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 MEETING: Cabinet
 DATE:      10 September 2007

1.    PURPOSE:
      To consider proposals from the Quality Assurance Board on the outcome of the
      negotiations with Monmouthshire Housing Association to establish a Stock
      Transfer Agreement to enable the housing stock to be transferred to the new
      body, and to establish service level agreements for continued service

2.1   That Cabinet recommend to full Council that the Transfer Agreement that has
      been drawn up between Monmouthshire County Council and Monmouthshire
      Housing Association be agreed, subject to the over-hanging debt being written
2.2   That Cabinet recommend to Council that the Quality Assurance Board be given
      delegated powers to agree any necessary amendments or additions to the
      document identified in the period between the document’s submission to the
      Welsh Assembly Government and the completion date, subject to any
      amendments not adversely affecting the basis of the document by a sum
      equivalent to £250,000.

3.1   As a result of the requirement to achieve full compliance with the Welsh Quality
      Housing Standard by 2012, Monmouthshire County Council undertook an
      extensive exercise of consultation and engagement with tenants, members and
      staff, which looked at a variety of business models to deliver the required
      housing standard. This began in 2003 and culminated in a ballot of tenants in
      November 2006, when tenants voted in favour of stock transfer to what is now
      called Monmouthshire Housing Association. Following the ‘YES’ vote, the
      council has been working with the Welsh Assembly Government, our legal and
      financial advisors and Monmouthshire Housing Association to negotiate a
      contract called the Transfer Agreement, which provides the contractual basis for
      transferring the housing stock to Monmouthshire Housing Association.
3.2   The Transfer Agreement reflects the outcome of all the negotiations and covers
      issues relating to staff, assets, liabilities, ongoing service delivery arrangements
      captured in Service Level Agreements, plus issues relating to risks that pass to
      the new organisation and those that remain with Monmouthshire County
3.3   The Transfer Agreement represents the culmination of the negotiations to date
      and the majority of issues are in place and agreed. However, the process
      remains a dynamic one, involving the Welsh Assembly Government and
      Monmouthshire Housing Association and there will be certain elements that will
      need to be updated up to and on the completion date. This is standard in all
      such transfers and therefore delegated powers are required to ensure that
      matters can be dealt with expediently.
3.4   Following Council approval, the Transfer Agreement is submitted to the Welsh
      Assembly Government along with a formal application to transfer the housing
      stock to Monmouthshire Housing Association.        If the Welsh Assembly
      Government approves the agreement, they will give the authority consent to
      transfer and a completion date can be set.
3.5   Negotiations are continuing with Monmouthshire Housing and WAG over
      whether the garages should be included in the transfer agreement. The majority
      of garages are tenanted privately. These garages are maintained by the
      general fund and income currently goes to the general fund not the housing
      revenue account.

4.    REASONS:
4.1   The draft Transfer Agreement is the outcome of negotiations with
      Monmouthshire Housing for the transfer of the housing stock, in that it ensures
      that tenants receive a high quality housing service, it protects the interests of
      staff affected by the transfer, and minimises as far as possible the negative
      impact on the Council.
4.2   The Quality Assurance Board has overseen the development of the Transfer
      Agreement to date, and is best placed to agree any subsequent changes to the
      agreement as it passes through the Assembly approval process, subject to
      changes being within agreed parameters.
4.3   As a consequence of the stock transfer, the Treasury write off the authority's
      Housing Revenue Account overhanging debt. The amount written off is based
      on a formula linked to housing subsidy. The Council’s actual overhanging debt
      is £4million greater than its subsidy related debt, primarily because since April
      2004 the council has been using 100% of housing capital receipts to support the
      housing planned maintenance programme instead of using 75% of receipts to
      repay housing debt. We are waiting written confirmation from the Treasury as to
      the amount that would be written off on transfer. If the amount identified relates
      only to the subsidy level, then the authority will be left with a £4million additional
      debt to service from the general fund since the authority would no longer be
      generating housing capital receipts gained through right to buy sales to repay
      the debt.

5.1   The rationale for the stock transfer proposal is not financially driven as the
      overall cost to the public purse of operating via two organisations will be greater
      than it is currently. Due to Government policy however, stock transfer represents
      the only realistic way for the Council's housing stock to meet the Welsh Housing
      Quality Standard by the due date. The significant set up costs associated with
      the pre and post ballot process, currently estimated to be in excess of £2million
      will be reimbursed to the authority on the date of completion subject to WAG
      agreeing the reasonableness thereof. Should transfer not take place, all set-up
      costs will fall to the authority.
5.2   There will also be significant financial implications to the Authority, both "one off"
      and recurring although the final financial impact of transfer will not be fully
      ascertained until the transfer is complete. The Quality Assurance Board has
      been kept aware of all the financial implications throughout the post ballot
      process and prior to balloting tenants full Council were made aware of potential
      costs to the General Fund of £1.6million per annum plus an estimated £4milliion
      "one off" pension deficit costs.
5.3   The current estimated position in respect of recurring costs largely confirms the
      pre-ballot estimates, with £530,000 of the potential £1.6million recurring costs
      having been accounted for within the 2007/08 revenue budget. The latest
      estimate of the pension deficit costs is £5million if paid over 25 years and this
      will have an ongoing impact on the cost of services. There is a possibility of
      offsetting these costs in part from the residual HRA balances estimated at £2.7
      million that will transfer to the Council upon completion.
5.4   The Council also has to provide indemnities and warranties to the Housing
      Association. These are a contingent rather than an actual liability but
      nevertheless represent a future financial risk. Appendix 1 of the fifth schedule of
      the transfer agreement lists the warranties that the authority will provide to the
      Association. The liability of the Council under this schedule will terminate on the
      twentieth anniversary following the completion date except for warranty, 12 and
      13 (environmental pollution and vires) where the period is 25 years. The
      financial cap for claims is £50 million for environmental and unlimited for vires -
      in the remainder of cases the maximum claim that MHA can make per dwelling
      is £15,000. With regard to asbestos the authority covenants to indemnify the
      association for a period of 20 years for any liability that has arisen in relation to
      the exposure of any person to asbestos at in or from any dwellings forming part
      of the property except to the extent that such exposure is due to the negligence
      of the association or its agents.

      Cabinet Members
      Chair of Economy and Development Select Committee
      Quality Assurance Board Members
      Corporate Management Team
      One consultee suggested that the second recommendation should have an
      increased limit of £350,000.
      A member of the Quality Assurance Board expressed concern that the Council
      was being expected to provide warrantees, and stressed the need to ensure the
      continued provision of an adequate level of garage provision.

      A copy of the Draft Transfer Agreement will be lodged in the Members Library
      and can also be located on the Council’s intranet.
8.    AUTHOR:
      Colin Berg – Chief Executive

      Tel:    01633 644041
                             DATED       4    SEPTEMBER                      2010


                                      REPORT ON THE TRANSFER CONTRACT
                                    FOR THE TRANSFER OF HOUSING STOCK BY
                                      MONMOUTHSHIRE COUNTY COUNCIL TO


                                                    Cobbetts LLP
                                               One Colmore Square
                                                       B4 6AJ
                                             DX: 716703 Birmingham 43
                                                 Tel: 0845 404 2404
                                                Fax: 0845 404 2434


Prop:2325609:1 4 September 2007
Clause                                                  Page
1              INTRODUCTION                                1
3              NOMINATION RIGHTS                           2
4              WARRANTIES AND COVENANTS                    2
5              OTHER SUBSTANTIAL MATTERS                   3
6              INCIDENTAL MATTERS                          3
7              SCHEDULES AND ANNEXURES                     4
8              VAT                                         4
9              CONCLUSION                                  4

Prop:2325609:1 4 September 2007

           This Report summarises the terms of the current draft of the contract (the “Transfer
           Contract”) between Monmouthshire County Council (the “Council”) and Monmouthshire
           Housing Association Limited (the “Association”) relating to the transfer of the Council’s
           properties to the Association.       The Transfer Contract may be subject to further changes
           arising from the review of the documentation by the Welsh Assembly Government. This
           report reflects the position as at 6 September 2007.

           1.1         The Transfer Contract has been drafted by Cobbetts LLP the solicitors acting for the
                       Council, and has already been subject to significant drafting changes proposed by
                       Trowers & Hamlins acting on the Association’s behalf.

           1.2         The Transfer Contract currently consists of 32 Clauses, 17 Schedules and
                       9 Annexures, many of which are sub-divided. The document runs to some 400 pages
                       without many of the final information schedules being included.

           1.3         Addleshaw Goddard acting on behalf of Barclays Bank plc, the Association’s funders
                       have also made extensive comments on the documentation.


           These are standard clauses in all transfer contracts.

           2.1         Clause 1 of the Transfer Contract sets out the definition of the words and expressions
                       used in the document. These are linked to the relevant Clauses, Schedules and
                       Annexures in the Contract.

           2.2         Clauses 2, 3, 4 and 5 recite the Contract to sell the Property defined in the Transfer
                       Contract. The “Property” is defined in detail in Clause C(i) and the First Schedule
                       and includes all of the housing stock, (garages), common area, electricity sub-
                       stations, freehold reversions to RTB properties and wayleaves.         These clauses
                       confirm that the Property is sold subject to incumbrances (including, of course the
                       tenancies of the current occupiers) and deal with completion arrangements, payment
                       and the capacity in which the Council sells.

           2.3         Clause 6 contains standard contractual conditions applicable to any sale of land.

           2.4         Clause 9 deals with the transfer of arrears of rent and service charges and, by
                       implication, the benefit of any possession proceedings and orders obtained by the
                       Council. The Association will effectively “stand in the shoes” of the Council in such
                       proceedings and need to pursue them in accordance with their arrears policies.

           2.5         The Contract allows for payment by the Association for the arrears, payment being in
                       two equal instalments, one on the date of transfer, the other on or before
                       31 March 2008.

Prop:2325609:1 4 September 2007                     Page 1 of 5
           2.6         The Contract spells out in Clause 11 how an apportionment of outstanding work to
                       the Property would be dealt with. The arrangement is that the Council is responsible
                       for all works undertaken up to and including the day before the day of completion and
                       the Association is responsible thereafter.


           3.1         Clause 8 deals with nominations under the Transfer Contract. The Second Schedule
                       contains the Nominations Rights Agreement which is essential to allow the Council to
                       fulfill it’s statutory duties to house the homeless. The agreement provides for the
                       position where there is a harmonised allocation scheme in place between the Council
                       and the Association and also where there is not. In the latter case the Council would
                       be entitled to nominations to 66% of the Association’s dwellings.

           3.2         The following provisions of the Nominations Rights Agreement should be noted:

                       3.2.1       Clause 4 sets out the procedural arrangements for nominations and
                                   Clause 5 the terms of any tenancy to be offered to nominees;

                       3.2.2        Clause 6 covers the Parties Agreement to abide by any guidance on
                                   homelessness issued by the Secretary of State;

                       3.2.3       Clause 7 covers the position of nomination rights with other social
                                   housing providers.

                       If changes to the homelessness legislation are enacted, Clause 8 enables the
                       Association to renegotiate the terms of the Nomination Rights Agreement.


           4.1         Clause 7 and the Fifth Schedule cover the warranties and covenants which the
                       Council will be giving.

           4.2         The Fifth Schedule contains the warranties, including at Part I the collateral warranty
                       to be given to the Association’s funders.     The warranties are in standard form,
                       however, the disclosures have yet to be finalised by the Council (they are due to be
                       available shortly).   The length of the warranties to be given to the Association
                       contained in Part II of the Fifth Schedule are in respect of the Environmental ad vires
                       warranties a period of 25 years, in respect of all other warranties, the period is 20
                       years. The funder’s solicitors require warranties which cover the period of their loan
                       to the Association (31 years).

           4.3         The covenants in Part III of the Fifth Schedule cover such matters as the Council’s
                       enabling role, open space and amenity land, land registry requisitions, housing
                       benefit, enforcements of rights and general assistances to the Association after

Prop:2325609:1 4 September 2007                   Page 2 of 5

           5.1         Clause 10 contains an obligation on the Association to issue the new form of assured
                       tenancy to all eligible (qualifying) transferring tenants and to act in accordance with
                       the principles of good housing management practice in it’s treatment of tenants who
                       are not for the time being qualifying tenants.

           5.2         Clause 12 deals with the contracts affecting the transferring housing stock and covers
                       firstly, those being assigned to the Association, secondly those being retained by the
                       Council and thirdly, any contracts still in their retention period which will remain with
                       the Council.

           5.3         Clause 13 deals with insurance of the transferring housing stock.

           5.4         Clause 14, this clause covers transferring staff and the effects of TUPE, it contains all
                       of the warranties and indemnities the Council is giving in respect of staff transferring
                       to the Association.   The Clause also covers admission to the Local Government
                       Pension Scheme and pension under funding.

           5.5         Claus3 15 covers the termination of Service Level Agreements and the position of
                       staff employed by the Council when the agreements come to an end (deferred
                       TUPE), again the Council will be providing warranties and indemnities in respect of
                       these staff.

           5.6         Clause 16 contains a number of obligations on the Council to deliver up all
                       information and records relevant to the transfer, furniture and equipment to the
                       Association and undertake the qualifying works to the Property in order to comply
                       with the provisions of the VAT Development Agreement and the VAT saving scheme.

           5.7         Clause 17 sets out the Associations obligations in the Transfer Contract, the key
                       obligation is contained in the Fourth Schedule which is the Deed of Covenant to be
                       entered into by the Association.

           5.8         This document requires the Association to honour the promises made to tenants in
                       the Consultation Document issued by the Council prior to ballot and allows the
                       Council to intervene if the Association breaches any of these commitments.             In
                       addition there is an obligation on the Association to attend (on a bi-annual basis)
                       formal liaison meetings with the Council, initially for six years and thereafter as


           6.1         Clause 18 details the further agreements being entered into including the Service
                       Level Agreements in the Tenth Schedule, the Housing Benefit Protocol and the Civil
                       Emergency Agreement.

           6.2         The remaining clauses in the Transfer Contract cover:

Prop:2325609:1 4 September 2007                    Page 3 of 5
                       6.2.1        Interest (Clause 19);

                       6.2.2        Completion Agreement Clause (Clause 20);

                       6.2.3        Dispute resolution (Clause 21);

                       6.2.4        Notices (Clause 22);

                       6.2.5        Non-Merger (Clause 23);

                       6.2.6        VAT (Clause 24);

                       6.2.7        Data Protection (Clause 25);

                       6.2.8        Confidentiality (Clause 26);

                       6.2.9        Law (Clause 27)

                       6.2.10       Waiver (Clause 28);

                       6.2.11       Contracts (Rights of Third Parties) (Clause 29);

                       6.2.12       Severance (Clause 30);

                       6.2.13       Assignment (Clause 31);

                       6.2.14       Mortgagee Exclusion (Clause 32).


           7.1         As indicated above, there are some 17 Schedules and 9 Annexures, many of which
                       are referred to above.      Other Schedules and Annexures include a copy of the
                       proposed new Assured Tenancy Agreement to be offered to Qualifying Tenants,
                       copies of the plans of the property to be transferred and a full rent roll.

           7.2         A list of the Schedules and Annexures is attached.

8          VAT

           8.1         The Transfer Contract contains in the Sixteenth Schedule the VAT Development
                       Agreement which deals with the saving of VAT. The Development Agreement sets
                       out the cost of the works to be undertaken to the properties together with the VAT
                       saving and contains a Schedule giving a detailed breakdown of the works included in
                       the Agreement.

           8.2         The Seventeenth Schedule contains Deeds of Variation allow for a partial or total
                       collapse of the scheme should the law relating to VAT saving change in the future.

9          CONCLUSION

           9.1         The vast majority of the Transfer Contract is now settled between the Council and the
                       Association. We are awaiting any further comments which the funder’s solicitors may

Prop:2325609:1 4 September 2007                     Page 4 of 5
Signed                 .Philip Heath.............................................

                        Cobbetts LLP

Prop:2325609:1 4 September 2007                              Page 5 of 5

Description: Stock Transfer Contract document sample