Affordable Housing

There is an entire page here charting the broken promises of replacement affordable housing on the new Heygate, showing how just 82 of the 2,704 new homes will be for social rent.

Environment/Public Realm

Likewise, there is an entire page here charting the broken promises of replacement public realm and original ‘zero carbon’ biomass energy objectives of the regeneration. It also looks at the overall ‘green’ credentials of the Heygate scheme and shows how the entire footprint is going to be privately managed space.

Decant Costs

In July 2007, Southwark Council valued its 25 acre Heygate site at £150m1. The estate comprised 1,212 council homes of which 189 were leaseholders.

The Council spent a total of £51.4m emptying the estate - and this figure doesn’t include lost rental income or administration costs associated with progressing the scheme2. The breakdown provided in this briefing report to is as follows:

Cost Amount
Decommissioning Costs £8.315m
Cost of buyouts £28.373m
Cost of new Crossway Church £5.097m
Tenant relocation & homeloss £5.779m
Council tax on voids £1.819m
Temporary footway & Security £0.419m
Demolition of Wingrave/RR site3 £1.635m
Total £51.437m

The deal with Lendlease

Just 8 weeks after taking power from the Lib dems in 2010, Labour council leader Peter John signed an agreement to sell Lendlease the 25 acre Heygate site for £50m4 and 1.4 acres of the old leisure centre site for £6.5m - significantly less than other E&C development sites which have exchanged hands on the open market.

Cllr John signing the regeneration agrement with Lendlease’s CEO in July 2010

Councillor John argues that the Council will receive a share of the ‘overage’ profits from Lendlease. But the regeneration agreement and this Council briefing paper confirm that overage is only payable once the development is fully completed in 2025. Furthermore, the overage profit share arrangement only applies to profit surpluses over and above Lendlease’s ringfenced 20% “Priority Return” plus a 2.6% “Management Fee”5, which was criticised by the District Valuer’s review of the figures and described as ‘additional profit’.

Extract from the DVS’s review on the Heygate figures

The District Valuer also questioned Lendlease’s excessive profit level and pointed out that most schemes average out below 15%:

Extract from the DVS’s review on the Heygate figures

The amount of ‘overage’ payable (if any) is calculated by Lendlease, which has a track record for accounting disputes over such agreements; in April 2012 it was fined $56m for overbilling authorities on a major public works contract in New York; in Dec 2012 it was sued by city authorities over its calculation of overage on a similar size regeneration scheme in Sydney (which the authorities lost); and in 2014 it was embroiled in a High Court battle with authorities over the terms of a development contract in Northern Australia.

In Feb 2013, Southwark’s Cabinet Member for Regeneration admitted in a local press article that “currently viability tests suggested there was unlikely to be any profit” from the Heygate deal. This was further backed up by the Council’s Project Director in Jan 2014, when he confirmed the possibility of “the council receiving little or nothing from the profit-share provision in the Regeneration Agreement.”6

Southwark has argued that it will receive other contributions from Lendlease. But these are standard s106 obligations that all developers must deliver to mitigate the impact of a given development. This figure includes a £13m local transport levy payment towards the £160m cost of increasing capacity at the Northern Line tube station. The remainder consists mainly of benefits in kind: £24.9m is the ‘estimated’ value of the new ‘public’ park being built by Lendlease and £7.5m is the estimated value of new roads being built within the development.7

In an interview with Australian national broadcaster ABC, council leader peter John claimed that he thinks the Council will receive “north of £100m” from its profit share deal with Lendlease and that he understood that profits would be shared in stages as the development proceeds.

We made an FOI request for the yearly audit report provided by Lendlease to the Council, which showed that “no profit overage is currently forecast to be payable to Southwark Council”.

Extract from the business plan report received in response to our FOI request

Record profits

In the six months up to February 2016, Lendlease reported record profits of $354m(£192m), which it claims were partly down to “strong sales momentum at residential projects at Victoria Harbour in Melbourne and Elephant & Castle in London”.

Its August 2016 financial report confirms that the completed phase 1 of the Heygate (Trafalgar Place) turned a profit in 2016 and that phases two and three (South Gardens and West Grove) are due to turn a profit in 2018/19.

Extract from Lendlease’s financial report Aug 2016

The report also shows that Lendlease had presold 69% of its apartments in phase 3 (West Grove) off plan, netting it $435m (£260m) before construction had barely started.

Key figures and documents still witheld

Southwark Council continues to withold key figures and documents relating to its deal with Lendlease. We call on the Council to stop hiding behind the mask of commercial confidentiality and publish the following documents without delay:

  1. The professional advice that the Council received from external consultants on signing the regeneration agreement.

  2. The unpublished appendices of the regeneration agreement between Southwark and Lendlease.

  3. A full undredacted copy of the District Valuer’s report.

  4. A full unredacted copy of the most recent Annual Business Plan/Audit report

The last item on the list contains the following cash flow forecast showing key cash inflows and outflows to the development account, which are key to understanding whether there will be any overage for the Council. Redacted cash flow forecast showing the development account actuals

Contractual agreement already breached

Despite a policy requirement of 35%, the Regeneration Agreement signed by the council leader in 2010 stipulated that Lendlease was to provide “A minimum of 25 per cent Affordable Housing”(pg 95), which is “to be divided equally between Social Rented Housing and Intermediate Affordable Housing”(page 1). However, when the planning application was submitted in Jan 2013, it propsed 25% affordable housing but Lendlease had substituted most of the social rent component for affordable rent of up to 80% market on the grounds of financial viability.

In 2015, after a three year Tribunal battle by Lendlease and Southwark to prevent its disclosure, the 35% campaign succeeded in obtaining a copy of the viability assessment submitted by Lendlease to justify the reductions in its affordable housing offer.

The figures showed how Lendlease had cooked the books to make the development look unviable and thereby negotiate down its affordable housing obligations.

As a result, of the 2,704 new homes on the Heygate, 198 will be intermediate ‘affordable rent’, 316 shared ownership and just 82 will be social rented. This is a breach of the terms of the contractual agreement with Lendlease, which would have provided for 432 social rented units had it been adhered to. The pitiful 82 social rented homes provided, fall well short of the 500 new homes promised to Heygate residents who had been offered the ‘right to return’ to the estate.8

Revolving doors

It has been pointed out that several senior Council officers involved in the regeneration have gone on to work for Lendlease. Council leader Peter John has also come under criticism for accepting olympic tickets from Lendlease and an all expenses paid trip to Cannes in the South of France.

Media coverage

The topic has been taken up on a BBC Politics show by local activist Peter Tatchell:

Council leader Peter John has also been grilled by Australian national broadcaster ABC, in an interview about the Heygate redevelopment. The following interview was part of the following report by ABC, which was broadcast on australian television:

ABC reporter Steve Cannane also published his full 20min interview with Cllr John, in which he made a number of fanciful claims about the deal he signed with Australian developer Lendlease:

Footnotes:

  1. See paragraph 14 of this July 2007 Executive report 

  2. See paragraph 50(ix) of the Heygate Tribunal evidence for more information on this - “The Council’s costs as at January 2013 amounted to about £47.5 million in capital expenditure and just under £18 million in review costs managing the estate”. The £18m review costs include the lost revenue over the decant period. 

  3. Para 76 of the Project Director’s evidence and this 2012 council report confirm that demolition of the main Heygate site was forward-funded by the Council but reimbursed by Lendlease, but the demolition of the Wingrave/Rodney Rd site was solely funded by the Council. 

  4. See ‘Heygate Headlease Premium’ on page 6 and the ‘Rodney Road Headlease Premium’ on page 10 of the Regeneration Agreement

  5. See “Developer’s Priority Return” and “Development Management Fee” on pg 83 of the leaked Regeneration Agreement

  6. See para 86 of the Project Director’s Tribunal evidence 

  7. See section 2 of the S106 Draft Heads of Terms for details of all S106 planning contributions. 

  8. See page 59 of the original regeneration masterplan and the ‘Heygate Action Plan’ right-to-return documents