House of Commons - The management of the Crown Estate

The management of the Crown Estate - Treasury Contents

4 THE URBAN ESTATE

Extent of holdings

30. The CEC's Urban Estate is by a large margin their main business division. In 2008-09, as Figure 3 below shows, urban property accounted for 74% of the value of the Crown Estate and 73% of its revenue. This is a fairly typical contribution as over the last ten years urban property has usually accounted for 75-80% of the value and 70-75% of the revenue of the Crown Estate. As Figure 4 shows, most of the CEC's urban property is concentrated in London—76% by value of the Urban State was concentrated in London as of 31 March 2009. The London Urban Estate includes retail and office space in Regent Street and St James's, single office blocks elsewhere in central London, and residential property in Kensington Palace Gardens and Regent's Park as well as property let on regulated and assured tenancies on estates in Westminster, Camden, Hackney and Lewisham. The property portfolio outside London includes offices, shopping centres, industrial sites and other property.

Figure 3: Property value as a 31 March 2009

Source: The Crown Estate (Crown Estate Commissioners) memorandum

Figure 4: property value of the Urban Estate 31 March 2009

Source: The Crown Estate (Crown Estate Commissioners) Memorandum

Performance

31. Management of the Urban Estate is long-standing core business for the CEC. Notwithstanding an understandable dip in its value last year, the CEC's 2009 Annual Report remained upbeat about the division's "relative success,"[35] pointing in particular to the promise of their investment programme "that will totally revitalise the southern Regent Street environment."[36] During the course of our inquiry we received positive comments from a number of major stakeholders in the urban environment supporting The CEC's own assessment.

32. In its written evidence, English Heritage concluded that:

From its perspective the British Property Federation, commenting on one of its members, wanted "to put on record that, so far as we are able to judge from our dealings with it, the Crown Estate has always been at the forefront of the sector, working with the British Property Federation to improve the sector and the services that our sector provides to British businesses and individuals."[38]

33. In oral evidence, Ms Rosemarie MacQueen, Strategic Director Built Environment at Westminster City Council, told us that:

She also told us, in particular, that the CEC's efforts to revitalise Regent Street:

In their evidence, the Regent Street Association (RSA), which benefits from free accommodation on the Crown Estate, supported Westminster City Council, observing that "over the last fifteen years the relationship between The Crown Estate and the RSA has improved enormously[ ... ] a true partnership..has grown particularly over the last ten years because of the redevelopment in Regent Street. The RSA went on to state that it "enjoys working with The Crown Estate" and that "the single ownership of Regent Street is a huge advantage and leads to consistency and efficiency."[41]

Future direction

34. In their written evidence, the CEC outlined their future plans for the Urban Estate. They intend to concentrate "on a limited number of sectors where we have a competitive advantage, for example through concentrated ownership of assets, expertise or local knowledge." They identified their principal challenges as:

high dependence on the volatile central London office market;
limited access to working capital, restricting the ability to invest; and,
managing the increased risk of tenant failure as businesses struggle during the economic downturn.[42]

Their intent, therefore, is to "reduce our exposure to commercial central London property by strategic disposals of non-core central London holdings and through working with partners in our core holdings to spread our risk and access additional sources of investment capital while retaining a significant element of control over our core holdings in Regent Street and St James's". They also want to invest a substantial part of the funds raised from disposals outside London, "in major retail schemes and industrial estates."[43] Mr Bright further expanded on this approach, observing that "we already own a number of retail parks [ ... ]. Retail parks, particularly in the south east, are in short supply; there are not many of them. Therefore, if the opportunity arises to invest in a good one, that seems to us to be a sensible investment decision to take.[44]

Residential housing proposal

35. One area of the CEC's proposed future direction for their Urban Estate is currently being challenged. Among the "non-core" assets it has identified for disposal are some 1,500 homes on four London residential estates: Cumberland Market, Millbank, Victoria Park and Lee Green. These estates include a proportion of affordable and key worker housing. With regard to the latter, a number of organisations, including Westminster City Council and a number of local hospitals have nomination rights to place business-critical workers in cheap local housing.

36. During the course of our inquiry, the CEC announced a consultation exercise on their proposal to sell the freeholds of these properties to a new owner who would also manage the properties. We quickly received evidence from concerned tenants, local councillors and MPs expressing their vehement opposition. Regrettably time constraints and the stage our inquiry had already reached prevented us from holding an additional oral evidence session on this issue, but we ensured that the topic was explored in the evidence sessions already arranged. The grounds for opposition to the proposed sale can be broadly divided into two categories—the handling of the consultation exercise and a more fundamental objection to the proposal itself.

Complaints about the consultation exercise

RESIDENTS

37. In a joint submission, the residents' associations at all four affected estates argued that the consultation exercise was being mishandled. They asserted that the CEC were not being sufficiently transparent, withholding information relating to "the number and proportion of the different types of tenancy on each estate", and the rationale for the sale and potential purchasers. They also observed that their request for a ballot of residents had been refused "although this would be standard practice if a Local Housing Authority were considering a similar disposal/transfer of stock."[45]

38. Evidence from councillors in the Regent's Park Ward (Camden) also complained that "consultation letters were delivered as unaddressed correspondence and so missed as 'junk' mail", that 'drop-in' sessions were poorly organised with tenants turned away because "they turned out to be appointment based" and that "the timeframe is very short, barely two months and there has been no dissemination of answers to questions raised by tenants who did get to attend a consultation appointment."[46] They also alleged that they had not been formally consulted "but simply informed of the consultation letter to residents" and that "none of the other local stakeholders have been consulted, local authorities, [key worker] nominating bodies (hospitals, education departments, the police etc), Local Strategic Partnerships or the Greater London Assembly, NHS or other strategic bodies."[47] They also observed that as the CEC have already stopped the choice based lettings scheme and closed key worker waiting lists—resulting in a number of empty properties on the estate—"it is not surprising therefore that many residents feel the consultation to be a sham."[48]

COUNCILS

39. In a separate submission, Camden Council also complained about lack of transparency during the consultation exercise, asserting that "when approached by council officers, CEC has effectively refused to provide information to Camden Council about the possible sale of the estate in Camden other than what is on the website. The council therefore cannot assess what the terms of the sale would allow an incoming purchaser to do."[49] During oral evidence, Ms MacQueen told us that Westminster City Council only heard about the proposal "the day before it went into the press."[50] She observed that given the "spirit of partnership working that we certainly have had and has been very productive on the commercial estate, I was a little surprised and maybe they were a little surprised that we were very quick off the mark to ask them to come in and discuss the matters with us."[51]

MPS

40. We also received evidence from local MPs Frank Dobson, Meg Hillier and Bridget Prentice, drawing our attention to the opposition of "the overwhelming majority" of residents and their demands for a ballot. They too complained about inadequate disclosure of relevant information for instance on "the number and proportion of different types of tenancy on each estate, details of changes in rental policy, information on tenants' rights to consultation, on the demographic make-up of the residents and on planning consideration", accusing the CEC of hiding behind commercial confidentiality. They also questioned the CEC's commitment to the consultation exercise, suggesting that their withdrawal of the Tenants' Handbook—which sets out the rights of tenants—for new lettings "raises questions about the good faith of The Crown Estate."[52]

CEC response to criticism of its consultation exercise

41. The Chief Executive of the CEC was keen to defend the consultation exercise. He told us "we are very anxious to hear what our tenants feel about this and also to give an opportunity to explain more of the thinking behind this proposal" and stressed that "we have not yet taken a decision."[53] He added that "my Chairman, Sir Stuart Hampson, and I have also said that we want to meet the chairs of the residents' associations on these four estates before the board takes any decision on that. That meeting has been arranged for early April."[54] He was though, not convincing on the subject of disclosure, committing himself only to the extent that "I think a certain amount of information has been available"[55] and placing an emphasis on "the need to ensure that we protect personal confidentiality"[56] when, given that around 1,500 tenants are involved, there should be scope to de-personalise at least some of the basic statistics requested by the tenants and local authorities.

42. Mr Bright also argued against a ballot on the grounds that "there are a lot of different kinds of tenancies involved here [ ... ]. We want to find out what those various tenants feel about this proposal, what their concerns are. We think that a ballot will not give us that. We think the consultation exercise that we are conducting at the moment, which involved surgeries, hotlines and engagement with the tenants, will give us a better feel for what the tenants' concerns are."[57]

Consultation exercise: our conclusion

43. Proposals to sell rented housing, because they raise concerns about future security of tenure and rent charges, are seldom likely to be greeted with enthusiasm by tenants and their representatives. However, there do appear to be legitimate concerns about the way that the CEC has handled this consultation exercise. The criticisms about lack of transparency and real engagement are strong and not lightly dismissed. We were particularly concerned to hear that the CEC had failed to consult local organisations with rights to nominate key workers. Regardless of the outcome of this particular proposal, we recommend that the CEC review their community and local stakeholder consultation processes with a view to increasing transparency and engagement.

Opposition to the CEC's proposal

44. Setting aside their concerns about the handling of the consultation, residents and other stakeholders had more fundamental objections to the subject of the consultation. Their first set of objections concerned the rights of current tenants. Particularly given that a purchaser has yet to be identified, residents and their representatives argued that a change of ownership could lead to increased rents or charges for current residents. During oral evidence, the CEC were able to provide some reassurance, informing us that "the rent regimes on all the different types of tenancies are secure when and if a new owner takes over[ ... ]. Essentially, the bottom line is that for existing tenants the security of tenure and the rent regime that they currently enjoy would transfer to any new purchaser."[58] The Chief Executive subsequently wrote to us to confirm that:

[ ... ] should this proposal proceed, any new owner would manage the properties subject to the tenants' existing rights as set out in their tenancy agreements and, for those that were issued with a tenants' handbook, the rights outlined within that handbook; a new landlord, or indeed any subsequent landlord, would not be able to change this. These protections are encapsulated in the Law of Property Act 1925 and the Landlord and Tenant (Covenants) Act 1995.

45. There are, however, a second set of objections to the proposal. Ms MacQueen of Westminster City Council, told us that, with regard to:

Camden Council made a similar argument in their written evidence, stating that "there is also a concern that future lettings of flats may be at full market rents which could well put the homes beyond the reach of workers such as nurses."[61] The local MPs too drew attention to the number of organisations who currently nominate key workers, and thus stand to be affected by a change of ownership; "eight hospitals...The London Ambulance Service, ten NHS Primary, Community and Mental Heath Trusts, the London Fire Brigade, London Underground and Transport for London, the Metropolitan Police, the Education Departments in Camden, Westminster, Hackney, Tower Hamlets and the House of Commons." They also drew our attention to an unwelcome possible precedent in that, after the Church Commissioners sold their affordable housing in south London to Grainger PLC in partnership with Genesis Housing Association "rents rose, the key worker scheme was abolished and some of the properties have been sold off."[62] In this context, they noted that Paul Clark, the CEC's Director of Investment and Asset Manager had previously worked for the Church Commissioners and had been responsible for that sale.

46. The CEC offered less reassurance about the future of affordable housing and key worker housing in these estates, should they be sold off. Whereas Mr Bright felt able to give existing tenants "a categorical assurance,"[63] when it came to future occupancy, he stated only that "when it comes to deciding who might take over these properties, if we go ahead, we are going to be looking very closely at the management prospectus that they hold out to us. We will certainly want to take that very much into account before we reach any decision."[64]

47. The key question is 'to what extent should the CEC take account of concerns about the future of affordable housing and key worker homes on these estates?' or, couched in more general terms, 'to what extent can and should the CEC accommodate wider public interests within their duty to maintain and enhance the value of the overall Crown Estate and the return obtained from it for public funds?' This question gets right to the heart of the tension we identified earlier over the interpretation of the requirements of good management in the case of the CEC.

48. The CEC themselves consider their arguments in favour of proceeding with the sale are clear. To ensure that the Urban Estate continues to enhance revenue and value, they need both to concentrate on its high value assets and to diversify. In order to diversify, they need to raise investment funds by selling off 'non-core" assets. As the CEC explained to us "obviously the capital we realise from any sale [ ... ] and the disposals that we make [ ... ] the capital then becomes available for re-investment elsewhere in the portfolio. There are a number of priorities for that re-investment elsewhere."[65] From this perspective, selling to a "housing provider whose mainstream business is managing and owning this kind of housing"[66] is fully in accord with the CEC's core duty to maintain and enhance revenue and value, while having due regard to good management.

49. Opponents of this proposal, however, did not agree with this assessment of the CEC's obligations. They noted first that "affordable housing has been provided by the Crown Estate since shortly after the First World War"[67] and considered it was disingenuous of the CEC to argue that they lack expertise in managing this type of housing. They also saw no compelling financial imperative to sell, given that, as Ms MacQueen pointed out to us, the CEC had previously been able to fund "very complicated and very major schemes"[68] in central London using other means. They argued that the CEC should retain ownership of these estates as part of its stated commitment to stewardship, communities and sustainable development. They argued, moreover, that "due regard to good management" in these circumstances should be interpreted more broadly as an obligation to protect the scarce supply of social housing, key worker accommodation and, more generally, to protect community cohesion in the wider public interest. Regent's Park Ward councillors, for example, put the wider case against the proposals as follows:

50. Given the paucity of such housing in London, the direction the CEC decide to go in this instance is a substantive policy issue. When we put this to Sarah McCarthy-Fry MP, the Exchequer Secretary to the Treasury, we were surprised first that HM Treasury did not appear to have been informed of the decision to initiate a consultation exercise and second at how cautious Sarah McCarthy-Fry MP and her official were about their ability to influence the CEC's final decision. She did confirm that "I would expect the Treasury to be consulted, of course, on this" before the CEC made its final decision, but considered that "whether I would then be able to issue a direction if I thought that they were not going in the right direction and I thought that they were doing something that was contrary, as I said it comes back to whether it would be considered reasonable and whether they were acting outside their remit."[70] Her official, Ms Paula Diggle, Treasury Officer of Accounts, appeared most concerned about the narrow issue of whether tenants' rights were protected, observing that "If I thought that none of that was going to happen I would certainly want to tell the Minister and want to consider intervening. It does not seem that that is going to happen."[71]

51. We will explore Ministers' power to provide guidance and to direct in more detail in section 9. Having regard to the wider interests at stake, and on the basis of what we have learned during the inquiry, we recommend that the CEC should examine and set out clearly how they take their good management obligations into account in decisions on residential property. More generally, we note the extent to which local stakeholders were taken by surprise by the CEC's proposal to sell-off residential housing, and urge the CEC to engage more fully with key public bodies in London about their future plans for their London portfolio and their potential impact on London communities.

35 The Crown Estate, Annual Report, July 2009, p 6 Back

36 Ibid., p9 Back

37 Ev 79 Back

38 Ev 111 Back

39 Q 85 Back

40 Q 97 Back

41 Ev 95 Back

42 Ev 44 Back

43 Ev 44 Back

44 Q 172 Back

45 Ev 102, LHAs are required to hold a ballot of residents if a stock transfer is planned. Back

46 Ev 107 Back