DD2406 HIF MVF - Camden, Ealing and Lambeth

Type of decision: 
Director's decision
Code: 
DD2406
Date signed: 
30 September 2019
Decision by: 
Rickardo Hyatt, Assistant Director of Housing and Interim Deputy Executive Director

Executive summary

Through Mayoral Decision (MD) 2341 dated 11 October 2018, the Mayor approved the receipt of up to £110.7 million of Marginal Viability Funding (MVF) from the Government’s Housing Infrastructure Fund (HIF) following a competitive bidding process by London Boroughs. The decision delegated authority to the Executive Director of Housing and Land to approve the detailed expenditure profiles and contractual terms with successful boroughs.

The GLA will receive the funding from Government under section 31 of the Local Government Act 2003 and, acting in accordance with the memorandum of understanding (MoU) between the GLA and Ministry of Housing, Communities and Local Government (MHCLG), the GLA will disburse the funds through individual funding agreements with the successful boroughs to deliver agreed outputs and outcomes.

Following the Government’s detailed validation and clarification process, this Director’s Decision seeks approval for the detailed expenditure profiles and contractual terms for interventions required to unlock 544 homes on developments in Camden, Ealing and Lambeth.

Decision

That the Executive Director of Housing and Land approves the expenditure profiles and detailed contractual terms for the provision of HIF MVF grant of:

• £10 million for leasehold acquisitions and infrastructure works to unlock 105 homes on the Abbey Estate in the London Borough of Camden;
• £1 million for Healum Avenue Phase 3 to unlock 171 homes on the Havelock Estate in the London Borough of Ealing; and
• £10 million has been confirmed to unlock 268 homes on land at Somerleyton Road in the London Borough of Lambeth.

Part 1: Non-confidential facts and advice

Introduction and background

Introduction

  1. On the 11 October 2018, MD2341 approved receipt of up to £110.7 million of Marginal Viability Funding (MVF) that was provisionally allocated to London Boroughs from the Government’s Housing Infrastructure Fund (HIF) following a competitive bidding process.
  2.  
  3. Following a due diligence exercise undertaken by external consultants from the Homes England panel, funding has now been confirmed by the Government for ten MVF schemes in London. Total grant funding of £86.7 million has been confirmed by MHCLG, subject to contract.

Table 1.1 – Borough MVF Schemes

 

Scheme Name

Borough

HIF Confirmed up to

Outcome of Due Diligence

GLA Approval

Grand Union Ave Phase 3

Ealing

£1,000,000

Approved

DD2406

Northwick Park

Brent

£10,000,000

Approved

 

Peel S Kilburn

Brent

£10,000,000

Approved

 

8 Albert Embankment

Lambeth

£10,000,000

Approved

 

Somerleyton

Lambeth

£10,000,000

Approved

DD2406

S. Circular - Catford Town Centre

Lewisham

£10,000,000

Approved

 

Lewisham Gateway

Lewisham

£10,000,000

Approved

 

Abbey

Camden

£10,000,000

Approved

DD2406

Grange Farm

Harrow

£10,000,000

Approved

DD2376

Finchley Central

Barnet

£5,705,671

Approved

 

TOTAL

 

£86,705,671

 

 

 

  • MD2341 delegated authority to the Executive Director of Housing and Land to approve, via Director Decision, the detailed expenditure profiles and contractual terms with successful boroughs and agree appropriate substitute schemes with the Government and successful boroughs where approved schemes are no longer able to be delivered within the timescales of the programme. In order to access this funding boroughs are required to enter into a funding agreement with the GLA to deliver the infrastructure works.
  •  
  • This decision form seeks the Executive Director of Housing and Land’s approval, following the due diligence process undertaken by external consultants on behalf of MHCLG, to commit:
  •  
  • £10 million to the London Borough of Camden for the Abbey Estate;
  • £1 million to the London Borough of Ealing for Healum Avenue Phase 3; and
  • £10 million to the London Borough of Lambeth for the Somerleyton Road scheme.

 

LB Camden, Abbey Estate

  1. The Abbey Estate is in the London Borough of Camden, approximately 0.7 miles south west of Swiss Cottage Underground station and 0.3 miles north east of Kilburn High Road Overground station. The regeneration will deliver 246 new homes. The first phase consisting of 141 homes completed in March 2019. The remaining 105 homes will be delivered in the final phase.
  2.  
  3. The MVF will be used to fund the agreed infrastructure works comprised of leasehold acquisitions, the provision of a new health and community centre, tenant management office fit-out, removal of the footbridge over Abbey Road, landscaping, sub-station upgrade, pedestrian crossing upgrade and associated professional fees and project contingency.
  4.  
  5. Hybrid planning permission was granted in May 2014 providing detailed consent for 141 units in phase 1 and outline consent for enabling infrastructure works and 100 new residential units in phases 2 and 3. A detailed planning application for phase 2 and 3, now including 105 new homes, will be submitted in autumn 2019 with a view to securing reserved matters consent in summer 2020.
  6.  
  7. A plan of the site can be seen below. The regenerated Abbey Estate will be located on 3 segments clustered around the junction of Abbey Road and Belsize Road. The completed phase 1 occupies the southern segment. The Health and Community Centre will be re-provided in phase 2, located in the northern segment, while 105 new homes will be provided in phase 3 which will occupy the western segment: (see PDF for image).
  8.  
  9. The HIF award was recommended following a due diligence exercise, undertaken by external consultants from the Homes England panel. The proposal was assessed against the key programme criteria including strategic fit, value for money and deliverability. The HIF funding is due to be drawn down by the GLA from MHCLG and transferred to LB Camden for the land assembly and associated infrastructure works as follows:

 

2019/20

2020/21

2021/22

April

 

*£1,939,250

£2,420,029

October

£1,438,000

£3,800,221

£402,500

Total

£1,438,000

£5,739,471

£2,822,529

* This drawdown is expected to be in June 2020/21 as HIF drawdown will be capped at 15% until LB Camden secures reserved matters planning permission for the infrastructure works and wider project

 

Project Delivery and Key Milestones

Milestone

Date

HIF Funded Infrastructure Works Start Date

April 2020

HIF Funded Infrastructure Works Completion Date

November 2021

Start on Site Phase 3 Residential (105 Homes)

February 2022

Practical Completion Phase 3 Residential (105 Homes)

September 2024

 

LB Ealing, Healum Avenue Phase 3

  1. The Havelock Estate is located in the London Borough of Ealing, approximately 0.7 miles south east of Southall Elizabeth Line station. The regeneration will deliver at least 922 new homes. The first phase, consisting of 287 homes, has recently been completed. The council and Catalyst Homes Limited are currently reviewing the masterplan with a view to including additional development areas and increasing density. The MVF scheme is expected to unlock the next phase of the development, enabling 171 additional homes to be provided.
  2.  
  3. The MVF will be used to fund the agreed infrastructure works comprised of site acquisition and works to construct a new section of public highway.
  4.  
  5. Outline planning permission for the phased development of 922 new homes as part of the Havelock Estate Masterplan was granted in April 2015. A separate application secured detailed consent for the 287 homes in phase 1. Catalyst expects to secure reserved matters planning permission for the next phase in January 2022.
  6.  
  7. A plan of the site can be seen below. The new highway will provide a direct connection between the Havelock Estate and Bridge Road, improving access to Southall Elizabeth Line station and enabling the additional homes to be provided by increasing density on the next phase of the development.

 

  1. The HIF award was recommended following a due diligence exercise undertaken by external consultants from the Homes England panel. The proposal was assessed against the key programme criteria including strategic fit, value for money and deliverability. The HIF funding is due to be drawn down by the GLA from MHCLG and transferred to LB Ealing for the land assembly and associated infrastructure works as follows:

 

2019/20

2020/21

April

 

£930,000

October

£70,000

 

Total

£70,000

£930,000

 

Project Delivery and Key Milestones

Milestone

Date

HIF Funded Infrastructure Works Start Date

June 2020

HIF Funded Infrastructure Works Completion Date

March 2022

Start on Site Residential (171 Homes)

July 2022

Practical Completion Residential (171 Homes)

June 2024

 

Somerleyton Road Scheme

 

  1. The scheme involves the redevelopment of brownfield land in central Brixton to comprise 268 homes, a new theatre, creative workspace and commercial units. 50% of new homes will be affordable rented homes, including at least 40% of total new homes let at or below London Affordable Rent benchmarks. The scheme achieved planning permission in 2017.
  2.  
  3. The scheme comprises two phases across 6 blocks (A-F). Phase 1 involves the renovation of Carlton Mansions (a protected local building) and provision of a new Ovalhouse Theatre on blocks A and B. Contractors are on site constructing phase 1 and thus the planning permission has been implemented. Phase 2 will deliver housing within blocks C, D and F, as illustrated below. Block E is owned by a third party with planning permission for an additional 70 homes.
  4.  
  5. The MVF will be used to fund the agreed infrastructure works comprised of land assembly and associated acquisition costs required to enable delivery of phases 1 and 2 of the wider project, together with demolitions of acquired properties including specialist removal of materials, land preparation, services, road diversions and an energy centre.
  6.  
  7. A plan of the site, outlined in red, can be seen below, bordered by Somerleyton Road to the east, Coldharbour Lane to the north and the railway line linking Brixton Station to Herne Hill Station to the west: 

 

  1. The HIF award was recommended following a due diligence exercise undertaken by external consultants from the Homes England panel. The proposal was assessed against the key programme criteria including strategic fit, value for money and deliverability. The HIF funding is due to be drawn down by the GLA from MHCLG and transferred to LB Lambeth as follows:

 

2019/20

2020/21

April

£0

£3,280,000

October

£4,320,000

£2,400,000

Total

£4,320,000

£5,680,000

Project Delivery and key Milestones

Milestone

Date

Commencement of Local Authority’s procurement process for the HIF Funded Infrastructure Works

30 June 2019

Unconditional contract entered into by the Local Authority with a developer or building contractor for the HIF Funded Infrastructure Works

31 March 2020

Complete HIF Funded Infrastructure Works

31 March 2021

HIF Funded Infrastructure Works Backstop Date

31 March 2021

 

Stakeholders / Contractual Arrangements

  • The counterparties in respect of MVF funding are as follows:
  •  
  • Abbey Estate: LB Camden will enter into the HIF-MVF Funding Agreement with the GLA.
  • Healum Avenue Phase 3: LB Ealing will enter into the HIF-MVF Funding Agreement with the GLA.
  • Somerleyton Road scheme: LB Lambeth will enter into the HIF-MVF Funding Agreement with the GLA.
  • Subject to satisfactory progress in delivery against project milestones, the GLA will provide grant at 6 monthly intervals. Grant may be drawn down in advance of spend based on borough cashflow forecasts which will be updated as necessary during the availability period. Grant claims will be supported by regular monitoring and progress reports from the boroughs to the GLA. Any underspends will be subject to reconciliation in the following 6-month period. All claims for grant funding must be signed off by the relevant borough’s section 151 officer. Failure to deliver the HIF funded infrastructure described at paragraph 1.6, 1.11 and 1.17, as applicable, above, or to meet a milestone for such infrastructure will be an event of default within the contract. In such circumstances the grant funding may be recovered. The boroughs will also be contractually required to use reasonable endeavours to deliver wider project outputs, including delivery of the agreed number of homes, in accordance with specified milestones. The wider project will be subject to an assurance framework which requires the boroughs to engage in quarterly review meetings with the GLA and to provide progress and monitoring reports at quarterly intervals until the final claim is submitted and thereafter annually until the wider project completion date. The GLA will report on progress quarterly and engage in an annual performance review with MHCLG in accordance with the terms of the MoU as set out in paragraph 1.29 below.

Due Diligence

  1. Due diligence has been undertaken by external consultants from the Homes England panel. They have recommended funding for the schemes. GLA officers have reviewed this due diligence and recommend that the GLA provides the funding subject to the following conditions which must be discharged before the GLA’s obligations in respect of the grant become binding:
  2.  
  3. Each borough to provide the following:
  4. - confirmation that it has full legal control and good title, or a valid right, licence or lease to the site necessary to enable delivery of the infrastructure and homes.
  5. - confirmation that the funding complies with State Aid legislation; and
  6. - confirmation that it will underwrite any overspend in infrastructure costs and commit to hold any underspend as a scheme contingency and subsequently recycle it into housing within the Borough;
  7. - confirmation that the scheme can be delivered in budget;
  8. - confirmation that all funding necessary to deliver the scheme is available;

 

  1. LB Camden and LB Ealing will also warrant that they have evidence that the council has resolved to exercise Compulsory Purchase Order (CPO) powers or appropriation in relation to the scheme.

 

Governance

 

  1. The London MVF Programme will be overseen by the HIF Programme Delivery Board which is chaired by the Executive Director for Housing and Land and includes representatives from the GLA, TfL, London Councils and MHCLG. The terms of reference for the board include the following:
  2.  
  3. - commission evaluation surveys of London HIF projects, as necessary, to meet MHCLG requirements.
  4. - provide quarterly reports to Housing and Land Directors Management Team on project risks and progress in delivery; and
  5. - receive quarterly reports on MVF projects and monitor progress in the delivery of infrastructure and spend against project profile and programme longstops;
  6. - monitor programme delivery to ensure compliance with all applicable legal requirements including state aid, public procurement law and the Public Sector Equality Duty;
  7. - ensure a robust programme assurance framework is in place to ensure value for money and appropriate risk management in relation to project outputs and outcomes, including the delivery of a significant number of new homes;
  8. - oversee programme management of the Marginal Viability Fund in London, proactively monitoring and managing underspends and, where necessary, proposing substitute schemes for approval by MHCLG;
  9. - provide the leadership and support necessary to ensure successful delivery of the HIF; Programme in London by identifying and leveraging synergies, mitigating risks and managing dependencies;
  10.  
  11. Area Managers from the GLA’s Housing and Land Directorate will manage the relationships as part of their borough portfolios and chair the quarterly progress and monitoring meetings.
  12.  
  13. The GLA will provide project updates and monitoring returns to MHCLG on a quarterly basis to enable programme oversight in accordance with the MoU between the GLA and MHCLG. The GLA will also engage in an annual performance review with MHCLG. The review will confirm spend and delivery targets and milestones for the forthcoming financial year, and, provide assurance to MHCLG that the next instalment of funding can be released.

Legacy

  1. The funding of the Abbey Estate Scheme is expected to unlock the delivery of 105 homes, including the provision of 36 council homes and a new Health and Community Centre.
  2.  
  3. The funding of Healum Avenue Phase 3 is expected to unlock the delivery of 171 additional homes on the Havelock Estate and improve connections to Southall Elizabeth Line station via the new public highway.
  4.  
  5. The funding of Somerleyton Road is expected to unlock the delivery of 268 homes, including 134 affordable homes, a new theatre, creative workspace and commercial units
Objectives and expected outcomes

The agreed funding for Abbey Estate will:

• facilitate the acquisition of leasehold interests required for redevelopment and the associated infrastructure works; and
• unlock the delivery of 105 new homes.

The agreed funding for Healum Avenue Phase 3 will:

• facilitate the acquisition of land required to construct the new highway and the associated infrastructure works; and
• unlock the delivery of 171 new homes.

The agreed funding of the Somerleyton Road scheme will:

• unlock the delivery of 268 homes, including 134 homes to be provided at affordable rents.

Equality comments

In September 2017, the GLA published an impact assessment, including an equalities impact assessment, of the London Housing Strategy. Policies related to increasing housing supply and delivering affordable housing, to which the MVF HIF schemes will make a significant contribution, were also covered by the Integrated Impact Assessment (IIA) for the Draft London Plan, published in November 2017.

The IIA concluded that the cumulative impact of these policies combined with policies for flexible housing mix, inclusive design and accessible housing would contribute to creating inclusive communities, relieve housing pressures that disproportionately affect lower-income groups and ensure the needs of different groups are taken into account in housing design.

The delivery of new and additional homes will help to implement Strategic Objective 1 of the Mayor’s equality, diversity and inclusion strategy ‘Inclusive London’ (May 2018) to increase the supply of homes that are genuinely affordable to buy or rent. The HIF will help fund the supporting infrastructure needed to unlock priority schemes for LB Camden, Ealing and Lambeth, contributing to the delivery of up to up to 544 new homes.

Under section 149 of the Equality Act 2010, as public authorities, the Mayor and the GLA are subject to a public-sector equality duty and must have ‘due regard’ to the need to (i) eliminate unlawful discrimination, harassment and victimisation; (ii) advance equality of opportunity between people who share a relevant protected characteristic and those who do not; and (iii) foster good relations between people who share a relevant protected characteristic and those who do not. Protected characteristics under section 149 of the Equality Act are age, disability, gender re-assignment, pregnancy and maternity, race, religion or belief, sex, sexual orientation, and marriage or civil partnership status.

Throughout the decision-making process relating to HIF due regard has been – and will continue to be - had to the ‘three needs’ outlined above. The housing shortage in London disproportionately negatively affects people with certain protected characteristics. Increasing the supply of housing (by funding infrastructure to unlock additional housing supply) will help to achieve positive impacts in line with the ‘three needs’.

Under the terms of the funding agreement, boroughs will be required to comply with, and assist and co-operate with the GLA in order that it can comply with (and require third parties who benefit from the grant and any appointed contractors do the same, if applicable), the Public Sector Equality Duty.

Other considerations

Key Risks

Delivery Risks

Delays could arise from the land assembly process which may take longer than expected. This has been mitigated by the inclusion of specific milestones and outputs for completing the necessary acquisitions and gaining full legal control of the land. Failure to achieve milestones and outputs relating to the HIF funded infrastructure works is an event of default which, if it cannot be remediated, may result in termination of the funding agreement and recovery of all or part of the grant funding. Each borough will also warrant that it has resolved to exercise CPO powers or appropriation where necessary.

Further funding required. This risk has been mitigated by the contractual condition that will be placed on the boroughs to fund any cost overruns.

The homes are not delivered in accordance with the wider project milestones and outputs: the purpose of the HIF grant awarded to LB Camden, LB Ealing and LB Lambeth is to unlock the delivery of homes. These wider project outputs are subject to an assurance framework which requires boroughs to use reasonable endeavours to procure the delivery of the homes. However, boroughs will not be in default if they fail to achieve the wider project milestones and outputs and the grant will not be subject to clawback in these events, provided the Boroughs have used reasonable endeavours. To mitigate planning risk for the Abbey Estate, the funding agreement includes a limitation on grant availability which caps draw down at 15% of the total grant available until the borough has provided written evidence that it has obtained detailed planning permission for phase 2 and a favourable pre-application response for phase 3. This limitation has not been applied to Healum Phase 3 because the funding requirement is relatively modest and detailed planning permission for the wider project is not expected until January 2022.

Financial Risk

Detailed due diligence on the scheme has been undertaken by external consultants from the Homes England panel. Whilst the GLA has reviewed the due diligence, there is a risk for the GLA not having been party to this detailed review, particularly as the GLA is responsible for monitoring and managing the MVF programme in London. This is mitigated by the detailed reporting required from the boroughs which is required to be passed on to MHCLG. If the borough fails to achieve any HIF funded infrastructure works output or HIF funded infrastructure works milestone, and is unable to remedy the default, the GLA may suspend or withhold payment of any further grant instalments and recover all or part of the grant. Additionally, the borough may be required to repay any underspend or overpayments to the GLA immediately (unless the GLA agrees an amendment to the project cashflow) where this has arisen as a result of delays in the works or an overpayment with respect to State Aid law.

The borough has submitted a valid claim for funding, but the GLA has not received funds from MHCLG. This risk is mitigated by a payment framework agreed with MHCLG and contractual clauses that agree that the GLA will only forward funds on agreed claims following receipt of funding from MHCLG.

The borough has drawn down funding but does not deliver the expected infrastructure. Failure to deliver an MVF project by the agreed backstop date is the only event in which MHCLG may recover an underspend from the GLA in accordance with the MoU. If any HIF funded infrastructure works output is not delivered in line with agreed HIF funded infrastructure works milestones the GLA may suspend or withhold payment of any further grant instalments and recover all or part of the grant.
State Aid Compliance

Each Borough is required to provide the GLA with confirmation that it has received an opinion, satisfactory to the borough as to the state aid treatment of the project.

Links to Mayoral Strategies and Priorities

The draft new London Plan 2017 (LP) and the London Housing Strategy 2018 (LHS) set ambitious new targets to deliver the homes necessary to meet housing need. To create this step change in housing delivery, the Mayor is committed to targeting investment to accelerate and de-risk housing and regeneration sites across London, including securing a significant share of the Government’s Housing Infrastructure Fund (LHS Policy 3.2). This Marginal Viability Funding will provide necessary investment to assist the LB Camden and LB Ealing in unlocking future phases of estate regeneration at Abbey and Havelock, making an important contribution toward meeting their ten-year housing targets. LB Camden and LB Lambeth have each secured a funding allocation via the Mayor’s Programmes to support the delivery of affordable homes at Abbey Estate and Somerleyton Road. As such, the MVF awards complement existing Programmes, including the Mayor’s Affordable Homes Programme 2016-2021.

The London MVF schemes announced by central government in February 2018 include several major estate regeneration programmes. MVF will help unlock these by mitigating infrastructure viability gaps. Since funding decisions about whether a scheme receives MVF are made by MHCLG, the Mayor cannot require the award of MVF to be contingent on an affirmative resident ballot. However, the Mayor expects estate regeneration programmes otherwise to be delivered in accordance with ‘Better Homes for Local People – the Mayor’s Good Practice Guide to Estate Regeneration’, meaning any funding from his Affordable Homes Programme must be subject to his funding condition around ballots.

Financial comments

HIF MVF projects will be funded by Government capital grant and therefore are at net nil capital cost to the GLA. The GLA will need to administer the grant claims process, but LB Camden, LB Ealing and LB Lambeth will only be paid after the grant is received from MHCLG so there is no cashflow risk. In addition, project overspend, and delivery risk will also be borne by the boroughs.

Activity table

Activity

Indicative Date

Complete HIF-MVF funding agreement with boroughs

October 2019

HIF funded infrastructure works start on site

By June 2020

HIF funded infrastructure works completion

By March 2022

Wider projects start on site

By July 2022

Wider projects completion

By September 2024


Share this page