Burton Bradstock Parish Council

5^th January 2011

Post Office & Village Shop

Setting the Rent

Discussions with the Tenant

Following the last meeting of the Parish Council we have met with Gwen Holdcroft, the Tenant, accompanied by Mr R Graham twice to discuss the rent.

Gwen Holdcroft has told us that:

1.      She did not understand that the rent was subsidised and had understood that it would not increase significantly.

2.      The rent increases proposed previously by the PC^[1] would make the business financially unviable.

3.      The profitability of the shop is driven primarily by tourism rather than trade from local residents, and so is particularly vulnerable to the state of the economy.

4.      She remains unwilling to disclose details of the business that would enable the PC to determine its financial health.

5.      She wanted any changes in the way the rent is set to be dealt with by way of a short supplementary deed. This would sit outside the current lease but would vary the rent setting mechanism in it. If terms are agreed, she has offered to have her solicitor draw up an initial deed for the PC’s consideration.

6.      She wanted any changes to last for the duration of the existing lease (8 years from next April).

We discussed how to set the rent without information about the business finances, and decided that selecting an appropriate index would be a way forward.

Following discussion we agreed that an appropriate index would be the Consumer Prices Index, CPI, which HM Treasury has argued is a better indicator of the national economy than the RPI.

Gwen Holdcroft noted that a 5% rent increase would probably do serious damage to the business, so we discussed safeguards against high inflation. We agreed that a cap on the CPI could be considered provided that a minimum also applied. For example if the rent increase was the CPI increase capped to 4% pa, then a minimum increase (or collar) should also be applied.

The Government’s target for the CPI is 2% per annum[2], so we considered an even range about the target for the maximum and minimum.

We proposed three alternatives for determining an annual rent increase in this form:

1.      A cap of 4% and a collar of 0% (target +2%);

2.      A cap of 3% and a collar of 1% (target +1%);

3.      A flat 2% target CPI increase.

Gwen Holdcroft’s preference is for an annual rent increase at 2%, the Government’s target CPI increase, and is the level of increase we propose to the Council.

While we did not agree explicitly that this level of increase should apply for the balance of the lease (8 years from next April), we would expect any new arrangements to last for a substantial period, particularly given the poor state of the economy.

Valuations

Chesterton Humberts (Yeovil office) were engaged by the Council to advise on the open market rent and the rent under the lease terms.

Their report has been received and advises that the rent under the current lease terms is £2,800 per annum as at April 2010, and that given the type of property involved the open market rent would be the same.

This level of rent under the current lease compares with the Council’s initial rent proposal of £2,400 (no increase) for the year commencing April 2010, £2,700 for April 2011, and £3,000 for April 2012.

The undervalue on the £2,400 rent for the current year is therefore £400.

Considerations for the Parish Council

The Tenant is asking the Parish Council to reduce the rent from the basis agreed in the current lease on the grounds that the “lease rent” is not affordable, but has not disclosed relevant financial information on the state of her business. We are proposing to use the CPI as a means of moving matters forward.

The Council needs to consider whether setting rent increases at 2% per annum, the Government’s target for the CPI, is reasonable, and whether this should last for the whole of the outstanding lease term.

As reported to the Council in October, in accordance with The Local Government Act 1972: General Disposal Consent (England) of 2003, any lease at an undervalue for more than 7 years needs to be considered by the Council in relation to the extent of the undervalue against whether the lease granted “is likely to contribute to the achievement of any one or more of the following objects in respect of the whole or any part of its area, or of all or any persons resident or present in its area;

                        i.         the promotion or improvement of economic well-being;

                       ii.         the promotion or improvement of social well-being;

                     iii.         the promotion or improvement of environmental well-being”.

We suggest that the second category is where most benefit is derived, particularly in relation to the location of the premises and the lease requirements to include a Post Office and assist with the promotion of local events.

If the Council agrees that there is sufficient benefit in terms of social well-being or the other factors, and agrees to set the rent increase as we propose, we shall need to continue to liaise with Gwen Holdcroft on the supplementary deed and report further to the Council once we have agreed drafting.

Recommendations

That the Council:

1.    considers our proposal to set annual rent increases for the Post Office and village shop at 2% per annum (the Government’s target CPI).

2.    agrees that the lease for the Post Office and village shop, including any amendments stemming from recommendation 1, meets the criteria for granting a lease at an undervalue as set out above.

Councillors Dave Dixon and Graham Moody

Burton Bradstock Parish Council

1 January 2011