Agenda item

A report of the Head of Strategic Commissioning and Procurement was presented to provide assurance to Corporate Affairs and Audit Committee that relevant governance processes and management were in place with regard to the leasing of commercial assets.

Following a complaint, a joint investigation was undertaken regarding historical leasing matters.  The investigation was initially conducted by Internal Audit, with a follow up, more in-depth review conducted by the Head of Service.  The subject matter of the review concerned the leasing of commercial space in Broadcasting House.  The lease in question commenced in 2013, it was extended in 2016 and due to the Covid-19 pandemic was continued twelve months post its termination date.

The subject of the review was value for money linked to the commercial terms of the lease.   The investigation concluded the following key points:

• The advice of the Valuation and Estates Officer was not followed.
• Lease terms were agreed at less than favourable rates due to the community benefit it offered.
• Appropriate due diligence was not progressed or evidenced.
• Decision makers did not make robust challenge when required.

Whilst community benefit was a legitimate reason for reduced rent levels, both in 2016 and currently, clear documented reasoning on the community benefit needed to be evidenced and recorded.  In this instance the review could not find any detailed explanations for the community benefit which was proportionate to the reductions provided.

It was documented that the Valuation and Estates Officer was clear in their recommendation regarding the levels of rent.  However this was not followed and senior management overruled the recommendations.

At the expiry of the lease, the favourable terms were not extended and commercial terms were offered.  This reflected management changes and the approach in practices towards commercial leasing.  The occupant was not in agreement with the significant increase in rent and subsequently sought alternative premises.

Assurance was provided that significant changes have been implemented which would preclude this issue from arising in current leasing practice. 

The Valuation and Estates Team were now managed within the Corporate Finance function.  The team was based within Strategic Commissioning and Procurement, and Had strong leadership through the Head of Strategic Commissioning and Procurement, reporting directly to the Director of Finance.

All leases for commercial assets were negotiated by valuation and estates staff for the majority of the asset portfolio.  The management of the Boho estates, Centre Square 1 and 2, and Tees Amp was undertaken by a team based within Regeneration, and Captain Cook Square management was currently externally commissioned.   In all cases, leases must be requested through Delegated Approval forms.  Legal Services would not progress instructions without the receipt of an appropriate signed Delegated Approval.  Currently there were three principal signatories for the delegated approval: Head of Valuation and Estates, Head of Strategic Commissioning and Procurement, and Director of Finance.

Predominantly all delegated approvals were processed by the Head of Valuation and Estates to ensure consistency of approach.  During periods of annual leave or sickness, the Head of Strategic Commissioning and Procurement would be the key signatory.

Work on the Forward Plan included the development of the Valuation and Estates Unit, to become a centralised unit for all commercial letting within the Council.  Over the next six to eight months, staff involved in leasing and managing other assets including Boho and Centre Square, would transfer into the centralised unit.  In the longer term,  this team would expand and develop to include the management of Captain Cook Square.  The Letting Policy would be refreshed and approved by May 2022 as part of this development plan.

The Head of Finance drew attention to paragraph 21 of the submitted report, where it was stated that:

“In its report on the statement of accounts, the external auditors confirmed Middlesbrough Council put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources for the year ended 31 March 2020.

The Head of Finance clarified that this statement was specifically in relation to asset disposals and not the overall opinion on the Statement of Accounts.

AGREED that the report was received and noted.