Why councils' Monopoly-board style purchases of retail parks and office blocks may soon become a thing of the past

Tightening rules around councils buying up properties could stunt regeneration in places like Wakefield, it's been warned.

The council bought the site for £13m before the pandemic.
The council bought the site for £13m before the pandemic.

Wakefield Council bought the the city's Westgate Leisure Park - home to Pizza Hut, Cineworld, Mecca Bingo and Nando's - for £13m in 2019.

The council says the food and entertainment complex is bringing in vitally-needed cash from rent, that can then be reinvested in services.

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Four other properties it bought between 2018 and 2020 included two warehouse units in Wakefield and Normanton respectively and two office blocks - Melbourne House at Carr Gate and Lapwing House, off Denby Dale Road near Durkar.

The council admitted that the site's value dropped during the pandemic, though they said they expected it to recover its value over time.

But Monopoly board-style deals such as those could soon become a thing of the past.

The government is proposing a ban on councils borrowing money if they can instead make cash by selling properties that were bought as investments.

Local authorities will also be told to demonstrate that purchases they make are directly related to their everyday duties and have a long-term purpose beyond money-making.

Wakefield Council insists that, while the five assets it bought between have turned around £1.5m of rental income this year alone, they were purchased with regeneration and economic growth in mind.

Cineworld is one of the businesses based at the complex.

But speaking at an audit committee meeting on Monday, the council's chief finance officer, Neil Warren, warned there could be "unintended consequences" and "grey areas" as a result of the crackdown.

Asked if they could "constrain" councils in their efforts to regenerate land, Mr Warren replied: "Potentially.

"Compliance with statutory guidance is a discussion that I'd have to have with our chief legal officer.

"We'd need to be absolutely assured that any proposal is in line with our statutory duties.

Pizza Hut is also located on the site.

"And there are grey areas. For example, if you're looking to purchase land as part of a longer term regeneration project, that might take a number of years to come into fruition.

"But in the meantime you might want to hold that asset for a number of years."

The council later said that Westgate Leisure Park, Melbourne House and Lapwing House all fell in value during the pandemic, as lockdowns hit hospitality and demand for office space collapsed.

The authority insists it expects all three to "fully recover" their value over time, and say the taxpayer has not lost out as none of the properties have been sold at a loss.

Could the days of councils making Monopoly board-style purchases soon be over?

Mr Warren said councils buying properties for commercial reasons was "not a new thing".

But he suggested that the rules were being tightened because of other councils "perhaps pushing the boundaries", and taking on investments that were either too big, or buying properties hundreds of miles away.

The Hertfordshire city is 167 miles south of Wakefield. Leaders there refused to say exactly which building they'd bought when asked in 2019, but admitted the deal would help them achieve "long-term income growth."

Mr Warren said that Wakefield Council carried out extensive due diligence when it bought places like Westgate Leisure Park.

He explained that that included clarifying exactly how much money could be made from rent and how secure those businesses paying for a leasehold are.

That information is then used to establish whether or not the purchase is sound, but the government's new proposals say that councils doing those checks could fall foul of the rules, as in their eyes it suggests a property is being bought purely for profit.

Mr Warren warned that as a result, "It's almost encouraging local authorities to go into riskier ventures, than they would have otherwise done.

"That's perhaps an unintended consequence."

Local Democracy Reporting Service