Agenda item

Decision:

(1)           That the surrender of the existing lease to Stevens & Bolton and a simultaneous re-grant of a new 15-year lease with no break clause at the current passing rent of £1.3 million per annum be approved, subject to an upwards only rent review in 2025 and 5 yearly thereafter with 50% reduced rent over the first two years.

(2)            That the Head of Asset Management (Climate Change Lead) be authorised to take such actions as are required to negotiate any minor amendments and finalise terms referred to in the report submitted to the Executive for the surrender and re-grant of a lease to Stevens & Bolton subject to being satisfied that the Council will receive the best consideration reasonably obtainable and in consultation with the Lead Councillor for Resources, the Joint Strategic Director (Place) and the Chief Finance Officer.

(3)            That the spending of the approved Property Acquisitions budget to fund a landlord’s capital contribution towards tenant improvement works be approved.

Reason(s):

To secure the rental income of £1.3 million per annum for a further 10 years beyond the expiry of the existing lease in place, which will be subject to upwards only rent reviews in 2025 and 5 yearly thereafter. Thus, it will remove the risk of the building falling vacant in 2027 when the current lease expires, and the likely significant level of investment required to refurbish the building (estimated at £5 million) to attract a new tenant. It is therefore considered the most financially advantageous option to the Council and will improve the investment performance of the asset for the next 15 years.

Other options considered and rejected by the Executive:

None.

Details of any conflict of interest declared by the Leader or lead councillors and any dispensation granted:

No.

The Leader of the Council introduced the report in the absence of the Lead Councillor for Resources.

Wey House, Park Street was a prominent office building providing 45,382 sq. ft. of accommodation (net internal area excluding communal space) spread over four floors located in the heart of the town centre on the gyratory opposite Guildford’s mainline station.

The property was purchased by the Council as an investment asset in 2016 for £22.65 million and was the biggest single income producing property asset within the Council’s portfolio. The outcome of the Asset Management Plan recommended retention due to its significant income return, strong tenant covenant and minimal management costs.

The building was let in its entirety as the HQ premises for Stevens & Bolton LLP, an established legal firm, on a lease dated 3 March 2010 which would expire on 2 March 2027. The tenant held an Option for a Reversionary Lease for a term of 10 years from 3 March 2027 subject to a tenant only break clause on 3 March 2032.  Stevens & Bolton paid a rent of £1.3 million per annum which was due for review in March 2025.  Recent agreement had been reached for the top two floors of the building to be sub-let to Media Molecule (a gaming company owned by Sony Corporation).

The tenant had approached the Council with a proposal to remain in the building beyond the expiry date of the current lease in March 2027 subject to upgrading the heating and air conditioning system along with installation of Cat A low energy LED lighting throughout the building to be carried out at the Council’s cost.  The cost of these works was estimated to be £800,000.  Consequently, officers agreed terms with the tenant to surrender the current lease and enter a new lease for a term of 15 years without break at a rental income of £1.3 million per annum subject to a 12-month rent free period, upwards only rent reviews in March 2025 and 5 yearly thereafter, and a landlord’s contribution to tenant works up to a maximum of £800,000.

The risk of not renewing the tenancy would result in a potentially empty building with the Council still committed to undertaking the upgrade to the facilities. On balance, the Executive agreed that the new arrangements would provide a longer-term level of certainty over income, would also retain a significant local business in the town centre and there would be a level of control over the maintenance of the building.

It was noted that under legislation the EPC rating for the building would need to be improved during the lifetime of the lease. The detail of the responsibility for those improvements should be included in the new lease. 

The Leader of the Council was pleased to see the transparency of the reporting in this matter.

Officers were commended for the negotiation of the new arrangements.

RESOLVED:

(1)          That the surrender of the existing lease to Stevens & Bolton and a simultaneous re-grant of a new 15-year lease with no break clause at the current passing rent of £1.3 million per annum be approved, subject to an upwards only rent review in 2025 and 5 yearly thereafter with 50% reduced rent over the first two years.

(2)          That the Head of Asset Management (Climate Change Lead) be authorised to take such actions as are required to negotiate any minor amendments and finalise terms referred to in the report submitted to the Executive for the surrender and re-grant of a lease to Stevens & Bolton subject to being satisfied that the Council will receive the best consideration reasonably obtainable and in consultation with the Lead Councillor for Resources, the Joint Strategic Director (Place) and the Chief Finance Officer.

(3)          That the spending of the approved Property Acquisitions budget to fund a landlord’s capital contribution towards tenant improvement works be approved.

Reason(s):

To secure the rental income of £1.3 million per annum for a further 10 years beyond the expiry of the existing lease in place, which will be subject to upwards only rent reviews in 2025 and 5 yearly thereafter. Thus, it will remove the risk of the building falling vacant in 2027 when the current lease expires, and the likely significant level of investment required to refurbish the building (estimated at £5 million) to attract a new tenant. It is therefore considered the most financially advantageous option to the Council and will improve the investment performance of the asset for the next 15 years.