Agenda item

Report of the Director of Property Services and Development

The Cabinet considered a report of the Director of Property Services and Development which indicated that the Lower Precinct shopping centre is a key city centre commercial asset, with more than 40 commercial units, including Coventry Market, representing a strategic part of the city centre. The report detailed an opportunity the City Council has to take control of all or part of this asset through an agreement reached with the long leaseholder Royal London.

The Lower Precinct (including Coventry Market) is the subject of a head lease between the Council, as freeholder, and Royal London, as long leaseholder, of 240 years which commenced in October 2010. Under the terms of the head lease (as varied), Royal London pay the Council a minimum annual rent.

Coventry Market is part of the Lower Precinct head lease i.e. the head lease gives Royal London control over Coventry Market. There is a separate Management Agreement in place between the Council and Royal London whereby the Council runs the Market on Royal London’s behalf. The Management Agreement can be terminated by either party with six months’ notice.

As landlord and major tenant and stakeholder, the Council and Royal London are in continual dialogue regarding strategic and operational matters affecting each party’s interests in the city. From the Council’s perspective, as the custodian of the city, having a high performing city centre that is maximising its asset base and playing its part in attracting visitors, new businesses and investors is key to the city’s future success. This dialogue has been magnified recently through the process of bringing forward the Council’s flagship City Centre South (CCS) development scheme which is adjacent to the Lower Precinct and Coventry Market. CCS will deliver up to 1500 new homes and create a new part of the city centre which will in turn lead to spill over benefits to surrounding areas.

The CCS scheme’s land assembly process requires the Council to bring into its control areas of land currently in Royal London’s ownership (including service yards next to Coventry Market; the stalls on the external façade of Coventry Market; and a head lease of the vacant “Victoria Buildings” site next to Coventry Market) in order for the scheme to be delivered. This has resulted in proposals being made to Royal London to acquire these land interests (including the acquisition of “Rights” over their land in order to bring the CCS scheme forward, an example of these “Rights” would be the Right to swing a crane jib over their land) and the inclusion of these interests in the CCS Compulsory Purchase Order (CPO) which was made in April 2022.

Further to the CPO being made, Royal London lodged an Objection to the CPO and, therefore, the proposed scheme. Notwithstanding Royal London’s position, dialogue between the parties continued and Royal London removed their objection to the CPO on the first day of the CPO Public Inquiry (on the 17th January 2023).

The Council framed its position during these negotiations around the meeting of three key objectives:

1)  Ensuring the Council can be in control of its city centre in order to drive forward positive change and improvement;

2)  Delivering financial growth to the Council, including being able to share in the regeneration uplift that CCS will provide; and

3)  De-risking the delivery of the CCS scheme given its importance to the city, its businesses and its communities.

To this end, the Council secured an Agreement with Royal London whereby their Objection to the CPO was removed and the Council also now has the opportunity to take control of strategic city centre assets in line with the objectives set out above. Subject to the results of a comprehensive due diligence process, the report sought approval to the Council entering into an Implementation Agreement with Royal London which will result in either:

·  The full surrender of the Lower Precinct head lease (including Coventry Market) from Royal London to the Council with Royal London paying the Council a surrender premium (being the sum identified in the Private element of this report); or

·  A surrender and regrant of part of the Lower Precinct head lease whereby the Council gets full ownership of Coventry Market and associated service yards with Royal London retaining a lease of the Lower Precinct shopping centre (on terms set out in the Private element of this report)

Under the terms of the Council’s Agreement with Royal London, a decision on the entering into of the Implementation Agreement is required by April 17 2023. If the Implementation Agreement is entered into, then the parties are obligated to enter into one of the two options set out above prior to the 17th July 2023 (with that decision being taken by Cabinet before that date). Any future report to Cabinet will set out the key risks that need to be considered, as well as the results of the due diligence process. The report outlined the important benefits for the Council of proceeding with the recommendations contained in the report.

A corresponding private report detailing confidential financial matters was also submitted for consideration (Minute 114  below refers).

RESOLVED that the Cabinet:-

1)  Approves the entering into of an Implementation Agreement with Royal London (based on the Heads of Terms included in the corresponding private report) that will require the Council to either:

·  Accept a full surrender of the Lower Precinct head lease together with a reverse premium (being the sum identified in the corresponding private report) to be paid by Royal London; or

·  Accept the partial surrender (by way of surrender and regrant) of the Lower Precinct head lease such that Coventry Market and associated service areas are surrendered to the Council (on terms set out in the corresponding private report)

2)  Delegates authority to the Director of Property Services and Development, following consultation with the Interim Chief Executive (Section 151 Officer), the Chief Legal Officer and the Cabinet Member for Jobs, Regeneration and Climate Change, to undertake and be satisfied with the necessary due diligence and negotiate the associated legal agreements in order to enter into the Implementation Agreement referenced above.

3)  Approves a budget of up to £200k (to be funded from existing Property budgets) to be used for the costs of the due diligence associated with bringing into effect the Recommendations set out in this report.

4)  Notes that a further report will be brought back to Cabinet in due course seeking the necessary authorisation as to which of the two options outlined above under the terms of the Implementation Agreement the Council will enter in to.