7.1 An early issue to be considered is whether the Authority intends to continue to use and hence remain in occupation of the Facility after the end of contract. Considerations might include current and potential future service configurations and (i) the suitability of the Facility for that future service provision; (ii) other premises available to the Authority; (iii) ownership of the PPP Facility; and (iv) any Residual Value payable.
7.2 In many cases it will be obvious that the Authority does wish to remain in occupation but in other cases an options appraisal will be required.
7.3 In addition to the Authority's future service requirements, an important financial consideration is whether, at the end of contract, the Facility reverts automatically to the Authority (with any leases coming to an end at the same time) or whether there is a Lease Structure in place or indeed the Facility is owned by ProjectCo (see the glossary at Appendix 1 for a fuller explanation).
7.4 It is important therefore, that the Authority takes legal advice at an early stage to establish the position, and if the Facility does not revert automatically to the Authority the options available to it under the contract and the financial implications. For example, this may include the cost of terminating any ground lease or acquiring the property.
7.5 Any such cost might be an amount based on market value or a formula or a fixed amount or a combination of the two (e.g. the lower of £x and market value). It is important that the Authority understands and takes advice as to the assumptions in the provisions (e.g. the use or rental assumptions in a ground lease can affect valuation and there might be applicable statutory restrictions in relation to leases). The Authority should consider what ProjectCo's commercial position may be under different scenarios. For example, a building currently used as a school or a hospital might have a very different value for an alternative use.
7.6 In some projects the Authority may not have the right to acquire the property or ground lease but might have a right of extension (see 8 below).
7.7 If the Authority decides that it does not require the Facility at the end of contract then it should consider whether:
• it can derive value from the Facility or the property (either alone or in conjunction with ProjectCo); and
• it requires the same level of service (e.g. as to lifecycle replacement) until the end of contract or whether any saving could be negotiated with ProjectCo: any Authority considering that approach should discuss it with SFT as there might be project specific issues to be considered.
7.8 Authorities should also bear in mind that, in appropriate circumstances, their end of contract rights can be the benchmark against which to negotiate a different commercial position.