Friday 17 November 2017

Durkan New Homes says it lost €40m over failed "swap" deal

Tim Healy

A DEVELOPMENT company is at a €40m loss because the State did not honour an agreement to give it a building used as a garda station and as the former office of the film censor, the Commercial Court heard.

Durkan New Homes (DNH) built 215 affordable houses for first time buyers during the economic boom in return for getting possession of Harcourt Terrace Garda Station in Dublin along with the adjoining film censor's office, Mr Justice Peter Charleton was told.

The company is suing the Minister for Environment, Heritage and Local Government claiming there was a failure to go through with this "swap" and that it is owed around €40m as a result.

The case opened yesterday and was adjourned until today to facilitate talks.

The builders, who proposed a development of commercial offices on the prime Harcourt Terrace site, say that under the 2007 agreement they should have had possession of the property by December 2008.

The gardai only vacated the building in recent months for new accommodation in Kevin Street Garda Station, the court heard.

DNH say they completed their side of the deal by building 215 affordable homes on number of sites in the Dublin, including Lucan and Tallaght, and selling them at a 30 per cent discount of the market value - around €35.4m

The houses were part of a scheme set up by the government in 2005 and was managed by the Affordable Homes Partnership (AHP). It was terminated in 2010 and AHP'S functions were taken over by the Minister's department.

DNH says its €40m claim is inclusive of the discount it sold the houses for along with around €5m in penalties and special damages related to the alleged failure to complete the agreement.

The Minister says DNH is not entitled to any damages because the contract provided for a penalty clause if the premises was not vacated.

If it is entitled to damages, they should be assessed at the market value of the garda station site which in June 2006 was €17.7m and in November last year was just €3m.

Opening the case yesterday, Bill Shipsey SC, for DNH, said under the scheme builders were invited to put in tenders whereby they would get surplus State land as a swap for building the affordable homes.

Mr Shipsey said the garda station site was not handed over because the gardai were unfortunately "unable or unwilling to move out" by the end

of December 2008.

Although vacated in the last couple of months, this was long after the event that gave rise to this action, counsel said.

There were considerable cost for the builders if they did not get the building by the end of 2008 and as part of the contract, if they did not get possession, a penalty would kick in where DNH would be paid

€20,000 per week for the first two months after the deadline, rising to €50,000 per week after four months, counsel said.

Despite sending invoices for this, no money was paid by the defendant, counsel said.

Throughout 2009 and 2010, there were discussions between the parties including about DNH being paid rent by the State while the premises remained occupied by the gardai, counsel said.

However, there were two "sticking points" in relation to the liability of the Durkan directors for stamp duty and the refusal of the defendant to agree to a "sub-sub sale" of the premises from DNH to a company called Harcourt Terrace Ltd. This sub-sub sale was eventually agreed to by the State.

But the negotiations "ultimately came to nothing" and DNH served a completion notice in August 2010 requiring that the sale be completed within 28 days. The notice expired and legal action was initiated.

Counsel also said DNH had obtained a €31m from AIB though Harcourt Terrace Ltd which was secured on the garda station site. That loan had since transferred to NAMA, he added.

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