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Agenda item

F S252 Chalkhill Partners - Temporary Accommodation Acquisition and Lease Project

Meeting of Cabinet, Monday 26 February 2024 6.00 pm (Item 17.)

Decision:

RESOLVED:

1. Note the strategic context set out in this report, including the increasingly challenging shortages of temporary accommodation, growing demand, rising costs, and the need to secure longer term and more sustainable supply of temporary accommodation properties in order to meet the Council’s statutory obligation.

2. Note the principles and structure of the proposed contractual arrangement for the acquisition and letting of properties, together with the reasoning supporting its implementation, both as described in this report;

3. Give delegated authority to the Director of Strategic Property Services, in consultation with the Interim Group Director, Finance, to:

· negotiate the detailed terms of an Agreement for Lease (or a broadly equivalent contractual instrument with the same commercial effect) with the REIT (and any necessary ancillary agreements)

· agree that the Council enters into the Agreement for Lease (or a broadly equivalent contractual instrument with the same commercial effect) with the REIT.

· negotiate the detailed terms of the individual leases on each property.

4. Give delegated authority to the Director of Strategic Property Services, in consultation with the Interim Group Director, Finance, the authority to negotiate the detailed terms of, and the authority to agree that the Council enters into, a management agreement with the appointed managing agents.

5. Authorise the Acting Director of Legal, Democratic & Electoral Services to prepare, agree, settle and sign the necessary legal documentation to effect the proposals contained in this report and to enter into any other ancillary legal documentation as required.

REASONS FOR DECISION

As outlined within the report, there is a significant need to expand the stock of longer term temporary accommodation available to the Council. As set out within Part 7 of the Housing Act 1996 and the Homelessness Reduction Act 2017, the Council has a statutory duty to provide interim temporary accommodation to homeless households to whom it has a duty to provide permanent housing.

As set out in the report, the Council has an acute and growing pressure on supply of the temporary accommodation needed to fulfil our statutory duties. Entering into the proposed agreement for lease of 300 properties will make a significant contribution to the number of Temporary Accommodation units in the Council’s long term control and at more affordable levels than comparative short term accommodation options.

Whilst the 300 properties covered by the proposed agreement will only represent an additional 30% to the Council’s owned and leased portfolio, the number of properties that become available through other sources is continuing to decline, with particular shortages for family sized accommodation - resulting in homeless residents needing to relocate outside of the borough and often well beyond London.

The proposed leasing scheme will include criteria to ensure that properties are within 75 minutes journey time by foot and public transport to Hackney Central, helping to enable residents to retain local connections.

Discussions with other potential partners as well as Chalkhill have taken place over a number of years however they have been around longer lease commitments typically of 40 + years. Only our discussions with Chalkhill have resulted in a 10 year proposal which limits the exposure of the Council to annual inflation based rent reviews. We also expect that an attempt to take to the market an equivalent proposal would take in the order of 9-12 months and would not be expected to yield improved terms considering current market fundamentals (including recent increases in interest rates). The risks associated with the agreement have been reviewed extensively and are set out in detail in section 6.39. Overall they are not considered unduly onerous considering the experience and current property operations of the service and the mitigation options available to the Council.

In order to secure good quality Temporary Accommodation as close to Hackney as possible, and also to mitigate the significant financial risks presented by dependency on ad hoc spot purchasing in an increasingly challenging housing market, the Council uses longer term 10 year lease agreements as a core component of its Temporary Accommodation supply strategy. The Council has a number of long term lease agreements in place and equivalent investment models adopting REIT structures are likely to play an important role in this part of our supply moving forward. At the current time the only viable option that is in a position to move into delivery is this proposal with Chalkhill. As noted in 5.3 below, the Council will be able to consider other viable options that come forward where those will enable it to further reduce use of ad hoc spot purchasing and continue to move the Temporary Accommodation mix to that of a more sustainable long term supply.

DETAILS OF ALTERNATIVE OPTIONS CONSIDERED AND REJECTED

Do nothing and lose this opportunity to increase the number of Temporary Accommodation units in the Council’s long term control at more affordable levels than alternative short term accommodation options

This option has been rejected on the grounds that it will:

· continue to leave the Council with significant uncertainty of provision of temporary accommodation

· increase the likelihood that homeless residents will be required to relocate outside of London for temporary accommodation

· increase cost pressures for the Council

· increase the risk of needing to use expensive bed and breakfast and hotel accommodation

· leave the Council at growing risk of legal challenge for failing to fulfil its statutory obligations under the Housing Act 1996 and the Homelessness Reduction Act 2017

Raise the capital through borrowing and purchase an equivalent portfolio directly owned by the Council

This option has been rejected on the grounds that:

· there are significant capital and revenue implications, that are unaffordable in the context of the wider financial pressures on the Council (see finance comments in section 7)

· Officers have reviewed with colleagues in Housing Services the potential option of the service undertaking the management of the 300 properties that will be disbursed throughout London. They have advised that it would be very challenging and expensive for the service to manage a portfolio of this nature given likely distribution of properties and uncertain nature of the stock. Housing Services have also advised that their current priority focus is on improving the delivery of their existing services in preparation for the new Social Housing Regulator.

Approach other parties operating in the sector to enter negotiations to put together a similar proposal

This option has been rejected on the grounds that:

· the exercise would take in the order of 9-12 months and would not be expected to yield improved terms considering current market fundamentals (including recent increases in interest rates)

· other discussions with potential partners have taken place previously (including with Chalkhill and other providers) but have not identified alternative options that would be viable to be taken forward

· the scale of the proposed agreement, the number of short term and bed & breakfast units currently in the temporary accommodation portfolio (1,228 at the time of writing - see section 6 below), the continued (and accelerating) reduction in supply, and the increasing demand for temporary accommodation mean that this agreement would not prevent the Council from entering into further agreements with other providers, provided equally (or more) favourable terms were offered.

Minutes:

17.1 The Mayor explained how Government inaction on housing had left thousands of people in need of temporary accommodation, forcing Councils to spend more on housing that is often not fit for purpose. That was why the Council was proposing to invest in long-term, better quality accommodation to help manage the crisis.

17.2 Cllr Chapman spoke to the housing crisis in the country, which in Hackney saw over 8,000 people on the waiting list, with 3,000 families in temporary accommodation, and nationally since 2010 there had been a 175% increase in the number of people now homeless. It was regrettable that the Council needed additional temporary accommodation, but this proposal would help ensure better quality housing was available.

17.3 Cllr Sade Etti discussed how this was a bold decision, but it was based on previous successes, such as at Cape House and Ivy House.

RESOLVED:

3. Give delegated authority to the Director of Strategic Property Services, in consultation with the Interim Group Director, Finance, to:

· negotiate the detailed terms of an Agreement for Lease (or a broadly equivalent contractual instrument with the same commercial effect) with the REIT (and any necessary ancillary agreements)

· agree that the Council enters into the Agreement for Lease (or a broadly equivalent contractual instrument with the same commercial effect) with the REIT.

· negotiate the detailed terms of the individual leases on each property.

REASONS FOR DECISION

The reasons for the decision were included in the printed decisions, published on the 27 February 2024, and can be found here.

DETAILS OF ALTERNATIVE OPTIONS CONSIDERED AND REJECTED

This option has been rejected on the grounds that it will:

· continue to leave the Council with significant uncertainty of provision of temporary accommodation

· increase the likelihood that homeless residents will be required to relocate outside of London for temporary accommodation

· increase cost pressures for the Council

· increase the risk of needing to use expensive bed and breakfast and hotel accommodation

· leave the Council at growing risk of legal challenge for failing to fulfil its statutory obligations under the Housing Act 1996 and the Homelessness Reduction Act 2017

Raise the capital through borrowing and purchase an equivalent portfolio directly owned by the Council

This option has been rejected on the grounds that:

· there are significant capital and revenue implications, that are unaffordable in the context of the wider financial pressures on the Council (see finance comments in section 7)

Approach other parties operating in the sector to enter negotiations to put together a similar proposal

This option has been rejected on the grounds that:

· the exercise would take in the order of 9-12 months and would not be expected to yield improved terms considering current market fundamentals (including recent increases in interest rates)

Supporting documents: