Scottish Urban Regeneration Forum New delivery vehicles – revisited URCs & OTHER LEGAL STRUCTURES

1. Scottish Urban Regeneration Forum New delivery vehicles – revisited URCs & OTHER LEGAL STRUCTURES A presentation by Stephen Phillips, Head of Public Sector Unit, Burness LLP stephen.phillips@burness.co.uk 28 September 2006

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

3. 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

4. A dedicated resource operating to deliver an agreed vision 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

5. The URC model in Scotland – seen as delivering above advantages. Over-riding objective: to create a climate of confidenceto encourage and facilitate private sector investment 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

6. 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 ofthe partner bodies could take on the role of servicing the vehicle) • may introduce tax, sdlt, VAT issues

7. 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

8. 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

9. 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 realisticallowance for private sector returns • Issues of EU procurement and state aid principlesneed to be taken into account

10. 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)

11. 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

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

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

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

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

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

17. 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 ensurethat the legal framework is fit for purpose