Agenda item

Report Attached

The following item was submitted as urgent business with the Chair’s agreement in accordance with Section 100B(4) of the Local Government Act 1972, the reason being to ensure the latest up to date information is included in the report.

 

Members considered a report of Councillor Kath Pratt, Cabinet Portfolio Holder for Housing and Regeneration, in respect of Huncoat Garden Village.  The report explained that there had been a lengthy period of due diligence, following which, Homes England had been expected to consider and determine the Council’s business case and £29.9 million bid for infrastructure funding for the Huncoat Garden Village project before the end of March 2024.  The purpose of the report had been, therefore, to update Cabinet on the Huncoat Garden Village project, and to seek a series of approvals should he circa £30 million Brownfield, Infrastructure and Land Fund (BIL) submission be successful.

 

The report also recognised that the next Cabinet would follow the local elections in May and, in the meantime, Homes England would be likely to determine the Council’s BIL funding bid, therefore, the purpose of this report was to put into place a number of precautionary recommendations to enable officers to continue to progress the Huncoat Garden Village project in accordance with the project timetable.

 

Councillor Pratt informed Cabinet that the purpose of the report was to provide an update on progress and to highlight important work taking place.  She referred to the key risks as set out in the report and indicated that there would be further updates at future meetings. 

 

Approval of the report was not deemed to be a key decision.

 

Reasons for Decision

 

Huncoat Garden Village (HGV) forms a major part of Hyndburn Borough Council’s growth plans including a once in a lifetime opportunity to diversify Hyndburn’s housing offer and provide new housing in a fabulous setting.  The Garden Village is a game changing opportunity for market making housing in Hyndburn, at a scale that not only helps the Borough retain those households that otherwise would leave to meet their housing aspirations elsewhere, but also attract new economically active households to the Borough.

 

Over several years the Council had worked with a range of stakeholders and been supported by Homes England, in developing the Huncoat Garden Village Masterplan and project.  In October 2023 the Council had submitted an updated Treasury Green Book compliant business case to Homes England which had sought grant funding of £29.9 million from the new Brownfield, Infrastructure and Land Fund (BIL).  The overall estimated cost of delivering the HGV was estimated at £463.24 million of which the Council was seeking £29.9 million infrastructure funding support.  The infrastructure grant bid to Homes England includes a number of specific items, as set out in the report.

 

Homes England continued to support the Council in bringing forward Huncoat Garden Village for residential development.  Earlier this month Homes England confirmed that it had awarded a £200,000 revenue grant to help the Council meet ongoing consultancy costs ensuring that the Council continued to benefit from specialist advice and support.

 

Since the Council’s bid had been submitted, Homes England had been carrying out a detailed assessment of the business case and bid.  Homes England has now indicated that the due diligence period is near conclusion, and they expected to consider and make a decision on the Council’s bid on the 27^th of March, 2024.   In the meantime, the Council had been progressing key aspects of the project to ensure the Council was well placed to spend the infrastructure funding and deliver enabling infrastructure by the end of March 2026.  Details of this was included in the report.

 

The Brownfield, Infrastructure and Land Fund (BIL) had been announced and released by the Government at the end of July 2023.  It was a £1 billion fund for projects across England with the intention of unlocking strategic housing sites where brownfield, infrastructure or land projects faced delivery and, or, viability challenges.  Homes England are responsible for allocating and managing BIL for the Government.  Following Hyndburn’s updated business case submission in October 2023 Homes England had been carrying out a very thorough due diligence assessment.

 

Determination of the Council’s bid had been delayed whilst National Highway’s concerns with the capacity and therefore safety at Junction 8 of the M65 motorway have been resolved, or at least a process to an agreed solution agreed to the satisfaction of National Highways.  National Highways lodged an objection to an outline planning application for a residential development of up to 451 units on the site of the former Huncoat power station.  National Highways lodged an objection to this application due to the safety concerns described above.  Whilst the objection only related to this application, National Highways indicated that in advance of securing sufficient funding to fund the required improvement works at Junction 8, other planning applications in the area would likely to be treated with similar holding objections, and therefore preventing progress with HGV, especially deliver of BIL funded works by the end of March 2026 (which would be a fundamental requirement of a BIL grant award).  Following discussions between the Council, Homes England and National Highways a process for funding and securing the required improvements at Junction 8 had been agreed in principal (refer to in 3.8 of the report and set out below)

 

Should the Council’s funding bid be approved in March the Council will be required to enter a grant funding agreement with Homes England before it could access the circa £29.9 million grant allocation.  This would be a standard agreement and therefore not negotiable, however it would be subject to a range of yet unknown special conditions specific to Huncoat Garden Village that would be subject to negotiation, but these were not known at the time of writing this report.   The agreement would impose conditions on the Council with varying degrees of obligations and risk (refer to in 3.9 of the report for a summary of the key risks and mitigation measures proposed).

 

In the meantime, to enable officers to progress the HGV project, especially if the Council’s bid was approved in March 2024, it was important that Cabinet delegated authority to officers in consultation with the Council Leader and Portfolio Holder to negotiate and finalise terms with Homes England to enable the Council to make progress with the project.  This report therefore takes a precautionary approach, to enable officers to progress the HGV project, and should it prove necessary, officers would report back and seek further approvals at future Cabinet meetings.

 

A project of this size and scale comes with a number of risks as highlighted in 3.6 of the report.  The biggest risk to the project was National Highway’s holding objection to potential planning applications close to Junction 8 as described in “3.5” of the report.  Until the threat of objection was removed, or a process agreed to remove the objection, Homes England could not approve the Council’s funding bid.  This had frustrated and delayed Homes England’s due diligence of the Council’s BIL funding bid.  Following senior officer meetings a process for removing the holding objection had been agreed in principle to the satisfaction of Homes England, sufficient for Homes England to now consider the Council’s funding bid.  The process for removing the objection and any potential future objections was subject to the Council and National Highways entering a legal agreement which would underpin the steps to be taken by both parties sufficient for National Highways to remove the holding objection.  The key draft heads of terms were as follows:

 

·       Hyndburn BC (HBC) are awarded BIL grant including a £2.19 million contribution to improvement work at J8.

·       At this point National Highways (NH) retract their holding objection to residential development at HGV, and NH will not issue further or future objections to development within the Huncoat area where it is identified within the emerging Hyndburn Local Plan.

·       Following HBC signing the BIL grant funding agreement, HBC and NH enter into a legal agreement.

·       Once funding is made available to the Council, the Council will at the earliest opportunity transfer the monies to NH.

·       NH will, once the money is received, immediately place the £2.19 million into an Escrow account (to be agreed by both parties) until the time funding deployment is required.

·       NH will agree a drawdown profile for the J8 works with HBC in advance of the works to be funded.

·       Monies will be held in Escrow until eligible expenditure is confirmed and completed.

·       Monies will be released and paid to NH in arrears and on a quarterly basis, subject to HBC’s satisfaction with works

·       Works to be delivered by national Highways no later than the end of March 2035, or date to be agreed between both parties.

 

Other key risks to the HGV project and HBC included:

 

·       Land assembly for the proposed residential relief road – there was a risk of not acquiring land to enable the road to be constructed.

 

          Mitigation:  the funding bid included funding to acquire land at market value for the road.  Expect advisors are appointed to advise the Council on value and process including negotiations with land owners.  Should terms not be agreed the Council would take steps to put in place a compulsory purchase process (CPO) to acquire land.

 

·       Ransom value demanded by landowners who derive no direct benefit from the road – this was potentially a significant financial risk to the Council should values determined by Lands Tribunal exceed grant funding available for land acquisition. 

 

Mitigation:  It is hoped that this could be avoided by paying market value for land.  However, expert and legal advice was being sought on this matter to understand the potential and amount of ransom value.  Initial advice on this matter was that any significant value that owners could demand was limited, but this advice would be firmed up with expert opinion and legal advice including counsel advice.  This risk could be further mitigated via agreements with landowners benefitting from housing development by way of an equalisation arrangement whereby all the sites that benefit from housing development agreed to contribute towards any additional cost for the proposed road including land assembly costs, above those costs budgeted for within the BIL grant.

 

·       There was a risk of not delivering the interventions within the BIL funding timescale i.e. by April 2026.

 

          Mitigation:  The Council had appointed and is in the process of appointing various specialist advisors to support delivery.  In addition, work was underway to ensure the deadline could be achieved e.g. planning application for the proposed new relief road, discussions and negotiations with landowners, development of a detailed delivery programme, procurement of a contractor to deliver the new residential relief road, etc.

 

·       There was a risk that expenditure exceeds the funding made available via BIL grant. 

 

Mitigation:  This was covered in part, for the land acquisition element.  However, funding for land remediation on the main two brownfield sites and the contribution to J8 are grants that would be capped at the BIL funded allocations and “pass ported-on” to the landowners and National Highways respectively and therefore removing any risk of spend exceeding the grant available.  This would not apply however to the construction of the road where the Council was developer and therefore took full financial risk.  Here to mitigate risk the Council employed cost consultants to help determine the likely cost of the road.  The costings included an allowance for inflation at 11.5% and a contingency of 15% on cost. This risk had recently been mitigated further following the procurement and tender exercise to appoint a contractor to build the road.  Based on the tender the cost would be below the amount of grant available.  Any additional cost could also be met through an equalisation arrangement.

 

·       Grant agreement provisions where the actions of landowners could cause the Council to breach its obligations with Homes England. 

 

          Mitigation:  the Council through agreements it enters with landowners sought to get indemnities in respect of any liabilities the Council incurs in respect of any liabilities incurred to Homes England, especially in relation to grant repayment as a result of landowners actions and defaults or as a result of their failure to achieve defined outputs.

 

·       Grant agreement requirement to have all necessary warranties and indemnities from the landowners regarding title to their sites.

 

          Mitigation:  HBC and its appointed solicitors to carry out detailed and comprehensive due diligence on title to sites which would benefit from grant or would be used for housing development and ensure the Council had all warranties and indemnities from the landowners regarding their title to the sites.

 

·       Other grant agreement terms with obligations on HBC.

 

          Mitigation:  HBC and its appointed solicitors to ensure that all the grant agreement terms with obligations on HBC to be “pass-ported” onto landowners within legal agreements that the Council enters into with landowners.  This would include grant recovery and clawback provisions.

 

Reasons for Decision

 

Cabinet could choose not to enter a BIL grant funding agreement with Homes England and therefore subsequently not to enter into legal agreements with landowners and with National Highways. However this was not recommended as this would jeopardise the Council’s chance to secure circa £30 million enabling funding which supports the development of just over 1,800 much needed new homes in the Borough.  Huncoat Garden Village is a once in a lifetime opportunity to bring forward market making, high quality homes in a fabulous setting, which form a significant number of new homes in the new, emerging Local Plan.  The funding is critical to bringing the sites forward at Huncoat, and without the funding the additional housing to meet future needs and support the Council’s growth plans would be potentially jeopardised.

 

Resolved                           (1)  That progress with the Huncoat Garden Village project be noted;

                                            (2)  That, in the event of the Council’s business case and bid to Homes England for £29.99 million for infrastructure funding for the Huncoat Garden Village project being approved, Cabinet delegates authority to the Head of Regeneration and Housing following consultation with the Executive Director (Legal & Democratic Services) to negotiate and enter into a Brownfield, Infrastructure and Land Fund Grant Funding Agreement with Homes England noting the risks detailed in 3.9 of the report (and set out in the minutes above under paragraph heading ‘Other key risks to the HGV project and HBC’;

                                            (3)  That Cabinet noted that the draft Heads of Terms in relation to Junction 8 of the M65 motorway described in paragraph 3.8 of the report (or as set out in the minutes above) and authority be delegated to the Head of Regeneration and Housing following consultation with the Executive Director (Legal & Democratic Services) to finalise terms and enter into a legal agreement with National Highways, subject to the funding agreement with Homes England having been completed pursuant to paragraph 2.2 of the report (and as set out in the second recommendation above);

                                            (4)  That authority be delegated to the Head of Regeneration and Housing, following consultation with the Executive Director (Legal & Democratic Services) to agree heads of terms and enter into legal agreements with landowners to enable delivery of Huncoat Garden Village where such agreements relate to:

o   Acquisition by the Council of land for the purpose of constructing the proposed new residential relief road at Huncoat (Huncoat Lane)

o   The award of BIL grant by the Council to landowners to facilitate remediation of their land (former Colliery and Power Station sites)

o   Equalisation arrangements between landowners in respect of non-grant funded infrastructure and enabling costs, any costs that exceed grant awarded for the residential relief road, and for strategic open space.

In all cases, subject to completion of the Homes England grant funding agreement pursuant to recommendation 2, as set out above;

                                (5)  That the additional £200,000 revenue funding awarded to the Council by Homes England to support the Council’s enabling and delivery costs, be noted and welcomed;

                                (6)  That, subject to the send recommendation as set out above, authority be delegated to the Head of Regeneration and Housing in consultation with the Executive Director (Resources) to authorise eligible BIL funded expenditure and to recover the expenditure from approved BIL grant funding via Homes England’s grant claim process; and

                                (7)  That it be noted that regular progress reports will be presented to the Council’s Management Team and future Cabinet meetings.