MD2151 Disposal of Land at Creative Industries Quarter, Abbey Road

Type of decision: 
Mayoral decision
Code: 
MD2151
Date signed: 
07 August 2017
Decision by: 
Sadiq Khan, Mayor of London

Executive summary

This Mayoral Decision concerns the disposal of freehold land at the Creative Industries Quarter (CIQ) Abbey Road, which is currently owned by GLA Land and Property Ltd, to the London Borough of Barking and Dagenham.

Decision

That the Mayor approves:

• the transfer of GLA Land and Property Ltd’s freehold interest in Phase 1 of the completed CIQ development at Abbey Road to the London Borough of Barking & Dagenham;
• the transfer of a strip of land adjacent to the CIQ development to the London Borough of Barking & Dagenham;
• an increase in the project budget of £11,122 to cover additional project costs, valuation fees and legal fees for the transfer of the freehold interest.

Part 1: Non-confidential facts and advice

Introduction and background

1.1 The objective of the Creative Industries Quarter (CIQ) project was to create a new creative industries quarter along Abbey Road in Barking, built to exemplar design and quality standards with complementary residential development above. The London Thames Gateway Development Corporation (LTGDC) began work on the project in 2006, acquiring seven separate land interests in order to deliver comprehensive re-development. 

1.2 The development was completed in October 2015 and is known as the Ice House Quarter and Ice House Court. It provides 102,000 sqft of commercial space which is a mixture of new and refurbished buildings. The commercial space consists of flexible creative studio space, space for training and events and a café. The headquarters of the building contractor Rooff Ltd is also located there. In addition to this, the development provides 278 new affordable rented homes owned by the London Borough of Barking & Dagenham (LBBD).
 
1.3 The first stage of development was the refurbishment of the Granary and Malthouse buildings by Rooff Ltd.  LTGDC selected Bouygues UK as their development partner for the residential element of the project following an OJEU competitive dialogue process, and in June 2011 the parties entered into a conditional contract to secure the development in two phases.

1.4 The land at CIQ which was still owned by LTGDC transferred to the GLA on 16 April 2012 under the London Thames Gateway Development Corporation (Transfer of Property, Rights and Liabilities) (Greater London Authority) Order 2012 (LTGDC Transfer Order). Following this transfer, the GLA completed the leasehold sale of phase 1 to Bouygues UK in August 2012, to enable construction to begin.

1.5 MD1215 (July 2013) approved the transfer of the freehold title from GLA to GLA Land and Property Ltd (GLAP), the sale of the leasehold interest of phase 2 to Bouygues UK and the transfer of the freehold of phase 2 on practical completion. The GLA subsequently completed the leasehold sale of phase 2 to Bouygues UK in August 2013.

1.6 The project is now fully complete: phase 1 of 134 homes and 4,400sqft of commercial space completed in July 2014 and phase 2 of 144 homes completed in October 2015.

1.7 Upon completion of each phase and with GLAP’s consent, Bouygues UK transferred its leasehold interest to LBBD, who let all 278 homes as affordable rented homes, at 80% of local market rents. The homes are marketed, let and managed through LBBD’s institutionally backed housing company Reside, with the majority of homes targeted at people in employment.

1.8 Upon transfer of the leasehold interest to LBBD, all obligations in the Development Agreement, the phase 1 and 2 leases and the Overage Deeds transferred to LBBD.
   
Call and Put Options

1.9 Under the phase 1 and phase 2 leases, the tenant (LBBD) has the benefit of a Call Option which requires GLAP to sell the property to the tenant for £1. In turn, GLAP has the benefit of a Put Option to require the tenant to purchase GLAP’s interest. In relation to phase 2, LBBD may exercise their Call Option as soon as practical completion is achieved, conversely, the phase 1 lease states that the tenant may not exercise the phase 1 Call Option until ten years after practical completion (this would-be July 2024).  


Phase 2

1.10 LBBD has now exercised its Call Option for phase 2 and therefore GLAP is required to dispose of the freehold to them. The phase 2 land is shown as the land within the red line and hatched blue in the plan at Appendix 1. The transfer of the freehold of phase 2 is approved in MD1215, but this Mayoral Decision seeks an increase in the project budget in order to fund legal fees to complete the transfer and to allow GLAP to fulfil its contractual obligation. 

Phase 1

1.11 LBBD is also seeking to exercise the Call Option for phase 1 early and to take transfer of phase 1 and phase 2 together. The phase 1 land is shown as the land within the red line and coloured white in the plan attached as Appendix 1. 

1.12 Under the lease, the phase 1 Call Option period begins ten years after practical completion. This was put in place in order for the GLA to retain control over the property use classes of the creative industries accommodation, which consists of 4,400 sqft of flexible creative workspace. The space has been fitted out with the benefit of funding from the Mayor’s High Street Fund and let to Bow Arts for a minimum of ten years. Bow Arts is marketing and managing the workspace and grants under-leases to artists, designers and makers.  Current occupiers include a furniture maker, an ethical fashion brand and a film production company.

1.13 Supporting the workspace as a space for creatives is a key part of LBBD’s long-term strategy to promote creative industries in Barking Town Centre and LBBD is working closely with the GLA to achieve this objective. The Barking Artist Enterprise Zone is a borough led initiative to promote space for artists to live and work in the town centre and the Mayor is supporting this initiative through an allocation of £250,000 from the London Regeneration Fund to create live-work units for artists at a site on Linton Road within the town centre.    

1.14 Given that the lease to Bow Arts secures the use of the space for creative industries for ten years, GLAP can transfer the freehold now being satisfied that the space will be used by creative industries for at least ten years; it is also LBBD’s intention to renew the Bow Arts lease at the end of the term, or enter into a lease with an alternative creative workspace provider. GLAP will lose the ability to control the use of the workspace in the event that the lease to Bow Arts is varied or determined for any reason, however, there is no indication that this will occur; the space is being well-used and it is a crucial part of LBBD’s strategy to promote creative industries in Barking Town Centre. 

1.15 LBBD will provide an undertaking to cover GLAP’s legal fees in relation to this transaction, consequently there will be no negative financial impact to GLAP for bringing forward the Call Option period. 

Strip of land

1.16 When preparing the phase 2 transfer document, it became clear that GLAP also owns the freehold of a strip of land adjacent to the CIQ development which forms part of the Abbey Road pavement and highway which was not included in the phase 1 and 2 leases.

1.17 This land is coloured blue on the plan attached as Appendix 1 and it is believed that it was omitted from the building leases to ensure that Bouygues UK could not develop a scheme with balconies overhanging the highway. Given that the development has now completed and the balconies do not overhang the highway, the strip of land should be transferred to LBBD.

1.18 As this land is of very little use or value to the GLA and is not developable land, it seems prudent to transfer the freehold of this land to LBBD in order to avoid the risks and obligations of freehold ownership. Please refer to part 2 of this report for further details on the market value of this strip of land.   

 

 

 

 

 

 

 

 

 

Objectives and expected outcomes

a) key risks and issues

4.1 There is a risk that legal fees could increase and further expenditure will be required, however, the phase 2 transfer has already been drafted and is ready to complete. There is a risk that the lease to Bow Arts could be varied or determined and the workspace could be used for a different purpose, subject to planning permission, however, as outlined in paragraph 1.14 this is unlikely given that this workspace is an important part of LBBD’s aspirations for Barking Town Centre.  Following Mayoral approval, the documents to transfer phase 1 and the strip of land will be drafted, based on the agreed transfer for phase 2, therefore the legal process should be simple and quick without a requirement for negotiation between the parties and consequently, the risk of legal fees increasing is low.  

b) links to Mayoral strategies and priorities

4.2 The London Plan (March 2016) sets out the need to accelerate housing development to meet London’s need for 42,000 new homes per annum, this CIQ site has already contributed 238 new affordable homes and this land disposal will release GLAP from any liabilities in relation to the site.

c) impact assessments and consultations

An impact assessment has not been completed in relation to this land disposal. Consultation has been undertaken with LBBD who has confirmed that they are ready to receive the transfer of the three parcels of land discussed in this report.

Financial comments

The paper is seeking approval for the disposal of the freehold interest in CIQ phase 1 and phase 2 and an adjoining strip of land, following the leasehold disposal of the site to LBBD. Approval is also sought for additional budget of £11,122 to complete the transfer of the freehold interest.

Activity table

Activity

Timeline

Complete freehold transfer of CIQ phase 1, phase 2 and strip of land

25 August 2017

Appendices and supporting papers

Appendix 1 – Plan