Delegated Decision 32/11 Approval for the Terms of the Disposal of Ventnor Winter Gardens to Robert Thompson’s Hambrough Group

Representations Received

APPENDIX

1. Representations in respect of this decision have been received from a number of parties listed in the Appendix to this paper. The representations cover a number of similar areas that are summarised below:• The proposed agreement with Robert Thompson’s Hambrough Group (RTHG): • Does not guarantee sufficient community access to the building and makes no reference to the hire charges to be paid by the community for the use of the Winter Gardens; other bidders would have made the facility more widely available for use by the community. • If the Council sells the building to RTHG for £1 then it is providing state aid to RTHG that gives it a competitive advantage over local businesses that have had to grow using only their own resources. • Other bidders had proposed the same minimum levels of investment in the building as RTHG whilst providing for greater levels of community use. • Officers had previously set out that there would be long term use by the community in any final agreement for the disposal of the Winter Gardens with an expectation was that this would continue in perpetuity. • RTHG’s acquisition of the Winter Gardens is subject to it obtaining satisfactory planning permission and that the facility would stay ‘dark’ whilst this was achieved. • Clauses in relation to pre-emption arrangements and overage that had been included in the draft heads of agreement given to all bidders had been dropped in the final proposed heads of agreement between RTHG and the Council. Response to the Representations Overview 2. Ventnor Winter Gardens has been subsidised by the public sector (Ventnor Town Council and Isle of Wight Council) in the sum of approximately £93,000 a year (including repairs) for the past 11 years. It is estimated that community groups have hired the venue for an average of 25 hours a week in that period. In seeking to dispose of the Winter Gardens the Council has attempted to sustain community access to the facility without the need for spending a significant amount of tax payers’ money in a building requiring an estimated £650,000 of remedial works to bring it back into a useable condition (but not improve it). 3. The main theme of the representations received against the decision is that the Council has not secured sufficient community use of the Winter Gardens in its proposed agreement with the RTHG and that ultimately the provisions for community use of the building should be the principal criteria on which the Council must base its decision in respect of the disposal of the Winter Gardens. 4. This however is not the case. The Council has a responsibility to consider whether the proposals it has received are realistic, achievable and economically viable (without the need for continued public sector funding) taking into account the wider benefits they may also bring to the town. Bidders were aware from the start of the process that matters such as the capability of the personnel involved with the bid, proposed
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programme of activity, proposed capital investments and references would all be taken into account in determining the best bid for the Winter Gardens. These criteria and their weighting of importance one against the other are all set out in the delegated decision paper. [Community access was weighted the maximum 5; whilst financial offer to the Council was less important and rated 2]. 5. Ultimately taking all of these matters into account RTHG was considered to have the best chance of delivering a successful and sustainable business at the Winter Gardens that would be to the benefit of the whole area. For an immediate minimum investment £1m in the property by RTHG, as part of the conditions of sale, the guaranteed community use of the building will be for an average of 20 hours a week over a ten year period. 6. Other bidders have subsequently suggested that they would guarantee community use in ‘perpetuity’ but this is not confirmed in their bid proposals. These bids were also considered to have significantly greater risk of failure than that of the RTHG. This was thought to be the most likely of all the bidders to be still operating in ten years time. If the other bidders were to fail then there would be no community access to the facility at all whatever commitments they may have made as part of the bidding process. 7. Without the bid of the RTHG it would have been proper to have negotiated with one of the other bidders for it to acquire the facility. The terms that would have been concluded with this bidder may have been substantially different to those proposed for RTHG reflecting the greater risk of failure and the need for the Council to protect its position in respect of the disposal. Community Use 8. The agreed restrictive covenant providing for an average of 20 hours of community use a week over a ten year period needs to be considered against the previous trading history of the Winter Gardens. 9. A recently published report by Ventnor Town Council identified that its gross expenditure on providing the facility for the period April 2000 to December 2010 was £1.92m. This was offset by only £165,793 of income earned through the hire of the facility. Therefore only 8.6% of the costs of running the facility were recovered from its use by hirers. If the sale of tickets from directly organised events is taken into account this return on investment rises to some 17.2% across the period. No estimate however can be made of the level of income earned by the bar and catering operation from the users of the auditorium. 10. The income from hire charges equates to an average of £1,285 a month across the period (£297 a week). Assuming an average rate of hire of £12/hour the community has hired the facility for approximately 25 hours a week over the eleven year. In this period the facility has generally been available for community use at all times. 11. Over the 11 year period Ventnor Winter Gardens has required a total public sector subsidy of some £863,050, at an average of £78,460 a year in order for the community to be able to hire the facility for, at best, 25 hours a week. This figure excludes any expenditure on the maintenance of the building which is thought to be in the order of £15,000 per annum bringing the total subsidy to some £93,000 a year.
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12. This public sector subsidy has been provided by the Town Council (£640,569) and the Isle of Wight Council (£222,489 for operational costs and £165,000 for building maintenance). 13. It can therefore be concluded that the limited community hires of the building have only been made possible by significant public sector subsidy. Any long term operating model of the facility that provides for unlimited community use of it would be difficult to sustain without continuing subsidy. Such a direct subsidy to the facility is no longer available but there is nothing to prevent either Council providing funding to any community group to help it with its operation (which could include the hire of the Winter Gardens). 14. The suggestion that the other bidders would have allowed community access in perpetuity; is not confirmed in their bidding documents, or in their presentations and no detailed negotiations were entered into to confirm this in a legal agreement. The sales particulars given to all bidders only required proposals that provided for, “some continued use of the building as a theatre/hire venue”. The terms proposed by the Hambrough Group secure this absolutely for ten years but its proposals are that community use will always remain a core part of its offer. Officer Comments 15. Some representations make reference to assurances given by the Deputy Director at the public meeting that the Council would seek proposals for the Winter Gardens that made provision for community use of the facility. This it has done and achieved through the bidding process now completed. It was also made clear at the meeting that the Council would need to take into account the overall offers being made to it so it could be confident any proposal that were accepted had a reasonable chance of long term success and that if no proposals came forward the Council would sell the Winter Gardens without restrictions. 16. Comments made in the Deputy Director’s letter to the Island’s MP of 13 July 2011 have also been referred to in a number of representations. This letter clearly stated that the Council was in negotiation with the preferred bidder to confirm contractually all of the requirements of the Council and the community in the sale of the Winter Gardens. These negotiations included continued community use of the building and securing its long term maintenance and financial sustainability. It was also clear that without investment in the building and a robust business plan there could be no guarantee of community use of the building in the long term. As with any negotiated process of this nature, a judgement needs to be made by the Council as to what is considered reasonable community access balanced against the deliverability and investment offered by the RTHG. 17. The provision of community access in perpetuity was not a condition of the bidding process. The Council required a response that would “expect any proposal to provide for some continued community use of the building as a theatre/hire venue”. Through the negotiations with the preferred bidder it became clear that guaranteed and ongoing access would not be achieved. Officers from the Council’s leisure, strategic assets and legal teams, as well as Ventnor Town Council and the two local county council members have all been involved in forming the recommendations that inform the delegated decision report. As set out above, the issue of community access is fundamental, however is also one of eight criteria against which the bid has been evaluated. There would be no point in the Council concluding an agreement that
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secured community use in perpetuity if the purchaser of the building were to cease trading within a short period of time following its acquisition of the building. The Council therefore has the difficult job to judge which bidder has the greatest chance of still trading in the long term and considering whether the community access it is offering is sufficient return for it still being in business to provide the access. 18. It remains RTHG’s intention to provide long term community use of the building although it has been advised not to enter into a longer term agreement to this affect because it can not predict the future operating environment and the actions it might have to take to develop its business model in response. Taking this into account and the immediate £1m of investment RTHG will commit to the building it is the bidder that, in the view of the panel, is most likely to still be operating in ten years and therefore able to provide the required community access. 19. Subsequent comments by representatives of one of the unsuccessful bidders have been made to the effect that it too had offered an immediate investment of £1m in the building aligned with open ended community use of the building. A review of the proposal documents submitted by this bidder shows a commitment to a minimum spend of £350,000 (over two years) but the need to spend a further £750,000 the source of which was not confirmed; a request to the Council for further funding was identified as a possible source of this funding. State Aid 20. It is the view of the Council’s legal department that the agreement being proposed with the RTHG does not constitute state aid. Impact on Local Businesses 21. It has been suggested that the the acquisition of the Winter Gardens by the RTHG, a private business may be detrimental to other private businesses in the town that have invested in and grown their businesses over a number of years. This view whilst legitimate takes no regard to the positive impact RTHG’s proposals may have on the town in generating jobs and extra visitors to it who may make use of other businesses or make repeat trips to the town. If RTHG were to be excluded from bidding on this basis then one of the other bidders would also need to be excluded from the process given that it too is a private business; leaving only one bidder to be considered by the Council. 22. This argument also ignores the fact that RTHG is committed (as part of the sale agreement) to invest £1m in a building it could have acquired for only £200,000 had the Council chosen to sell it without the restrictions of community access and with no expectations of anything further being spent on the building. 23. It is worth contrasting this concern about this proposed operating position with the manner in which the facility operated until December 2010. In this case public funding of on average £93,000 per annum was used to underpin the operation of a bar, café and entertainment area. It could be argued therefore that this level of subsidy gave the Winter Gardens an unfair operating advantage over the private sector businesses in the town that were providing a similar service. Pre-emption and Overage Clauses
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24. Draft heads of terms were prepared before the bidding process began in order to indicate to prospective bidders the sort of terms that the Council would be seeking to impose on the sale agreement depending on the types of offer that were made. The document is clearly marked, “these terms are intended as an indicative guide only”. It has always been clear that the final terms of the agreement would be subject to negotiations with the preferred bidder and would relate to the outcomes to be achieved by the sale. 25. It is worthy of note that one of the other two bidders makes reference to wanting to review the terms of this draft agreement in relation to the pre-emption and overage clauses in its written proposal to the Council. 26. On the advice of the Council’s legal department both clauses in the indicative heads of terms were combined into a single new option to purchase clause in the proposed agreement. This option gives the Council the opportunity to buy back the site in the event that the RTHG does not undertake all or any of the agreed £1m investment in the site. This contractual commitment to the investment in the site was also not part of the original indicative heads of terms but significantly strengthens the Council’s position in this regard. 27. Once RTHG has completed its investment in the site it will want to benefit from that investment and it is unlikely to seek sell the building on, this will be made more difficult with the restrictive covenants that would be in place. 28. The possible use of a pre-emption agreement was proposed as a means of ensuring that the facility was developed as proposed and allowing the Council to reacquire the site should this not be the case. The Council is able to do this under the new option clause so there is no need for the use of a pre-emption agreement. 29. The use of an overage clause was proposed to protect the Council interests in the early stages of a new owner’s occupation of the building. This would have prevented the new owner from doing nothing with the site, waiting until its value increased as a result of an uplift in the property market and then selling the site to a new purchaser at a profit. The option clause commits RTHG to investing in the site within a given timeframe and allows the Council to repurchase the site if it does not proceed with the investment. 30. The intended protection of the Council’s interests in the Winter Gardens by the inclusion of the pre-emption and overage clauses therefore continues to be provided by the new option to purchase clause. Planning Permission 31. The Hambrough Group is keen to develop the Winter Gardens as soon as possible and there is no concern about its timely submission of a planning application. It may be wise to set a deadline for this to be substantially achieved and this will be looked at again. 32. There was no requirement for the successful bidder to open the facility with immediate effect although some bidders seemed to consider that this was one of the key criteria they needed to satisfy. The longer term success and sustainability of the proposals however has always been of more importance than a short term gain.
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ANNEX
List of individuals and organisations making representations to the Isle of Wight Council in respect of the delegated decision 31/11
Name Surname Town Mr John Allen Christine Battison Ventnor Michael Beston Shanklin Carol Bliss Ventnor Theresa Bower Ryde Mr S Brook St Lawrence Debbie Campbell Ventnor Tony Careless Carol Carter Ventnor Peter Channing Ventnor Mr Anthony Churchill Ventnor Julia Damrow Nora Dempsey Lake Judith Eagle Ventnor Mrs Faye Farrin Niton Mrs J H Fothergill Niton Miss R F Gawn Ventnor Grant Ventnor Ms Claire Daniel Groocock Valerie Hayward Niton Mr Gerald Hayward Niton Mr Stephen Holmes Ventnor Paul Hutchins Margaret Jowitt Ventnor Brian Lucas Ventnor Nicola Milner Ventnor Jane Nash Ventnor Steve Picton Ventnor Karen Prescott Ventnor Dave J Quigley East Cowes Alison Sharples Ventnor Ventnor Mr and Mrs Colin & Patricia Smith Andrew Turner MP Mr Rodney Walmsey Cllr Chris Welsford Angela White Ventnor Mary Williams Ventnor Andrew Woodford Newport Richard Wyatt Bonchurch Nava Young Isle of Wight Chamber of Commerce Tourism and Industry Ventnor Winter Gardens Ltd & Ventor Winter Gardens Trust Title

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