1.70 The Armouries considered that it would probably have incurred extra costs if RAI had gone into receivership, for which it did not have the additional grant-in-aid required. For example, as explained above, if RAI had gone into receivership, because of the provisions in the 1993 contract documents the Armouries would have had to reach a deal with the Receiver, on behalf of the Bank of Scotland, if it wanted to take over the museum without much delay and so avoid the disruption and uncertainty that RAI's receivership would entail. In agreeing such a deal, the Receiver, on the Bank's behalf, would have sought to ensure that any payment it received from the Armouries in return for waving its rights over the museum would have been sufficient to cover in full the Bank's outstanding loans with RAI. This payment would have taken the form of either an up-front lump sum payment by the Armouries or the payment of rent by the Armouries to the Bank for the use of the museum.
1.71 However the actual level of payment by the Armouries would have been the subject of negotiation between the Receiver, on behalf of the Bank, and the Armouries. Under the terms of RAI's sub-lease the building could only be used as a museum. As the Armouries' own legal advice noted, given RAI's heavy losses in running the museum, it was unlikely that there would have been much third party interest in buying the building and the only likely purchaser would have been the Armouries itself. In our opinion the Armouries would have been in a good negotiating position because of this restrictive covenant on the building's use, and it would not have been certain that the Receiver would have succeeded in negotiating a payment from the Armouries which covered in full the Bank's outstanding loans with RAI. For example, the Armouries told the Bank in May 1999 that the maximum that it was likely to be able to afford to pay would not be sufficient to pay off RAI's outstanding bank debt. For its part, the Department's view, based on Irwin Mitchell's advice, was that the payment required by the Receiver, on the Bank's behalf, could have been substantial as the provisions for a moratorium period of at least two years would have given the Receiver a strong hand in negotiating the terms and the level of this payment.
1.72 In addition to the payments to the Bank of Scotland, the Armouries would have incurred other expenses if RAI had gone into receivership. Under RAI's sub-lease of the site RAI reimbursed the Armouries for the annual rent that the Armouries itself paid to the British Waterways Board (paragraph 1.16). However, if RAI were to go into receivership and cease to reimburse the Armouries, the Armouries would have had to meet the costs of the rent due to the British Waterways Board itself. These extra rental costs would have amounted to £3.4 million in net present cost terms over a 25 year period. However, we note that, if RAI or the Receiver had ceased to pay the rent due to the Armouries, this would have been a breach of RAI's sub-lease of the museum.