A fact-finding review of the loan of £9 million by the former Scarborough Borough Council to a private developer has concluded councillors made decisions in the interests of Scarborough and its residents and to ensure the regeneration of The Sands Development was completed.
However, it also found there were some key weaknesses in how the information was shared, risks were assessed and recommendations were presented.
Key learning points in the report into the financing of the Alpamare seafront development include:
- A lack of clarity in the council reports and presentations regarding whether this was a commercial loan or an investment by the council.
- In some cases, risks were not fully and properly articulated. Insufficient attention was also given to the actions which could be taken to mitigate those risks.
- The key risk that the water park might not be commercially viable was not adequately addressed.
- Officers also failed to provide a recommendation to full council based on their professional knowledge and assessment of the risks. This was a particular omission given the complexity of the proposed agreement with Benchmark Leisure Limited.
- With hindsight, it is clear that the decision to approve the loan to Benchmark Leisure Limited was based on incomplete information and therefore put the borough council at increased risk.
- Potential income levels from visitors and local residents proved to be over-ambitious and expert advice to Benchmark Leisure Limited, which questioned the initial consultant findings on the financial business case, was not heeded.
- The lessons from this review should inform the decision-making processes for future regeneration projects. In particular, the need to effectively identify, report and mitigate potential risks.
The review, undertaken by North Yorkshire Council’s internal auditors, Veritau, was focussed on the strength of decision-making to try and establish the reasons why all the risks relating to the loan were not properly identified or mitigated.
The former Scarborough Borough Council (SBC) approved the granting of a loan of £9 million to Benchmark Leisure Limited on September 9, 2013, to help finance the construction of a new water park.
The water park was a key element of a regeneration project covering The Sands and the wider North Bay area of Scarborough. The borough council had identified the need to provide a ‘principal visitor attraction’ to support the local tourism economy and in turn to bring growth, jobs and further investment into the area.
Benchmark Leisure Limited was selected as the borough council’s development partner following an informal tender process.
SBC would fund the loan through external borrowing. It was also proposed that Benchmark Leisure Limited would make rental payments equivalent to £440,000 to the borough council. The rent received would be used to service the loan.
In addition, it was proposed that eight per cent of the annual turnover from the water park would be paid into an ‘improvement fund’ held by the borough council. This would be used to fund the future replacement of equipment within the water park, for example the slides, subject to the agreement of Benchmark Leisure Limited and Alpamare UK Limited.
A supplementary agreement was then finalised and signed on April 25, 2014. The agreement was structured so that Benchmark Leisure Limited provided the initial £5 million of funding and the loan from SBC was then used to fund the final stages of the build costs. The loan itself being drawn down in stages as the work progressed.
The company also accepted the full risk of any potential cost overruns arising from the building work. SBC was required to charge a commercial rate of interest of 5.85 per cent on the loan to Benchmark Leisure Limited to comply with the European Union (EU) state aid rules and Benchmark Leisure Limited had to follow a full procurement process to award the construction contract. The rate of interest was fixed for the duration of the loan.
Due to a number of delays, the waterpark opened later than expected in July 2016.
The building included a wave pool and a number of slides, a splash and play area, and outside pools. There was also a café and outdoor bar.
A luxury spa was supposed to form part of the initial waterpark development, although Benchmark Leisure Limited delayed work on this part of the project. The company only informed SBC of the delay towards the end of the construction programme.
The spa itself was only completed and opened to the public in March 2019.
Benchmark Leisure Limited arranged for a separate company, Alpamare UK Limited, to operate the Waterpark.
Within two years, Alpamare UK Limited was experiencing cashflow issues and it was unable to pay HMRC and a number of suppliers.
On August 15, 2018, Alpamare UK Limited’s main creditor, British Gas, commenced the process to have the company wound up. In turn, Alpamare UK Ltd petitioned for, and secured, a company voluntary agreement (CVA) on January 21, 2019.
From April 2019, Benchmark Leisure Limited ceased to make regular rental payments to SBC. The borough council therefore had to take legal action to recover the outstanding debts of about £7.9 million.
Benchmark Leisure Limited announced the temporary closure of the water park on October 12, 2023, and the company then entered into administration on October 20, 2023. SBC was owed approximately £7.9 million by Benchmark Leisure Limited at this time.
This situation was inherited by North Yorkshire Council on April 1, 2023, when eight councils became one under local government reorganisation.
North Yorkshire Council took full possession of the water park site on December 20, 2023.
Reviewing the investigation report, North Yorkshire Council’s leader, Cllr Carl Les, said:
The decision to grant a loan to Benchmark Leisure Limited was undoubtedly risky, particularly as the company had reportedly failed to obtain a loan from its bankers or other sources.
While the report concludes that councillors understood that there were risks with the proposed agreement, it’s also clear that these should have been set out more clearly.
The report states that in the circumstances, it is not possible to know whether the decision by full council would have been different, but at least councillors would have been better informed.
However, it seems fair in the context of the day to conclude that senior councillors may have been concerned for the whole development and decisions made at a time when generally councils were encouraged to adopt a more commercial approach at a time of austerity.
It’s important we understand what went wrong here so that all learning can be applied to future regeneration projects to make sure that when we invest on the public’s behalf, we do so based on sound information and expert recommendations.
It’s also important to make the point that the Alpamare Water Park is today very much part of Scarborough’s visitor offer as well as being enjoyed by very many local residents.
The Greens and Independent Group are calling on North Yorkshire Council to raise governance standards across all public projects.
The Greens say that while councillors at the time recognised risks and put some mitigations in place, governance fell short. Assumptions were not properly challenged, due diligence was incomplete, and decisions were made on partial information. The result was a project that placed residents’ money and trust at risk.
The Group is urging North Yorkshire Council to act now by strengthening safeguards, requiring independent scrutiny of business cases, ensuring councillors receive full and clear information, and embedding a culture of “inspect, not expect.”
Cllr Kevin Foster (Green and Leader of the Greens and Independent Group):
North Yorkshire has a duty to learn from the Scarborough Waterpark mistakes and ensure future projects are built on accountability, transparency, and trust.
Cllr Mike Jordan, Reform UK:
It has taken over a year for the internal audit company owned by North Yorkshire and officers of the same council to agree a set of words they can issue about this multi-million pound loss that has been written off.
I would ask why and where is the transparency they keep going on about?
The fact officers didn’t make any recommendations when it went to Scarborough Borough Council just sums it all up.
They say lessons have been learnt. I am sorry but both North Yorkshire and Scarborough Borough Council have been around since 1974 so they should already know what to do!
The full report is published and can be read her:
