DD2825 London Legacy Development Corporation Guarantee Agreement – East Bank / Stratford Waterfront Public Realm District Heating Novation

1.1.    The East Bank / Stratford Waterfront Public Realm District Heating Supply Agreement is currently between ELEL and LLDC. This matches standard practice for new district heating supplies created for venues across the Queen Elizabeth Olympic Park.

1.2.    LLDC wishes to novate the Supply Agreement to ManCo. ManCo is a private company limited by guarantee whose members include LLDC and the Stratford Waterfront partners (being Sadler’s Wells Trust, the British Broadcasting Corporation, the Victoria & Albert Museum, the University of the Arts London and Stratford Waterfront Retail Management Company Limited).  ManCo handles the operational service charge arrangements for the Stratford Waterfront public realm. Currently, LLDC recharges the District Heating costs incurred to ManCo on a monthly basis. 

1.3.    During the governance review by ELEL, ManCo failed to pass credit approval criteria. This rejection stemmed from its limited trading history and thin balance sheet position. It should be noted that ManCo’s only financial activity relates to the Service Charge mechanism – collecting funds from ManCo partners to pay for the general services provided for the benefit of the ManCo partners.

1.4.    Bring Energy, parent company of ELEL, made commercial contract novation conditional on receiving parent-level security.

1.5.    The principal users of the PPRR District Heating supply are the retail units on Aquatics Walk. These retail units are leased to individual tenants by Stratford Waterfront Retail Management Company Limited (RetailCo) which is a wholly owned subsidiary of LLDC. RetailCo is a party to the ManCo Service Charge mechanism, in line with their lease agreement with LLDC.

1.6.    LLDC has therefore agreed in principle to provide a guarantee of ManCo’s financial obligations to overcome the hurdle of ManCo’s credit worthiness and to finish transferring its estate management liabilities.

1.7.    Under section 213 of the Localism Act 2011, the Mayor must consent to LLDC (as a Mayoral Development Corporation (MDC)) giving financial assistance to any person.

Financial assistance can take the form of a guarantee or indemnity.  

1.8.    In 2019 an Updated LLDC Governance Direction was made under section 220 of the Localism Act.  Under that Direction, the Mayor and/or Executive Director on behalf of the Mayor can consent to any financial assistance by LLDC which does not already fall within or meet the terms of the LLDC General Financial Assistance (Grant) Consent 2014.  For such purposes the Executive Director means the Executive Director of Good Growth operating in consultation with the Chief Finance Officer, or such other member of GLA staff authorised under the Mayoral-Decision Making in the GLA and GLA Financial Regulations.
 

2.1.    The objective of this proposal is to complete the novation of the East Bank / Stratford Waterfront Public Realm District Heating Supply Agreement from the London Legacy Development Corporation to Stratford Waterfront Management Company Limited, thereby transferring the rights and obligations under the agreement to the management company. 

2.2.    A further objective is to ensure the continued and uninterrupted provision of district heating services to the Stratford Waterfront public realm, associated office accommodation and retail units. The proposed Guarantee Agreement will satisfy East London Energy Limited's credit support requirements and enable the novation to proceed while allowing the operational responsibility for the service to sit with Stratford Waterfront Management Company Limited. 
 

3.1     The GLA has related statutory duties to: 

•    pay due regard to the principle that there should be equality of opportunity for all people (section 33(1) of the Greater London Authority Act 1999 (the GLA Act))  
•    exercise the power in section 30 of the GLA Act in the way it considers is best calculated to:

 
o    promote improvements in the health of persons in Greater London 
o    promote the reduction of health inequalities between persons living in Greater London 
o    contribute towards the achievement of sustainable development in the UK  
o    contribute towards the mitigation of, or adaptation to, climate change in the UK (section 30(5) of the GLA Act)

•    consult with such bodies or persons as considered appropriate in this particular case (section 32(1) of the GLA Act). 

3.2    Section 149(1) of the Equality Act 2010 provides that, in the exercise of their functions, public authorities must comply with the public sector equality duty (PSED) by having due regard to the need to:  

•    eliminate discrimination, harassment, victimisation and any other conduct that is prohibited by or under the Equality Act 2010 
•    advance equality of opportunity between persons who share a relevant protected characteristic and persons who do not share it 
•    foster good relations between persons who share a relevant protected characteristic and persons who do not share it.  

3.3    The protected characteristics are: age, disability, gender reassignment, pregnancy and maternity, marriage and civil partnership (but only in respect of the requirements to have due regard to the need to eliminate discrimination), race (ethnic or national origins, colour or nationality), religion or belief (including lack of belief), sex, and sexual orientation.  

3.4    The proposal is not expected to have any impact on persons who share protected characteristics under the Equality Act 2010, because it relates to provision of a guarantee and indemnity to facilitate the novation of the Supply Agreement from LLDC to ManCo for commercial administrative purposes.
 

4.1.    Completion of the Guarantee Agreement is a condition of ELEL completing the novation of the Supply Agreement.  Without this, LLDC would remain the primary contracting counterparty to the Supply Agreement, keeping utility liabilities permanently on its balance sheet.

4.2.    LLDC confirms at the time of writing there are no known conflicts of interest. 
 

5.1.    The Guarantee Agreement provides a financial guarantee and indemnity in favour of ELEL if ManCo does not discharge its obligations to pay any amounts due under the Supply Agreement. The primary end-user of this heating line is RetailCo, a wholly owned subsidiary of LLDC. Because RetailCo funds the service charges collected by ManCo, the probability of ManCo defaulting on payments to ELEL is considered extremely low.

5.2.    In the event of a tenant defaulting on paying RetailCo, then the ultimate cost liability would sit with RetailCo – there is a budget provision within the RetailCo budgets for potential void or default expenditure.

5.3.    Therefore, in practice, the risk of additional financial calls on LLDC’s budget would only arise if RetailCo (a wholly owned subsidiary of LLDC) failed to keep up its Service Charge obligations to ManCo.

5.4.    LLDC calculates its total exposure under the Supply Agreement at £24,000 per annum. 
 

6.1.    Under section 213 of the Localism Act 2011, the Mayor must consent to LLDC (as a Mayoral Development Corporation) giving financial assistance to any person. Financial assistance can take a number of forms, including by way of grant, loan, guarantee or indemnity, investment or incurring expenditure for the benefit of the person assisted. The financial assistance may be given by LLDC on such terms and conditions as LLDC considers appropriate, (including provision for repayment, with or without interest). Under section 221(1) of the Act, a consent under section 213 of the Act may be given unconditionally or subject to conditions, and generally or specifically. 

6.2.    In 2019 an Updated LLDC Governance Direction was made under section 220 of the Act. Under that Direction the Executive Director shall exercise the Mayor’s function under the Direction. The Direction requires that ‘Consent’ is obtained to any financial assistance by LLDC that does not already fall within or meet the terms of the LLDC General Financial Assistance (Grant) Consent 2014). Consent means of the Mayor and/or the Executive Director on behalf of the Mayor under the Direction. For such purposes the Executive Director means the Executive Director of Good Growth operating in consultation with the Chief Finance Officer, or such other member of GLA staff authorised under Mayoral-Decision Making in the GLA and GLA Financial Regulations.

6.3.    LLDC officers will need to finalise the draft form of the Guarantee Agreement at Appendix 1 of this decision form before proceeding with the novation of the Supply Agreement.
 

7.1.    Subject to the consent requested in this decision, LLDC will execute the final tri-party novation agreements alongside the underlying energy infrastructure documents: