Appendix 1 - Outline Business Case
Perth and Kinross Council · 29 April 2026
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1 | O u t l i n e B u s i n e s s C a s e Appendix 1 Outline Business Case FOR PROPOSED CAPITAL FUNDED PROJECT Title: Mid-Market Rent Proposal - PKC Executive Sponsor: Elaine Ritchie / Serge Merone Version: Author: James Ross Date: 27/02/2026
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2 | O u t l i n e B u s i n e s s C a s e Executive Summary 1. Strategic Case 1.1. Project Objectives Mid-market rent (MMR) is a type of affordable housing aimed at households on low to moderate incomes, designed to help them access affordable rented accommodation. Homes for MMR are let under a Private Residential Tenancy (not a social tenancy) however rent levels should be at or below Local Housing Allowance (LHA) rates, to ensure that they are more affordable than private rents. Broadly it can be seen as a tenure that bridges the gap between social rent and private rent. There are criteria that must be met to be offered an MMR tenancy. National context MMR is seen as an important component of the delivery of new affordable housing nationally. Housing to 2040, Scotland’s long term national housing strategy, sets out a target to deliver 110,000 new affordable homes by 2032, with 70% of these for social rent, and the remaining 30% to be made up of low-cost home ownership and MMR properties. With the slowdown of low-cost home ownership schemes available, only 5 new shared equity units planned within the currently agreed Strategic Housing Investment Plan and the suspension, now lifted, of the Scottish Government’s Open Market Shared Equity (OMSE) scheme, to new applicants, there has been a greater reliance on MMR to deliver an alternative affordable tenure to social rent. The current climate can be challenging to deliver new supply low-cost home ownership schemes. The rising cost of construction inhibits the viability of such schemes as low-cost home ownership properties need to ensure that the market value of the property is greater than the cost to build. At the same time, high interest rates are making mortgages less affordable for households on modest incomes. As market values rise, properties become less suitable for inclusion in low-cost home ownership schemes, further limiting their feasibility. The provision of MMR can assist young people looking to enter into home ownership by providing a secure, affordable home, which enables them to save for a deposit on their first home and so creates a stepping stone into home ownership. MMR homes are often found in large urban areas to help those households on low to moderate incomes that have difficulty buying their own home or renting privately but who also would be unlikely to be allocated a social rented property. MMR properties can also be provided in more rural areas where residents often experience similar problems in securing housing within their community, as normally there is fewer options This tenure is broadly seen as providing a route for young people to secure housing, often for the first time, alleviating the challenges they face navigating the housing market with a lower income. However, the tenant profile of MMR is varied and often is
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3 | O u t l i n e B u s i n e s s C a s e dictated by the type of housing on offer and its location, and so it should be seen as a tenure open to all ages. Through the affordable housing supply programme’s main grant fund, Registered Social Landlords (RSL’s) will deliver MMR properties via a subsidiary, and many have substantial MMR properties as part of their stock. Whilst Local Authorities can also deliver MMR using Scottish Government grant there is a need for a third party as they are excluded from directly offering Private Residential Tenancies. There are different approaches to how Local Authorities can deliver new supply MMR, and these are set out in this paper. Perth and Kinross The Perth and Kinross Local Housing Strategy (LHS) 2022-2027 sets out the strategic aims for housing within Perth and Kinross. This report aims to contribute to the following actions and milestones within that strategy: Action 1.1 Deliver PKC’s affordable housing programme of 1,050 homes over the next five years. Milestone • Achieve an average of 210 affordable housing completions each year • 30% other affordable tenure (315 out of total 1050 over five years – Low-Cost Home Ownership (LCHO), MMR and Self Build). Action 1.4 Seek opportunities to deliver a wider range of affordable housing options e.g., intermediate housing, LCHO and affordable self-build etc. Milestone • Carry out feasibility studies. • Identify and develop partnerships to deliver wider range of affordable housing options. In Perth and Kinross there are three RSLs that currently operate MMR properties, with a fourth RSL due to deliver new properties within the next 5 years. Kingdom Housing Association has 124 MMR properties across Abernethy, Perth, Scone, Blairgowrie, and Crieff. Hillcrest Housing Association has 87 properties across Perth and Blairgowrie. LAR Housing Trust has 16 properties in Blairgowrie. Within the current Strategic Housing Investment Plan, Places for People (PfP) are also programmed to deliver MMR properties in Scone, thus adding further to the 227 existing properties. The MMR properties by Kingdom, Hillcrest and PfP are delivered via the Strategic Housing Investment Plan using Scottish Government grant to part fund the cost. LAR however use a different model whereby Scottish Government loan funding has been used rather than grant, with additionally sourced private investment to fund the cost. It’s not known whether this loan funding will continue to be available for LAR to deliver more homes in Perth and Kinross in that manner, though this is funding outwith the Strategic Housing Investment Plan.
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4 | O u t l i n e B u s i n e s s C a s e The Gannochy Trust, although not an RSL, are a charitable organisation within Perth and Kinross with almost 300 properties that they let out below LHA rates and so also make a valuable contribution to affordable rented accommodation in the area. However, Kingdom, Hillcrest, and PfP are continuing to pursue further MMR opportunities through the programme in Perth and Kinross and are being supported to do so by PKC as part of our role as strategic housing authority. Housing Strategy will remain in dialogue with LAR to consider any opportunities that fit in with their model. Work is also ongoing within PKC to enable organisations to harness Rural and Islands Housing Fund monies to assist the delivery of this tenure in rural areas also. The broad objective of this paper is to ensure that the delivery of MMR keeps pace with the targets set out in the Local Housing Strategy 2022-2027. 1.2. Existing Arrangements The current framework allows for PKC to direct where MMR is delivered on sites, where there is an identified need, though this would always be subject to a financial appraisal by the RSL, who would deliver the product. PKC has also in the past used commuted sums to support MMR projects where viability has been an issue, this ensures that the projects do not falter and can be delivered in areas of strategic importance. PKC’s Housing Strategy Team are tasked with coordinating the Strategic Housing Investment Plan, and it is via this document where the majority of MMR is delivered in Perth and Kinross. Beyond this, support is provided to qualifying applicants to access the Rural Housing Fund, where one of the potential end tenures is MMR. This is valuable work to enable local communities to have real input into the delivery of affordable housing local to them, but its outputs can be small, and time consuming, and so its capacity to supplement delivery of MMR is limited. The recently approved Strategic Housing Investment Plan sought to fund the delivery of 1426 new supply properties with 124 of these being MMR. It was hoped that a further 16 could be developed for low-cost home ownership, however this is proving difficult to make viable. Unfortunately, the delivery of MMR and low-cost home ownership homes are not keeping up with the expected targets, as these projections indicate less than 10% being delivered against a target of 30%. Low-cost ownership schemes are unlikely to deliver in the short term due to challenging conditions thereby placing greater weight on the delivery of MMR. The previous 5-year delivery of MMR also indicates that the Strategic Housing Investment Plan outputs will not increase significantly the MMR delivery without some action. 1.3. Business Needs
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5 | O u t l i n e B u s i n e s s C a s e Need and Demand Rents for MMR are capped at the LHA rate for first let, though are often slightly below and so the need for this product tends to be located in areas where private rents are higher. LHA is the maximum rate of housing benefit a qualifying applicant can expect to receive to cover the cost of their rent in a private tenancy, in any given market area. For the properties proposed in this paper, the LHA rates are around 50% higher than the rent levels set if they were PKC social housing and so should be seen as very much a different type of tenure from social rent. Often MMR is not deemed to be needed in areas where the LHA rates are too similar to the market levels. Across the Perth and Kinross area, the private rents are higher than LHA rates for all property sizes, though there is variance across the different size of properties, as shown in Table 1 below: Property Size Market Rents MMR 100% Difference 100% Difference 95% Difference 85% Difference 1 Bedroom £452 £424 -£28 -7% -12% -25% 2 Bedroom £613 £558 -£55 -10% -16% -29% 3 Bedroom £836 £748 -£88 -12% -18% -32% 4 Bedroom £1,348 £1,247 -£102 -8% -14% -27% Average £812 £744 -£68 -9% -15% -28% Table 1: LHA/Market rates by property size for Perth and Kinross. 2022/23 data. The allocation of MMR, being a private tenancy, and not social housing, tends to allow for households to apply for a property that has one bedroom more than the households needs. Therefore, 2 or 3 beds would be a typical property size for new supply MMR and are the house sizes where there is greatest variance between market rents and LHA rates, indicating an alignment with need and prospective supply However, as table 1 also highlights, by ensuring that the rent levels are below the maximum LHA rates, which would typically be the aim, the rent savings for all property types can become substantial and would therefore allow a greater number of people to access them. Naturally, there are specific areas within Perth and Kinross whereby market rents are higher and so places greater pressure on those seeking housing in the private sector. Table 2 sets out where the highest average rents are and the size of property with the highest rents. Size 1 bed - shared 1 bed 2 bed 3 bed 4+ bed Average Eastern £490 £422 £604 £774 £1,406 £801 Greater Perth £437 £447 £609 £819 £1,282 £789 Highland £431 £518 £660 £923 £1,302 £850 Kinross £261 £508 £650 £873 £1,310 £835 Strathearn £456 £472 £625 £891 £1,483 £868
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6 | O u t l i n e B u s i n e s s C a s e Comrie £446 £458 £565 £773 £1,496 £823 Crieff £446 £458 £565 £773 £1,496 £823 North Eastern - £425 £650 £598 £1,600 £818 City Centre £431 £443 £600 £805 £1,209 £764 Perth & Kinross £441 £452 £613 £836 £1,348 £812 Table 2: Average market rents by location and property size. 2022/23 data. Whilst evidence here shows that Highland, Strathearn, and Kinross would be areas to target delivery of MMR, it should be noted that it can be popular as a product even when the savings households can make on rents is minimal. This is because prospective tenants will consider aspects such as the quality of the property, the likelihood that repairs will be attended to promptly, and the security the landlord can offer. Furthermore, even in Housing Market Areas with lower rents, there will be parts that have higher rents making it difficult for households to live in the areas they want to live in. MMR landlords are typically recognised organisations with a well-functioning repairs system in place and as they are not private individuals, the risk of the property being needed back by the landlord is diminished. Whilst the introduction of Private Residential Tenancies meant that tenants had greater security of tenure than they did under Short Assured Tenancies, there are still a number of grounds that a landlord can evict a tenant under. These include, but are not limited to, the landlord wanting to sell the property, undertake major repair, to live in the property themselves or let out to a family member. This means that in practice, a prospective tenant will consider that renting from a landlord with possibly only one or two properties, comes with less security. The locations where MMR has been delivered successfully in Perth and Kinross, demonstrates that it is not only the areas where need is greatest that have proved popular. All projects listed in table 3 have proved be in high demand and are considered to be successful MMR schemes. Site RSL Unit Number Year Moyness (Hazelwood), Blairgowrie Kingdom HA 7 24/25 Duchlage Road, Crieff Kingdom HA 8 23/24 Broich Road, Crieff Kingdom HA 4 23/24 Earlsgate, Scone (over 55’s only) Kingdom HA 51 21/22 Glenalmond Road, Rattray Kingdom HA 6 21/22 Table 3: MMR delivery in 2020/21 - 2024/25 (5 years) As noted earlier, MMR is not only targeted at those struggling to access good quality private rented accommodation but also those that cannot afford to access the home ownership market. For people living in communities where house prices are high, it is especially difficult to enter this market with a modest income. The table below shows
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7 | O u t l i n e B u s i n e s s C a s e the average house prices across a number of areas, and reflects the challenges faced within Perth and Kinross in trying to access home ownership. Table 4: Average house prices 2022/23 data. Whilst the average house price can demonstrate, broadly, the challenges faced within specific areas, it will include house prices of properties that many with modest incomes will not be pursuing. To assess the impact of house prices on the those with modest incomes, the lower end of the market needs to be considered. 2022/23 All Sales Average Price 1st Quartile Median 3rd Quartile 4th Quartile Eastern £228,176 £139,500 £219,975 £284,963 £844,626 Greater Perth £242,468 £133,390 £215,255 £315,548 £950,000 Highland £327,130 £187,000 £288,527 £432,500 £1,000,000 Kinross £305,881 £184,875 £283,000 £387,750 £800,000 Strathearn £313,241 £179,475 £270,000 £397,500 £995,000 Comrie £359,268 £202,488 £276,391 £389,250 £995,000 Crieff £286,330 £160,000 £249,450 £355,000 £865,000 North Eastern £354,616 £255,000 £280,000 £410,000 £844,626 Perth City Centre £205,533 £117,250 £187,886 £276,500 £780,000 Perth and Kinross £274,907 £155,385 £239,500 £344,998 £1,000,000 Table 5: House price quartiles. 2022/23 data. Table 6 demonstrates how much a household would need to be earning, to purchase a property at the lowest quartile in each area, assuming a mortgage multiplier of 3.2, which is an affordable level. Many of the incomes listed below would be above the maximum income an applicant for an MMR property could have and so shows how out of reach home ownership is for many. It should also be noted, that the more pressured an area, the greater the constraint there will be on supply also and so even if a household could afford a property at the lower end of the market, they are further inhibited by a constrained supply. 2022/23 All Sales Average Price Scottish Average + / - Eastern £228,176.13 £216,337 11,839.13 Greater Perth £242,467.80 26,130.80 Highland £327,129.88 110,792.88 Kinross £305,880.21 89,543.21 Strathearn £313,240.84 96,903.84 Comrie £359,267.96 142,930.96 Crieff £286,330.02 69,993.02 North-Eastern £354,615.54 138,278.54 Perth City Centre £205,532.71 -£10,804.29 Perth and Kinross £274,906.82 58,569.82
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8 | O u t l i n e B u s i n e s s C a s e Required for market entry LQ income to buy Ave income to buy Eastern £37,055 £60,609 Greater Perth £35,432 £64,406 Highland £49,672 £86,894 Kinross £49,107 £81,249 Strathearn £47,673 £83,205 Comrie £53,786 £95,431 Crieff £42,500 £76,056 North Eastern £67,734 £94,195 Perth City Centre £31,145 £54,595 P&K £41,274 £73,022 Table 6. Income needed to buy property. 2022/23 data. Furthermore, it should be noted that this reflects data from 2022/23, and it is known that property prices and private rents have been on the rise, and so the current situation is even more challenging for those on modest income levels than the data here shows. Whilst traditionally MMR is seen as a tenure for young people entering into the housing market for the first time, it should not be seen as solely a tenure for the young. The Earlsgate, Scone development has demonstrated that MMR is attractive to older people also, if the property types are suitable and in the right area. Here, 51 properties were delivered, managed by Kingdom Housing Association, and for over 55’s only, with great success and high levels of demand. Providing suitable, affordable housing for older people ensures that they are not left in increasingly unsuitable accommodation as their physical capacity declines. This means for those households their needs are better met and reduces the risk of reaching crisis point and a sudden need for additional services. Beyond that, often these households are downsizing and so it creates a chain by freeing up more housing for younger people both in the social and private sectors. The Scottish Governments ‘Mid-Market Rent Analysis: The Characteristics of MMR providers and MMR tenants - December 2020 to February 2025’ shows that whilst most tenants are below 34, there are tenants throughout the age groups living in MMR properties. 1.4. Potential Scope The scope of each option is set out in the summary of options, below. The first proposed tranche of properties being proposed for option 2 or 3 is 13 new build properties at Westfield, Rattray. These are being developed by Bancon Construction and currently sit within the Strategic Housing Investment Plan. 1.5. Strategic Risks
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9 | O u t l i n e B u s i n e s s C a s e Each option comes with its own risks, these are listed in the summary of each option, below. 1.6. Constraints Each option comes with its own constraints, these are set out as part of the summary of each option, below. 1.7. Dependencies Internal External Area Description of dependency Area Description of dependency Legal Option 2 and 3 will require legal oversight Option 2 – administer any leasing arrangement taking instruction from Housing (Strategy). Option 3 – oversee the creation of LLP and securing appropriate legal input and advice to ensure PKC adheres to legislative requirements. Scottish Futures Trust Option 3 will require advice from those that have delivered such projects before. SFT cannot provide legal advice, more support and assistance. SFT are one of the options to become the initial 2nd member. Finance Options 2 and 3 require financial investment. Viability appraisals and oversight over appropriate use of funds will be required. Option 3 required ongoing oversight to ensure financial regulations are adhered to. Unidentified third- party organisation Option 3 requires a third party to establish an LLP.
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10 | O u t l i n e B u s i n e s s C a s e PKC Lets Option 3B requires the use of PKC Lets as the dept that manages the stock. Property Services Options 2 and 3 require new build properties, or acquisitions and so project management will be required to deliver this new supply housing as well as major cyclical replacements. Housing Option 3 will require reactive repairs to be done as part of ongoing maintenance. 1.8. Impact on the Community and Community Co-production The community will have direct input into any new build affordable housing as part of the planning process. It has input into the planning application for Westfields, Rattray already and it is clear that a mixed tenure development would more reflect community wishes than a purely social rented development. The community will benefit from the delivery of Mid-Market Rent housing as it will provide a greater mix of affordable housing available for local people. 1.9. Sustainability Strategic Environmental Assessment screening has been undertaken to identify impacts. 1.10. Inclusion and Equality An Equalities and Fairness Impact Assessment has been undertaken to fully identify any impacts. 1.11. Resource efficiency
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11 | O u t l i n e B u s i n e s s C a s e The various options have been considered in terms of resource efficiency. The summary of each is provided below and the selected option has been expanded upon further. 2. Economic Case 2.1 Critical Success Factors 2.2 Impact Analysis Prior to assessing the scored options, a detailed assessment of the ‘do nothing’ option must be carried out and evidenced within the business case. To allow stakeholders to make an informed decision on the progression of the project an objective assessment of risks of not doing this project is required by way of a detailed impact analysis. Critical Success Factors Critical Success Factor Option Appraisal Scoring Weighting (W) (cumulative 100) Reason for Weighting CSF1 – Accelerates the delivery of MMR to meet housing need and demand in Perth and Kinross. 25 Equal weighting for all CSF. Each of the 4 CSFs will get maximum of 25 points, so that maximum total score is 100. CSF2 – Delivers on Corporate Plan, and LHS priorities 25 Equal weighting for all CSF. Each of the 4 CSFs will get a maximum of 25 points, so that the maximum total score is 100. CSF3 – Makes a positive resource and financial impact for alternative affordable home delivery 25 Equal weighting for all CSF. Each of the 4 CSFs will get maximum of 25 points, so that maximum total score is 100. CSF4 – Increases the capacity of PKC to deliver new supply affordable housing 25 Equal weighting for all CSF. Each of the 4 CSFs will get maximum of 25 points, so that maximum total score is 100.
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12 | O u t l i n e B u s i n e s s C a s e Impact Analysis of ‘do nothing’ option (please note this is not scored and only to inform the decision-making process) Risk Organisational and/or Service Impact Probability (High/Medium/Low) Risk1 MMR delivery does not keep pace with targets. High Risk2 MMR is not directed at demographics where need is known by PKC Medium Risk3 PKC does not maximise the opportunities available to increase its affordable housing assets. High Risk4 PKC becomes at a competitive disadvantage and less attractive to partner in delivery of new affordable housing. Medium Financial implications of ‘do nothing’ option Recurring Annual Capital Requirements (net increase/decrease from current commitment) £0 Recurring Annual Revenue Requirements (net increase/decrease from current commitment) £0 2.3 Options Appraisal (including a minimum of do minimum, preferred option and transformational) Each option outlined below should include the following elements: • Narrative summary of option • Economic appraisal of cost and benefits • Optimism bias – including supporting rationale • Risk assessment Option 1 Summary of Option Option 1 – Do minimum / Business as usual The starting point for any options appraisal is to consider whether any substantial actions outwith current ways of working is required to achieve the results that are being looked for. The current approach to deliver MMR in Perth and Kinross, as set out in 1.2, is to support our partner RSLs to deliver MMR projects.
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13 | O u t l i n e B u s i n e s s C a s e To increase supply of MMR in Perth and Kinross within the existing framework, a re- orientation of the prioritisation framework that is used to assess potential sites, so that those sites delivering MMR are prioritised, could be done. This could achieve an increase in supply with minimal intervention, though naturally still relies on partner RSL’s to deliver them. Furthermore, if needs can be identified, such as key workers, or over 55’s, a negotiation can be had with our partner Housing Associations delivering these new properties to ensure that suitable allocations can be made. If PKC contributes to a scheme by providing additional finance via commuted sums, conditionality can be included to ensure that appropriate groups are targeted. An example of this, was the Earlsgate, Scone, development, which is an MMR project for over 55’s. Review of Option 1 Pros: • No additional resources needed. • No financial outlay for PKC. • Limited intervention, requiring only small changes to current working. Cons: • Current model not keeping up with expected delivery of MMR and concern that outputs cannot be achieved sufficiently. • PKC has less control over MMR schemes that are delivered and are reliant on others to do it, which is not keeping up with the targets set out in the LHS. • Does not allow PKC to deliver a mix of tenures on our own sites and so restricts options for new delivery and business opportunities. • Prioritising sites that seek to deliver other tenures such as MMR, may skew the prioritisation and lead to sites being added that are not the best strategic fit. Risks: • MMR delivery does not keep pace with targets. • MMR is not directed at demographics where need is known by PKC. • PKC does not maximise the opportunities available to increase its affordable housing assets, when others do. • PKC becomes at a competitive disadvantage and less attractive to partner in delivery of new affordable housing, due to being restricted to social housing only. Summary of Financial Resource Requirements Indicative Capital Investment Required £0 Optimism Bias (**%) £0 Rationale for Optimism Bias Total Capital Investment Required £0
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14 | O u t l i n e B u s i n e s s C a s e Source of Indicative cost: N/A Professional Fees included ☐ Inflation included ☐ Recurring Annual Revenue Requirements (net increase/decrease from current commitment) £0 Source of Indicative cost: N/A Appraisal of Options against Critical Success Factors Scoring 3 Benefits exceed the Critical Success Factor (25 2 Benefits meet the Critical Success Factor (18.75 points) 1 Benefits partially meet the Critical Success Factor (12.5 points) 0 Benefits do not meet the Critical Success Factor (6.25) Critical Success Factor Benefits of implementation of Option 1 (Strengths) Score (S) 0 - 3 Weighted Score (A) = (S x W) CSF1 - Accelerates the delivery of MMR to meet housing need and demand in Perth and Kinross. See section above under ‘pros’ 0 6.25 CSF2 - Delivers on Corporate Plan, and LHS priorities. See section above under ‘pros’ 1 12.5 CSF3 - Makes a positive resource and financial impact for alternative affordable home delivery. See section above under ‘pros’ 2 18.75 CSF4 - Increases the capacity of PKC to deliver new supply affordable housing. See section above under ‘pros’ 0 6.25 Risks associated specifically with option Likelihood Scoring Impact Scoring 5 Highly Likely 5 Major impact to project delivery 4 Likely 4 Significant impact to project delivery 3 May or not occur 3 Manageable impact on project delivery 2 Unlikely 2 Minor impact to project delivery 1 Highly Unlikely 1 No impact to project delivery
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15 | O u t l i n e B u s i n e s s C a s e Description of Risk Likelihood of Risk (L) Impact of Risk (I) Score (B) = (L x I) Risk1 - MMR delivery does not keep pace with targets. 4 4 16 Risk2 - MMR is not directed at demographics where need is known by PKC 4 4 16 Risk3 - PKC does not maximise the opportunities available to increase its affordable housing assets 4 4 16 Risk4 - PKC becomes at a competitive disadvantage and less attractive to partner in delivery of new affordable housing, due to being restricted to social housing only. 4 5 20
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16 | O u t l i n e B u s i n e s s C a s e Option 2 Summary of Option Option 2 – Leasing arrangement with RSL A leasing arrangement is a type of agreement between the Local Authority and an RSL that operates or is keen to operate in that Local Authority area. These types of arrangements are used in neighbouring authority, Fife, where the Local Authority own 167 MMR properties that are managed by Kingdom and Ore Housing Association. PKC currently has a leasing arrangement with Kingdom Housing Association, though this relates to a social housing, rather than MMR, development in Perth. This would work by PKC delivering new supply homes via its new build programme and then leasing out the properties to a partner RSL’s subsidiary, who will then manage and deliver those properties as MMR. The leasing contract will set out: • The length of the lease, how it rolls on thereafter, as well as any notification periods. • Delineation of repairs responsibilities. These can be divided up between planned and reactive repairs, or a different negotiated position can be derived, right up to full repairs responsibility being passed on as part of the lease. • The leasing price paid by the RSL, including how yearly increases are to be calculated. • How allocations are to be administered and whether specific groups are to be targeted. The leasing price would be derived from a financial appraisal conducted by PKC, that considers the cost of the following: • Construction, and other associated project costs, less any grant. • Planned maintenance costs, if applicable. • Ongoing costs, e.g staff time, insurance, white goods Once a leasing price is derived (which will vary by site, location and maybe the number of units on offer), the prospective RSL, will then need to make their own assessment on whether it’s a viable scheme or not, and thereafter this will inform rent levels charged to prospective tenants. Naturally, the lower the leasing price, the more likely a below LHA rent can be applied by the RSL. The properties will then be managed by the RSL until the agreement is terminated by either party. As PKC are leasing the buildings to an RSL, it will be the RSL’s subsidiary that is deemed to be the landlord of the tenants and not PKC and so Private Residential Tenancies can be issued. The new properties will be either be: • Directly developed by PKC, through its new build programme.
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17 | O u t l i n e B u s i n e s s C a s e • Purchased from a developer or housebuilder, through an off-the-shelf purchase of completed units. This approach can either be used indefinitely, or as part of a transition to option 3. Review of Option 2: Pros • This provides an entry into the field of MMR and therefore creates less risk. • Provides PKC with an opportunity to develop mix tenure new build schemes that include MMR as part of the mix. Having capacity to deliver an additional tenure type can often assist in the viability of individual developments and reduce the call on the finite grant that is available, as MMR typically receives less grant than new build social housing. • The tenant profile of MMR and social rent can be different, with those seeking social housing often, though not always, having lower incomes and so having the capacity to deliver different tenures, can provide a more balanced mix of tenants and so creating more integrated communities within PKC new build sites. • Large sites often benefit from a range of tenures to ensure more integrated communities. There is likely to be opportunities in locations where MMR would prove popular however this opportunity cannot be grasped by PKC if the capacity to deliver MMR is not there. • The contractual arrangement allows for a more formal implementation of allocations that are aligned with PKC preferences and so specific demographics can be targeted, e.g. key workers, over 55’s. s. s. • Enables PKC to build up its assets with minimal staffing resources needed to manage it. Once the initial outlay is paid off, the properties will then become an income generator for PKC. • Enables PKC to take up off the shelf opportunities that may be deemed unsuitable for social housing, but suitable for MMR. This would enable PKC to become a nimbler organisation in terms of its acquisitions. • The assets could potentially sit on the HRA, if the appropriate ministerial guidance was adhered to. Cons • Still reliant on a third party to deliver MMR, who may deem any proposed site as not meeting their strategic needs. This means that PKC identified opportunities may not be taken forward. • Significant staff time could still be needed to manage the relationship between the two organisations, especially if repairs are split, which is contrary to its purpose of having it managed elsewhere. A robust and detailed agreement may alleviate some of the potential areas for dispute. • Using an RSL to manage our assets as MMR, when PKC already have PKC Lets, an in-house management service for private landlords, is un underutilisation of an existing council resource that would be capable of doing this via an LLP model.
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18 | O u t l i n e B u s i n e s s C a s e • Relying on an RSL to manage our assets as MMR leaves us with little control over the quality of management and places PKC reputation in hands of another provider, if tenants are aware that the properties themselves are PKC owned. • Upfront funding will need to be made available to pay for the new build properties until that cost is recouped via the leasing income. The exact amount would be subject to a financial appraisal of a specific new build proposal however there would be a financial implication. Decisions would need to be made about where this funding would come from and that all appropriate approvals have been given. Option 2 - Risks • The RSL could terminate the contract when PKC are unprepared to continue managing them as MMR. This places a risk on PKC in terms of managing its assets but also to the tenant with regards to their tenancy. Whilst this is considered a low risk, its potential impact would be substantial. This could though be mitigated by securing an alternative partner however if the reason is due to unexpectedly higher costs to operate the model, then another partner may not be easily found and would then have to be converted into social housing, thereby losing the MMR offer. • The RSL does not adhere to preferred allocations, or significant staff time is needed to ensure they do. This can be mitigated by a detailed contractual arrangement though does not offer the same level of control that direct delivery through an LLP does. • PKC’s ability to grasp opportunities may be limited as it could establish a good opportunity for MMR but none of the partner RSL’s are interested in that specific location or the scale that is proposed. • Full financial appraisal could identify that there is no project that is viable without additional funding being applied or that it is viable by using LHA rates at their maximum, where aim would be to offer rents below LHA rates. Whilst the risk of no project being viable is low, the risk of not achieving a below LA rate rent level is higher. Summary of Financial Resource Requirements Indicative Capital Investment Required £1,380,000 Optimism Bias (0%) £0 Rationale for Optimism Bias Investment required refers to actual, current, costs provided by developer, once grant and contribution from council tax 2nd / empty homes has been considered. Total Capital Investment Required £1,380,000 Source of Indicative cost: PKC’s Housing Revenue Account, to be paid back through rental income over a 30- year period. Professional Fees included ☒ Inflation included ☒
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19 | O u t l i n e B u s i n e s s C a s e Recurring Annual Revenue Requirements (net increase/decrease from current commitment) £0 Source of Indicative cost: To be paid via rental income as part of ongoing revenue costs associated with managing the project. Any surplus income will be re-invested either in new MMR projects or to provide benefit to the HRA. Appraisal of Options against Critical Success Factors Scoring 3 Benefits exceed the Critical Success Factor (25 2 Benefits meet the Critical Success Factor ( 1 Benefits partially meet the Critical Success Factor ( 0 Benefits do not meet the Critical Success Factor (6.25) Critical Success Factor Benefits of implementation of Option 2 (Strengths) Score (S) 0 - 3 Weighted Score (A) = (S x W) CSF1 - Accelerates the delivery of MMR to meet housing need and demand in Perth and Kinross. See section above under ‘pros’ 2 18.75 CSF2 - Delivers on Corporate Plan, and LHS priorities. See section above under ‘pros’ 2 18.75 CSF3 - Makes a positive resource and financial impact for alternative affordable home delivery. See section above under ‘pros’ 2 18.75 CSF4 - Increases the capacity of PKC to deliver new supply affordable housing. See section above under ‘pros’ 2 18.75 Risks associated specifically with option Likelihood Scoring Impact Scoring 5 Highly Likely 5 Major impact to project delivery 4 Likely 4 Significant impact to project delivery 3 May or not occur 3 Manageable impact on project delivery 2 Unlikely 2 Minor impact to project delivery 1 Highly Unlikely 1 No impact to project delivery
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20 | O u t l i n e B u s i n e s s C a s e Description of Risk Likelihood of Risk (L) Impact of Risk (I) Score (B) = (L x I) Risk1 - The RSL could terminate the contract when PKC are unprepared to continue managing them as MMR. 3 4 12 Risk2 - The RSL does not adhere to preferred allocations, or significant staff time is needed to ensure they do 3 3 9 Risk3 - PKC’s ability to grasp opportunities may be limited as it could establish a good opportunity for MMR but none of the partner RSL’s are interested in that specific location or the scale that is proposed 4 4 16 Risk4 - Full financial appraisal could identify that there is no project that is viable without additional funding being applied or that it is viable by using LHA rates at their maximum, where aim would be to offer rents below LHA rates. 3 3 9
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21 | O u t l i n e B u s i n e s s C a s e Option 3 Summary of Option Option 3 – Establish an Arm’s Length External Organisation (ALEO) via a Limited Liability Partnership (LLP) Establishing a PKC Limited Liability Partnership (LLP) would be the most active approach to take forward the delivery of MMR. This is an approach taken by Local Authorities such as Stirling and Edinburgh. Stirling Council’s LLP, Steadfast Homes, has 128 properties and is actively seeking more opportunities. Whereas Edinburgh Council’s LLP, Edinburgh Living, has over 500 properties as part of its portfolio and similarly is continuing to look for opportunities. In Scotland, a residential tenancy issued by PKC would have to be a Scottish Secure Tenancy. The need to establish this organisation would be to enable the operation of a Private Residential Tenancy whilst retaining control by PKC. An LLP would not fall within the definition of a Local Authority landlord and is therefore able to issue tenancies other than Scottish Secure Tenancies, thereby enabling PKC to control the operation of MMR. This would typically be funded via Scottish Government grant and a loan from PKC, who would obtain the loan from the Public Works Loan Board (‘PWLB’), which is then ‘on-lent’ to the LLP. This on lending should come from PKC’s general fund, rather than the HRA. The grant funding must be applied for by PKC directly, and any loan funding between PKC and its LLP would need to be approved by the Scottish Government. The loan would then be paid back by the LLP as part of its ongoing business operation. The use of any general fund monies would need to through the relevant approval processes, incorporating a robust financial appraisal. This is done is via establishing an LLP with a separate organisation. An LLP structure requires a minimum of two members to form, and so it would be a joint venture between PKC and a second party. External legal advice has been sought, and provided, which confirms 1 That the LLP set up is the most appropriate form the ALEO should take 2 The legislative powers that PKC can use to establish an LLP to deliver MMR 3 The type of 2nd member that the LLP can have as a prospective 2nd member. This ranges from an existing PKC, or other ALEO, charitable organisations, other local authorities, or private organisations. The key legal documents required to aid the governance of this LLP would be the following. • A Members Agreement This is the main document between the Local Authority and the second member that sets out and regulates what the LLP can do. • A Facility Agreement: This is the document that sets out the terms of funding from the Local Authority to the LLP. • A Deed of Entrustment
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22 | O u t l i n e B u s i n e s s C a s e This is the document that ties the mid-market rent LLP to deliver a service of public economic interest (SPEI) for subsidy control purposes. • A Management and Maintenance Agreement: This is the document that sets out the agreement between the LLP and PKC to deliver management and maintenance services. PKC can do this in house or contract this out to an external party. Members Agreement Faculty Agreement Deed of Entrustment M & M Agreement Diagram 1. Operating Model The organisation that both Edinburgh and Stirling had their arrangement with initially was Scottish Futures Trust, themselves and arm’s length organisation owned by the Scottish Government. However, Stirling have now changed their partnership to another body because Scottish Futures Trust entered these arrangements to enable the LLP to become established and thereafter looked to withdraw. They are increasingly being approached about this and have just agreed to be 2nd member for Shetland Council also, and so cannot guarantee that they can be the second member for PKC, but discussions are ongoing, and consideration is being given to alternatives also. Scottish Futures Trust can still provide support and guidance to assist PKC to develop and create an LLP capable of delivering MMR, even if they are not the second member. Care would have to be taken though in identifying and negotiating with another party to ensure that an appropriate partnership was entered into. Scottish Futures Trust has developed a suite of legal agreements for use, that PKC could use as a starting point for drafting such agreements, either with them, or another party, these include: • Members Agreement • Facility Agreement • Deed of Entrustment • Management and Maintenance Agreement PKC control and accountability would be enshrined within the governance structure to ensure strategic objectives are met and would operate using a Board of Members and Management, structure. Local Authority Second Member LLP
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23 | O u t l i n e B u s i n e s s C a s e Board of Members Specific LLP decisions would be reserved to the member representatives and set out in the Members Agreement. As mentioned above, the control of the LLP’s activities would always lie with PKC members. This is reflected in the proposed division of voting rights between PKC and the second member. In meetings of the Members, PKC votes would always outweigh that of the Second member to ensure complete control by PKC. The Board of Members would typically be made up of PKC senior management, though elected members could also be included. Board of Management The day-to-day management of the LLP is delegated to a Board of Management, appointed by the Member organisations. This would typically comprise of six individuals, with five from PKC and one from the second member. The Board of Management would be made up of Senior Officers from PKC who oversee its operations day to day, and so this could be representatives from Housing, Place Strategies, Finance, Legal, and any other appropriate dept. The day-to-day operations would be done by PKC Officers, with a lead officer coordinating the ongoing operations, reporting into the ‘Board of Management.’ Once the LLP is operational, and begins to purchase homes, it will do so on a turnkey basis, and these will be either: • Directly developed by PKC through the PKC new build programme. • Purchased or procured from a developer or housebuilder – either through off-the- shelf purchase of completed units, or through a procured acquisition process. Following purchase, the LLP, and not PKC, is the tenants’ landlord and its business model will: • Earn rental income • Pay a management and maintenance fee, and insurance fee to PKC • Pay the debt servicing costs associated with the PWLB lending; and • Ensure there is reserves for lifecycle expenditure in advance of need and pay for lifecycle events out of this reserve and contemporary cash flows, if required. LLPs can also lease properties from the private sector and deliver as MMR, rather than purchasing them. This may expand the opportunities that there may be to harness institutional investment, to enable delivery of MMR. Work has begun to establish whether there are any such opportunities, though this would likely be in tandem with any formation of an LLP. There are two different approaches as to how the management of such properties would be undertaken, as different models are used by the Local Authorities, highlighted here. Option A – External Management Organisation
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24 | O u t l i n e B u s i n e s s C a s e The first approach is to contract an external organisation to manage the properties on behalf of the LLP and pay a fee for this. A procurement exercise would be needed to establish who would be best place to contract this out to. Option B – In House Management by PKC The second would be to pay a fee to PKC itself to manage the properties. As PKC Lets operates in this area currently for private landlords, the council is in a unique position to have existing structures in place to manage such a proposal or make minimal adaptations to current working to enable this. In addition to this, it provides PKC with an opportunity to enter an arrangement such as this without the need to have substantial stock levels to justify it and gives the potential to start with small numbers. However, as with the formation of the LLP, the management arrangement would need to be set out in a detailed agreement between the two parties. Due to the reasons outlined above the proposal here is to implement option B, and utilise PKC Lets as the preferred party to manage the stock. Review of Option 3: Pros: • Provides PKC with an opportunity to develop mix tenure new build schemes that include MMR as part of the mix. Having capacity to deliver an additional tenure type can often assist in the viability of individual developments and reduce the call on the finite grant that is available, as MMR typically receives less grant than new build social housing. • The tenant profile of MMR and social rent can be different, with those seeking social housing often, though not always, having lower incomes and so having the capacity to deliver different tenures, can provide a more balanced mix of tenants and so creating more integrated communities. • Enables PKC to build up its assets, albeit via an LLP. The properties will provide an income for PKC if PKC Lets is used to deliver the management services. • Enables PKC to take up off the shelf opportunities that may be deemed unsuitable for social housing. • Provides PKC with direct control over the delivery and allocation of MMR. • Large sites often benefit from a range of tenures to ensure more integrated communities. There is likely to be opportunities in locations where MMR would prove popular however this opportunity cannot be grasped by PKC if the capacity to deliver MMR is not there. • Can potentially assist with harnessing institutional investment from investors that want to enter MMR market. Cons: • Substantial work and time required to establish LLP and ensure the necessary contractual arrangements are in place to be able to deliver MMR. • Ongoing work will be required to ensure that the regulatory obligations of the LLP are adhered to.
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25 | O u t l i n e B u s i n e s s C a s e • Upfront funding will need to be made available via loan to the LLP by PKC until that is recouped via loan repayments. The exact amount would be subject to a financial appraisal of a specific new build proposal. • The funding required for the on lending would not come from the HRA and so monies from PKC general fund, or another suitable source, would need to be found. This would make it more challenging to deliver. Risks: • If MMR properties are not profitable enough to pay back the loan, the properties will need to be taken back by PKC and converted into social housing, or disposed, with grant returned. This will place the tenancies of the tenants at risk. The risk of this emanates from the cost of operating the properties being unexpectedly higher than anticipated. • This set up requires approvals from the Scottish Government and this will be subject to the detail of the proposal. • PKC cannot find a suitable partner prepared to enter LLP with. • A full financial appraisal may identify that a workable business model cannot be found, or PKC is unable to get approval for general fund on lending to the LLP. Summary of Financial Resource Requirements Indicative Capital Investment Required £1,380,000 Optimism Bias (0%) £0 Rationale for Optimism Bias Investment required refers to actual, current, costs provided by developer, once grant and contribution from council tax 2nd / empty homes has been taken into account. Total Capital Investment Required £1,380,000 Source of Indicative cost: PKC General Fund to be made available to the proposed LLP via on lending. This will be paid back each year, with interest, until the full balance is cleared. Professional Fees included ☒ Inflation included ☒ Recurring Annual Revenue Requirements (net increase/decrease from current commitment) £450 per unit per annum would be paid by LLP to PKC Lets for managing properties. This would be uplifted 3% each year, thereby increasing revenue. Source of Indicative cost: To be paid via rental income as part of ongoing revenue costs associated with managing the project. Any surplus income will be re-invested in more MMR projects.
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26 | O u t l i n e B u s i n e s s C a s e Appraisal of Options against Critical Success Factors Scoring 3 Benefits exceed the Critical Success Factor 2 Benefits meet the Critical Success Factor 1 Benefits partially meet the Critical Success Factor 0 Benefits do not meet the Critical Success Factor Critical Success Factor Benefits of implementation of Option 3 (Strengths) Score (S) 0 - 3 Weighted Score (A) = (S x W) CSF1 - Accelerates the delivery of MMR to meet housing need and demand in Perth and Kinross. See section above under ‘pros. 3 25 CSF2 - Delivers on Corporate Plan, and LHS priorities. See section above under ‘pros. 2 18.75 CSF3 - Makes a positive resource and financial impact for alternative affordable home delivery. See section above under ‘pros. 2 18.75 CSF4 - Increases the capacity of PKC to deliver new supply affordable housing. See section above under ‘pros. 3 25 Risks associated specifically with option Likelihood Scoring Impact Scoring 5 Highly Likely 5 Major impact to project delivery 4 Likely 4 Significant impact to project delivery 3 May or not occur 3 Manageable impact on project delivery 2 Unlikely 2 Minor impact to project delivery 1 Highly Unlikely 1 No impact to project delivery Description of Risk Likelihood of Risk (L) Impact of Risk (I) Score (B) = (L x I) Risk1 - If- If MMR properties are not profitable enough to pay back the loan, the properties will need to be taken back by PKC and converted into social housing, or 3 4 12
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27 | O u t l i n e B u s i n e s s C a s e disposed, with grant returned. Risk2 - This- This set up requires approvals from the Scottish Government and this will be subject to the detail of the proposal 2 3 6 Risk3 - PKC- PKC cannot find a suitable partner prepared to enter LLP with 2 4 8 Risk4 - A- A full financial appraisal may identify that a workable business model cannot be found, or PKC is unable to find suitable funding source for the on lending to the LLP 3 4 12
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28 | O u t l i n e B u s i n e s s C a s e Success Factor (CSF) Summary CSF Weighted Score (A) Total Risk Score (B) Total Scoring (A-B) Options Options Options 1 2 3 1 2 3 1 2 3 CSF1 6.25 18.75 25 16 12 12 -9.75 6.75 13 CSF2 12.5 18.75 18.75 16 9 6 -3.5 9.75 12.75 CSF3 18.75 18.75 18.75 16 16 8 2.75 2.75 10.75 CSF4 6.25 18.75 25 20 9 12 -13.75 9.75 13 - 24.5 29 49.5 To ensure that the scoring is weighted correctly, and that the total achievable CSF score is 100, each of the 4 CSFs have been scored as follows to ensure that the maximum amount each individual CSF can get is 25. 3 Benefits exceed the Critical Success Factor (25 points) 2 Benefits meet the Critical Success Factor (18.75) 1 Benefits partially meet the Critical Success Factor (12.5) 0 Benefits do not meet the Critical Success Factor (6.25) The risk factor scores are then subtracted from the CSF score to show the total score for each option. Option appraisal scores summary Total Score Option 1 - 25.5 Option 2 29 Option 3 49.5 Preferred Option = Option 3 Establish Arm’s Length External Organisation (ALEO) via a Limited Liability Partnership (LLP) 3. Commercial Case (for preferred option - to be completed in conjunction with Corporate Procurement)
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29 | O u t l i n e B u s i n e s s C a s e Procurement Strategy The 13 new build properties relate to a developer led housing scheme within the PKC new build programme. The PKC New Build Delivery Working Group, chaired by Property dept, has procurement representation ensuring that all procurement requirements are adhered to. External legal advice from Burness Paul has been sought to consider the procurement implications of the LLP, specifically the prospective 2nd member. This advice will be adhered to, and only suitable 2nd members are being considered. Service Requirements The LLP will be formed of a ‘Board of Members’ / ‘Board of Management’ structure. The Board of Members would typically be made up of PKC senior management and elected members, with one representative from the 2nd member. Voting rights would be weighted in favour of PKC so it had complete control of the LLP The day-to-day management of the LLP is delegated to a Board of Management, appointed by the Member organisations. This would typically comprise of six individuals, with five from PKC and one from the second member. The Board of Management would be made up of senior officers from PKC who oversee its operations day to day, and so this could be representatives from Housing, Place Strategies, Finance, Legal, and any other appropriate dept The maintenance of the stock would be contracted out to PKC Lets, however whilst this is a service requirement, it is one that would be paid for by the LLP in terms of a management fee. Charging Mechanism The development costs will be paid for as part of the PKC new build programme. These works will be funded by Scottish Government grant, Council Tax 2nd / Empty Homes, commuted sums, and a capital contribution. The capital contribution will be paid by way of a loan from the general fund. A payment schedule from the LLP to PKC general fund will be required as part of the ongoing business operations, to cover the cost of loan and interest. The payment from the LLP to PKC Lets will be made via the management agreement, a draft version of which is held on file that can be shared internally on request. A budget for external financial advice has been included within the startup costs to ensure that the appropriate financial arrangements are in place. Risk Transfer
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30 | O u t l i n e B u s i n e s s C a s e The exit strategy, should the LLP default on repayment of the loan, will consist of various options • The HRA can step in and convert the properties to social housing, with loan being repaid to PKC. • A partner RSL can be offered the properties to continue as MMR, with loan being repaid to PKC. • The properties can be sold on open market, with grant returned to Scottish Govt, and loan repaid to PKC Key Contractual Arrangements External legal advice has been procured, should approval be given, and costed as part of the startup costs. The contractual arrangements, set out within this business case, will be finalised with the external legal party’s oversight. Draft versions of each of these contracts are held on file and available internally, on request. Personnel Implications (to be completed in conjunction with HR) The LLP itself will have no staff. The governance arrangements are set out in this document and there is a suite of draft documents held on file that show how the LLP is to function. Accountancy Treatment (to be completed in conjunction with Finance) The assets will sit on the LLP, which will comply with all necessary financial regulations. A budget, as part of the startup costs, has been identified for external financial advice should that be required. 4. Financial Case (for preferred option - to be completed in conjunction with Finance) Capital and Revenue Requirements A separate appraisal has been conducted to establish the viability of the development. This sets out the capital costs in greater detail; however, the headline costs are set out below Capital Grant - £1,213,864 CT Monies - £260,000 Commuted sums - £220,000 Prudential borrowing - £1,380,000 Total - £3,073,864
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31 | O u t l i n e B u s i n e s s C a s e An allowance has been provisioned in for external legal and financial advice, bringing the total capital contribution from the general fund to be on lent and paid back over 30 years at £1,380,000 Revenue The main revenue implication is derived from the management and maintenance of the stock. This will be undertaken by PKC Lets, though will be done for a management fee of £450 per property, per year, paid by the LLP to PKC Lets. This fee will increase 3% every year. Other revenue implications relate to the staffing required to be part of the ‘Board of Management’ and ‘Board of Members.’ It is expected that this role can be subsumed within current business operations and relates more to the governance of the LLP. This will need to be kept under review as more stock is added to the LLP, and future review may consider whether payment from the LLP to PKC needs to be made for these services also. Net Effect on Prices None Impact on Balance Sheet Due to capital contributions from Council Tax 2nd / Empty Homes and Commuted Sums, there will be a reduction in accounts here until they are replenished. There will be an amount of £1,380,000 paid via general fund that will be on lent to the LLP and thereafter paid back over a 30-year period covering the interest. Impact on Revenue Budget Staffing is the only implication, as set out under previous ‘Capital and Revenue Requirements’ heading. Funding Mechanisms and Affordability (including partnership and leverage) The funding mechanism has been set out under ‘Capital and Revenue Requirements’ heading. A viability appraisal has been conducted on the first tranche of properties. 5. Management Case (for preferred option)
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32 | O u t l i n e B u s i n e s s C a s e Programme and Project Management Methodology The new build properties will be managed and delivered in accordance with the current process for PKC new builds. They will be sold to the LLP on completion as they cannot be held on the HRA account. The management of the LLP is set out within the suite of legal documents that sit alongside this outline business case. These agreements are in draft form, with finalised versions to be created in tandem with external legal advisers. Programme and Project Management Plans The delivery of the properties themselves will be part of the PKC New Build programme and will adhere to project management processes agreed. The function of the LLP is set out in the draft legal agreements held on file. The proposal itself seeks to deliver on our Local Housing Strategy (LHS) vision that “Everyone in Perth and Kinross has access to the right home, in the right place, at the right cost." It further seeks to deliver on the specific LHS objectives, such as • Seek opportunities to deliver a wider range of affordable housing options e.g., intermediate housing, LCHO and affordable self-build etc. • Achieve an average of 210 affordable housing completions each year • 30% being of other affordable tenure such as LCHO, MMR, Self Build The proposed development sits within the Strategic Housing Investment Plan. This sets out investment priorities in new supply affordable housing over a 5-year period. Use of Specialist Advisers External legal advice has been procured for initial advice and to assist with the suite of legal documents needed to establish the LLP. They will support PKC Legal Services in overseeing the establishment of the LLP. A budget for external financial advice has also been included as part of the startup costs, should that be required, to ensure that the necessary financial arrangements are in place to adhere to regulatory requirements. Change and Contract Management Arrangements The contractual arrangements are set out within this document and the supplementary draft legal agreements provided alongside this business case. Benefits Realisation
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33 | O u t l i n e B u s i n e s s C a s e The arrangements for ongoing monitoring of the benefits accrued by the delivery of these homes via an LLP are set out in the draft legal agreements that sit alongside this business case. The need for MMR within Perth and Kinross is set out within this business case also, as well as the benefits to this being done directly by PKC. The benefit to PKC itself is control over an LLP with assets that will pay for themselves within a 30-year period. In future, when profits are accrued, these will be retained by the LLP to increase its stock levels and thereby providing further benefit to PKC. Once the LLP is established, private finance opportunities can be considered to bring further investment into Perth and Kinross. Risk Management The initial tranche of 13 properties is designed to provide a gentle introduction into MMR so that PKC can learn lessons for future acquisitions and review ongoing, and future staffing implications. The properties are designed to a standard that could be transferred over to another social or MMR housing provider should the LLP falter in some way. Post Implementation Evaluation Arrangements All new build affordable housing developments go through a value for money assessment, as part of grant conditions and so this will also be appraised in such a manner. This considers cost, timescales, and tenant satisfaction. Ongoing review of operations will be dealt with via the governance arrangements we put in place. Contingency Arrangements If the LLP is unable to return the loan provided, there are a number of exit strategies in place 1. The HRA can step in and convert the properties to social housing, with loan being repaid to PKC. 2. A partner RSL can be offered the properties to continue as MMR, with loan being repaid to PKC. 3. The properties can be sold on open market, with grant returned to Scottish Govt, and loan repaid to PKC.