By Julian Whittle Political editor

Last updated 08:23, Friday, 13 June 2008

Work on the £79 million Penrith New Squares development, to include a Sainbury’s supermarket, starts on Monday.

But the scheme almost fell at the final hurdle as soaring costs and the credit crunch prompted developer Lowther Manelli to consider pulling out.

It was rescued only when Eden Council agreed to renegotiate its agreement with Lowther Manelli.

Contracts were signed last week, ending five years of detailed preparations. The developer will now get a greater share of car-park income and the council will receive less in rent.

Council leader Colin Nineham defended the decision, which officials admit will leave council-tax payers worse off.

He said: “The residents of Eden have got the absolute best deal they could ever get. We would obviously like more but you have to be realistic. We’re in hard times.

“I wouldn’t like to be taking out a credit card at the moment, never mind a loan for an £80m development.

“Over the next 125 years [the terms of the new contract] may make a difference but in the short term I don’t see it as an amazing amount of money.”

Construction firm Thomas Armstrong is due to put up hoardings around the Southend Road site on Monday, signalling the start of work.

The linchpin is a 55,000sq ft Sainsbury’s supermarket.

There will be 31 other shops, restaurants, cafés and bars, to include JJB Sports, New Look and M&Co, and 199 apartments and houses of which at least 61 will be “affordable” homes.

A covered car park provides spaces for 1,150 cars.

As part of the deal, Penrith Football Club will leave Southend Road for a new ground at Frenchfield. Construction of the 1,500-capacity stadium began this week.

Penrith New Squares takes its name from three town squares that form the focal point of the development. Buildings have been designed in consultation with the Campaign for Architecture and the Built Environment to complement the historic town.

The design of the Sainbury’s store was inspired by the baths of Diocletian in Rome.

Penrith New Squares should open in October 2010, creating 950 full and part-time jobs.

Just how close it came to failure is revealed in a confidential report from Eden’s technical director, Steve Huddart, which has been obtained by The Cumberland News.

He cites soaring costs, which have risen from £24.9m for the original ‘Beacon’ scheme to £79.1m for New Squares.

He also refers to a “difficult market” that is making retailers reluctant to commit and “nervous” bankers in the aftermath of the credit crunch, which is “impacting on potential funders”.

Mr Huddart’s report says: “These factors were such that the scheme, as previously negotiated, was no longer fundable and in jeopardy.”

Under the original agreement, Eden would have received rental income of £415,000 a year or 19.37 per cent of “rents receivable”, whichever is greater.

Under the new deal, the wording has changed to “rents received”. This means that Lowther Manelli will not have to pay the council for empty units or if a tenant goes under owing arrears of rent.

The formula for sharing car-park income has also changed in Lowther Manelli’s favour.

The council will receive a guaranteed minimum sum but the next £1.25m-a-year of income on top of that will all go to the developer.