Friday, June 25, 2010

Sandown loan money - interest charges shock!

Highland Council are charging interest on the Sandown elements (approx 734K) of the £2,815,143 loaned to Nairn for Community Centre and Sandown purposes (to be repayed by the Common Good Fund one day). The £390,000 'incurred clearing land title' already attracts interest it seems but yesterday the full Highland Council agreed to charge interest on another £344,410.78.
Dramatically the rate to be charged was dropped from 4.55% to the 'standard rate' (around 1%) in a note circulated seconds before the debate on this item was due to take place.
The fact that interest has been charged from Day 1 on the 390K will come as a surprise to many.
Update: the 344K + is made up of:
'External costs totalling £305,189.91 (legal, property and land surveys and marketing) and Highland Council costs totalling £39,220.87 (legal, property and planning) make up the balance.'
Update: What Liz said at the meeting and Sandy's response:
There was some brief debate around this item and Liz stated:
'At the time I actually moved against clearing the land title because I felt, what's the point of paying the farmer to get out when we don't know how long it's going to be sitting with nothing happening to it. So I did move against that at the time and at the Highland Council when it came here for the trustees because I felt we could still be getting the payment from the farmer for the rent.'
Liz was concerned interest had been charged on the sum and asked how much had accrued, she welcomed the lower rate but indicated that nothing had been mentioned about interest at the time. She had another concern however and said that there would be 'tremendous pressure on Common Good trustees to now move as quickly as they can to get Sandown sold' as they couldn't leave it sitting about with the interest accruing.
Sandy thought the payment was good value and said that the agreement with the farmer was for 10% of the development value and it would probably ended up 50% of the development value if it had been left any longer.


Mal Administration said...

The question of such interest charges was raised some time ago in a Nairn Ward Forum meeting. Assurances were given then, according to reporting at the time, that no such charges had been imposed (yet.....).
Are those chickens now coming home to roost?

Interest on the £2m loan for the new Community Centre is one issue. But separately, the levying of interest on - and the eventual charging of - £390K to the Nairn Common Good Fund in respect of the cost of "clearing land title" cannot pass unchallenged.

The story is complex, but this apparently innocent phrase refers to the fact that a substantial sum allegedly had to be paid out to achieve the termination of a tenancy on the Sandown land prior to its offer for sale. This tenancy had allegedly only come into being, or been sustained, because Council officials had allegedly overlooked, or failed properly to administer, the legal position with regard to that use/tenancy of the Sandown land.

Whatever the detailed truth of this alleged story, it seems improper for the consequential costs of Council acts of omission or commission to be borne by the Nairn Common Good Fund. If the Council was responsible for the legal or administrative problem over tenancy and title, the Council itself - not the Nairn Common Good Fund - should bear the resulting costs of resolving the problem.

Graisg said...

This observer is 99% sure that the Highland Council inherited the problem of the lease from the old Nairn District Council.

Anonymous said...

Apart from the issue of interest being charged in the first place the Gurn says that the rate changed "in a note circulated seconds before the debate". I presume that prior to the paperwork being presented someone had done their homework and research? So, why, that up until the very last moment, does it appear that they were quoting the wrong, and higher, interest rate? What if no one had noticed, would they have gone ahead and used the 4.55%?
Yet another example of why we should never assume that these people know what they are doing?

nairnbairn said...

There's another question that remains unanswered: it could be described as the dog that hasn't barked...

What exactly is the position now regarding the ownership and/or sale of the Sandown land? Is it still, legally, Nairn Common Good? What exactly is the position of Deveron Highland following the Reporter's decision to turn down their development application? What conditions did Highland Council attach to the sale/purchase deal with Deveron?

It seems a little premature for the Council to be deciding to set up an interest-charging arrangement when the timescale is open-ended and the eventual ownership and fate of the Sandown land is uncertain. What happens if the Sandown land is not sold? In theory, interest charges could rack up indefinitely and run into the thousands or millions.

The Councillors have now also created a situation where there is a clear conflict of interest, and where their duty as trustees of Nairn CG may be at odds with their role as Councillors.

On the one hand, as trustees of the Common Good, they are obliged to preserve and protect the value of CG assets (and to minimise the costs and charges in managing CG assets). So they would be failing in their duty as trustees if they sold off the land cheaply.

On the other hand, because they have now set up an interest-charging arrangement, they have created a situation where as Councillors they are under pressure to sell-off the Sandown CG land as soon as possible in order to minimise the cumulative interest charge. This means they may be tempted to sell at a fire-sale, bottom-of-the-market price.

Each new twist in this sorry saga seems to bring new evidence of poor judgment on the part of the Council. They have already dug themselves into a big hole on this: how can they be persuaded not to dig themselves in any deeper?

Anonymous said...

Off topic, I received a letter from the Chief Exec's office on the Expo and Inverness Common Good Fund. I'd written to my ward councilors (the worthwhile ones, at least), as well as having a letter in last week's John o'Groat Journal.

The gist was that the Expo wasn't a private enterprise. Fair enough on this one, I'd become fixated on the houses which were going to be sold... but this does miss my assertion that, having been conceived in the boom times, the Expo now is being propped-up with the implication that full-attendance is not being anticipated.

And, presumably, promoted to potential buyers. I assume the *sale* of the houses will be private, and would be amenable if monies from the ICGF were recouped.

It also stated that the ICGF doesn't come from council tax, which I didn't think. I wonder if free-access were to be given to all children from outwith the city boundaries, there could be a challange in law.