Failed land swap for cheap housing cost State €33m

The Department of Environment has claimed a land swap with a developer which will ultimately cost the State more than €33m was a “complex and challenging project”.

The Dáil spending watchdog, the Public Accounts Committee, heard yesterday that the High Court awarded Durkan New Homes €32.6m in July 2012 over the State’s failure to transfer a site on Harcourt Terrace, Dublin, in return for the construction of 215 affordable homes.

Secretary general of the Department of the Environment, Geraldine Tallon, told the committee that the site, which was occupied by a Garda station, could not be handed over to the firm by the end of 2008 as stipulated under the agreement.

The committee heard that the Office of Public Works, which owned the Harcourt Terrace site, had expressed concern to the department that it might not be able to give vacant possession of it to the developer within the agreed timescale, as it might need longer to arrange the relocation of officers to Kevin St Garda Station.

Although the department attempted to negotiate a deal whereby the State would transfer the property to Durkan but lease it back for a number of years, the builder eventually decided to sue for breach of contract.

The site, which was worth around €18m at the time of the deal had fallen in value, to €2.8m in 2012.

Ms Tallon justified the arrangement on the basis that the government of the time was trying to help first-time buyers get a foot on the property ladder at a time when house prices were undergoing annual double-digit growth.

“It’s hard to imagine that now,” she said.

She insisted the State had obtained a significant discount of €31.2m on the value of the homes, which were worth €77.6m at market prices.

She claimed such a benefit should be balanced against the amount of the High Court award to Durkan.

However, Fianna Fáil TD Seán Fleming said the situation had not been helped by legal wrangling over whether stamp duty should apply in the proposed leaseback agreement.

Ms Tallon accepted the net effect of the developer’s successful legal action meant that the State had paid the full price for the affordable homes.

She acknowledged that Durkan had fulfilled all the conditions of its contract but stressed that all parties had “acted in good faith”.

Ms Tallon said a number of agencies, including her department, the OPW, the now defunct Affordable Homes Partnership, and the Department of Justice had been involved in the scheme. She admitted one of the lessons is it that would be better for a single authority to “call the shots”.

The PAC heard that the State still has to pay Durkan’s legal costs, although the ultimate beneficiary of the award is Nama as the developer’s secured lender.