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Ground Rents Inc Fnd (GRIO)

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Wednesday 21 October, 2020

Ground Rents Inc Fnd

Beetham Tower Litigation Update

RNS Number : 8260C
Ground Rents Income Fund PLC
21 October 2020
 

 21 October 2020

 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

 

Ground Rents Income Fund plc

 

("GRIO" or the "Company")

 

Beetham Tower Litigation Update

Ground Rents Income Fund plc ("GRIO") provides an update regarding the ongoing litigation at Beetham Tower, Manchester, a mixed use residential and hotel asset owned by its subsidiary, North West Ground Rents Limited ("NWGR").

As outlined in the Company's interim results, the litigation at Beetham Tower relates to a cladding defect from the original construction of the building. The issue was identified in 2014 following which the original contractor, Carillion Construction Limited ("Carillion"), carried out temporary remedial works whilst exploring a longer-term repair solution. Carillion entered into compulsory liquidation in January 2018.

In March 2018 the hotel leaseholder operating within the Beetham Tower, Blue Manchester Limited ("BML"), issued proceedings against NWGR regarding the cladding repair and a related damages claim for loss of profits. In July 2018, NWGR commenced proceedings against parties including Carillion (in liquidation), its insurers, façade sub-contractors Bug-Alutechnik GmbH and architects SimpsonHaugh, which it believes have a responsibility to remedy the defects in the cladding.

On 31 January 2019, a High Court judgment concluded that the building was in disrepair and issued an order for NWGR to carry out specific, permanent remedial works by 31 July 2020.  

Following a tender process of contractors, the potential total cost to complete the specific, permanent remedial works is estimated to be approximately £8.9 million. NWGR has been pursuing the abovementioned parties to defray some or all of these costs, as under the lease terms it is responsible for 49% prior to any recovery from the abovementioned third parties.  

Following Schroders' appointment as Alternative Investment Fund Manager ("Manager") in May 2019, NWGR, the Manager and specialist advisors have prepared to implement the Court-ordered scheme, whilst also exploring an alternative repair solution.

Following extensive engagement with Manchester City Council and with the support of the Beetham Tower Residents Association ("BTRA"), in May 2020 planning permission was secured for an alternative repair scheme which NWGR believes is more deliverable than that required by the High Court judgment, at a total cost of approximately £4.1 million.  In June 2020, NWGR made an application to the High Court to approve the alternative scheme. This was challenged by BML.

On 20 October 2020, the High Court found against NWGR's application to vary the remedial work to the alternative repair scheme, but extended the time to complete the scheme originally ordered until 31 July 2022.  NWGR is exploring whether it can still reach a settlement with the abovementioned parties, whilst also contingency planning for the scenario where this is not achievable. This includes contingency planning for a formal insolvency process in respect of NWGR.

Since the 2019 High Court judgement, at NWGR's request GRIO has provided loans to NWGR totalling approximately £2.1 million to facilitate NWGR's working capital requirements, including its exploration of the alternative repair solution.  

NWGR has no external debt, other than the shareholder loans previously advanced by GRIO. GRIO has not provided any parent company guarantees in respect of NWGR's obligations. Based on expenses incurred since the 31 March 2020, and a provision for costs, the further negative financial impact for the GRIO group, if additional funding were to cease and were NWGR to enter into administration or liquidation, is expected to be approximately £1.3 million.

The Company acquired NWGR in August 2012 subject to 219 residential leases that currently generate ground rent income of £33,250 per annum as well as a single lease of the hotel, now owned by BML, on a 999-year term that currently generates ground rent income of £30,902 per annum. Beetham Tower is the sole asset owned by NWGR and as at 31 March 2020 it had a value of £nil.  

-END-

 

 

For further information:

 

Schroder Real Estate Investment Management

Matthew Riley

 

020 7658 6000

N+1 Singer (Broker)

James Maxwell / Ben Farrow

020 7496 3000

Appleby Securities (Channel Islands) Limited (Sponsor)

Andrew Weaver

01534 888 777

FTI Consulting

Dido Laurimore / Richard Gotla / Meth Tanyanyiwa

020 3727 1000

 

 

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