Green Lane, Heywood - Acquisition of Property
To consider the acquisition of property at Green Lane, Heywood
The Sub-Committee considered a report of the Director of Economy that set out details of an opportunity to use the Council’s Property Growth Fund to acquire an investment property at Green Lane, Heywood. An indicative plan of the property to be acquired was included with the Director’s report.
The Sub-Committee could decide not to acquire this property in which case it would not be able to achieve the financial benefits as described within the report. The Sub-Committee could also express a wish to acquire the property but at a lower purchase price. Seeking to renegotiate the purchase price carried a risk that the vendor would not proceed.
1. The proposed acquisition of premises at Green Lane, Heywood, using the Property Growth Fund, at a purchase price of £2,012,500 (two million and twelve thousand and five hundred pounds), as set out in the submitted report be approved, noting that the financial model showed that the targeted minimum 6.5% yield was estimated to be achieved, subject to the identified risks.
2. The Head of the Council’s Legal Services be authorised to complete the formal legal documentation to complete the purchase.
3. The Sub-Committee approves that the Council opts out to tax the land and buildings, referred to in the submitted report.
Reasons for the decision:
The acquisition of the premises was expected to provide a financial return as set out in the body of the report and in accordance with the criteria for the use of the Property Growth Fund. It was therefore recommended that the Council opt to tax the land and buildings as it is necessary to ensure the Council remains below its 5% partial exemption limit for VAT (as the cost of breaking the exemption limit would be estimated at around £1m per annum). It is also expected that opting to tax will have no adverse impact on rental income for current or future tenants (as they are likely to be able to absorb/reclaim the VAT charged on the lease). The current tenants are being charged standard rate VAT on rent as the current building owners have also opted to tax the site.
In considering the report the Sub-Committee considered additional comments provided by the Authority’s Chief finance Officer which noted that the Council was bound by the Prudential Code as issued by CIPFA, which stated that local authorities should not borrow more than, or in advance of their needs purely in order to profit from the investment of the extra sums borrowed. This applied to non-financial as well as financial investments. The Code also stated that authorities should also consider carefully whether they could demonstrate value for money in borrowing in advance of need and could ensure the security of such funds.