Council                                                              

Thursday 16^th July 2026

Title	Disposal of a Commercial Asset – addendum
Purpose of the report	To make a decision
Report Author	Coralie Holman – Group Head Assets
Ward(s) Affected	All Wards
Exempt	No
Exemption Reason	Not Applicable
Corporate Priority	Resilience
Recommendations	Council is asked to:   1)    Approve the proposed disposal on the terms set out in this report; and   2)    Delegate authority to the Chief Finance Officer and Group Head of Assets, in consultation with Chair and Vice Chair of Corporate Policy and Resources Committee to agree minor variations to the Heads of Terms and adjustments to the sale price; and   3)    Delegate authority to Group Head of Corporate Governance to enter into a transfer to complete the disposal and any ancillary legal documentation required in relation to the proposed disposal.
Reason for Recommendation	Agreement to the recommendations in this report will contribute to the reduction in the Council’s future financial commitments, generate a capital receipt at the earliest opportunity and in particular before 31/3/27 and reduce the Council’s Capital Financing Requirement (CFR), repay borrowing and reduce West Surrey Council’s Minimum Revenue Provision (MRP) liability.

 

 

 

1.            Executive summary of the report

What is the situation	Why we want to do something
•      The Council is under statutory directions to implement debt reduction plan and asset rationalisation programme  •      The recommendation in this report aligns with the Statutory Intervention objectives	•      All the Council’s investment assets, once financing costs are considered, are loss making and are a burden on the revenue budget. To move the Council and West Surrey Council to a sustainable financial position it is necessary to dispose of these assets
This is what we want to do about it	These are the next steps
•      To dispose of World Business Centre 4 and generate a capital receipt	•      Enter into a contract to sell this asset

 

2.            Key issues

Background

2.1         The proposed disposal of World Business Centre 4 was considered at the Corporate Policy and Resources Committee on 13th July.  The Committee agreed to recommend to Council to approve the disposal.

2.2         The Committee requested that a publicly available report be presented to Council for transparency and accountability, which has been addressed via this addendum.

2.3         This asset is located within the Heathrow compound, and was acquired in 2017 as part of the Council’s commercial property assets acquisition programme, which intended to realise additional income for the Council to fund discretionary front-line services.  The asset was purchased for £50.3m (including fees and stamp duty) fully funded by borrowing from the Public Works Loan Board (PWLB). 

2.4         In November 2025 to comply with the Statutory Direction issued May 2025, the Council restructured its PWLB loans to reduce borrowing and changed its MRP Policy to set MRP fully in line with the Statutory MRP Guidance as directed by the Secretary of State in the May 2025 Statutory Direction to the Council.

2.5         Whilst the debt restructuring has reduced overall borrowing, interest rates on the replacement borrowing are significantly higher. All the assets in the investment asset portfolio are therefore a burden on this Council’s budget. 

2.6         In response to the Statutory Direction issued May 2025, the Council have adopted an Improvement and Recovery Plan (IRP).  The IRP focuses on the Council’s commitment to achieve long-term financial stability of which a key requirement is rationalising the Council’s commercial asset portfolio over time to reduce borrowing and put the Council and West Surrey Council on a more sustainable financial footing.

2.7         The disposal of a number of assets prior to commencement of the West Surrey Council tenure, in order to reduce its Minimum Revenue Provision charge for 2027/28, is therefore considered a vital proactive priority to reduce the financial deficit from underperforming property and therefore relieve financial pressure on the new council.  This will enable West Surrey Council to maintain vital service provision for residents and the wider community of which Spelthorne forms a key integral part.

Assets review

2.8         Following the Council’s decision in December 2025 to implement a commercial asset rationalisation plan, Knight Frank, a leading real estate agency, were appointed following a procurement exercise, to advise the Council on its asset rationalisation proposals and undertake the marketing of selected assets for disposal.

2.9         Knight Frank undertook a comprehensive review of all the Council’s commercial assets and provided advice centred around a phased disposal programme to ensure best consideration (which is the requirement under s.123 of the Local Government Act 1972) would be achieved for each disposal.  Consideration was given to the property specifics of each asset in terms of tenant profiles, security of income, forthcoming lease expiries and the level of vacant space within a building.  These criteria were used and considered against the property market conditions and current investor preferences and risk which in turn identified suitable assets for inclusion in the phase 1 disposals.  It is proposed that phase 1 disposals would be marketed during the first half of the financial year 2026/27.

 

Marketing

2.10      Marketing of the asset was ‘targeted’ to organisations, who were known to be seeking similar asset types in terms of use, location, financial return and risk.  Marketing brochure has been prepared and was circulated to interested parties; the target disposal price was £25.6m.

2.11      Interested parties were given access to a virtual data room, which contained all relevant information about the asset and were able to undertake a visit to the asset.  Based on this information and visits, following a marketing period of 5 [CH1] weeks, Knight Frank set a deadline for offers to be received from interested parties.

 

Bids received and proposed sale terms

2.12      There was positive interest in the asset and several competitive bids have been received.  All the bids have been carefully assessed, and the preferred bidder had been selected for approval by the Council.

Office Real Estate

2.13      Whilst the recommended disposal price is less than the purchase price, the two values are not comparable as the property market now is significantly different from the time when the Council purchased the asset.  The purchase price reflected the office market pre-Covid. Due to economic and geopolitical reasons, the property market is considerably different now which is impacting rents and investor interest in office buildings.

2.14      The office investment market has experienced a significant decline since 2017.  There has been a reduction in asset sales and a huge drop in office asset values not just within the locality of this asset, but nationally due to structural shift in how people work, with many people now working on a hybrid basis with less emphasis on the requirement for 5 day a week office working, lowering demand for office space.

2.15      In addition, a rise in inflation and higher interest costs are impacting property returns and capital values.  Sector data indicates that the overall share of the office sector as part of commercial property investment has fallen by 39% since 2019.

2.16      There remains a lot of uncertainty in how the office sector will perform over the next 12 months.  Whilst there remains some optimism the key regional cities i.e. Central London will continue to see some improvement, any recovery will take time to filter into the regional areas.  This, together with the reducing unexpired term of the occupational lease, is likely to negatively affect the asset’s attractiveness in the market and the Council will continue to feel the impact of financing costs that exceed income levels.

    Asset Performance

2.17      The property has been identified as an underperforming asset.  In the financial year to 31 March 2026, it negatively contributed to the revenue budget with the property income insufficient to cover the operating and financing costs.  This asset has seen a significant fall in value since acquisition in 2017.  There are no realistic prospects of the asset’s value returning to its purchase price.

2.18      Selling the property will generate a capital receipt, which the Council will apply to repay loans and reduce the CFR and in turn future years’ MRP charges associated with the site.  This will relieve pressure on this Council’s and West Surrey Council’s revenue budget due to reducing financing costs and removal of on-going vacant property costs relating to this asset.

2.19      The disposal is in line with the Improvement and Recovery Plan which seeks to reduce this Council’s exposure to commercial property risk and debt. 

3          Options appraisal and proposal

3.1       Option 1 – Agree the proposed disposal (recommended)

The marketing of an asset is the best way to determine its realisable value, therefore based on the circumstances set out above, the disposal price is expected to be the highest price the Council will achieve for the asset.  This is supported by the recommendation from Knight Frank.  It should be noted that with each year the remaining term of the occupational lease reduces, which impacts the asset’s value, meaning that until a lease renewal or new letting is agreed the value will continue to reduce year on year. 

 

The sale will save the Council substantial revenue budget costs in 2026/27 (and MRP financing costs from 2027/28) which is currently having a negative impact on the Council’s financial position.

 

The Council is under a Statutory Direction to reduce borrowing and the capital receipt generated will be applied to reduce borrowing and reduce CFR and MRP. 

 

3.2    Option 2 – Decline the offer and continue to market the property

Further marketing is not expected to achieve a higher sale price. Knight Frank, the Council’s appointed agent, have approached other parties who may have an interest in acquiring the property, but they have declined to make an offer.  There is no evidence to support a higher sale price if we continue to market for a longer period or broaden the marketing to any interest party.  The Council will see a reduction in asset value as the lease term reduces and there is a high risk of losing the buyer if the Council does not accept the offer.  This option is not recommended.

 

3.3       Option 3 – Hold the property

  This option is not recommended as the Council has received clear statutory directions from Government to reduce debt, improve financial resilience and implement an asset rationalisation programme.   In addition, this would be contrary to Best Value Duty.

 

4             Risk implications

4.1      The Council’s appointed advisers, Knight Frank and Clyde & Co, will undertake the mandatory money laundering checks on the prospective purchaser and any person of significant control within the company.  The buyer has been professionally advised and has a UK based solicitor.  We have no concerns over the intention or commitment of the buyer, however, until contracts are exchanged, as with any disposal the legal process proceeds at risk of going abortive. To mitigate this risk the sale process will be monitored by the Asset Management Team and Knight Frank. 

4.2      There is the risk that by not openly marketing we could be missing out on a           higher offer.  However, as the report details, marketing has been targeted to          those investors whom the agent knows would have specific interest in this type        of asset profile, hence other offers received would not be expected to proceed        to completion without substantial amendments and delays.

4.3       The sale is subject to the legal due diligence process, a satisfactory report on       title and an agreed contract.  The Council’s external legal advisers Clyde & Co will draft the sale contract and ensure all legal compliance.  It is possible that an         issue of concern to the purchaser is raised during the legal process which may         result in the purchaser reducing their offer or withdrawing completely. 

 

5          Financial implications

5.1       Disposing of the asset for the sale price will generate a capital receipt in     2026/27. This will be used to reduce the Council’s CFR and thus reduce the      MRP charge to council tax in 2027/28 and beyond, by applying the receipt to    the assets with the shortest remaining residual CFR.   This is in line with the       Statutory Direction to reduce debt. It will also avoid the future decline in the             value of the asset and the ongoing annual loss.

6          Legal comments

6.1       Further to sections 120-123 of the Local Government Act 1972, the                                     Council has the powers to acquire and dispose land and property subject   to         complying with the certain statutory requirements, one of which is securing       the best consideration that can reasonably be obtained. To satisfy the best        consideration requirement, an independent valuation and advice are                 strongly advisable.

6.2       Any disposal will be subject to the terms of the contract, transfer and any               other necessary legal documentation. The Council’s in-house Legal                       Services will support the sale with external legal advice.

6.3       Failure to obtain best consideration from the proposed disposal may                       expose the Council to risk of legal challenge by way of a judicial review which   will result in substantial legal costs and reputational damage.

6.4       In accordance with part 3(b) of the Constitution decisions on freehold                     disposal of investment assets are within the remit of Corporate Policy and                      Resources Committee, but in view of the corporate significance this                  disposal is referred to Council for final approval. [CH2] [HL3] 

Corporate Implications

 

7             Commissioners’ comments

7.1      Commissioners strongly support the recommendations of this report, as                 they

·         align with the directions issued to the Council by the Secretary of State on 8 May 2025;

·         align with the principle of asset rationalisation agreed by Council on 17 November 2025;

·         enable the council to deliver on the 26/27 budget and reduce the risk of a need to make further savings during the current financial year; and

·         support the delivery of the MTFS over subsequent years and the sustainability of West Surrey Council and therefore reduce the risk to West Surrey residents of future cuts to services

 

8          S151 Officer comments

8.1      The Section 151 Officer confirms that all relevant financial implications have been identified and evaluated.  The S151 Officer supports the recommendation for disposal at the proposed price, as this is consistent with compliance with the statutory Best Value Direction and with improving the Medium-Term financial sustainability of Spelthorne/West Surrey Councils.

 

9          Monitoring Officer comments

9.1      The Monitoring Officer has been consulted on this report and confirms that subject to the matters set out in the report, and provided that all applicable statutory requirements (including Best Value Directions of May 2025) have been addressed and proper process is followed, the proposal can be considered legally compliant.     

10        Procurement comments

10.1    The appointment of Knight Frank as the Council’s external property advisors followed a procurement process under the Procurement Act 2023, which was undertaken in line with the Council Contract Standing Orders and the Procurement Board requirements.

11        Equality and Diversity

11.1    There are no direct equality and diversity issues arising from a property disposal as the sale doesn’t impact the current operation of or occupiers of the asset.  The marketing, viewing and bidding process was undertaken ensuring there was no discrimination against prospective buyers.

12        Sustainability/Climate Change Implications

12.1     The property has a valid EPC rating of A which complies with The Energy Performance of Buildings (England and Wales) Regulations 2012. 

13        LGR / other considerations

13.1     Not disposing of this asset in 2026/27 is likely to increase financial pressures on the new West Surrey Council which would have a significant impact on its budget setting. 

 

14        Timetable for implementation

14.1     If the proposed disposal is approved in principle, the legal process will proceed to exchange of contracts and then completion of the disposal which is anticipated to be within 6 weeks.

15.       Contact

15.1     Coralie Holman Group Head Assets c.holman@spelthorne.gov.uk

 

 

 

Appendices:

 

Appendix 1 – Exempt information