ABOUT CHELSEA PITCH OWNERS

When the freehold of Stamford Bridge was sold to Marler Estates plc, (later Cabra Estates plc) in 1984, the future of football at the ground became uncertain and many Chelsea Football Club fans will remember that we faced continual threat from property developers.

When Cabra Estates plc went into liquidation in 1992, the club was granted a lease for Stamford Bridge and an option to buy the freehold.

In December 1992 Chelsea Village Limited, as it then was, entered into an agreement with a subsidiary of Royal Bank of Scotland (RBS) to take a lease of the whole of the Stamford Bridge (SB) site for a term of 20 years from December 1992.

West Register Properties Ltd (which is now called Chelsea Stadium Limited), the subsidiary of RBS, also granted Chelsea Village Limited (CV) an option to buy the site in various parts during the 20-year term of the lease.

One of the parts was the 'stadium site', albeit at that stage with a much smaller West Stand and much larger South Stand.

Following the completion of this deal in December 1992, the then club chairman Ken Bates decided to set up Chelsea Pitch Owners (CPO). In early 1993 the deal was restructured so that CPO acquired the option that had been granted to CV to acquire the stadium site for £5m.

A conditional agreement for lease was entered into whereby if CPO acquired the freehold of the Stadium Site they would grant a lease of the Stadium Site to CFC on the terms set out in paragraph 7(b) of the 'Additional Information' section of the Prospectus.

Supporters were encouraged to buy a CPO share to meet the £5m acquisition cost. The agreement for the lease was conditional upon CPO raising sufficient monies to enable them to exercise the option, and we have never come close to achieving that.

It is very important to note that the freehold cost is £10.2m - rather than the £5m stated in the prospectus. The reason for this is that when Glenn Hoddle became manager in 1994 he wanted a bigger pitch to play his more expansive version of football.

By that stage the foundations for the hotel had been built and so the only way a larger pitch could be incorporated was to shrink the South Stand (Shed End) and increase the size of the West Stand to maintain the 42,000 plus capacity CFC were looking for.

As a result the footprint on which the stadium was built expanded considerably to encompass the West Stand, and the value attributed to the stadium site was increased.

By 1997 roughly 7,580 shares had been sold in CPO leaving the Company at least £9.5m away from being able to buy the Stadium Site and grant the lease. In short, the conditional lease was never granted because CPO never raised enough money to buy the stadium site.

As of October 2012 the total of shares sold stands at around 17,700, the vast majority at £100 each.

In the latter part of 1997 CV, by this time a PLC and listed on the AIM, had managed to agree a deal with SBC Warburg whereby it would raise £75m by way of a secured Eurobond issue. It was a condition of that issue that CFC had security of tenure for longer than the 15-year unexpired lease that had been granted in 1992.

Warburg agreed that a 199-year lease would be sufficient tenure, and so CV approached CPO to see if it was possible to vary the arrangement that was in place.

Those discussions resulted in the structure that is now in place. CV lent CPO the funds to purchase the freehold of the site on soft terms, and in exchange CPO granted the 199-year lease to CFC at a peppercorn rent.

It is worth pointing out that if this variation had not taken place in 1997, the original option would expire on 1st December 2012, and CPO would be wound up with the funds raised being returned to investors at par.

In reality provided CPO uses 'reasonable endeavours' to repay the loan, the loan can run for 199 years. Selling shares is the most efficient way for CPO to use reasonable endeavours to repay the soft loan.

The concept that any third party could lend CPO £9.5m to repay CFC plc is questionable. CPO has virtually no income and certainly could not service a loan of that scale. The asset (i.e. Stamford Bridge), subject to the CFC lease, is worthless.

That is how we have come to the position we are in today.

In recent years a number of questions have arisen regarding CPO past and future. We have endeavoured to answer some of them below.

Chelsea Pitch Owners FAQ

1. How is director Gray Smith's report on the 2011 overselling of shares being acted upon?

The CPO Board considered Gray's analysis very carefully. We felt that some of the possible courses of action were feasible and we have implemented them.

We proposed a resolution at the EGM in July 2012 to restrict the number of votes an individual shareholder can cast to ten. This was rejected by shareholders.

We have, though, tightened up the issuing process of future shares.

Some of the courses of action Gray identified would require the consent of the individual shareholders; for example, a buy-back of their shares. We thought they would be unlikely to consent to that and that the potential financial outlay for the Company would present a problem.

We considered issuing Companies Act notices to individual shareholders, in an endeavour to establish who else might be interested in their shares, but we concluded that would be very complicated and very expensive for CPO, with little prospect of obtaining any useful information.

2. Why didn't you make new issues of shares conditional upon the resolution reducing the maximum number of votes?

We were warned that would probably result in no shares being issued at all. It is also our responsibility to give shareholders the ability to vote on those resolutions separately. Separate resolutions are regarded as good corporate governance for companies generally.

3. Were there any resolutions suggested by shareholders that were not proposed at the 2012 EGM?

We did receive a number of helpful suggestions and entered into dialogue with several shareholders over the EGM agenda. We did not receive any other suggestions which we believe were feasible and in the best interests of CPO. It was suggested that we increase the number of Directors on the Board, but this exact resolution had been rejected at a previous meeting. The issue may be revisited in the future.

4. Why was the January AGM proposal to expand the Board to seven members a Special Resolution requiring 75% to pass, when the articles say it is an Ordinary Resolution matter and therefore would have passed with 52% of the vote achieved?

Because changing the maximum number of directors can only be put into practice by amending the articles of association of the company; that requires a special resolution.

5. What is the current status of CPO's discussions with Chelsea Football Club?

We maintain regular, healthy dialogue with club representatives and will pass on anything that is of interest to shareholders.

6. What discussions have taken place with the London Borough of Hammersmith & Fulham [LBHF]?

Our meetings with LBHF are reported on this website. Should further discussions occur we will report back on them to shareholders again.

7. Did Chelsea FC try to influence the resolutions proposed at the 2012 EGM?

No. Following suggestions from shareholders and ourselves, the proposed Resolutions were agreed between the Directors and in discussion with our lawyers. We also feel it important not to paint the club as 'the enemy' - we are all supporters of Chelsea FC.

8. Why did you need to restart share sales?

The loan agreement requires CPO to continue to use all reasonable endeavours to continue to raise funds to repay the loan. If CPO does not do that, it would be in breach of the loan agreement. There are several fundraising measures we are examining, but selling shares is by far the easiest and best, and leads to more supporters becoming involved - the whole point of the company.

9. What steps have been taken to retrieve from Chelsea FC the alternative income streams i.e. Annual Lunch, lottery, credit card commission?

CPO have been in discussions with the club who have stated that the Annual Lunch is now set up to generate funds for the Players Trust - a worthwhile organization, we are sure you will agree. The club have stated that they are prepared to assist CPO on any planned alternative functions and we are looking into this with the help of shareholders who have volunteered their services.

The lottery was actually deemed unlawful and was closed by the Lottery Commission. The credit cards were taken back by the club in the early 2000s by the club's then Board and it does not seem advantageous to us to enter into 'competition' with the official club credit card.

10. Could the Board raise money through increasing the annual rent for the stadium to the current commercial level?

The lease sets the rent at a 'peppercorn' - the legal term for the minimal sum required for the creation of a contract. CPO doesn't have the power to increase that.

11. If no repayment of the loan was made by CPO in 2009 without repercussions, why does the chair feel it should be highlighted as a problem now?

The loan agreement requires reasonable endeavours to be made to repay the loan. That has always been the position.

12. Are new applications for shares from people connected with the Club?

We have a process by which we check names and addresses carefully before issuing any shares. Almost all of the applications processed on the resumption of sales were for one or two shares bought by individuals.

13. Will CPO decline any further share purchases by officers of the Club, their family, or business associates?

No. That would be inconsistent with the Articles of Association of CPO as currently drafted. Officers of CFC, however, cannot be CPO directors.

14. Why did you propose a reduction in the number of votes an individual shareholder can cast to ten? Is this legal?

This resolution was to try and counter concerns that some people were trying to work around the 100 vote limit. It was up to shareholders whether they passed the resolution; they did not. Had it been passed, a legal challenge to its validity would be very difficult to bring.

15. What is meant when people talk about "connected shareholders"?

The definition is contained in Article 1(c). Essentially, for corporate shareholders, it is companies within the same group, or persons who own a company, or people who together control a company. The definition is unusual and should now be tightened up.

16 .Is CPO worth a large amount of money? Can we increase the rent on the Ground?

The answer is NO: its only asset is a freehold subject to a 199-year lease on a peppercorn rent. As an example, if somebody buys a flat on a 99-year lease, it is the leaseholder they pay, not the freeholder.

The rental of the stadium is set at a token amount under the terms of the lease. We cannot change that.

17. Will you open up the replacement of departing directors to the membership by means of a vote, or select someone of your own choice again?

We will always consider representations as to appropriate replacements.

18. How much money was wasted due to the cancelling of the June 25th EGM, and why were members not informed in writing of the cancellation?

The cost was effectively postage and packaging. Notification of the cancellation was published on the CPO website and we are told half a dozen shareholders turned up for the meeting - to whom we apologise. We are always looking at ways to improve communication between Board and shareholders, including use of digital and social media.

19. Why are there so many missing CPO shareholders' details, and why can't the club help identify updated addresses?

Lots of companies have shareholders who have moved home without notifying the company. It is time-consuming and we are all volunteers. The Club, a separate company, cannot help with cross-referencing CPO's addresses due to Data Protection laws. Our shareholder register can be purchased for a nominal sum should people care to examine it.

20. Would it aid transparency were CPO directors to complete a register of interests for any 'gifts' received from the club or its officers, for example for tickets or travel to games, etc.?

This has been in place for several months.

21. Why is the Board against writing to the 25 or so multiple share buyers from October 2011 to verify their ID, address and independence of the Club as recommended?

Because there is no obligation on those share buyers to respond.

22. Can shareholders arrange to see the loan and lease agreements?

Shareholders can see the lease. We would need the consent of the Club to be able to share the loan agreement.

23. What due diligence is the Board taking to ensure the Club are acting properly in stating Stamford Bridge cannot be redeveloped as cost effectively as building a new stadium elsewhere?

We have carefully reviewed the presentations from the Club. We are not undertaking unilateral investigations as we do not have the resources and that is not CPO's purpose.

24. Will my share rise in value over time?

The original CPO prospectus in 1993 contained a statement that, "Investment in the Shares should not be viewed as an investment which might carry any capital or income return." The share capital of the company is not listed on any stock market, therefore your share will not increase or decrease in value over time. In any case, we trust people bought - and buy - the shares to assist Chelsea FC, not generate profit.

25. I have heard people mention "marriage value" in relation to CPO and Stamford Bridge. What does it mean?

In the context of a lease, 'marriage value' commonly means the extra value that the owner of the freeholder gets when the lease is surrendered. For example, if CFC surrendered its lease, CPO would own the freehold with no lease against it, which would be very much more valuable. However, since in our case the land we own is surrounded by land owned by another party - CFC - the actual benefit to CPO may be limited.

 

Download a copy of the 17 Dec 1997 CPO Agreement [here].


Download a copy of the 17 Dec 1997 CPO Lease [here].