Hotels launch legal action against Bournemouth council over hotel

The full legal letter sent to Bournemouth Council

In the wake of last week’s special report by the Daily Echo into the funding of the scheme, the alleged high risks and potential effect on the hospitality sector, two hotel groups are applying for a judicial review over the development, which they say threatens the future of independent businesses.

Peel Hotels and Bespoke Hotels, representing several operators in the town, want a review of the proposals.

London solicitors Dentons sent a 17-page letter to the council’s legal head, Tanya Coulter, and a number of councillors on Monday afternoon advising them of their intentions.

Robert Peel, executive chairman of Peel Hotels, which owns the Norfolk Royale, said: “This is an unviable white elephant of a scheme.

“We understand the council itself estimated that its interest in the £70m development will only be worth around £40m when completed – an appalling outcome for taxpayers and one that raises questions about how it will secure a loan from the Public Works Loans Board.

“It seems that a prime motivation for the council is to build the biggest scheme possible so that it can borrow as much as possible from central government and make a profit from onlending to the scheme – so called 'interest farming'.

“The big problem is that the loan needs to be repaid and that the projections have been inflated to make it look feasible. So, as well as unfairly distorting the hotel market it’s a huge gamble for Bournemouth council taxpayers.

“We are committed to challenging this scheme on behalf of all hotels and health club/spa operators in the town and this legal action is one of many options we have.”

Bournemouth council has defended the proposals agreed in February.
Cllr Philip Broadhead, cabinet member for economic growth, said the plan was founded on a solid business case, had been subject to “due diligence” and “validated by leading experts in the commercial property and hotel industry”.

However, it is unclear to those who have studied the council’s documentation where external advice on the figures ends and where internal advice and calculations begin.

If the legal action successfully results in a review hearing, the council will be forced to open up its books.

Peel Hotels and Bespoke, which has oversight over the Hallmark Carlton and Hallmark East Cliff hotels in Bournemouth, have consulted with other local hotels ahead of their action and several are understood to be tacitly backing the proposal.

They question why the development, previously rejected as unviable by some in the private sector, is being pursued by the council.

They also question whether the council’s decision to fund construction via a low interest loan from the Public Works Loan Board is an appropriate use of public money.

Hoteliers in Bournemouth say in addition to concerns about the financial viability of the scheme the development would add unneeded capacity and impact many traditional and long-established hotels, with several closures likely.

Councillor Don McQueen earlier this week stated that the council’s corporate services scrutiny panel, of which he is chairman, had “asked questions” of the experience of the council’s intended development partners.

On the legal challenge he said: “We had a five hour confidential scrutiny meeting on this, which is an exceptional length and very robust but still not enough detail, I think, for an investment of this size.

“Lots of questions were asked and some satisfactory answers were received, but some questions are still unanswered.”

Last week the Echo invited Cllr Broadhead to discuss the rationale behind and details of the proposal, however he declined to take part in an interview until after the council has signed contracts with its development partners.

On social media at the weekend Cllr Broadhead complained of “very worryingly misinformed reporting from the local media”, and later in an exchange on LinkedIn stated that he was “itching to tell the full story” and that “much work has already been done through numerous public meetings”.

The Echo is not aware of any public meetings discussing the proposal except council meetings, in which the topic has largely been covered with the public excluded.

"It's disappointing"

BOURNEMOUTH council says news of the legal action is "disappointing".

Bill Cotton, executive director for environment and economy, said the borough's hotel scheme is intended to attract tourists to Bournemouth.

“It’s disappointing that two of the town’s major hotel operators do not support this investment which aims to attract new visitors to Bournemouth," said Mr Cotton.

“We have referred the matter to our external legal advisers and await their advice.

"It would be inappropriate to comment further at this stage.”

The council has said its scheme will provide a useful source of income through rents, as well as revitalising the seafront tourism industry.

Also the council claims its hotel will restore the credentials of the BIC itself bringing major conferences back to the town.

"Meagre benefits not worth the risk"

THE judicial challenge proposed rests on the claim that the council has breached a number of legal duties.

These claims include that the project cannot property be considered as an 'investment', and that it will be worth less upon completion than it cost to construct.

The letter from Dentons claims that the project "does not conform" with statutory guidance requirements as if it were sold the council allegedly could not recoup all of its capital.

"Even with insurance in place it seems inconceivable that such protection could be given that it would remedy in any meaningful way the very high likelihood of losses being incurred," it states.

The letter alleges that the borough is in breach of its fiduciary duties to council taxpayers and business ratepayers, due to "the very wide potential harm that the [council's] participation in the project may cause".

It states claims "the meagre benefits of proceeding" are "comprehensively outweighed by such risks".