Shropshire Council considers selling car parks to rent them back for £1.5m a year on buy-back deal

The proposals for what is called an 'income strip' approach to the car parks have been revealed in papers set to be considered by the council this week.

Under the plans the authority will receive a large up-front sum – more than £30m – for selling the lease of the car parks, and will then pay annual lease payments of more than £1.5m on them.

Papers prepared on the proposal say the council would retain the income from the car parks, and would be able to buy them back for a 'nominal' fee of £1 at the end of the deal.

Under the proposal, 10 car parks could be included in the deal – although which ones they include has not yet been decided.

The report says the matter is being considered because the council is £32.7m short on its bid to make £49.8m of capital receipts this year – money the authority receives from selling off assets.

The situation illustrates the severity of the perilous financial situation facing the council.

Under the proposal the council would pay an expected rent of £1.56m per year for the car parks, which will increase annually by inflation with a 'cap and collar mechanism of between one per cent and four per cent'.

The report states: "The projected rent/income strip payable to the contractor has been calculated at a commencing rent of £1.56m per annum which will increase annually by inflation with a cap and collar mechanism of between one per cent to four per cent pa.

"This is projected on the assumption 10 car parks are included as collateral to the income strip, however the final portfolio may include additional or alternative car parks, depending on market conditions and/or the results of the contractor’s due diligence and any as yet unknowns."

The report values the 'income strip' deal at potentially £34m, and says that when combined with the sale of assets the council will expect to receive "immediate capital receipts in the value of c. £50m".

It states: "Capital receipts targets for 2024/25 financial year to be met from the sale of property has reached £47.9m which, includes £23.1m contribution towards transformation activities.

"To ensure targets are met, several council operated pay and display car parks is being put forward for disposal in an income strip portfolio to raise capital of c. £34m."

The report also stresses that the plan is being considered because of the authority's perilous financial situation.

It states: "The sale of surplus assets and the income strip proposals will provide immediate capital receipts in the value of c. £50m – more than five times the recent average. This in turn will aid the council's financial management overall. This will help secure the financial survival of the council in the near term and provide longer term confidence in the ongoing profile of car parking assets and their management as part of our approach to highways management."

The report also stresses that the council considers the method as a beneficial form of financing.

It states: "Financial analysis suggests that the income strip model offers a better financial outcome compared to outright sales or traditional financing options. By opting for a long leasehold arrangement, the council avoids the permanent loss of these assets and retains the flexibility to adapt to future needs and opportunities. The nominal £1 buy-back option is a significant safeguard, ensuring that the council can resume full ownership and potentially reconfigure the use of these assets in line with evolving community needs."

The report will be considered during full council at Shirehall from 10am on Thursday.