The fundamentals of using a Limited Liability Partnership (LLP) to deliver Otterpool, is to make it tax efficient and allow the greatest return to to the council for building the 8,500 homes at Otterpool Park, so say the Leader of Folkestone & Hythe District Council, Cllr David Monk & the managing director of Otterpool Park LLP, John Bunnett.
Although not the primary reason one of the reasons for the Council embarking on the Otterpool Park Project was to generate a commercial return and thereby improve its overall financial position.
On Tuesday 1st Dec at the Overview & Scrutiny Committee meeting, where there was a robust conversation around the Otterpool Draft Buiness plan, both Cllr Monk and John Bunnett made it clear the “intention” of Otterpool was about “profit” and Mr Bunnett made no apology for that.
In Peters v Haringey London Borough Council one of the grounds for debate in the Judicial Review was “that the Council had lacked the ability to enter into the HDV in the form of an LLP.”
Mr Peters argued that the Council, in setting up and becoming a member of the LLP in order to carry out the joint venture, was acting for a commercial purpose and so had acted ultra vires in choosing an LLP instead of a limited company as its corporate vehicle.
Haringey contended that s4 of the Localism Act; which puts limits on [Councils] doing things for commercial purpose in exercise of its general power, did not apply as it was not acting for a commercial purpose, but was carrying out its regular statutory duties – to ensure homes are built; any commercial purpose which this involved, including any profit generated, was merely ancillary.
The court rejected Mr Peters’ arguments, holding that the Council engaging in commercial arrangements and acting in a commercial manner did not automatically mean that the Council was acting for commercial purposes, even if the commercial activity was a profitable one.
In the opinion of the court, the obligation under s4 of the Act required a consideration of the overall purpose of the Council’s actions. If the commercial purpose is simply incidental or ancillary to the fundamental purpose, then it cannot be said to be “for a commercial purpose” and so does not fall under s4 of the Localism Act.
In the Peters v Hargingey case, it was clear to the court that the reason for the Council establishing the HDV as an LLP was to fulfil its statutory obligations – to ensure homes are built, so was not for a commercial purpose, as profit was secondary/ancillary, not its primary motivation. As a result, the Council had not acted ultra vires in using an LLP to establish the HDV.
Folkestone & Hythe District Council wish to build 8,500 homes at Otterpool, costed at £2.7 billion (inflation not included), over a phased period of approx 30 years. They have also factored in the p[otential for a further 1,500, bringing the total to 10,000.
The planning application lodged on the 28th Feb 2019, is explicit:
This document is in support of an outline planning application for the development of a new garden settlement accommedating up to 8,500 homes (use class C2 and C3) and use class D1, D2, A1, A2, A3, A4, Bla, Bib, B2, Ci development with related highways, green and blue infrastructure (access, appearance, landscaping, layout and scale matters to be reserved).
So, 8,500 – 5,925 = 2,575 homes which at present are not actually required; and are not a statutory obligation, regarding housing numbers at Otterpool, As such, if the Council were to use the LLP to build them it could be considered to be for “commercial purposes” rather than “commercial manner“.
As Peters v Haringey and s4 of the Localism Act 2011 make clear, for the LLP to build 8,500 homes would be for a “commercial purpose” as things stand. As such, the Council would need a limited company as its corporate vehicle, not an LLP, otherwise they would be acting ultra vires [Beyond its powers].
So, the puprose of the LLP is to act in a commercial purpose rather than a commercial manner. This is because it has bound itself to build more than what is needs to fulfil the council’s statutory obligation in ensuring homes are built.
So is the LLP to be used for a profit? The answer to that is yes and the evidence is publicly available to support this line of reasoning.
We ask the council and all its elected members to consider seeking detailed clarification on this potential legal point regarding the LLP. This would be a prudent and wise move to ensure all risks to the council are truly minimised.
