Executive Member:

Councillor Warren Bradley

Councillor Peter Millea

Councillor Gary Millar

Executive Director:

John Kelly

Date of submission: 22 May 2009

Subject: Neptune Theatre

Report No: EDR/29/09

Background papers:

Contact Officer:

Chris Briggs

Jayne Hettle

Executive Summary

The purpose of this report is to seek Members approval to the variation in terms of the lease for the Neptune Theatre as previously agreed in May 2005.

Background

The Council has operated the Neptune Theatre since the late 1960's. The Council leases the Theatre from a commercial landlord who receives from the Council an annual rental fee which has been £6k. The Council also pay the landlord an annual service charge for the Theatre, currently £53k.

In May 2005 the City Council received a report detailing the poor and deteriorating condition of the Theatre building. The report identified the need for major internal refurbishment and works required to comply with the Disability Discrimination Act and Health and Safety at Work Act. The Theatre building forms part of the Crane Building on Hanover Street. The Theatre is located on the first and second floors of this building. This unusual location together with the fact that it is a Grade II listed building presents particular challenges in bringing the building up to acceptable modern standards and to fully comply with the above legislation. As a result of the report in 2005 the Council agreed to:

Since this date there have been protracted negotiations between the Landlord and the Council. To bring these negotiations to a conclusion the parties eventually engaged the services of an external arbitrator. The arbitrator has now issued his Award in the sum of £23,900pa increasing the lease from the £6000 pa previously payable but considerably less than the £55,000 pa the landlords agents were proposing.

The new lease is being offered on a 5 year term, which is the only term under the Landlords and Tenants Act, to which the Council is entitled.

The commencement date for the increase in rent will be back dated to the expiry date of the original lease, 1 April 2007 and continuing until such time as the new lease is signed or as the basis for an interim rent.

With regards to the programme of refurbishment works, the procurement process has been held in abeyance until the uncertainty of the lease negotiations have been resolved and the long term lease arrangements agreed.

Timescales

The landlord sent the draft lease to the Council in May 2009, which triggers a four week deadline under the independent arbitration. If the Council does not respond by the 5 June, either agreeing or declining the 5 year lease, the landlord can apply to the Court for an order compelling the Council to sign the lease.

Executive Member/Director recommendation (Councillors Warren Bradley/Peter Millea/Gary Millar/John Kelly):

It is recommended that in connection with the Neptune Theatre -

Corporate Aim(s): Aim 1 - Grow the City's Economy

Key Decision: Yes

Forward Plan. No Reason if not in Forward Plan: The outcome of negotiations have only just been completed.

Implementation effective from: 1 June 2009

Timescale for action: Immediately following implementation

Reason(s) for Recommendation:

The Neptune theatre is a grade II listed building and is an important part of the City's wider cultural offering. The acceptance of the lease and the continuation of the offer through a commercial operator would ensure that the capital investment from the Council would be protected and there would be continued provision for local communities to be actively involved in the performing arts.

Alternative options considered:

1 The Council could determine to revoke the lease. The Council would remain liable for past rent and service charges and as the Council has not fully complied with our contractual lease obligations for maintenance of the theatre and the Landlord has issued a Section 146 Notice there would also be a liability to undertake dilapidations works for which it would be prudent to budget at least £750,000. In addition should the Council choose to revoke the lease, the Landlord would be likely to apply to the Courts for his full costs in the region of £45,000. This option would however save the Council over £0.5m over 5 years as a result of not having to pay rent, rates and the service charge.

2. The Council could choose to renew the lease, undertake the refurbishment and operate the theatre as a direct service as it has done previously. This option would require a revenue subsidy from the Council of at least £350,000 pa and there is currently no provision for this within the medium term financial plan.

Consultation including consultation with Ward Councillors and outcome: N/A

Financial implications (Efficiency Savings):

As a result of the judgement there is back rent payable which from 1 April 2007 to the end of June 2009 totals £37,292 and for which the Council made provision within the 2008/09 accounts. As part of the lease agreement there will be the continued liability for service charges of £53,000pa. There is an outstanding judgment in regard to the award of costs between the parties which is expected shortly.

The capital sums are based on estimates from 2020 of £750,000, but a final sum will not be known until tenders are received and construction work is nearing completion.

Legal implications:

The new underlease documentation was approved as part of the arbitration process.

The new underlease will contain restrictions relating to the Council's use of the property

It would be preferable for the Council to obtain a longer term of lease but this cannot be insisted upon. Grants for refurbishment projects such as this usually require the applicants have a period of occupation at least as long as the duration of the grant conditions.

The Council owns the freehold of the building, which is leased to our landlord for a term of 99 years from 26^th May 1948

Risk Management:

The capital sum for refurbishment set aside in the capital programme is based on an estimate. A more realistic budget can only be set following the tender process.

If the underlease is taken the Council is committed for a further five years. Any advertisement for a commercial operator is not guaranteed to be successful and there is no guarantee that any other willing operator will not require a subsidy to operate the Theatre.

Grants (if available) for future refurbishment projects would usually require the applicants have a period of occupation at least as long as the duration of the grant conditions. This would require further negotiation with the landlord.

Equality implications/Equality Impact Assessment:

The capital works to the building will make it more DDA compliant.

Budget and Policy Framework:

The financial costs of this decision can be met from within the Council's medium Term Financial Plan.

Report attached: None