Desperation Trumps Good Governance At Freo

COUNCIL attempts to justify its Kings Square hospitality lease deal raise serious questions over why it offered a ‘consortium’ of local businessmen $1.3 million in inducements including three years free rent.

StreetWise last week sent questions to the City following its decision to approve a three-storey restaurant, bar and cafe venue covering 828sqm of the new civic building, just metres from the 19th century Anglican Church site.

The seven to five vote win for Fremantle Doctor Restaurant and Bar follows a 2018-2019 campaign that failed to attract any of the 130 hospitality operators the City approached outside of Fremantle.

Though its advertised EOI was never withdrawn or re-advertised, the City offered consortium representative Tony Taylor $500,000 towards a $1.25 million fit-out and the first three years rent free (foregoing $233,100 a year). FDRB did not become a legal entity until November 2019.

City of Fremantle director of city business Glen Dougall told StreetWise on Monday the Council will offer the lease to FDRB, including “granting of a liquor licence, planning approval and a building permit and finalising local government act requirements”. Notably, it is, “developing an outline for elected members as to the process that will be followed from here”.

Mr Dougall said: “Once the proposed tenant considers the counteroffer and changes made by Council any next steps can take place.”

He said the City has not contravened the Local Government Act: “From some of the comments I have heard, people have mistakenly drawn a link to provisions of the Act for procurement of goods and services. The lease is a property disposal not a procurement and therefore subject to different parts of the Act and regulations to procurement.”

On January 29, Council voted to pull back the three years free rent to two, the third and fourth years returning two and five per cent of FDRB’s profits, respectively, with full rent to be paid in the fifth year of the lease.

Best deal

Under the Council’s ‘Leasing of City Property in a Competitive Manner’ policy, it states, “This Policy enables interested parties to compete in an open and competitive manner for City land and properties when they become available for lease. It aims to achieve a strong financial return on investment and strong community outcomes from the City’s property portfolio”.

It is the maintenance and good financial governance of the City’s asset base that enables the City to keep its rate burden under control.

Mr Dougall said it took between May and November last year to, “get to a point where terms were settled enough to go to Council for their input, and at that point the consortium (FDRB) took the decision to formally establish their entity as a company”.

He said no formal offers were received in the initial advertising period. The proposal from the consortium that was the subject of Council’s decision last week was made after the initial advertising period: “The terms of the current proposal were determined via an extensive negotiations process, as is the normal approach to leasing commercial property.”

Mr Dougall does not explain why City officers did not return to the market with the new and decidedly varied lease package under its own policy guidelines, ‘Investments, Property and Other Non-current Assets or ‘Leasing of City Property in a Competitive Manner’ nor why the City officers did not recommend elected members consider risk management options available to them.

One of the reasons: desperation. Particularly after its failed 2018-2019 leasing campaign produced a disappointing result.

Good Governance

The EOI (at www.metierconsult.com/retail-leasing-kings-square-fremantle.html) was not withdrawn nor re-advertised. Nor were the 130 hospitality operators (not to mention local businesses) given the opportunity to consider the less restrictive deal offered FDRB. Open and competitive?

Importantly, Councillors are supposed to be vigilant in looking for the best deal for ratepayers, particularly in high risk projects. Their fiduciary duties govern the management of City assets and resources and provide access to an Independent Probity Auditor and the Audit and Risk Committee to ensure such deals are financially sound. Councillors are not precluded under section 3.58 to ask, ‘What are the benefits for ratepayers?’.

Notwithstanding the $500,000 fit-out inducement and free rent, the disinterest by 130 hospitality operators, substantially altered lease conditions and unproven proponent’s experience in similar ventures should have been enough to raise concerns over the exclusive lease package.

South Ward Councillor Marija Vujcic moved to refer the lease deal to an Independent Probity Auditor under council policy which states: “An Independent Probity Auditor may be engaged by the City for projects assessed as high risk of reputational, financial or community risk, through the project risk assessment process.” Her motion was defeated six to four.

Why when faced with a risky venture proposed by a consortium of unnamed individuals (bar Tony Taylor) did Councillors not insist the new lease agreement, which contained major variations to the original EOI, be referred to an Independent Probity Auditor or the Council’s Audit and Risk Committee (as proposed and defeated by Cr Vujcic) or sent back to market to ensure the best and financially sound deal for the city’s investors in this venture – the ratepayers.