Decision details

That the Executive:

i)        Noted the position set out in this report regarding the legal ownership of the KLV site arising from the nature of the Council’s and PLMS’s leasehold interest;

ii)       Noted the Options Review produced by Max Associates, and that these options are predicated on the Council having full control of the site which it currently does not have;

iii)     Noted the Council is not able to take control of the site and take on the day to day running of KLV under any of the options laid out in the Options Review due to the nature of its legal interest;

iv)     Noted the recommendation in the Options Review that, should the site come back into the full control of the Council, in the short term, an external contractor would be the most sustainable solution, but also notes the subsequent budgetary pressure this would create, whilst the wider management model for the Council’s entire leisure portfolio is considered.

v)      Endorsed the current proactive approach of the Leisure and Asset Management teams in working with PLMS to support the ongoing business growth and development of future plans.  

Reasons for Recommendations:

·       The Council is not in control of the KLV site and legally has limited step-in rights to manage the facility and the obligations within the sub-underlease that require the sports facilities to remain open. Courts do not support keep open clauses and the only recourse they would consider if a breach occurred, is compensation to the landlord of any loss of income etc. This would not resolve the issue and it is not likely that any compensation awarded would fully compensate any loss, nor does it guarantee PLMS could pay such costs. PLMS has confirmed its commitment to the site and has made recent capital investment into it.

·       The Council is engaging with PLMS in its capacity as Landlord to explore ways it can continue to support the sustainability of the centre, without financial detriment to the Council.

·       The Council is in the process of developing a Leisure Facilities Strategy and a review of Future Management Options for the whole of its leisure estate which will report in early 2025. Any future decision regarding KLV needs to be considered in this wider strategic context.

·       There are no management options as a result of the legal interests in the site. It is therefore not an option for the Council to take on the running of KLV.

Alternative Options Considered:

·       The Council could approach PLMS and ask that they voluntarily relinquish their lease and all rights to the site, at no cost to the Council. Alternatively, the Council could open negotiations with PLMS to surrender their lease at a premium to the Council. Either of these two options could give the Council control of the site. These options are not recommended as the options appraisal confirms that the Council operating the site is not financially viable.

·       PLMS have not shown any indication that they would wish to relinquish the lease without payment. The cost of a negotiated surrender is currently unknown as it would be dependent on PMLS bringing this option forward, a condition survey of the building and on business growth and profitability at the point of sale. For KLV, this is continuously changing and currently improving, from almost a restart position, following the threat of closure in the summer of 2023. Market value does not reflect worth to the Council, nor necessarily does the price Phoenix would accept to surrender the lease. 

·       Notwithstanding that the option to negotiate a surrender of the lease is a matter for PMLS to bring forward, to do so at any cost to the Council, is not recommended at this stage. However, dialogue will continue to be held with PLMS on their future plans for the site, in particular how the tenant will ensure investment in the asset is secured to safeguard any financial risk to the Council of dilapidations and ensure the preservation of the asset. 

·       Whilst both of the above represent the conditions under which the Council could have control of the site, neither are viable options for the Council.