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Tate as tenant: Tate Modern alters its Bankside property deal

Trustees’ £142m property deal commutes their current lease

As Ai Weiwei and his assistants were filling Tate Modern’s Turbine Hall with millions of ceramic sunflower seeds, millions of pounds sterling changed hands when the trustees of the Tate decided to commute its lease of the London building in October: an alteration that involved £142m changing hands between it and its landlord, NatWest bank.

The Tate became a tenant in the former power station on Bankside when its subsidiary Tate Gallery Projects Ltd granted a 105-year lease to NatWest Markets Property Investments in 1997. The museum retained the freehold.

The complex arrangement secured a number of benefits for the museum as it built Tate Modern, which cost £134m in total and opened in 2000. The Tate’s latest annual report for 2009-10 describes how the leasing scheme improved cash flow during the building’s conversion and allowed the museum to recover VAT, the equivalent of 17.5% of the construction costs.

The report goes on to explain that under the terms of the lease the museum was obliged to hold “a cash sum equivalent to 90% of the present value of its future rental and interest obligations as security”, which at the year end was £132m. The £142m used to commute the lease came from the donations to the original Tate Modern project, which came from funders including the Millennium Commission, the Urban Regeneration Agency (English Partners) and a number of private donors, and were held in the security deposit and the gallery accounts.

The Tate’s trustees agreed in May to exercise the option of ending this particular scheme in October. A spokeswoman for the Tate said it was the “optimal time financially for Tate to commute the lease”, adding that the decision “is not in any way connected to the next stage of [Tate Modern’s] redevelopment or to the comprehensive spending review.” One gain of the new arrangement with NatWest is that its annual rental charge, which was £2.9m in 2009-10 and £6.9m in 2008-9, falls to just £10,000 a year.

Zac Goodman, a partner of Third Sector Property, which advises charities on managing their property portfolio, said: “Charities across the board are rationalising their portfolios, assessing what assets are really liabilities and seeking other ways to free cash, cut liabilities and monetise their assets in order to bolster their balance sheets to secure their future.”

Alex Beard, the deputy director of Tate, who is responsible for capital projects, including the planned extension to Tate Modern, said it had no plans to use the same kind of leasing structure for the £215m project.

Originally appeared in The Art Newspaper as 'What price Tate Modern?'