HEREFORDSHIRE Council considered the liquidator of the former Hereford United launching a legal action that could delay or prevent the transfer of leases on Edgar Street football ground to the new Hereford FC.

The council offered Hereford FC a five year-five month lease on the ground last week at a rental value of £10,000 a year but rent free for two years.

But council papers confirm that some requirements of the Hereford FC bid are still to be signed off and need the "reasonable satisfaction" of a senior officer.

In its deliberations the council also regarded the risk of Hereford FC not meeting rent payments.

While this risk remains acknowledged, the council considers it outweighed by the cost of keeping an empty ground.

Council papers confirm Hereford FC as the only substantive submission made for the tenancy and the stringent conditions the council set for the granting of the lease.

Those papers outline the council’s concern at potential legal impediment to the grant of a new lease being the official receiver, acting as liquidator, pursuing a court application for relief against forfeiture.

The official receiver has been informed of the forfeiture of the leases, and of the council’s intentions to re-let, and has not yet taken, or indicated an intention to take, any steps to seek relief against forfeiture through the courts.

As the appointment of a liquidator is of itself a ground for forfeiture there would be no such grounds for relief against forfeiture to be obtained.

Key to the council’s decision was a lease term that let Hereford FC play league football while ensuing the council complied with its legal obligations.

That lease expires on July 31 2020 and covers five full playing seasons.

Under the Local Government Act 1972, the council cannot dispose - via a lease of more than seven years or a freehold sale - of its land for a consideration less than “the best that can be reasonably obtained” in the market, except with the express consent of the Secretary of State.

If market value was not obtained the council could seek to rely on the exception granted in 2003 further to the 1972 Act relying on the social benefit conferred by the lease.

This could however be challenged.

The  granting of a tenancy transfers significant risks from the council to Hereford FC as tenant – including national non domestic rates liability, property & contents insurance, and maintenance & security of the ground.

In reaching its decision the council considered risks including:

* Hereford FC going into liquidation and unable to fulfil its requirements under the lease.

As such, the agreement is subject to a number of financial solvency pre-conditions being met; proof of income, sponsorship and confirmation of benefactor donations by May 31, quarterly liquidity reports to be provided within four weeks of quarter end and audited annual accounts to be provided within three months of each financial year end.

* Hereford FC vacating or forfeiting the  lease forfeited for non payment of rent.

This risk is acknowledged but outweighed by the cost of maintaining the ground as vacant.

* The council undertakes electrical compliance works and Hereford FC as tenant cannot honour its indemnity to pay for the works and forfeiting the lease.

However, the council concedes that these works would have to be done in any event to ensure safe use of the ground.

Hereford FC will be permitted to allow franchisees to run the restaurant and bar at the ground.

Under the terms, franchisees gain rights of occupation which means on termination of the lease the landlord is left with them, mitigated through the requirement for landlord consent to any such agreement.

The agreement allows the council to terminate the lease earlier than the specified end date through “negotiated settlement” with the tenant unless the lease provisions enabled early termination.

In January, cabinet authorised the cabinet member contracts and assets to seek a new tenant for the ground; delegated authority was also given to grant an initial short term lease.

A draft lease with relevant information was posted on the council’s website on January 28 inviting expressions of interest to be returned by February 19.

This draft was accompanied by a set of selection criteria against which any resultant submission would be assessed.

Hereford FC was the only substantially compliant submission received.

The submission was evaluated by the council’s head of corporate asset management and development manager with legal advice from the deputy solicitor to the council and management accountant.

Some aspects of the submission require further clarification with the council’s assistant director (governance) given the authority to sign the lease once Director of Economy, Communities and Corporate Geoff Hughes has confirmed all outstanding requirements have been met to his satisfaction.

An evaluation report was provided to a panel consisting of council leader Cllr Tony Johnson, the cabinet member for contracts and assets Cllr Harry Bramer and Mr Hughes who received presentations from the bidder on February 23.

Following the presentation and the evaluation report the council agreed on a ease of five years five months.

In securing Hereford FC as a new tenant, the council transfers its maintaining insuring and operating risks to a third party.

It also removes its liability for vacant property rates of £20,000 a year.

The council have a budget for rental income of £10,000 a year in line with the amount to be charged under the lease, although a rent free period for the first two years of the lease has been agreed with the budget shortfall will be covered by savings in the property budget.

By letting the ground, the council avoids unbudgeted revenue costs in the region of £100,000 a year compared to leaving the ground vacant.