Audit Scotland, given copies of the details below, refused to examine the financial disaster that is the sale and development of the former Lennox Castle Hospital lands by NHS Greater Glasgow & Clyde (NHSGGC). Somehow NHSGGC contrived to dispose of prime land, invest in housebuilding on another part while ending up with a large debt on their books. This is a case of the public purse getting the debt and private industry getting the profit for low risk.
Major debts are sitting on the books of NHSGGC, formerly the Greater Glasgow Health Board (GGHB), as a result of land deals related to land deals on the former Lennox Castle Hospital:
Firstly from the sale of what was called the Upper site of the former Lennox Castle Hospital to Celtic and,
Secondly the Joint Venture entered into by NHSGGC with MacTaggart & Mickel, house developers, for a residential development on what is called the Lower Site of the former hospital.
These two projects together were sold by internal NHS property management to the Greater Glasgow NHS Board in the paper that was accepted at a board meeting in October 2002.
Their grand plans can read in the 22 October 2002 NHS GGC Board paper 02/71 paper where the costs for clearing both the Upper and Lower Sites are defined as:
£1.9 million for demolition and site clearance costs
£1.475 million for bridging finance
The paper says that potential receipts from the sale of land would allow refunding of both the £1.9m and the £1.475m plus another £1 million for an new integrated health centre. That’s a total of £4.375 million.
From the analysis below none of those three costs was in anyway closely recouped.
The Upper Site: Celtic’s Training Centre transaction
As we’ve seen before, in so many posts, the funds NHSGGC received from Celtic were re-cycled back to Celtic PLC via an ‘agreement’ called the Celtic Service Level Agreement (Celtic SLA). The Celtic SLA project being part of The Lennoxtown Initiative charity. So the public purse got nothing from the sale to Celtic. In fact the Celtic SLA ended up in deficit with over payments to Celtic of funds the charity did not have. Soon that charity will be buried in an attempt to hide the evidence.
The Tripartite Agreement between The Lennoxtown Initiative, East Dunbartonshire Council and NHSGGC, was the agreement to set-up the charity, agreed that the funds of the sale of the Upper Site would be given to the charity for charity works in Lennoxtown. All of that money went back to the purchaser, Celtic. So definitely none went to affray the site clearance & bridging costs above.
The Upper Site additionally cost the public purse £253,000 from Scottish Enterprise Dunbartonshire which was paid to Celtic PLC for the remediation of the Upper Site via the Celtic SLA even though this was a ‘services’ agreement and not a grant distribution mechanism. Note: Audit Scotland thought nothing was amiss in this subterfuge of a public sector grant being paid inside a project inside a charity. Of course they weren’t trying to hide it!!
There was no benefit to the public purse in this closed transaction (not marketed on the open market), in fact it was a net loss of all the prime land of the Upper Site comprising 19.45 hectares (48 acres) plus the £253,000. While the £3.375 million (£1.9 + £1.475 million) debt above sat on NHSGGC’s accounts unpaid.
The Lower Site: NHSGGC/MacTaggart & Mickel Joint Venture
The ‘money making’ part of the Lennox Caste Hospital deals, meant to balance up the charity giving away of the Upper Site away to Celtic, was the Lower Site Joint Venture (JV) between NHSGGC and builders MacTaggart & Mickel phased residential development. Both Celtic’s training centre and the housing development went through together as a parceled deal. There appears to have been a lack of trust on behalf of NHSGGC that East Dunbartonshire Council (EDC) would stick to the deal if this money making part was delayed.
On 19 April 2006, the JV received detailed planning approval from EDC for phase 1A of 76 houses. The plan was for another 4 phases: Phases 1B, 2, 3 and 4. To date only Phase 1A has been developed.
As part of the JV agreement all infrastructure costs were to be paid up front prior to Phase 1A for a new roundabout, roads, services pipes for water & gas, conduits for electricity, drainage. The total amount was £7.6 million. Unfortunately NHSGGC did not have the budget for their 50% of that cost amounting to £3.8 million, therefore MacTaggart & Mickel funded NHSGGC with the expectation that future receipts on the other phases would refund that debt.
Any revenue from Phase 1A would have been soaked up in initial project expenses and it can be assumed little or none went to affray any demolition or bridging costs.
In 2014, NHSGGC assessed how that JV was going and this report 20 May 2014 NHSGGC Quality and Performance Committee minutes under Section 81 – Sale of Lands at the former Lennox Castle Hospital shows how badly their over optimistic plans were.
So in 2014 the new development schedule of the JV was now estimated as:
From a NHSGGC paper titled “Sale of Lands at the Former Lennox Castle Hospital Paper No. 14/71” in 2014 (which does not have a link), it shows that, as well as there being a distinct possibility of no future phases of development, NHSGGC is carrying an infrastructure debt owed to M&M and that the developers were getting pissed off carrying the debt and were pressing for it’s repayment.
Remember that MacTaggart & Mickel had been carrying NHSGGC’s debt of £3.8 million since 2006/07 with an additional nominal interest rate on top.
Then in 2015 the land from one of the undeveloped JV phases was put on the market by JLL, the property company. The following appeared on 22 September 2015 on their website:
Offered for sale was the JV’s Phase 2 land of 12.3 acres for residential development. MacTaggart & Mickel had enough and wanted to reduce their NHSGGC debt they were carrying. Note: Interest rate charges would have been compounding on M&M’s balance sheet for the NHSGGC £3.8 million debt being carried from 2006/07 until 2015 and forwards to today because, as we understand, the land was not sold. There is nothing on the M&M website to indicate any near-term development at Lennoxtown within the future JV phases. Not even on the radar.
The Tripartite Agreement mentioned above also stated that any surplus funds after deduction of NHSGGC’s costs would go to the charity. This situation with no further phases of development and the carried debt to be repaid to M&M first has meant there was no chance of any surplus funds ever paying back the site clearance costs & bridging finance costs from the initial proposal paper.
This is why the ‘mothballed’ Lennoxtown Initiative charity debt owed to the EDC was allowed to accumulate on the promise of these funds eventuating.
As we seen in a previous post, an East Dunbartonshire representative from the EDC came to a ‘mutually acceptable arrangement’ not to call in the charities debts from 2010/11 onwards when the charity first went into negative equity and started accumulating debts to the EDC. The ‘mutually acceptable arrangement’ was caveated upon that surplus revenue eventuating. The charity due to it’s financial state in 2010/11, barely 2 years after the start of the Celtic SLA was insolvent, required the 3 fulltime staff to be made redundant & was propped up by this unwritten promise from the EDC representative on their board. Note: Although the charity was insolvent the Celtic SLA was paid each year after until 2014.
Also in that previous post we saw that in the charity’s Year Ending 31 March 2015 accounts it says ‘East Dunbartonshire Council will not seek repayment of sums due to it by the company’. Yet again the public purse was dipped for another £310,903.
Complete Financial Mismanagement by NHSGGC on Lennox Castle Hospital lands
The initial demolition & site clearance costs and bridging finance costs of £1.9 million and £1.475 million, adding up to £3.275 million, were not repaid in any fashion by receipts from the land sale to Celtic or the JV residential development.
NHSGGC is standing with a debt to MacTaggart & Mickel of £3.8 million from the JV development on the Lower Site.
That makes a total loss to the state of £7.075 million.
As well we have:
- The integrated health centre which was to be delivered funded by the sales of the land/JV was a project that was originally included in the list for The Lennoxtown Initiative (see the back of the Tripartite Agreement) but was never delivered. Yet the Celtic SLA which was not listed was paid out with no audit of services delivered. Very strange.
- The cost to the public purse of the £250,000 re-mediation costs to Celtic. Also the return via the Celtic SLA of their purchase price of £493,000 meaning they got their land for free in the washout. Note that the Celtic SLA was arranged before formal sale of the land being approved so they knew that their funds were coming home over a few years. Audit Scotland thought this was above board too?
- The Lennoxtown Initiative charity debt in 2015 to EDC for £310,903 was written off by the council trying to hide the subsidy.
Note: No Interest charges and time value have been applied to the above so the costs will be larger in todays money.
On the Lower Site there will still be some ownership of the land for the un-developed phases for the JV but given NHSGGC’s track record who knows what losses they can achieve for the public purse there in the future. Maybe another Celtic hotel pans are working their way through. Nothing would be a surprise.
NHS should not act as a residential housing developer. They don’t have the skillset and, as seen, they get screwed by private interests, whether wilfully or incompetently. Recent budget austerity means that those funds lost could have gone to worthy health services.
Also public authorities like NHSGGC and EDC should not be allowed to create ALEO (Arms Length Enterprise Organisation) charities in the attempt to hide their mis-management and losses from the public’s gaze.
And where is Audit Scotland in the disposal of these major public assets which should have returned millions to the public purse from the former Lennox Castle Hospital? They are in La La Land. Hiding under the covers hoping it would all go away going “La La” and their fingers in their ears.