SOUTHGATE CENTRE BATHBUILDING AGREEMENT REPORT
1. Introduction
1.1 This report contains a summary of the principal
commercial provisions of a Building Agreement ("Agreement")
entered into between (1) Bath and North East Somerset Council
("Council") (2) Southgate Limited Partnership ("SLP")
acting by its general partner Southgate General Partner Limited
("GP") (3) CGNU Life Assurance Limited ("CGNU") and
(4) BNP PARIBAS Jersey Trust Corporation Limited and Anley Trustees
Limited as Trustees (together "Trustees") of the Southgate
Property Unit Trust ("SPUT") and dated 12 May 2005.
1.2 The Agreement deals with the proposed
redevelopment of the existing Southgate Centre and the surrounding
areas ("Site") in accordance with the existing planning
permission dated 25 September 2003 ("Project Planning
Permission"). The Site is defined by reference to the
plan to be appended to the Agreement and is to be redeveloped by
the undertaking of the works described in the Building
Documents. The intention is that the Site will be developed
to provide a shopping centre with associated leisure, residential,
restaurant and car parking elements together with a new bus station
and significant enhancement of the Public Realm including highway
works and a new square so as to form a public transport interchange
adjacent to Bath Spa Railway Station ("Development").
1.3 SLP is the Developer and will be
responsible for the completion of the Development. SPUT,
which is a Jersey Property Unit Trust, is the sole limited partner
in SLP. CGNU owns almost all the units in the SPUT. As
SLP is a limited partnership, GP is the entity which acts on behalf
of the limited partnership and the actions of GP bind the limited
partnership. Certain change of control provisions in respect
of the Developer are contained in the Agreement with a view to
ensuring that CGNU (or another member of the Aviva plc Group) holds
at least 50% of the limited partnership and the SPUT.
1.4 CGNU guarantees the obligations of SLP and
SPUT until three years until after the date of practical
completion. The guarantee obligations will then be released
unless there are material and continuing breaches of the
obligations under the Development documents. CGNU is also
obliged to guarantee the obligations of the tenant under the new
lease which will be granted following practical completion of the
Development.
2. STRUCTURE OF THE
LEGAL DOCUMENTATION
The Agreement annexes a number of documents by reference to
which certain of the obligations of the parties are to be described
or performed. The principal documents comprise:
· the agreed form of
Lease which will be granted to the Developer following practical
completion of the Development;
· the Building
Documents which describe the Development;
· the Building
Programme setting out the timetable for the carrying out of the
Works relating to the Development;
· the agreed
forms of the Occupational Agreement and Occupational Lease to be
entered into with the occupational tenants;
· the Appraisal which
sets out the Anticipated Development Expenditure and by reference
to which the Minimum Return Condition will be assessed;
· Communication
Strategy;
amongst other documents.
Where relevant we will comment on these documents later in this
summary.
3. THE
AGREEMENT
The principal terms of the Agreement are as follows:
3.1 The Agreement is subject
to the following conditions precedent (the "Conditions
Precedent"):
(a) the Minimum Return
Condition which specifies a minimum percentage internal rate of
return for the Developer;
(b) the Road Closure
Condition which requires that any necessary road closure consents
are obtained free from challenge;
(c) the Site Assembly
Condition which requires either the exchange of private treaty
purchase contracts or a confirmed CPO in relation to all third
party interests and rights within the Site;
(d) the Ancillary
Agreement Condition which requires agreements to be in place with
certain third parties.
3.2 All of the
Conditions Precedent must either be satisfied or waived by the
Developer before the Developer is obliged to undertake the
Development (the date on which all Conditions Precedent are
satisfied or waived is the "Unconditional Date"). If the
Conditions Precedent have not been satisfied or waived by the Long
Stop Date (30 June 2007) either the Council or the Developer may
terminate the Agreement.
3.3 The Developer is
obliged to comply with the Section 106 Agreement dated 24 September
2003 ("Planning Agreement") in its existing form unless the
Council agrees (in its capacity as landowner) that a variation to
the Development may be made, any relevant planning permissions are
obtained and a new Section 106 Agreement is exchanged.
The Planning Agreement sets out numerous practical requirements
in relation to the Development with which the Developer is obliged
to comply and these obligations have not been repeated in full in
the Agreement. However the Developer is obliged to
comply with the obligations in the Planning Agreement and to ensure
that the Development is constructed in compliance with all of the
provisions and requirements of the Planning Agreement.
3.4 The financial
arrangements in the Agreement are designed to ensure that the
Council is in no worse position than its current position, so that
from the Entry Date (which is the date when the Developer serves
notice requiring possession of the Council's Let Properties
excluding the existing shopping centre or the Existing Car Park)
the Developer will take over such parts of the Site as are vacant
and shall pay to the Council a specified licence fee annually in
arrears on 25 March. In turn the Council will account to the
Developer for all income actually received by the Council in
relation to the Site as well as for all rent received under the
Existing Lease (see below).
Once the new lease is granted after practical completion then
rent will be payable under it.
3.5 It has been agreed that the Existing
Lease of the existing Southgate Centre will not be surrendered but
rather its operation will be suspended (from the later of the
Unconditional Date and the date vacant possession is obtained of
the Southgate Centre) until the new Lease is granted, save in
relation to the obligation to pay rent. However if the
Agreement is terminated after the Unconditional Date, the
Developer is obliged to procure the transfer of the Existing Lease
and its related registered title to the Council so that the Council
would then have control of the whole site. In such event, the
Developer must also pay any related SDLT on such transfer.
3.6 The Developer is obliged to
construct the Development in accordance with the detailed Building
Documents and the Project Planning Permission, complying with all
other Requisite Consents.
3.7 The Works relating to the
Development must be undertaken in such a way as to comply with the
Considerate Constructor's Scheme.
3.8 The Council will have the right
of prior approval of the Building Contractor (such approval not to
be unreasonably withheld) and will also be given warranties by the
Contractors and the Professional Team. These warranties are
in agreed form which have been approved by the Council and contain
appropriate protections, including step-in rights in the event of
the default of the Developer such that the Agreement is
terminated.
3.9 The Agreement contains appropriate
provisions in regard to archaeology and articles of value found on
the Site (which also conform with the Planning Agreement) and in
relation to any mineral waters which may now or in the future be
found to exist in the Site.
3.10 The Council has rights to inspect
the Development during the carrying out of the Works and where
necessary to request that materials be tested. It may also
serve defect notices in the event that it is dissatisfied with the
quality of the works and there are appropriate procedures for the
resolution of disputes.
3.11 The Development is to be carried
out in accordance with the agreed Building Programme (including as
to the sequence in which the Works are to be carried out) and there
are appropriate controls over any variations.
3.12 In the event of a breach by the
Developer and default on the part of the Guarantor the Council has
appropriate protections and in particular is able to terminate the
Agreement subject to step-in rights in favour of any Funder which
has provided finance to the Developer for the Development. If
step-in rights are exercised such Funder may introduce an
Alternative Developer, subject to the Council's approval (not to be
unreasonably withheld or delayed). Such Alternative Developer
must be a substantial and reputable party with a successful track
record of undertaking development projects of a similar scope,
value and complexity as the Development.
Any termination would be without prejudice to the
Council's rights against the Guarantor, CGNU.
3.13 The Council has the
opportunity to make representations in relation to practical
completion and will have a warranty from the Supervising Officer,
whom will owe a duty of care to the Council.
3.14 Following practical completion
(and not before) the Council will grant a new Lease on the terms
briefly described in Section 4 below. The Lease may only be
accepted by the Developer or nominee companies on its behalf (as it
is a limited partnership) and on the basis that its obligations are
guaranteed by the CGNU.
Pending completion of the new Lease the Developer is entitled to
occupy the completed Development as licensee and also to permit its
undertenants to occupy under the terms of the agreed form of
Occupational Agreement.
3.15 It is intended that the Council will
acquire the freehold title to all of the Site to the extent that it
does not already own it either through the CPO process or by
transfer of all third party interests to the Council.
3.16 The Developer is obliged to fully
co-operate with the Council and use reasonable endeavours to devise
and agree with the Council a strategy to identify local employment
and training needs.
3.17 The Developer will appoint the
agreed Letting Agents to let the completed Development in
accordance with an agreed Letting Strategy. This provides
that any letting of the department store must be to a party which
is a leading department store operator. Lettings are to be in
accordance with agreed forms of Occupational Agreement and
Occupational Lease unless the Council otherwise approves (such
approval not to be unreasonably withheld or delayed). In any
event the Developer will not let any Lettable Unit other than on an
open market basis or on other terms agreed with the Council and in
accordance with the Letting Strategy.
3.18 The Council has agreed a
Communication Strategy with the Developer which will not be varied
without its consent (not to be unreasonably withheld or
delayed).
3.19 Insofar as consistent with
the Freedom of Information Act 2000 the parties are to endeavour to
keep the terms of the Agreement confidential save for appropriate
exclusions and protections. The Council's rights and
obligations as a local authority are not fettered.
3.20 None of the provisions in the
Agreement prejudice or affect the Council's rights, powers, duties,
discretions or obligations as a local authority. The
Agreement also contains appropriate provisions allowing the Council
to cancel the Agreement in the event of any corrupt or illegal
practices.
3.21 All of the Council's
reasonable external and legal and surveyor's costs as well as the
costs of its Building Advisor are payable by the Developer.
3.22 All of the obligations of the
Developer are guaranteed by CGNU.
3.23 Until the lease is granted, the
Developer may not assign the Site or dispose of its interest in the
Agreement, nor may it require the grant of the Lease to a party
other than the Developer (or an Alternative Developer) or its
specified nominees.
However it is envisaged that the Developer will enter into
arrangements with a Development Partner. The Council has the
right of prior approval of any Development Partner which it must
not unreasonably withhold or delay if the proposed partner has an
established track record of carrying out and completing development
projects of a similar, size, type, scope, value and complexity as
the Development. The appointment of a Development Partner
will not prejudice the change of control provisions mentioned in
paragraph 1.3 above so that CGNU (or other companies within the
Aviva group) must retain a share of at least 50% in the Developer
and SPUT.
3.24 In addition the
Agreement also contemplates that the Developer may enter into joint
venture arrangements with a residential developer and or registered
social landlord in regard to the residential elements of the
Development Scheme.
4. THE LEASE
Following practical completion of the Development the Council
will grant a new lease on full repairing and insuring terms to the
Developer, whose obligations will be guaranteed by CGNU. The
other main commercial points are:
4.1 Term
The Lease is to be for a term of 250 years ("Term")
commencing on the date of practical completion of the
Development.
4.2 Rent
The initial rent will be:
(a) For the first 12 months of the Term, a
specified sum payable by two instalments in arrear. The first
instalment is to be paid on 25 March.
(b) Thereafter, the rent payable quarterly in
advance will rise to a higher specified sum per annum or, if
greater, a sum equivalent to a specified percentage of the net
rents received.
(c) Once the rent has exceeded the
higher specified sum the rent will thereafter only ever be
equivalent to the specified percentage of the net rents
received.
(d) There are provisions whereby
temporary increases in income resulting from an influx of capital
income are for the purpose only of determining whether the rent
ceiling in 4.2(c) has been exceeded will be smoothed out over
periods equivalent to the term of the leasehold interest giving
rise to the capital income.
(e) Net capital income will be treated as
net rent for the year in which it is received for the purpose of
determining the Council's share. However, capital receipts
arising from disposals of residential interests within the
development are to be excluded in determining the amount of the
Council's net share.
(f) Save in the case of the second
year of the term when the Tenant will calculate the rent by
reference to best estimates, the rent will be based on the actual
net rent received for the previous year by the Tenant with
provision for scrutiny and challenge by the Council.
4.3 Use
The permitted use is to be as a mixed use town centre
development and there is not an absolute prohibition against change
of use. In the case of the department store block where the
sub-tenant fails commercially and the Tenant is able to demonstrate
to the Council's satisfaction that there is no effective market for
use as a department store the Tenant may redevelop the department
store for an alternative use.
4.4 Air Space
No alterations are to be permitted in the air space above the
initial development save only in an area of six metres above the
highest roof level of the non-residential space with a prohibition
against residential use of such air space.
4.5 Underletting
(a) During the first 25 years
the initial lettings (other than the residential element) are to be
governed by an agreed letting strategy (which currently proposes 10
to 15 year terms with rent reviews at each fifth anniversary to
market rent or lettings at a base rent plus turnover rent) and
otherwise in accordance with agreed forms of occupational
underlease on institutional terms The tenant is to keep the
development fully let in accordance with the agreed letting
strategy.
(b) The Tenant is permitted
to underlet individual blocks.
4.6 Guarantee
The payment of rent only is to be guaranteed by CGNU until the
earlier of
(a) 23 June 2073; or
(b) assignment of the lease
by the Tenant; or
(c) on the tenth
anniversary of the date of the lease if at that date CGNU no longer
have a controlling interest in the limited partnership or, if
later, the date on which CGNU no longer have such an interest;
or
(d) the date on which a
satisfactory suitable replacement guarantee has been provided.
5. Attestation
extracts
Appended to this summary are copies of the relevant cover and
attestation pages of the Agreement, exchanged in part and
counterpart format on 12 May 2005.
ASHURST
16 May 2005
