HEREFORDSHIRE Council has been warned of a need for "extensive" due diligence ahead of its proposed £3 million purchase of Hereford's Three Elms trading estate.

The Hereford Times revealed plans for the purchase last month with the council ready to borrow nearly £2 million to buy the estate off the Homes and Communities Agency (HCA) and another £850,000 for site improvement work.

The deal needs to be done by the end of the year or the HCA will put the site on the market.

But a paper prepared for the council's cabinet stresses a need for extensive due diligence  to investigate key issues which could affect the viability of the proposed purchase.

As outlined, such diligence would include reviewing all current lease and licence arrangements relevant to the site that, if acquired, would be subject to terms that bind the council whether favourable or not.

Cabinet is expected to approve the purchase when it meets next week.

The council believes it is buying a site with the potential for “major economic development” that could contribute “significant surplus income” to its coffers.

An annual cost of borrowing the total amount is pitched as £164,000 for 25
years.

This is made up of £98,000 for the purchased of the freehold and £66,000 for improvement works.

By the council's calculations, the current net rental income generated from the estate is £180,000 that could fund the borrowing repayment over that 25 year period, with planned improvements seeing occupancy rates and rents rising.

The 2.786 hectare 21 unit estate site - with just over a hectare of development land - is owned by the HCA which took ownership from Advantage West Midlands (AWM) the now defunct regional development agency.

AWM originally acquired the estate to re-locate businesses from the area of Hereford’s Edgar Street Grid/Hereford Futures project.

The council owns land on the northern boundary of the estate with an estimated employment use value of £200,000.

This land has outline planning permission for employment use but it cannot be accessed or serviced other than through the trading estate.

The council claims it can only only release the value of this land by
either purchasing the trading estate and merging the two land areas or by purchasing access rights and easements from the owners of the trading estate.

The HCA has indicated that this "could be considered" but only if the land were to be sold at the same time as they sell the estate and the council shares the sale proceeds of its land on a 50/50 basis.

This would mean the council receiving only 50 per cent of the commercial value of its land and a new owner may not be prepared to grant access or easements.

Cabinet will be told that if the HCA offers the property for sale on the open market - with a deal done by March next year - the new purchaser may have different objectives and pressures and, while it may be possible for the council to establish a relationship that could see some recognition of its priorities, these would "only be secondary".

HCA has no plans to keep the estate which it has already identified for disposal by next year.

The agency agreed to delay the disposal  so the council could make a case to the inquiry into compulsory purchase orders for the Hereford link road.

Cabinet will be told that the HCA will  put the estate on the market by March next year unless a sale to the council is completed this year.