Local Representation Advisory Committee Leichhardt
2 August 2016
Item No: LL0816 Item 8
Subject: Restaurant/Café at 107 Elliott Street, Balmain
File Ref: 16/6014/85536.16
Prepared By: Lyn Gerathy - Manager Property and Commercial Services, Leichhardt
Authorised By: Matthew Phillips - Director, Corporate Services
The existing restaurant building is constructed mainly on land owned by Roads and Maritime Services and leased to Council, and partly on land owned by Council. The building is in a poor state, is not accessible and is non-compliant with BCA. Scopes of work were prepared by architects and costed by a quantity surveyor. It is not financially worth doing alterations and additions especially when rent has to be paid to RMS. It is recommended that the lease from RMS be terminated and the building be demolished. It is also recommended that Council continue to investigate (at minimal further cost) the feasibility of a new building to be constructed by or with financial contribution from a lessee prior to making a decision about the future of the site.
THAT LRAC note the following recommendations proposed to be put to Council;
1. That Council terminate its current lease from Roads and Maritime Services (“RMS”) of lot 26 DP850832 being part of the site known as 107 Elliott Street, Balmain.
2. That Council prepare and lodge a development application for demolition of the current restaurant building and terrace.
3 That Council seek a new licence from RMS at its minimum licence fee of lot 26 DP850832 for public open space to connect Paringa Reserve and the proposed open space to be dedicated at 102 Elliott Street.
4. That Council lodge an Application for PRE-DA advice for construction of a replacement café/restaurant on Council land only, with outdoor seating on RMS’ land, and use of the new structure as a licensed café/restaurant (noting that concept plans and supporting reports have already been obtained).
5. That Council then receive a further report.
There was a report to the closed session of the Ordinary Meeting of Leichhardt Council on 26 April 2016. Leichhardt Council resolved that the item be deferred pending a Councillor briefing. It is for that reason that this report is being brought to the Local Representation Advisory Committee.
Council is paying approximately $7,500 per year rent to Roads and Maritime Service under the head lease. It is recommended that Council give notice to end the lease which is on holdover.
There is $425,000 funding in the budget for this project. In addition to the investigations already undertaken, this will cover demolition of the current building and the preparation and lodgment of a Pre-DA application for which most of the information has already been obtained so there is minimal further cost.
Construction of any new building would require a substantial contribution from the lessee and it is proposed that this be considered further after Pre-DA advice is obtained.
OTHER STAFF COMMENTS
The current structure is a rendered building most of which is on RMS land being lot 26 DP850832 with a smaller part of the building including toilets and all the paved outdoor area on Council land. A small part of the building encroaches onto the road reserve.
The survey below shows:
· The main building outlined in red.
· The outdoor dining area outlined in dark green (with adjacent shrubbery planted by the former lessee in light green).
· RMS land (lot 26) outlined in blue.
Council has a head lease from RMS of the RMS land. The original term has expired and the lease is now on holdover.
The long-term tenants vacated. At its Ordinary Meeting on 24 March 2015, Council resolved (C97/15), relevantly to this property:
1. In respect of the restaurant adjacent to the Elliot Street Wharf, Balmain, that Council:
a) continue negotiations with RMS for a new head lease, and report back to Council prior to any commitments being made;
b) apply for a Building Certificate for existing unauthorised work which is not to be demolished;
c) subject to agreement with RMS for a head lease, prepare a development application for any demolition, new and/or replacement building work; and
d) subject to agreement with RMS for a head lease, prepare a (draft) development application seeking consent for use as a licensed café / restaurant. Proposed seating numbers and hours will be considered in discussion with consultants (including parking and acoustics) and reported to Council for approval prior to the DA being finalised for lodgment.
b) That a business plan be provided to Council with the report on the discussions with consultants about proposed seating numbers and hours in respect of the restaurant adjacent to the Elliott Street Wharf.
c) These plans are to cover the expected costs to Council, the expected revenues, the time lines for these and the payback period and the rate of return on the funds invested in respect of each property.
Council commissioned various inspections and reports on the restaurant building at 107 Elliott Street including:
· Market Rental Assessment by Chaloner Valuations
· Retail Market Analysis and Feasibility Report by Brain and Poulter
· Building Report by Cantilever Engineers
· Preliminary Traffic and Parking Impact Assessment by McLaren Traffic Engineers (prior to construction starting at 100-102 Elliott Street and taking into account the expected traffic and parking demands from that development)
· Acoustic / noise impact report by Acoustic Logic.
The building work was done by the previous long-term lessee. Once the building was vacant and inspected, its deficiencies were more obvious.
Attached to this report as Attachment 1 is the building report by Cantilever Engineers.
In addition to the poor state of the building structure:
· It is not accessible, having no accessible toilet and with a narrow doorway and stairs to the outdoor terrace.
· The building is constructed on top of the seawall.
· Its layout with internal walls is problematic for efficient service and placement of tables.
· It is externally unattractive from many angles.
As discussed in more detail later in this report, architects prepared a Scope of Works [Attachment 2] to renovate the building based on the structural engineer’s report, accessibility requirements and other matters and this was costed by a quantity surveyor.
Before continuing this discussion, it is appropriate to look at the situation with the head lease from RMS to Council of the part of the RMS land on which most of the main building is located.
Lease from RMS to Council
Most of the current building is on land (lot 26) owned by RMS and leased to Council. The rest of the building including the toilets and much of the kitchen area, and the large outside terrace are on land (lots 1 and E and part of the road reserve) owned by Council. With Council having a head lease of the RMS’ land, Council was able to offer a sub-lease of the RMS’ land and a lease of the Council land to a restaurant operator. Council received rent from the restaurateur. Council must pay rent to RMS under the head lease. When Council’s lease to the long term tenants ended, Council was paying approximately 15% of the rent it received to RMS under the head lease. (At the last review, RMS had sought a much larger share but Council officers negotiated it down on the basis that Council was a head lessee not an agent for RMS which meant that Council had to pay rent under the head lease even if the sub-lessee failed to pay Council and Council had all the risks.)
In accordance with the March 2015 resolution, at the same time the reports were being obtained from external consultants, Council officers were talking to officers from Roads and Maritime Services about a new head lease of the relevant part of lot 26. It would be the same as before, with Council being the head-lessee from RMS of its part, and Council then granting a sub-lease of the RMS land and lease of the Council land to the operator.
RMS officers made it clear they were seeking a larger share of rent under any future new lease to reflect the area of the restaurant building on the RMS land. The initial discussions with RMS were that the renovated building would be put out to a competitive process for a new lessee operator for the whole restaurant building and terrace, and there would be agreed instructions to a valuer to determine how much of the rent Council would pay RMS under the head lease. The area of disagreement came with the treatment of capital costs to be incurred by Council in undertaking alterations and additions to the building. Council said this must be taken into account by the valuer in determining the share of the total rent to be paid to RMS under the head lease. RMS said that it would grant a longer lease (20 years instead of 10 years) to allow Council to recoup its investment but would not agree to the valuer taking the expenditure into account in determining the rent under the head lease. This is unacceptable in this case.
RMS officers inspected the site and saw the extent of work required and therefore the high costs that would be involved. They then understood better why costs by Council should be taken into account in the assessment of rent under the head lease.
Demolition was discussed. The RMS officers said that if the building were demolished, they wouldn’t bother to rebuild.
In response to the enquiry by the council officer, RMS advised that if Council surrendered the head lease, it would require Council within 6 months to demolish the building and pave the area to match the rest of the wharf entry area.
RMS said it is willing to continue discussions once Council has decided whether and how to proceed.
Council is still paying rent under the head lease to RMS. The lease is still on foot although on holdover. It was not appropriate to terminate while Council was undertaking its investigations, and the obtaining of a new lease on good terms was more likely if the current lease continued. For these reasons, a rent reduction to RMS’ minimum was not initially sought. Earlier in 2016, Council requested that the rent be reduced to RMS’ minimum whilst Council is not receiving any income (although, as stated above in this report, the rent under the head lease had been negotiated down because Council has to pay regardless of any sub-lessee paying.) RMS stated that it would consider this request for rent reduction after being advised how Council intends to proceed.
Scope of Works, Concept Plans and Estimated Costs
The formal valuation by Chaloner Valuations in June 2015 assessed rent on the basis of certain assumptions including the upgrade work being done by Council (but with the lessee to fitout the kitchen), lease length, number of chairs and operating hours. The food premises advisers considered the number of chairs required for the business to be viable and the likely rent. Part of the rent would have to be paid to RMS under the head lease of lot 26.
The architects prepared concept plans and a scope of work for the required upgrade to the current building to comply with accessibility and BCA requirements and structural repairs in accordance with the structural engineer’s report.
Two scopes were prepared, a renovation and a revision. Attached to this report as Attachment 2 is the Scope of Works and concept plans for the renovation upgrade and the revision upgrade of the current building.
The quantity surveyor, Wilde and Woollard Pty Ltd, assessed the required budget for the Refurbishment (renovate) and for the Refurbishment (revision). This is being kept confidential at this stage in case of later tenders.
The estimated costs are more than the current budget. One option is for Council to obtain development consent and then lease the building to a lessee who would undertake all the renovation work at its cost. Obviously, the rent would be lower and the lease term longer than it would be if Council did the base building work, but Council’s part could be done within the budget. This would require agreement by and a head lease from RMS and payment of rent to RMS throughout the new lease term. It would also require renewals of the lease from RMS in future.
Renovating an existing poor building is often labour intensive which increases the costs. It was considered appropriate to investigate demolition and rebuilding for comparison with renovating.
Demolition and Rebuilding
It was thought likely that it would be more cost effective to demolish and rebuild rather than try to upgrade the existing poor-quality building which would be an expensive exercise and result in a less than satisfactory building. There are other benefits in demolition and rebuilding rather than making alterations and additions to the current building which is mainly on RMS land.
· It would allow the new building to be moved back off the sea wall, reducing maintenance and repair costs of the seawall.
· It gives the opportunity to rebuild the permanent structure all on Council land rather than having a building over lands owned by two different owners (Council and RMS).
o This would overcome problems with trying to lodge a development application for a building on land with two separate owners. (The original building work was done by the former tenants with DA but no BA and then extended without development consent, so a DA would be required.)
o A head lease from RMS would not be required.
o Council would retain all the rent from the restaurateur lessee and not be required to pay any rent to RMS. This increases the financial return to Council.
o Council would not be held to ransom by RMS each time the lease was renewed in future.
· The encroachments by the current building onto the Elliott Street road reserve would be removed. This would allow a wider and safer pathway around the end of Elliott Street, benefitting the proposed connection of the pedestrian pathway from the new open space at 102 Elliott Street into Paringa Reserve.
· It would allow a better presentation to Elliott Street, to Paringa Reserve and to the new open space, and allow the new building and open spaces to complement and activate each other.
· It could be built so as to allow public use of the toilets by those visiting the parks on both sides and those walking the anticipated extended pedestrian walk around the harbour.
The architects were instructed to prepare rebuilding plans with the main building all on Council land and not any on RMS’ land, with the possibility of outdoor seating only being on RMS land.
If the outdoor seating (if any) was simply on a paved area on RMS land rather than on a lightweight deck or other structure, it would not be necessary to have a head lease. There could be a separate licence agreement to use the area which would be easier and involve a lesser payment to RMS.
The architects were instructed to prepare concept plans for a new building to be constructed entirely on the Council owned land, although with provision for a light-weight, easily detached structure for outdoor seating on the RMS land.
Two concepts plans for demolition and rebuilding on Council land were prepared. The two concepts are the “Garden Piazza” and the “In the Round” proposals. The architects’ site analysis and the two concepts are attached to this report as Attachment 3.
The same quantity surveyors, Wilde and Woollard Pty Ltd, who had assessed the budget for renovation of the current building, estimated the required budget for the “Garden Piazza” concept. Again, this is being kept confidential at this stage in case of future tenders.
The costs for demolition and rebuilding the “Garden Piazza” are less than for renovating the current building. One main reason is that renovation is fiddlier and more labour intensive than demolition and new construction.
Renovation of the current building provides more total seating that the Garden Piazza but fewer inside seats and more outside seats. Therefore it is fair to compare the costs. More outdoor seating may be possible on the RMS land for the Garden Piazza.
With both scenarios (renovation of the current building, and demolition and construction of the Garden Piazza) being over the budget, more work could be required to be done as part of the lessee’s fitout to be done by the lessee at its cost, rather than base building work to be done by Council which would reduce the cost to Council. This would also reduce the rent payable by the lessee to Council and likely require a longer lease term.
The cost could be reduced by reducing the extent and quality of the external works to the park and around Elliott Street outside the café, although this is not recommended. Part of this work could be done as part of s.94 open space works.
The costs of renovation and rebuilding are similar but being able to construct a new building all on Council land would mean Council retaining all the rent from the lessee and not being required to pay any to RMS for its land. There would be a greater financial return to Council from the new Garden Piazza than renovation of the current structure.
Regardless of how much of the work is done by Council at its cost and how much by the lessee at its cost, and whether or not Council proceeds with a café at the site, these plans and costings confirm that it is not worth renovating the current building which is partly on RMS land and partly on Council land.
It is recommended that the head lease from RMS be terminated, so that rent will no longer be payable, and a DA be lodged for demolition of the current building.
The DA for demolition will advise that following demolition, there will either be a new structure built for which a separate DA will be lodged or the land will be public open space. Further investigation to assist in this decision would be at minimal cost as most of the investigation and reports have already been done.
“In the Round”
The “In the Round” concept is larger than the Garden Piazza concept and is more expensive (as costed by Wilde and Woollard Pty Ltd).
One difference is that the “In the Round” concept puts the toilets on Paringa Reserve outside the current area occupied by the restaurant and terrace. They would be able to be used by park visitors, walkers and other members of the public as well as café/restaurant patrons. [Section 44 of the Local Government Act 1993 states that pending a Plan of Management, the “nature and use” of community land must not be changed. It is now public open space and this would not be altered by construction of toilets or a pathway. Any toilets would have to be adjacent to the café to comply with the BCA requirements for the cafe.] There would be a covered area between the cafe/restaurant and the toilets.
This concept also extends the area of the external works with a corresponding increase in costs.
Public Plaza- end of Elliott Street
There is an additional proposal, following from the wharf no longer being used for public ferries, the concept plans for demolition and rebuilding, and the anticipated dedication of the public open space at 102 Elliott Street and extension of its pathway to Paringa Reserve as per the February 2016 resolution.
If RMS would grant or licence to Council of all lot 26 for RMS’ minimum licence (now $530 a year) but not to build the replacement café building on it, then it could be converted to more of a public plaza or open space, thus increasing the total area of open space and better connecting the proposed new public reserve at 102 Elliott Street with Paringa Reserve. There could be an extra fee payable to RMS if there were outdoor café tables and chairs on lot 26 for which Council was receiving a fee.
As it was convenient to do so at the same time, the architects looked at improving the RMS wharf at the end of Elliott Street to be a public plaza. This is included in the concept plans in Attachment 3 but not included in the costs assessments. It is not part of this project or contemplated by the budget for this project but it is recommended that it be considered as part of the extension of the pedestrian walkway.
The estimated costs of the building work exceed the budget. Despite that, there are some matters to consider.
1 Lessee to Contribute to Capital Cost
The original idea was for Council to do the base building work and the lessee to do the fitout including the kitchen. Some items could be considered either base building work or fitout.
As stated above, Council could obtain DA consent to upgrade the current building and then invite tenders from lessees to do the work and then run the business. However, it is not considered financially worthwhile to upgrade this building which is partly on RMS land.
In light of the costs and the wide interest from potential lessees including a proposal for a café/restaurant to be constructed from containers by the lessee (see next section), it is now recommended that Council obtain PRE-DA advice for a new building and its use as a café/restaurant, and then invite expressions of interest for a lease involving the lessee constructing or contributing substantially to the capital costs of a new structure and/or more work (eg walls and ceilings) being included in the lessee’s fitout to be done at its cost.
As it is operational land, not community land, it is not necessary to invite tenders for the lease [s.55 (3)(e) of the Local Government Act, 1993.] This gives Council greater freedom to investigate potential lessees and negotiate, and to withdraw if it is not financially viable to continue.
This would be without significant further expenditure due to the plans and reports already done so there is little lost by the further investigation.
An increase in the budget is not sought for the café proposal (although see the comments below in the section headed “3 Community Benefit” and above in respect of the possible Public Plaza).
2 Wide Interest
Council has a distribution list of 19 people who contacted Council asking to lease the building to run a café or restaurant business and who want to be notified when expressions of interest are invited for a lessee operator. These have been cold calls to Council without any advertising to invite expressions of interest. This confirms that there would be competition for a lease of the site.
One interested person has said he has investors and is able and expects to do building / substantial fitout work. He and a number of the others have contacted Council several times seeking updates.
Another person referred Council to her recommended architects and fitout designers, and also contacted them to ring Council.
Most recently, Council was contacted by an experienced restaurateur with a number of outlets proposing that there be a new café on the site constructed from containers.
Council officers are aware of this trend to convert containers for cafes, which are faster and cheaper to install than a new building but are functional and attractive. This is considered suitable for this site. It would allow a new café structure and provide rent to Council for the land, without Council having to pay any part of the rent to RMS and without Council incurring costs other than the costs of demolition of the current building which it would have to pay even if there were no new café – although the balance of the current budget may be applied to new toilets to ensure they were available to the public. Although this proposal appears suitable, it is still considered appropriate to invite expressions of interest and then select the most promising for further negotiations. A business plan then has to be prepared before Council makes a final decision.
3 Community Benefit
When the report was prepared for the March 2015 Ordinary Council Meeting, this was almost exclusively a commercial project requiring a profit in a reasonable payback period.
It now has more of a community aspect to it as well.
The proposed dedication of public open space on the waterfront of the former Nutrimetics site immediately opposite this café/restaurant will assist in joining the two areas of open space and activating Paringa Reserve. If (following the resolution in February 2016) Council succeeds in obtaining a right of way over the NSW Housing land to connect the new open space and Paringa Reserve via the right of way and roads to Elkington Park, and with the improved walkways on the other site of the new open space to Iron Cove, any café/licensed café/restaurant at the end of Elliott Street would be a destination and stopping point for walkers from Elkington Park to the Bay Run.
Council’s Community and Cultural Plan has as an Action: “Investigate options for providing cafes or other gathering points for families and other people using local parks.”
It was because of the anticipated new open space and the extended pedestrian walkway that one of the concept plans for new work included the toilets for the café also being available to park visitors and walkers.
If there is funding, for example from the s.94 Plan for Open Space and Recreation subject to the new plan, Council may consider additional external works to the RMS land (if licensed for minimal rent) and into Paringa Reserve, around the café building.
4 Restaurant Advice
Advice was obtained from specialist food business consultants, Brain and Poulter, which is not set out here for commercial reasons.
Some matters require market testing which could be through an expression of interest process following Pre-DA advice which would be at minimal further expense.
The recommended next steps are:
· Regardless of whether or not any replacement café/restaurant is built, it is recommended that Council terminate the current lease from RMS and advise RMS that the building will be demolished and the leased area made good. Rent will not then have to be paid to RMS.
· It is proposed that a DA for demolition be lodged.
· Once the building is demolished, this will leave clear RMS’ lot 26 which has an area of approximately 135 m2. It is at the end of Elliott Street. It connects Paringa Reserve and the foreshore land which is to be dedicated to Council as a condition of the DA for 100-102 Elliott Street. Part of this wharf entry is now paved and is now open to the public. When the current RMS lease is terminated, the building demolished and the land made good, the rest will be paved and open to the public. However, there are some benefits (as well as costs) in Council controlling this land. Principally, through signage and design cues, it would enable the two areas of open space on either side of Elliott Street to be better connected. Whether or not a new café / restaurant is constructed, it gives Council more land and freedom to embellish it in a way which complements the two areas of open space.
It is recommended that Council seek a new licence from RMS of all lot 26 for the purposes of embellishment and use as a public plaza / public open space, at RMS’ minimum licence fee currently $530 per year.
If Council decides to proceed with a new café with outdoor seating on RMS’ land, the licence from RMS could provide that a certain amount (eg half the licence fee for the outdoor seating only) be paid to RMS. Otherwise, only the minimum annual fee would be payable.
· Council would lodge an application for Pre-DA advice. The aim is to seek advice to assist in establishing the maximum size and area, numbers and operating hours. This gives the widest scope for potential lessees and negotiations.
It is proposed that the plan of the “In the Round” concept be used because it is larger than the “Garden Piazza” and puts the (shared) toilets on Paringa Reserve thus establishing the maximum area. One reduction will be the covering and structures on the RMS land. It will be shown only as uncovered outdoor seating on the paving similar to tables and chairs on footpaths. The proposed materials will be simple. The Pre-DA may refer to construction from converted containers.
Maximum hours will be sought in the Pre-DA. A lessee will not be obliged to operate the maximum hours but can trade for shorter hours. However, obtaining PRE-DA advice on the maximum hours likely to be approved by DA will assist negotiations. Similarly, the Pre-DA application will propose maximum seating numbers able to be accommodated within the concept plan, supported by the Traffic and Parking Impact Assessment and the Noise Impact Assessment and its recommendation for any amelioration of noise impacts. It may be that any future building will have fewer seats but this Pre-DA is to establish the maximum for future planning and negotiation, eg for converted containers.
As the plans and reports have already been obtained, there is minimal cost in applying for Pre-DA advice.
Expressions of Interest
Following receipt of the Pre-DA advice, it is anticipated that a further report will be prepared recommending that Council invite expressions of interest from potential lessees for construction and operation of a new café/restaurant on the on Council land.
The new structure would have to be not inconsistent with the Pre-DA advice. Council would demolish or contribute the costs of demolition of the current building and making the site suitable for the new construction. Council would contribute the balance of its current budget for the project in particular for toilets which are to be available to park users and walkers.
Interested persons would be asked to propose a lease length and rent payable in their expression of interest. Negotiations will be undertaken with the preferred proposers. Updated costs assessments will be obtained.
The business case will then be finalised in line with Resolution C97/15.
In 2011, Amendment 18 to Leichhardt LEP 2000 reclassified the part of Paringa Reserve occupied by part of the restaurant to “operational land” and added a site specific provision to the LEP allowing the area occupied by the restaurant building and terrace to be used for a refreshment room with consent. The latter has been translated to Leichhardt LEP 2013 as a site specific provision allowing use as a café or restaurant with development consent.
The amendment to the LEP required community consultation and a public hearing prior to it being adopted and gazetted.
It is not financially worth doing the necessary upgrades to the current building. It is recommended that the lease from RMS, now on holdover, be terminated and a development application lodged for demolition.
It is proposed that a PRE-DA application be prepared and lodged seeking advice on construction of a new café / restaurant building entirely on Council’s land. The concept plans and supporting reports are held so there is minimal further expense. This will assist Council in deciding whether to pursue a new building or to leave the area as open space. A further report will be prepared on this.
Building Report dated 18 June 2015 by Cantilever Engineers
Scope of Work for alterations and additions to the current building
Concepts Plans (2) and Site Analysis by Urakawa Jenkins Architects