Sharing Agreement which gives the Council a share of RTB sale proceeds following transfer; x. leases/licences of Council premises to be occupied by the Trust on a temporary basis until it finds a permanent home (these details have not yet been finalised or included in the latest draft of the transfer agreement); xi. provisions for both parties to apply for and maintain registration as data controllers and to comply with the provisions of the Data Protection Act 1988; xii. agreements for the limited provision of services by the Trust and the Council to each other after transfer; xiii. all of the other necessary provisions to transfer the housing function to the Trust as a going concern. The clauses in the Agreement are as follows:- a) Clauses 1-5: Contain the definitions used throughout the Agreement and set out the "bare bones" of the Contract. b) Clause 6: Refers to the Law Society's standard conditions of sale used on every day property transactions, changed to reflect the circumstances of this transfer. c) Clause 7: Provides for the Council to enter into collateral warranties on completion in favour of the Trust and the Trust's funders. d) Clause 8: Recites the granting of nomination rights to the Council and confirms the provision of Housing Agency Services by the Trust. e) Clause 9: Sets out that the Council will assign the rent and service charge arrears from existing and former tenants for a specified sum. The precise details of this arrangement are yet to be finalised. f) Clause 10: Contains a covenant by the Trust to issue the new form of Tenancy Agreement to its tenants in the form referred to in the offer document. g) Clause 11: Deals with the apportionment of service charges and any other sums due up to the date of completion. h) Clause 12: Deals with what will happen to all the contracts that the Council has which relate to the property being transferred to the Trust ie which contracts will be assigned and which retained. i) Clause 13: Deals with insurance and risk. If any properties are destroyed or damaged before completion then the Council will reimburse the Trust for the reasonable cost of reinstatement. j) Clause 14: Deals with transferring employees. From the Completion Date the Trust will be the employer of the transferring staff by virtue of the TUPE regulations. Much of Clause 14 refers to staff warranties whereby the Council retains the risk of any staff claims caused by matters such as breach of a members of staffs Contract of Employment by the Council, the Council failing to pay a member of staff money due before completion, the Councils failure to consult with Trade Unions and so on. k) Staff pension rights are not protected under TUPE, but clause 14 imposes a requirement on the Trust that they will obtain admission to the Cheshire County Council Local Government Pension Scheme and staff's pension rights will therefore continue. The Pension Scheme underfunding will be met by the Council. l) Clause 15: Deals with Support Service Employees. These are Council employees who will remain with the Council after transfer and provide services to the Trust as set out in the service level agreements in Schedule 10. When these agreements end, those employees will transfer to the Trust. m) Clause 16: Sets out the Council's responsibilities. As well as agreeing to supply the Trust with all records, accounts, files and details it might have relating to the property and transferring staff, this Clause also covers obligations such as transferring certain Council assets to the Trust. n) Clause 18: Refers to the obligations on both parties to enter in the Right to Buy Sharing Agreement and Development Clawback Agreement. The rest of the Clauses, before we come to the Schedules, are basically "housekeeping" Clauses dealing with interest payable on late payment of monies due to either party, arbitration, service of notices, VAT and so on. THE SCHEDULES Much of the information and detail of the transfer is contained in the Schedules to the contract. These are as follows: a. The First Schedule: This Schedule gives details of all property to be transferred to the Trust including sheltered units (including the common areas in sheltered schemes), open spaces and garages. The transfer of land and land assets will be with reference to plans which officers are preparing and agreeing with the Trust's officers now. b. The Second Schedule: Contains the Nomination Rights. The Trust will give the Council the right to nominate tenants for housing into 75% of the Trust's properties. The nomination procedure is set out in detail in the agreement. This is yet to be finalised. Part Two of the Second Schedule contains the Housing Agency Agreement which obliges the Trust to carryout the Council's Homelessness functions on its behalf. c. The Third Schedule: Deals with staff details, car loans, car leases, support services posts and any post entry training courses. d. The Fourth Schedule: Sets out in details the Trusts covenants. Specifically these covenants are: 1. to use the income and receipts from rent and any sales of property in the payment of its loans and in the management, maintenance, repair, modernisation and improvement of the housing stock; any surpluses are to be used primarily within Macclesfield; 2. to attend quarterly meetings with the Council for five years after transfer so that the Council can monitor its progress and to comply with the monitoring arrangements set out in Appendix 1 to the Fourth Schedule; 3. not to change its constitution as regards Council or tenant board membership without the Council's agreement; 4. to maintain all open space and amenity land to a reasonable standard; 5. to maintain its registration with the Housing Corporation; 6. not to do anything which might result in the Trust's registration with the Housing Corporation being withdrawn and to comply with any of the Corporation's mandatory requirements; 7. to raise rents only in line with what is allowed in the tenancy agreement and to comply with the Government's rent convergence regime; 8. to carry out the programme of catch up repairs and modernisations promises in the Consultation Document which are not qualifying works; 9. not to take possession proceedings other than on the grounds set out in the tenancy agreement; 10. not to vary the tenancy agreement without telling the Council the changes and allowing the Council to comment on them; 11. to carry out the promises made by the Council in the Consultation Document and Stage Two Letter; 12. to recognise and encourage tenant groups and resident associations and offer them a reasonable level of financial support; 13. to participate in the Housing Organisations Mobility and Exchange Scheme (HOMES Ltd) and the HOMESWAP Scheme; 14. to notify the Council if it becomes aware of any overpayment of housing benefit made by the Council and co-operate with the Council in the recovery of such overpayment. 15. not to merge with any other body without consultation with the Council. 16. to use best endeavours to assist the Council in the Local Strategic Partnership, the Crime Disorder Reduction Partnership and Sustainable Community Strategy; 17. to co-operate with the Council in the discharge of its best value duties and the Council's strategic enabling role, and work in partnership with the Council to develop the Council's understanding of local and regional housing needs and the local housing market and contribute to regeneration in Macclesfield and commit to sustaining development; 18. to give the Council and its auditors all reasonable and practical information and assistance it needs to complete its final accounts, subsidy claim and other returns and to audit those accounts and claims for the year 2006/2007; 19. to help the Council in collating its annual HIP return; 20. to respond promptly to queries raised by MPs, Council members etc; 21. to meet the costs of disabled adaptations in each financial year up to £400,000.00 for the first 5 years and £280,000.00 thereafter. This amount and the period during which this arrangement will apply are yet to be finalised; e. The Fifth Schedule: The Warranties. The Council is being asked to warrant to the Trust that there are no matters in connection with the land or property transferring that could cause the Trust financial or other loss. In particular, the Council are to give environmental warranties so that as far as possible, any risk of environmental contamination stays with the Council. The Council will give warranties both to the Trust and separately to the Trust's funders. The duration of the warranties in the contract are yet to be finalised, but the funders require 35 years and the Trust 25 years. (i) Title Warranties The warranties themselves are as follows: (1) that the warranties are true and accurate, clear and not misleading; (2) that the legal title to the property is good; (3) that the property is free from any mortgages, rents, charges or loans; (4) that the current use of the property does not breach the Planning Acts or any other law or regulations; (5) that there are no circumstances in which planning enforcement action could be taken and that there are no outstanding or unperformed obligations by the Council; (6) that there are no compulsory purchase/demolition/slum clearance orders affecting the property; (7) that the property is subject only to the Council's tenancies and that there are no claims or known potential claims against the Council by any of the tenants which might affect the value of the property; (8) that the information supplied by the Council with regard to the property, including information relating to the stock condition survey and valuation, is correct; (9) that properties sold off under the Right to Buy and by way of a shared ownership lease have been sold on appropriate terms; (10) that there are no current actions, demands, disputes or liabilities in respect of the property nor circumstances which could give rise to any actions; (11) In a nutshell, the Council is warranting that unless formally disclosed, title to the property being transferred is good, marketable and free from encumbrances. (ii) Environmental Warranty The warranty in respect of environmental pollution is very important to the Trust as potentially, claims could be enormously damaging to the Trust's business. The wording confirms that: (1) the Council is and has complied with all applicable environmental law and environmental approvals relating to the ownership and use of the property; (2) there is no current pending or threatened environmental claim against the Council (or to the Council's knowledge) and there are no past or present acts, omissions, events or circumstances that could form the basis of any environmental claim against the Council or the funders in respect of the ownership and use of the property; (3) there is no dangerous substance at, in on, or under any of the property and no such substance has been used, disposed of, generated (and so on) at, in, on or under the property; and (4) no part of the property could lawfully be designated as contaminated within the meaning of the Environment Act 1995. This protects the Trust from the key risks if the Property is found to contain contaminated land or buildings. (iii) Other Warranties Finally, the Council warrants: (1) that it has the appropriate power and authority to enter into the Transfer; (2) that no material adverse entries would have been revealed if individual local authority and other searches had been made against each of the properties to be transferred; (3) that the terms under which the leasehold parts of the property (including sub stations and shops) are held are standard and have not been changed; (4) that no part of the property is at risk to significant flooding or has any part of the Property flooded in the last 10 years. There is an outstanding issue with regard to elevated ground water levels at the Moss Estate; (5) that there is no telecommunications or security equipment belonging to a third party on the Property. (iv) Asbestos The Council will give an indemnity to the Trust to cover any losses it suffers in connection with asbestos in the property provided that the indemnity will not apply in respect of the first losses the Trust suffers up to a specified amount. This amount is £3,940,500.00. The precise terms of the indemnity are yet to be finalised. (v) The Council's Covenants Part 3 of the Fifth Schedule deals with the covenants to be given by the Council. These include covenants to: 1. to work with the Trust in the formulation of wider community initiatives; 2. to assist the Trust to answer Land Registry requisitions so that the Trust can register its title to the property; 3. to maintain amenity areas, play areas and grounds retained by the Council to a reasonable standard; 4. to pay Housing Benefit to the Trust direct where tenants agree to this; 5. to assist the Trust, where it is reasonable and practical, with any enquiries the Trust might have as regards the transfer; 6. to process claims for Housing Benefit quickly and in accordance with the H.B. Regulations; 7. to enforce any rights that the Council has against its contractors and consultants, for the benefit of the Trust; f. The Sixth Schedule: Part 1 deals with the assigned contracts, Part 2 deals with retained contracts. g. The Seventh Schedule: Contains the form of Property Transfer to be used to actually convey the property to the Trust on completion. h. The Eighth Schedule: Annexes the form of Tenancy Agreement to be issued by the Trust following completion. i. The Ninth Schedule: Any outstanding insurance claims will be listed here with details of the claim and the amount to be paid to the Trust. j. The Tenth Schedule: Contains details of the services the Council will provide to the Trust. These are: payroll, grounds maintenance, ICT, cash collection and customer centre. k. The Eleventh Schedule: Contains a list of applicants who had applied under the Right to Buy provisions prior to completion but who's sales were not processed. l. The Twelfth Schedule: Contains a schedule of fixtures, fittings and equipments to be transferred together with any computer equipment and other related matters. m. The Thirteenth Schedule: Provides details of the setting up costs of the transfer. n. The Fourteenth Schedule: Contains the RTB Sharing Agreement which will last for 30 years. This is still to be finally negotiated but proposes that the Council will have a share of the receipts after a "net income foregone" calculation has been carried out by the Trust. Part 2 of the Fourteenth Schedule contains the Development Clawback Agreement which would provide for the Council to receive 50% of the Trust's net profit on the sale of any land sold for commercial gain within 30 years after completion. Precise terms are still to be finalised. Part 3 of the Fourteenth Schedule contains the VAT Sharing Agreement. The proposal is that after top-slicing the cost of improving the offer document by means of promising a handyman service, digital TV aerials for communal flats and anti- social behaviour services, the remainder of the VAT savings are to be split on a 50:50 basis. The precise wording of the Agreement is still to be finalised. o. The Fifteenth Schedule: Contains a standard form of Deed of Assignment of Rent and Service Charge Arrears and also makes references to any outstanding notices seeking possession and possession proceedings. Part 2 of the Fifteenth Schedule contains a Housing Benefit Protocol whereby the Trust will provide services to the Council. Part 3 of the Fifteenth Schedule contains a Civil Emergency Agreement. Again detailing services to be provided by the Trust and includes Local Emergency Services. p. The Sixteenth Schedule: Is the Development Agreement which is completed immediately prior to the Transfer Agreement. This sets out the arrangements for claiming back the VAT on the improvement works and sets out a schedule of works that are qualifying works for this purpose. q. The Seventeenth Schedule: Contains potential Deeds of Variation in case the VAT Schemes change. There are a number of annexes to the Tenancy Agreement which include the Council's rent roll, the Garages rent roll, plans, the Consultation Document, specimen forms of Right to Buy documents used by the Council, specimen forms of Car Loan and Car Lease Agreement and specimens of any Shop Leases. SUMMARY The Transfer Agreement is a lengthy and complex document. It contains all the necessary legal agreements and information for the Trust to take over the housing stock and carry out the consultation promises made to tenants.
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