Ahh, so that’s how they’re going to get out of it

Lots of councils have borrowed vast sums to invest in now falling in value property assets. So, how are they goin to get out of this?

A council that borrowed more than £1 billion to bet on commercial property may have acted unlawfully, its auditor has said.

Spelthorne borough council in Surrey has built its property empire over the past five years in an attempt to generate income to compensate for loss of government support.

The investments include BP’s corporate campus at Sunbury-on-Thames, office buildings in Slough, Reading and London, and a local shopping precinct.

The council’s auditor, KPMG, has warned that some of its investments could have been unlawful.

Declare the investments ultra vires and thus unlawful and the contract is no longer enforceable……hey, it’s a bit rough and ready but it works.

17 thoughts on “Ahh, so that’s how they’re going to get out of it”

  1. Dunno Tim, I wouldn’t have thought the investment being ultra vires would’ve made the contractual obligations themselves illegal.

    M’Lud?

  2. I wouldn’t take the legal opinion of auditors as final word on this.

    But I suspect the issue will be whether this was pure investment (which the Council may do) or ‘commercial’ activity (that should have been conducted through a company in which the Council was a shareholder (which pays tax, is subject to state aid etc).

    In the world of getting involved in commercial property (flavour of the month a couple of years ago) the boundaries between these two concepts aren’t clear. A tenant signing up in good faith won’t be in a position either way to know given the Council itself won’t really know.

  3. “Spelthorne borough council in Surrey has built its property empire over the past five years in an attempt to generate income to compensate for loss of government support.”

    How was that ever going to work out? Did Staines council think they could outsmart people with years of experience in owning property and a personal self-interest? Do you think a bunch of human rights lawyers, UN environmental bureaucrats, housewives and bakers have a clue about property investment?

    I bet the owners of these properties were barely keeping a straight face when they signed the contracts.

  4. They only had to be averagely competent in fact. Because they could borrow from govt at something close to Gilts rates, which is far lower than a commercial buyer can achieve. They should – should because of the arbitrage – be raking it in. That they’re not proves your point…..

  5. And then the councillors are personally sued and bankrupted and another generation of busybodies learns the meaning of ultra vires. Win win.

  6. Why is the council investing at all? They should be thinly-capitalised, tax goes in / spending goes out, the end.

    Obviously they have “assets” like their own offices, schools, etc; but those aren’t income-generating. (Arguably they should lease their own offices; not sure there’s much of a market for leased schools though.)

    Or are they trying desperately to make up a shortfall in the council’s defined-benefit pension fund?

  7. Unsightly Staines, stubborn Staines, wank Staines.

    Want to live in a town that is as bad as it sounds,
    then come to shit Staines and enjoy the lack of character,
    interest or purpose. Surrounded by so much water you’d think the town planners were trying to
    wash away the unsightly stains. -g4rdenspoon

  8. So the council officer who signed the contract could not bind the council and he/she alone was personally liable on a £1billion deal that went sour. He/she just has to declare him/herself bankrupt and after just one year (thanks to Gordon Brown, of course) the defaulter walks free while his/her victims are left with crippling losses. [In some cases the bankrupt has to make payments out of income surplus to needs for another two years whereafter it ceases even for well-heeled council officials].
    Yeah – it does get the greed council off the hook and they make it up to the fall guy after his/her discharge from bankruptcy (but they have to keep their promise to so a secret).

  9. @Andrew M

    Many local councils, unlike the public sector in general, are responsible for pensions. That is to say that they are supposed to have a pot of money to pay them. Most are woefully underfunded.

  10. ‘Lots of councils have borrowed vast sums to invest in now falling in value property assets. So, how are they goin to get out of this?’

    Wimmin investors.

    When price is down, BUY MORE. You don’t fvcking sell when its down.

  11. “Most are woefully underfunded.” I dare say, but presumably they are set up so that the sponsoring Council can’t just do a Robert Maxwell on them?

  12. I know the area well because “reasons”. The BP campus used to be massively overcrowded and then came the 2012 oil price crash. The last numbers I saw said that BP has shed something like 30-40% of its UK staff since then (mostly office jobs because you need to preserve the operational roles on platforms, sites etc.). The Sunbury office was described to me as a “ghost town” even before corona. I suspect it’s a howling mess of tumbleweed these days, and BP isn’t exactly notorious for paying money to landlords if it doesn’t need to.

  13. https://en.wikipedia.org/wiki/Hazell_v_Hammersmith_and_Fulham_LBC

    Is the famous interest rate swaps case. If a Council is found to have acted ultra vires, the delas must be unwound – so the ratepayers are not on the hook and nor are individual officers or councillors.

    This more recent case doesn’t sound good for banks. Although it’s primarily about the school, some of the arguments being made about about UV and avoiding borrowing limits does not sound good for the banks.

    https://www.bailii.org/ew/cases/EWHC/Comm/2020/1118.html

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