Agenda item

In July 2017 the Council agreed to create a property company to support its financial and property strategies in the medium/long term, after seeking specialist advice. Before advice is sought, Waverley needs to agree the purpose and objectives of the company and how it will operate and the report to Council included a number of detailed matters that were delegated to the Investment Advisory Board to finalise, after consideration by the VFM O&S Committee.

The relevant matters that need to be agreed prior to appointing external specialist external advisors are set out in the report and the Overview and Scrutiny Committee is asked to consider each one and agree on proposals to recommend to the Investment Advisory Board.

Recommendation

The Committee is asked to consider and comment on the matters set out in the report and to submit any observations and comments to the Investment Advisory Board.

David Allum, Head of Customer and Corporate Services, introduced the report setting out the detailed matters relating to the creation of a property company. He invited comments from the Committee to help inform the company’s governance arrangements.

The Committee thanked David Allum for the report, and welcomed the legal advice provided at (exempt) Annexe 1. However members felt that the report didn’t include sufficient detail on the check and balances; the Chairman explained that there was a need to address the ricks associated with this type of venture, and to thoroughly examine the mitigations that that would be put in place.

Cllr Gray was in attendance at the meeting and spoke on this item. He stated that governance and transparency were key, as ultimately the council would be responsible and councillors had a responsibility to their constituents. He felt that a decision-making diagram would be useful, setting out who had the remit to take which decisions. He also warned that the council needed to be careful with its choice of investment and not end up buying properties that other investors were offloading as the market changed; suggesting that the council narrow its remit to areas where it had more expertise and develop a unique selling point. He added that it would be good to have a clear business plan, including identified milestones, costings and assumptions.

Cllr Mulliner stated that there needed to be a clear explanation of how the governance would be split between the council and the company to ensure that all the advantages of both entities could be maximised. He felt that additional legal advice was required to ensure that there would be no issues in relation ‘twin-hatted’ officers or an implication of ‘shadow directors’. Additionally, he stated that it was important that the company be supported by two non-executive directors who were property experts; this view was supported by other members of the Committee, who felt that such individuals would add real value to the organisation.

The Committee suggested that a spreadsheet be produced to model in detail the costs and anticipated net returns, taking into account aspects such as corporation tax and the fact that the costs of running the company would need to be spread across the return on all investments. It also needed to take into account the cost of repairs and voids. Members also felt that it would be useful to see a worked example using the investment criteria set out in Annexe 2 to the report.

Cllr Martin agreed in principle with the creation of the property company, and was confident that it would be set up correctly by the council’s legal team however he agreed with other members that more information was needed. He noted that due the fact that investments may come along at varying intervals a business plan with specific milestones may not be required, as long as sound, detailed investment criteria were in place.

The Committee noted that there was reference to a ‘balanced portfolio’ and asked for clarification on what this meant in practice. Members differed on whether the company should limit its investments geographically, with some members suggesting keeping to areas where the council had local knowledge, rather than looking at investments nationally. Other members disagreed, stating that there was no need to limit investments geographically, as long as it was deemed to be a good purchase.

Cllr Seaborne stated that more information was required in relation to on-lending, and whether this would need to be done at a commercial rate.

Daniel Bainbridge, Borough Solicitor, thanked the Committee for its comments, which he said would be very useful in assisting the formulation of the detailed matters. He responded to certain points raised by members, explaining that the issue of ‘twin-hatting’ and membership of the board more generally was a matter for each individual council, and across Surrey this was being done differently by different councils. He added that it was for the council to identify its USP as an investor and set out what it wanted to get out of the endeavour.

The Committee concluded that there were benefits to borrowing low in order to generate an income for the council, but warned against relying on this to fund key service delivery as the value of assets could always fall. The Chairman therefore suggested that the Committee establish a working group to assist officers with assessing the risks so that members could be confident that appropriate checks and balances were in place and the council would not be exposed to any undue risks.

The Committee therefore resolved to appoint a working group comprising Cllrs Stephen Mulliner, Nicholas Holder and Mike Band to work with officers on the matters set out in the report and to assist in assessing risks. Cllr Gray, as Chairman of the Audit Committee, was also invited to attend the working group.