Costly infrastructure improvements to Herm Island will cease following a breakdown in negotiations between the tenant and the landlord, the States of Guernsey Treasury and Resources (T&R) department.
The tenant, Herm Island Limited, a subsidiary of The Starboard Settlement, a Charitable Trust, wished to extend the lease, in line with estate management best practice, in order to justify heavy ongoing inward investment.
However, after five years of negotiation, T&R and Herm remain opposed in their views.
There are 35 years remaining on the lease, to 2048, but John Singer, who is the chairman of Herm Island Ltd and also the property manager of Starboard, had requested a 21 year extension – the maximum T and R will consider.
T&R called for an independent professional valuation by a leading firm of chartered surveyors, and then for a separate second professional valuation to verify the first one. Both put the value of a 21 year lease extension at around £440k. However, T&R initially asked Starboard to pay £6m and said that the professional valuations were not “politically acceptable”. Subsequently, T&R reduced the price to £2.44m but required improvements within a five year time period.
Mr Singer draws a comparison with renting a residential property.
“If a lease is short, any tenant will expect the landlord to carry out all improvements. If it is long, for 125 years or more, then the tenant is likely to treat the property as akin to their ownership of the freehold. At 35 years, the length of the Herm lease is uncomfortably short,” he said.
“I love Herm and wish to maintain its natural beauty and tranquillity for all to enjoy. However, constant activity is necessary just to keep things the same.
“The Herm Board’s approach has been entirely philanthropic; there has been no commercial gain from anything we have done. Now, given the intransigence of T and R, we sadly have no choice but to cease further spending on improvements. We will fully honour our commitments under the lease and seek to maintain the high standards that we have attained but, sadly for the people of Guernsey and the Herm community, further infrastructure improvements will cease.”
Mr Singer said that the Herm lease is onerous, demonstrated by the island’s income failing to cover expenditure in each of the five years of the tenancy, even following the fine weather this summer. This is one of the reasons for the low level of the surveyors’ valuations, as well as the fact that the island is not private. Furthermore, a 21 year extension to the lease would be a marginal rather than a fundamental change.
Over the past five years the tenant has improved standards, notably achieving 4 star status and a second AA Rosette for the White House Hotel. It has also funded “invisible” infrastructure work, including replacing mains electricity cabling across the island, installing fibre-optics with wi-fi throughout, digging new water bore holes, replacing the roofs of several buildings, replacing water and diesel storage tanks, improving staff accommodation, installing waste food digesters, vastly improving recycling rates and lowering sound levels emitted by the Power House and creating new woodland walks..
However, despite ploughing every penny of the island’s income into improvements, the tenant is significantly further out of pocket and a long wish list of further improvements remains.
The tenant desires to improve Herm slowly over many years, even decades, and in doing so both secure employment through each winter for the island’s community and give an ambiance of little change to visitors returning each summer.
T&R’s latest requirement is for improvements to Herm to be carried out within five years costing £2m plus inflation and for £440,000 to be paid to the States.
Mr Singer said: “Not only is the price, at more than five times the valuations, inappropriate, but, moreover, so is a one-off blast on many simultaneous fronts by contractors. Rather than the attitude of ‘extract and enforce’ taken by T and R, I would have preferred a spirit of partnership and cooperation. The failure of T&R to grant this minor extension of the present lease term upon any reasonable basis is an unfortunate outcome for the people of Guernsey and for the Herm community”.
Mr Singer and his colleagues on the Herm Board wish to make clear that they will continue to meet their obligations under the lease in full, maintaining high standards and a warm welcome to anyone wishing to enjoy Herm’s natural beauty and tranquillity but unfortunately, they will not be able to continue with further infrastructure improvements.
Category: Finance & Business