How do you create a managed workspace?
Incredible Edible Mytholm needs to know, because our plans for Green Food Adventures (formerly Growing Futures) on the Mytholm Works site now include a small managed workspace for agroecology-related, low carbon and sustainable food businesses.
On midsummer day, IEM put our questions to Tony Holdich, former CEO of Newlands Community Association’s Inspire Business Park.
The NCA experience was different from Incredible Edible Mytholm’s for several reasons – one being that when NCA was planning the Inspire Business Park, there was a lot of government funding for sustainable buildings and renewable technologies. Another key difference is size – Inspire Business Park is 30K square feet in two buildings, each 15K square feet. For purposes of comparison, Inspire is a lot bigger than the new HB Town Hall.
But there are enough similarities for IEM to be able to learn from NCA’s experience.
This is a post mainly for people interested in either becoming tenants in the managed workspace (we’d like to hear from you now!) or in the nitty gritty of making the managed workspace happen – sorry, but somehow I can’t make a light, general-interest read out of VAT, business rates, legal entities, funding and planning applications.
Deciding on a legal entity or entities
Things to think about include:
- do we need to lock in assets for the community?
- do we want to claim back VAT on building costs?
- do we want to limit directors’ liability? (this can be done through an Industrial & Provident Society Community Benefit Society, as well as a limited company)
- do we want to be eligible for discretionary business rate relief?
Newlands Community Association (NCA) is a charity and a limited company at the same time. The charity locks in assets, and this was necessary for the purchase of properties from Bradford Council, which gave NCA its first base.
In fact, these properties turned out to be more of a liability than an asset. Tony said,
“For example, NCA had been lumbered with a run-down old school building as its base. We had a number of third sector, not-for-profit tenants and we looked for alternative properties in the area but there was nothing. So we decided to build. It took five solid years.”
On top of being a charity, NCA had formed a separate trading arm in order to claim back the VAT on the cost of building the business park and to allow the trading arm to create income for the charity. The limited company also protects the Directors/Trustees – but, Tony pointed out, that protection can be taken away if the Directors or Trustees mismanage the business. With Directors who lack business experience, this can be a real problem.
Tony explained that if Incredible Edible Mytholm wanted to build a community-owned building that’s non-profit distributing and run for community benefit, it could get VAT exemption on the build. This would require a lot of financial advice and permission from HMRC.
NCA couldn’t get VAT exemption, since it built the Inspire Business Park through its business arm, the limited company, and a lot of the tenants were commercial businesses.
Tony also said that when IEM is deciding on the legal entity or entities for Green Food Adventures, we need to think carefully about the kind of tenants we will accept in the managed workspace – and in any other parts of the business. If tenants are going to be for-profit organisations that we want to charge VAT on, we can’t go down the community benefit route.
The VAT bit is important – IEM needs to know:
- who the tenants are going to be – not-for-profit, charities, VAT paying?
- what they’re going to be doing
Prospective tenants – please let us know who you are & what you’d like to be doing in the GFA managed workspace.
The type of legal entity also affects the business rates that GFA will have to pay. The criteria for Calderdale’s discretionary business rate relief are on the Council website.
Tony also recommended that GFA get tenants in to run as many bits of the business as possible. This keeps GFA’s direct employees down, and this is the biggest cost.
How does the planning application process work?
It took a year and a half for NCA to get planning permission – from the first drawing to approval. The process cost £40K.
Bradford Council gave NCA a £30K grant to pay for planning costs. These included the architect’s time, the NCA project manager and public consultation. On top of those costs, NCA had to pay Bradford Planning Department £20K for the planning application costs. So basically the Council gave NCA £30K and took back £20K.
The planning application costs depend on the size of the building and the site. They can also include so-called 106 costs, which relate to any extra conditions the Council adds on, for instance improvements to the site access road.
What is the sequence of events from idea to opening day?
- prepare outline business plan – we’re already on the case
- decide on and set up legal entity – discussing this now
- talk to funders about land purchase & get funding
- purchase land
- start design of site/buildings
- get planning permission
- prepare detailed 5 year business plan – including cash flow, decisions about capital funding- eg grants, soft loan, community share offer, decisions about any additional legal entities GFA needs to set up
- design and build /secure funding
- promotion and publicity to gain tenants (for managed workspace) & customers
- opening day!
The design and build stage
The design stage starts in Phase 1, as part of the planning application process. There are two ways to do design and build:
- traditional build
- design and build
NCA used the traditional build method, because it gave them greater control over the process. This involved working with the architects and builders as a Design Team, where, Tony said, NCA was “always at the table.”
(This compares with the design and build method, where contractors have control and, said Tony, “you may not get the building you thought you were getting due to changes the contractor may make”.)
The NCA had Tony Holdich as their representative on the Design Team and they also employed a project manager to oversee the design and build, who was a key member of the Design Team.
Tony said that the three most important people on the Design Team are the architect, the project manager and the quantity surveyor, who is the source of all the costings for the building. The quantity surveyor needs to be involved from the start.
Funding the design and build – one damn thing after another!
Something that hadn’t occurred to me at all was that funders may require agreement about tenancies. NCA’s funders wanted 5 year leases for tenants in the managed workspace, but NCA got a lawyer to draw up a lease template that included a 12 month break clause. Funders also ruled out NCA offering sliding scale rents for different types of tenants.
NCA employed Tony as Business Manager to do the fundraising, and he did “99%” of it.
Once NCA had planning permission, Tony said, they already had the basis for a business plan.
“We did a 5 year business plan, including cash flow, and decided to take on some debt of our own.”
NCA’s business aim was to become totally self-sustainable economically.
The decision to take on some debt was because NCA was part of Locality and through them had found out about a new scheme called Community Builders that had to spend money fast. This was a mix of a grant and a soft loan.
NCA was ready to go with planning permission and a business plan and Community Builders gave them £1m for the building and £30K for year one of a finance manager’s salary.
“Once you have the first bit of funding, you can use one grant to lever another one.”
After Community Builders, NCA went to the European Regional Development Fund. This took
“a long time, lots of meetings, lots of form filling, meeting lots of silly targets and ticking all the ERDF boxes”.
The ERDF gave NCA £1m towards the design and build, but then NCA nearly lost it all through failing to tick one of the boxes. ERDF were going to withdraw the entire £1m as a penalty. Via the local MP, Tony had to lobby Eric Pickles, head honcho for the Ministry of Communities and Local Government. The upshot was that instead of withdrawing all the funding, the ERDF fined NCA £250K out of the £1m.
The Charity Bank sold NCA a £1m loan to complete the building, at a cost of £50K. But the 2008 financial crash caused the Bank to cancel the loan. NCA found an independent finance broker who told them to talk to Santander, who bridged the funding gap for NCA. This took four months, while NCA couldn’t pay the contractor who had to take out loans to cover their costs.
A final funding tip from Tony is that on completion of the building, it’s normal to hold back 5-10% of the payment to contractors for 12 months – this is called a snagging review and it means that any faults in the work can be fixed without having to pay extra.
Day to day management of the design and build stage was down to Tony – who started off work as the Business Manager but who later became CEO.
As soon as NCA started to build the Inspire Business Park, it started trying to get tenants interested. The website was very important. It included prices and made a clear offer to prospective tenants.
The website, You Tube and twitter feed all documented the building process. Tony commented that the IEM website is very good – chatty but professional, and well written.
NCA also hired a pr company to attract tenants into the building. The company placed info in the press every 2-3 weeks.
NCA used lateral thinking – they brought in a Bradford beekeeping group to put their hives on the site. This helped the site to feel occupied and busy.
They brought in big broadband to the workspace to meet tenants IT needs.
Once the building is up, but before it’s completed, GFA will need someone to show tenants around.
NCA had goody bags and free t shirts for everyone who visited the site.
At first, NCA had problems getting tenants into Inspire Business Park because lots wouldn’t commit until the building was finished. And it was 11 weeks behind schedule.
NCA started using the work units so that they looked occupied – no-one wants to be alone in a managed workspace. Tony said Inspire Business Park reached a tipping point in terms of attracting tenants though offering organisations free space for seminars and so on. They had to have the doors open to make it work properly.
They also had family days that attracted a lot of people to the site.
A cafe, children’s nursery and gardens were all important draws for Inspire Business Park tenants.
Calderdale Council offers discretionary business rate relief of up to 100% for some types of not-for-profit organisations.
If GFA intends for tenants to pay the business rates (rather than paying them itself), it will need to tell them to fill in a form to apply for discretionary rate relief.
NCA spoke to a commercial estate agent who advised them before they were ready to go to Bradford Council to discuss the business rates. Then NCA went to the Council Valuation Officer with plans, but found that Bradford Council wouldn’t tell them what the business rates would be until the building was finished and they could come and measure it. The Council gave NCA an idea of the business rates based on the plans, but wouldn’t give the final figures until the building was up.
If Green Food Adventures is not eligible for 100% discretionary rate relief, a number of points apply.
In future, business rates will be based on the buildings’ BREEAM ratings.
(BREEAM certification is expensive, and you need a BREEAM consultant to be involved in the design stage. Tony said,
“This is expensive, but gives you brownie points.”)
There is an appeal period once the Council has set the business rates.
If GFA is not eligible for 100% discretionary rates relief, either GFA tenants or GFA itself can pay the business rates.
NCA charged tenants rent, utilities and business rates.