Reading Cinema proposal

Councillor Ray Chung

Tēnā koe Councillor Chung

Reading Cinema Proposal

You wrote to us on 19 March asking us to urgently investigate the proposed Reading Cinema deal before the Council finalised the deal. You wrote again on 7 May asking us to look at this matter despite the deal not proceeding.

Your concerns

You were concerned that the proposed deal did not represent good value to ratepayers and that the true costs of the deal had not been adequately assessed or disclosed to councillors. My staff met with you, Councillor Calvert, and Mr Paul Ridley-Smith to hear your concerns about the proposed deal.  From that meeting we understood your concerns to include:

• whether the deal represented best value for money for ratepayers;
• the fiscal neutrality of the deal;
• access to information about the proposed deal;
• the basis of the valuation report as, in your view, the Reading site was not worth the amount the Council was to pay ($32 million);
• lack of analysis about whether selling other ground leases to offset the cost of financing the deal was advisable; and
• the adequacy of the due diligence.

You asked us to conduct an immediate audit examination and suggested that the Chief Executive was likely to conclude the deal on 19 March 2024.

When we met with you, we told you that we would consider whether the concerns raised were matters that we could inquire into. We also made it clear that our Office does not have the power to review or substitute decisions that had been made, or to direct the Council to make a particular decision.

Our work

We considered whether this was a matter that this Office could inquire into. Our preliminary view was that we would seek more information about the proposed deal before assessing whether formal inquiry work was warranted. We reviewed minutes and agendas relating to the Reading Cinema proposal, met with Council staff, and reviewed the commercial terms sheet (‘terms sheet’), memorandum of commitment and understanding, and the land and ground lease valuation.

No further inquiry work planned

Based on the work we have done, we will not be carrying out any further inquiry work into the matters that you raised. We outline our reasons why below.

On 4 October 2023, councillors agreed to delegate authority to the Chief Executive and staff to progress negotiations and conclude the Reading deal, provided it was in accordance with the proposed terms sheet.

The proposed terms sheet was not legally binding and both the Council and Reading had the opportunity to walk away from negotiations. We understand that, during the Council’s negotiations with Reading and the due diligence process, it formed a view that a satisfactory outcome could not be reached. On 23 April 2024, the Council announced that it was withdrawing from further negotiations.

Some aspects of your concerns are not matters that we could inquire into.

We note that, based on documents we have reviewed, officials were clear that the proposed deal aimed to achieve several amenity outcomes in the Courtenay Place area for ratepayers. The primary objective was not to achieve capital gain on a property transaction. This was a policy choice/trade-off for the Council to make and these mixed objectives (“activation” of Courtenay Place and cost neutrality to the Council) were put to councillors on 4 October 2023 when the majority decided to authorise the Chief Executive to progress negotiations and conclude the deal.  We acknowledge that not all councillors supported these objectives, but it would not be appropriate for our Office to review or substitute its view for that of the elected decision makers about the policy objectives the Council wanted to achieve.

With respect to your comments about lack of disclosure of the terms of the deal, we understand that councillors were told in October 2023 what the deal involved when it approved the Chief Executive progressing negotiations to conclude the deal. The ongoing negotiations were subject to a binding non-disclosure agreement and this limited what details could be made publicly available. We understand that in February 2024 councillors were provided an opportunity to inspect (but not copy or take away) the terms sheet and two draft due diligence reports, prior to the meeting where a notice of motion was filed by some councillors seeking to revoke the previous decision to proceed with the deal. Any further concerns about access to information are best addressed to the Office of the Ombudsman.

For these reasons, and because the Council has not committed to progressing the deal with Reading, we do not propose carrying out further work on this matter at this time. 

Thank you for bringing this to our attention. Because of the public interest in this matter, we intend to publish this letter on our website.

Nāku noa, nā

Dave Lemmon
Inquiries Manager