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Green Party spills the beans on risky Canal Corridor leases

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Current layout of the Canal Corridor North site (from the BL website)
Current layout of the Canal Corridor North site (from the BL website)
Author: 
Chris Satori

(UPDATED 1400 13th December with a response from Council leader Eileen Blamire)

North Lancashire Green Party have published a heavily critical assessment (below) of the Canal Corridor North scheme as proposed to the City Council on October 31st 2017 (see minutes), calling  it '20th century, at best' and calling for substantial changes to make it future-proof. Their report to Council on these proposals was 'exempt', which means that councillors are not supposed to release details to the public.

Cllr Jon Barry told us that he challenged the exemption 'gagging order' but was voted down.  Conservative councillors had already released some of the details and tabled an amendment that would mitigate the Council's expressions of support for the financial aspects of the scheme (Read our earlier report "Conservatives to back outline Canal Corridor development plans"). But both were voted down and the Council then passed the motion to support the proposals, in principal, including the 'key financial asks' of British Land (BL) and the level of investment BL required of them. 

Now, following the release of some details of this scheme by the Labour-majority City Council itself in early December 2017, North Lancs Green Party say that they feel morally obliged to release some of the alternative arguments.

They argue that "This report does not contain all the detailed financial information – thus, we do not believe that any of the information below is commercially sensitive." They also point out that the scheme will be considered again by Full Council in 2018 before a final decision is taken, by which time the proposals in the scheme may have changed.

Reading between the lines it does appear that BL won't touch the scheme unless their profit on key elements of it is assured by Lancaster City Council, regardless of whether these are commercially viable. As the report below explains, the inflation-linked upwards-only rent deal would be similar to the one the Council negotiated for the Indoor Market building. At that time, in 1995, inflation stood at 2.6% and was falling, but by 2011 it had doubled to 4.8% and the Market was losing the council an agonising £500k a year. Buying itself out of the 99 year lease cost the Council a further eye-watering £13m, plus the costs of consultations and studies dating back to 2003 as it tried to find alternative ways out.  

In 1975 inflation was 24.5%. So you can see the problem; a period of inflation, whether caused by growth or instability can push the rent up - and then the rent stays unmanageably high when inflation comes back down. At present it's low, but no-one has a clue how high or low it might go, and for how long, over the next 30 years (In 1923 it was -14%). It's only fair to add that the Indoor Market's problems were compounded by a 99-year lease on a badly designed-for-purpose building with poor access. Traders had complained about the design but their warnings fell on deaf ears and the trap was set. By 2001 only a handful of them were left, and their rents and rates were already more than 4 times higher than on Morecambe Market. Then the inflation rate started to climb. 

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An artist's impression of the proposed development for Lancaster's Canal Corridor
An artist's impression of the proposed development for Lancaster's Canal Corridor

The Greens' analysis of the proposal's impacts on Climate Change, Traffic & Transport planning and the potential closures of existing City Centre retail outlets are issues we're all being affected by already. So, here's the Green's report:

North Lancashire Green Party Report of the Canal Corridor North Proposals

The scheme currently proposed includes the following

  • a retail/food and beverage development with some 250,000 sq ft of high street comparison (ie non-food goods) retail floorspace and 70,000 sq ft of food and drink retail
  • an 82-bedroom hotel
  • a new student village
  • an underground car park with 786 spaces
  • a new “arts hub” building which could house the Dukes, Ludus Dance and other arts organisations.

The problems with the scheme arise when you start to look at the issues in more detail.

Financial risks

The City Council is currently set to invest £25m into the scheme. The Council is assuming that it will generate 7% profit from the scheme for the next 50 years. This is to offset risks with the car park and the arts hub. If this profit level of 7% is not achieved then taxpayers will have to pay any deficits.

The two riskiest parts of the scheme are the underground car park and the arts hub. The City Council has been persuaded by British Land to take the risks associated with both elements. The City Council will have to undertake to pay rent for the car park over 30 years. This rent is expected to rise on an inflation-linked upward-only rent review. If the car park is under-used then the City Council will still have to pay the rent.

This is an exactly analogous situation as occurred with the indoor market. The City Council rented back the building from the developer and was stuck in a 99-year lease. By the end, the City Council was losing hundreds of thousands of pounds per year. (see below for more detail on the indoor market debacle.)

The financial situation with the arts hub situation is similar to the underground car park. The City Council will have to agree to pay rent back to the developers, again expected to increase each year on an inflation-linked upward-only rent review. The Council will have to hope that the organisations within the arts hub generate this amount of profit. Currently both the Dukes and Ludus rely on significant grants from Arts Council England and the City Council to break even.

The combined rent envisaged for the arts hub and the car park is between 1 and 2 million pounds per year.

Risks to artistic integrity

The arts hub is an extremely attractive proposition for a city the size of Lancaster – its scope, design and canal-side location present captivating possibilities. But aside from the financial risks, the danger in terms of the arts is that the City Council will seek to commercialise the arts hub to try to generate more revenue. This means that the ethos of organisations such as The Dukes and Ludus will be compromised. In short, they will be dancing to the tune of revenue rather than artistic content.

The arts hub also poses a big danger to the Grand Theatre – as major players in the theatre itself have declared. If the arts hub commercialises its operations, it will bring in acts that would have performed at the Grand, leaving the Grand to struggle financially.

Increased car parking

The scheme includes a 786 space underground car park, which is an additional 215 car parking spaces on what is there already (including the land potentially used by the
university). The Council will be paying British Land to rent the car park on a 30 year lease. So, financially, the Council will want as many people to use the car park as possible.

Yet, at the same time we know that the city fails air quality levels and that nationally 42,000 people are dying per year because of air pollution (equates to around 87 per year in the Lancaster District). So, the Council will have a massive conflict of interest. The Council should have a responsibility for the health of its citizens to keep cars out of the city centre - using the park and ride, for example - and yet, financially, it will be tied into a 30 year lease for the car park - and the rent will increase year-on-year.

Climate Change

In October 2017 carbon levels in the atmosphere passed 400 parts per million for the first time ever. And yet the Canal Corridor scheme is an energy-intensive scheme with no mitigating measures. A similar scheme in Gateshead, for example, is going to be "off grid" - and generate all its own electricity. The Labour-run City Council is stuck in the 20th century, at best.

The park and ride at junction 34 isn’t working. The buses are virtually empty a lot of the time. The way to get people to use these buses is to remove car parks from the centre of the city. By increasing car parking in the centre of the city, this scheme does the opposite. It is difficult to imagine a more environmentally unsustainable scheme.

The Existing City Centre

The Canal Corridor scheme is still very much retail-led. It has 320,000 sq ft of retail, 250,000 sq ft of this being non-food and drink. This is a massive increase on the retail space currently in the city centre. Most of the shops that are being approached by British Land are already present in the existing city centre. This will lead to lots more empty shops in the city centre.

The overall retail offer in terms of different shops (i.e. chains) seems unlikely to be much greater than it is now. The City Council has no plans to improve the existing centre (except for £10,000 for ginnels) and it will have no further borrowing capacity to do so. Thus, the Council will be investing £25m in the eastern part of the city and virtually nothing in the west.

The public is being kept in the dark

Nothing has happened on the Canal Corridor land for many years - principally because the developer, British Land (BL), has not been able to make a scheme work financially for British Land. BL has spent the last few years trying to get the city council to pay a subsidy, in one form or another. This demand for subsidy has been increasing over that time. The detail of all this, frustratingly for Green councillors, is kept confidential. At the October 31st Full Council meeting, Labour used its majority to win a vote to keep the press and public out of the meeting and keep the agenda secret.

The negotiations with BL involve external consultants for which the City Council has budgeted £400k in the 2017/18 financial year.

One thing we know about British Land, the chosen developers, is that the company is set up to ensure it pays the least possible tax by the use of off-shore tax havens. Labour leader of the council Eileen Blamire, when asked whether we should be supporting tax avoidance said, "It is not up to me to decide" and 'It is impossible to take any opinion on this"

Greens believe that the City Council should refuse to support companies that immorally deprive government of revenue. 

Lancaster market – a cautionary tale

The cost of buying out the lease of Lancaster Market was £13m. This happened because the City Council did not update and refresh the market as people’s retail habits changed. As a result the council was left with an upward-only rent on a 99-year lease with no break clauses. No business would have agreed to such a one-sided deal. But Lancaster city council did and had to borrow more than half its annual net budget to buy itself out of its obligations less than 20 years after the market opened 'amidst a blaze of publicity' and after the public had been told that after extensive comparative research, Lancaster market would be 'the very best'.

A public-led regeneration of the canal corridor

North Lancashire Green Party proposes a public-led re-development of the Canal Corridor. Our aim will be to put the public’s interests at the centre of the scheme and to remove the financial risks inherent in the Labour City Council’s scheme. The City Council currently owns around two-thirds of the land. We believe that the City Council should regenerate this land as soon as possible. When this is done, it should consider purchasing the land owned by British Land (who paid only just over £1m for their part). We are still working up details of our proposals but our aim is for them to look something like:

  • An initial phase of top-end private housing to make a profit for the City Council
  • Council housing financed either by borrowing or subsidised by the private housing
  • Cafes and bars bordering
  • An arts hub - though we would look to build one for much less than the £28m proposed by the City Council
  • Campus in the city. We would want Lancaster University to continue with their plans for a significant presence in the city centre
  • We would have only limited car parking spaces to facilitate use of the park and ride facility.
  • If the City Council could acquire the land owned by British Land, we would consider a new arts and leisure quarter in the former Mitchells building together with small business units – similar in style to the development at Staveley.

Bricks and mortar retailing is in decline. Town centres must become more places where people socialise and are entertained. The question is whether a location with a relatively small catchment can sustain 2 city centres. We don't think so. Latest research on the shrinking demand for retail premises in town centres across the country backs this view up. 

GREEN PARTY REPORT ENDS

“If the City Council is to invest such a large amount of public money into the canal corridor scheme then there should be a public debate as to whether this is the right thing to do and whether the risks are acceptable to taxpayers," feels Green Party councillor Jon Barry. "We will not be gagged any longer – the public has a right to know what is being done with their money.”

“My view is that rather than relying on a company with many of its assets controlled by offshore companies, the City Council could easily and quickly develop a public-led development of the canal corridor. This would have much less risk for the Council and would result in a scheme with real financial and social benefits for the city.”

“The City Council is handing over the ownership of the canal corridor site, which is majority council-owned, to British Land with the tax payer being asked to take medium term leases on the risky elements of the deal – the arts hub and the large underground car park. This means no benefits of land ownership but on-going year on year large rental costs for the tax payer.”

Responding to the Green Party, Coun Eileen Blamire, leader of the council, told virtual-lancaster: “It is important to remember that no firm decisions have been taken on the level of investment – if any – on this scheme.

“The option to support the delivery of the Canal Corridor North scheme was published in the public version of the Council’s report on 31st October 2017.

“The key resolution says that in principle it (the council) is prepared to invest (in equity and/or loan capital terms) in the overall scheme, to help achieve an affordable and financially sustainable outcome from the city council’s perspective.

“No decision has been made on the extent of that investment at this time.

“In a democratic vote, the council has simply authorised its officers to negotiate with British Land and Lancaster University to ensure the best deal possible for the city, the wider district and taxpayers, and to develop any further capital financing options to enable the council to take a longer term stake in the car park and/or the arts hub, if appropriate in support of the evolving scheme.     

“The council, the university and British Land all want to see arts and cultural elements in the scheme.

“All future decisions in relation to any potential investment will be made by the full Council.”

 

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