The RMT and LUEngineering Branch have been working hand in hand with the local community around Earls Court to save our LillieBridge Depot and support the West Kensington and Gibbs Green Estates against social cleansing.
Below is some information about the campaign and how state aid is used to help the rich get richer.
Earl’s Court: Complaint to European Commission alleges Council gave £1.5 billion in unlawful state aid to Capco
A West Kensington resident has submitted a formal complaint to the European Commission alleging that Hammersmith & Fulham Council gave £1.5 billion of unlawful state aid to Capco, the company redeveloping Earl’s Court. The state aid arose from the Council’s previous Conservative administration signing a contract for the sale of 22 acres of land occupied by the West Kensington and Gibbs Green estates for £90 million – well below market value. For the past seven years, the estates have been at the centre of a high profile campaign by residents to save their homes from demolition.
The amount of unlawful state aid provided by the Council to Capco was estimated on four different commercial bases. All of them showed a very large element of state aid. The analysis, carried out by consultant Dr Richard Fordham, estimated, on the strongest basis, state aid of £1.5 billion. This was calculated using figures Capco published in its annual results on 25 February 2016, which showed the company valued the profit on a similar sized area of adjacent land at £1.274 billion.
The complaint to the European Commission highlights many unusual features of the arrangement with Capco, including:
- Capco was chosen by the Council for the scheme without a public tender, in contravention of Government Guidance on the sale of public land. The Council offered no logic for avoiding a tender process. The market was not tested; and many other well-qualified development companies in London and the EU were denied the opportunity of bidding for the land. Therefore it is impossible for the Council to prove that it obtained the best possible price.
- The phased payments for the land, which run from 2015-2019, were not indexed for inflation, nor is there any review mechanism for the Council to benefit from property price increases. So no value growth was allowed for, despite the deal being struck when the property market was at its lowest point in the recession.
- The Council used PricewaterhouseCoopers to confirm that financial due diligence had been satisfactorily undertaken and Jones Lang LaSalle to confirm the Council had obtained best consideration for the land. Both these firms were also engaged by Capco to audit its own accounts and value its Earl’s Court properties. PwC’s advice was so heavily qualified that, according to its letter, it did not constitute investment advice or provide an assurance.
- The £90 million sale price for the estates’ land is far less than the current estimate of £140 million it would cost the Council to buy back homeowners and to obtain vacant possession from the secure tenants.
- Although the 760 replacement homes were counted in the CLSA as part of the consideration for the estates, they were also calculated into the £452 million planning gain that formed the S106 agreement signed as part of the planning permission agreed in 2013.
Now that the European Commission has received the complaint it is for them to decide whether to mount an investigation. Should they find that there has indeed been unlawful state aid, the most suitable remedy would be either for the CLSA to be declared void and unenforceable or for Capco to pay £1.5 billion to Hammersmith & Fulham Council (net of £45 million it has already paid the Council).
Keith Drew, the resident who made the complaint, said: “The Council entered into a contract for the sale of our homes to Capco for a pittance. They used state resources to confer a huge exclusive unfair economic advantage on a wealthy developer. That £1.5 billion belongs to us. If this is not stopped, Capco stand to make an obscene profit out of public resources, causing misery to a community of 2,000 people. I hope the European Commission will mount a full investigation.”
23 March 2016
Article 107(1) of the Treaty on the Functioning of the European Union states that any aid granted by a Member State or through state resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall be incompatible with the internal market, in so far as it affects trade between Member States.
In January 2013, the Council’s then Conservative administration signed a Conditional Land Sale Agreement (CLSA) with EC Properties LP, a Limited Partnership presently owned and controlled by Capital & Counties Properties plc, otherwise known as Capco (the name used generically by the Council to describe the holding company and limited partnership).
The CLSA requires the Council to transfer phases of the estates to Capco with vacant possession. In exchange for the estates land, Capco has to provide 760 replacement homes and pay the Council £90 million. But the Council has to buy back 171 homes from leaseholders and freeholders and arrange to rehouse all the tenants out of its own resources. Although it will then own 171 extra homes, it will have borne the associated costs of repurchase and taken the risk on the date of signing the CLSA that it would have to buy the properties at progressively higher points in the market to achieve the vacant possession it had undertaken to provide in phases over 25 years to EC Properties LP.
The CLSA is an option in favour of EC Properties LP, exercised wholly at their choosing. There are no obligations on them that can be triggered by the Council unilaterally without their willing participation. Thus, the Council cannot require EC Properties LP to proceed with, or once commenced to complete, the development. EC Properties LP can stop whenever it might be financially convenient for them to do so.
The Council claimed that only Capco could offer replacement accommodation so as to facilitate one rather than two moves for tenants. However, this was plainly wrong since the Council owned a redundant school in the middle of the estates occupying sufficient land area to have provided the replacement homes needed to empty out the first phase on the estates, and which it sold to Capco for £9 million, again without any tender or competition.
According to a review of the financial viability assessment conducted in September 2012 by District Valuer Services, the total Earl’s Court scheme value was estimated at £12 billion. Land Registry data puts the uplift in house prices in Hammersmith & Fulham between 2012 and 2016 at a factor of 1.57. This increases the total scheme value now to nearly £19 billion. Yet, the context for the price agreed by the Council in 2012 was a scheme value of £8 billion.