Scottish Urban Regeneration Forum New delivery vehicles – revisited URCs & OTHER LEGAL STRUCTURES A presentation by Stephen Phillips, Head of Public Sector Unit, Burness LLP 28 September 2006

URCs & other legal structures Delivery: 3 basic models Corporate vehicle – key advantages Engagement with the private sector Building the legal framework – URCs and beyond….

Delivery mechanisms for integrated large-scale regeneration projects Driving the overall project: the three basic models Single agency – in-house team Partnership approach – steering group, with lead/host partner(s) Corporate vehicle

Corporate vehicle: key advantages Separate vehicle for engaging consultants; employing core team; channelling funding May (if appropriate) be used as a vehicle for assembling property interests; and/or directly delivering infrastructure and community assets May assist in providing a mechanism for recycling of proceeds Provides the benefit of limited liability (though at a practical level, very difficult to walk away in the context of a major regen project) Can facilitate greater accountability and better governance A dedicated resource operating to deliver an agreed vision

Corporate vehicle (cont) Seen as demonstrating long-term commitment on the part of public sector partners Some degree of independence from the agendas of the respective public sector partners Formation of board ought to facilitate a partnership approach to decision-making Facilitates engagement with the private sector Over-riding objective: to create a climate of confidence to encourage and facilitate private sector investment The URC model in Scotland – seen as delivering above advantages.

Corporate vehicle (cont) As compared with a partnership model: -creates a much simpler framework for bundling the various legal relationships (and, if appropriate, property interests etc) -facilitates the introduction of more robust legal commitments as regards future funding/contribution of land assets etc -helps to foster more of a partnership ethos in decision-making -perceived as demonstrating greater commitment to the project -facilitates recycling of proceeds -introduces a range of further possibilities with regard to private sector engagement (including loan and/or equity funding) but -may be more difficult to establish -involves additional formality/infrastructure (though one of the partner bodies could take on the role of servicing the vehicle) -may introduce tax, sdlt, VAT issues

Engagement with the private sector A private sector partner can engage: at board level within an overarching regeneration body via consultancy support via equity participation (joint venture company or LLP) as a commercial lender as a developer

Engagement with the private sector (cont) Controls in relation to private sector regeneration activity can include: informal partnership agreement planning controls, esp. via s.75 Agreement grant conditions development agreements (or other contractual arrangements) structure of property interests checks/balances within a corporate structure

Engagement with the private sector (cont) In developing overall legal framework, there needs to be clarity on nature of engagement by private sector players, and level at which they engage (eg overarching body or individual JVs) Entrepreneurial drive can give real impetus, but robust boundaries need to be set Need to have regard to full toolbox in setting checks & balances – planning, contractual, property-based, corporate Needs to be proper appraisal of risks, and realistic allowance for private sector returns Issues of EU procurement and state aid principles need to be taken into account

Building the legal framework –URCs & beyond Key issues: Any intention to distribute profits to public sector partners? Nature of overall project: eligible for charitable status? Approach to public sector land assets Funding model: esp. requirement (or otherwise) for private sector equity input; requirement (or otherwise) for asset base as foundation for borrowings (but potentially linking in with more sophisticated investment structures, if and when these emerge in Scotland)

Building the legal framework (cont) Key issues (cont): Nature of engagement(s) with the private sector Mechanisms for recycling of surpluses/tax mitigation Relationship with other strands within the overall regeneration objectives inc. community engagement, employment/training Key elements of the contractual framework

members directors Building the legal framework – some examples Company limited by guarantee – Clydebank Re-built Ltd. (URC) W. Dunbartonshire Council (MSP) (MD) (Private sector) (Community reps) (Communitie s Scotland) (MP) (experts in regen) SE Dunbartonshire

Building the legal framework – some examples Group structure – Clydebank Re-built Clydebank Re-built (company limited by guarantee) (charitable) funding for charitable elements [illustrative] co limited by shares private sector equity funding gift aid public funding dividends Clydebank Property Co Ltd (company limited by shares) (non-charitable) gift aid private sector loan funding land/ cash

Building the legal framework – some examples Company limited by shares – Waterfront Edinburgh Limited Financial returns Land Cash SEE & L CEC Waterfront Edinburgh Waterfront Edinburgh (Company limited by shares)

Building the legal framework – some examples Company limited by shares – PARC Craigmillar Limited PARC Craigmillar Limited (Company limited by shares) CEC Land Community Assets Financial returns EDI CECH Cash

Financial Returns Building the legal framework – some examples Cash Limited liability partnership (LLP) - illustrative Financial Returns Land Community Assets Cash Community development trust Council Private sector partner LLP

URCs & other legal structures Key points: A corporate vehicle can deliver significant advantages There needs to be full clarity over nature of engagement(s) with the private sector The full toolbox should be considered in setting the checks and balances There needs to be a proper appraisal of risks/returns; and a proper procurement process in selecting private sector partners The URC badge is secondary to the need to ensure that the legal framework is fit for purpose