10 Year Lease Deals: Value for Money and Savings Assessment
31ten was appointed to support the London Borough of Redbridge to model the financial impacts and assess risks created from renegotiating homes from short-term (12/24-month) leases to 10+ year leases to allow the Council to recoup a greater amount of rent through the benefits system and reduce their ‘subsidy loss’.
31ten was appointed to:
- Undertake a strategic risk review of the programme to support the Council’s decision-making committee.
- Undertake financial modelling and due diligence to assess each of the agreements.
- Develop financial risk modelling to assess the strength of the Council’s key financial assumptions.
- Advise on the financial, SDLT, governance and regulatory requirements.
- Provide strategic advice to the Council in relation to alternative delivery models and risk mitigation.
The Role
- 31ten worked closely with the Council’s finance and housing departments to scope out the scale of the opportunity based on 31ten’s experience of supporting other Councils to assess alternative delivery models.
- As there were nine lease agreements with different freeholders covering 1,250 properties, 31ten developed a base financial model against which each deal could be assessed. We developed a key set of financial assumptions that were built into the financial model as a central scenario, but which could be easily changed to allow each deal to be accurately modelled based on the negotiated agreement (for instance different LHA rates, different rent review dates etc.).
- 31ten specifically conducted due diligence and reported on the financial benefits for Redbridge associated with the first negotiation, involving 212 units, and tested multiple scenarios.
- 31ten developed a detailed overall risk assessment with an accompanying mitigation strategy for the Council which highlighted the key practical risks, for instance many voids, but also the strategic level risks such as future changes in the regulatory framework.
Key Outcomes
Risk Assurance: 31ten developed a detailed risk assurance framework and recommendations which allowed the Council to plan for and mitigate the risks by developing reserves, purchasing insurance policies, and developing a set of key monitoring indicators for managing the asset base.
Value for Money: 31ten’s in-depth knowledge of the market, coupled with our financial modelling, enabled us to provide a Value for Money assessment for the Council to support through their governance process.
Savings: The analysis demonstrated that the first renegotiation has the potential for the Council to reduce the subsidy gap by over £1.4m per annum for each of the 10 years.
