Investigation recommends governance changes after report criticising business case for £750k acquisition by council of former pub site

Middlesbrough Council’s former elected mayor and chief executive led a decision to buy a former pub for £750,000, which remains in a derelict state and may need £5.5m of structural works.

An investigation by Veritau, a business assurance service owned by local authorities in Yorkshire and North East England, has concluded this was done with only a superficial business case.

Veritau’s investigation report said the former Crown pub is a heritage asset built in 1923, which has stood empty since 2015 and deteriorated significantly to its current dereliction.

In January 2023, the council's executive was asked to purchase the freehold for £750,000 in a report that said the immediate priority was to “ensure the control and protection of a locally important asset” and that once purchased a business case would be developed to restore the building to a viable use.

Middlesbrough bought the Crown in February 2023, since when “the full extent of the dilapidations has become apparent”, the report said.

"The restoration and development costs are likely to be significant. No business case has ever been produced as required by the report to executive.”

Chief executive Clive Heaphy - who was not in office at the time of the purchase - called for an urgent review of what had happened.

Veritau said that after independent Andy Preston became elected mayor in 2019, regeneration of the town centre became a corporate priority with a policy to deal with ‘eyesore sites’, which would be acquired by the council where voluntary improvement or enforcement action was unsuccessful.

A report listed 11 such sites but not including the Crown and without any proposed methodology for identifying and prioritising sites for action.

“We have been unable to establish the date when the Crown became a priority for action as an eyesore site, although it appears to have been sometime before December 2021,” Veritau said.

In January 2022 Preston emailed the director of regeneration and culture asking “shall we get the CPO process started”. The director replied the council would need some legal basis and the challenge would be proving the council needed to buy it.

On 29 November 2022, then chief executive Tony Parkinson attended a regeneration briefing with Preston and various council officers and announced a deal had been reached to buy the Crown. No record of the meeting was kept, Veritau said.

Less than an hour later a representative of the Crown’s owner emailed Parkinson, to confirm they “would be willing to potentially sell, but price would have to be at a level of £750,000 on an unconditional basis”.

Having spoken to Preston, Parkinson replied a few minutes later to say the council “would not be adverse [sic] to purchase at that price with completion before 31 January 2023”.

A report to the executive by the member for regeneration Eric Polano sought approval to buy the Crown for £750,000 although its condition was unknown to the council and it was then valued at £460,000. The cost of future structural and design fees was estimated to be £400,000, and the cost of the restoration and structural works £5.5m.

Veritau said the principal arguments put forward were that the Crown was an important heritage site, could bring potential advantages through its proximity to other development areas and was unlikely to be viable for commercial development. “However, in the absence of a full business case, it is not possible to weigh the strength of these arguments,” the report said.

Veritau said it spoke to some officers who “did not understand the rationale for acquisition” and “were unhappy with the process they were asked to follow”.

It said Parkinson appeared to have agreed the £750,000 price “without further negotiation or reference to a valuation and…asked officers to take forward the potential purchase through the executive”.

He felt the price was acceptable and did not consider it non-negotiable as he would expect officers to negotiate on the price if this was appropriate.

“This appears to conflict with statements made by some other officers who seemed to believe a deal had effectively been agreed,” Veritau noted.

A business case for the transaction was prepared in December 2022 which was “very brief and does not include a full analysis of the costs and benefits for the purchase or any clear rationale, other than that it would ensure the control and protection of an important local asset,” Veritau said.

“Preparation of a business case was a requirement of council policy. However, the business case completed was superficial and did not present a detailed analysis of the case for purchasing the property.”

The report said Parkinson told the owners’ agents the council would not be averse to paying £750,000 but had “no knowledge of the condition of the property or its market value at the time of this communication”.

An issue arose during the purchase process about outstanding business rates owed by the Crown’s owner of some £68,000.

Officers wanted to make its recovery a condition of purchase but Parkinson said this should not be done if it would jeopardise the sale.

Legal services officers highlighted a conflict between the proposed approach to business rates and the corporate debt management policy, which says any amounts owing should be recovered in advance of a contract being concluded or offset against its value.

“However, if this was not done, the report to the executive in January 2023 should explicitly ask that an exemption from the corporate debt management policy be given, to avoid setting a future precedent,” Veritau said.

It concluded: “From the information reviewed during the audit it is not possible to say whether the decision to purchase the Crown appears reasonable or represented best value.

“It could meet a number of the council’s key policy aims, but in the absence of a framework for determining priorities for eyesore sights it is not possible to confirm this…overall, there were a lack of formalised arrangements for taking forward a decision of this nature.”

It recommended a number of governance changes including having mechanisms for capturing information on sites of interest, and transparent arrangements for decision making around significant development priorities.

Property acquisitions should be managed by the relevant professional service, with discussions formally documented.

Preston was defeated in the 2023 mayoral election by Labour’s Chris Cooke. Parkinson left in March 2023.

Mark Smulian