The Key Considerations When Dealing With Local Authority Land

Demand for council spending is increasing, as is the pressure from central government to release more ‘’surplus” land for housing. This is translating into a greater need for councils to work innovatively with the private sector on regeneration projects that deliver both housing and economic benefit. What then are the key points to consider in structuring these public/private regeneration projects?

1. Identifying the land 

The full extent of a council’s ownership of land in its area is not always obvious to it. Small but crucial areas of target sites could be unregistered, or registered in the name of a predecessor. The Greater London Authority has successfully launched the London Land Commission Register, which aims to identify all publicly owned land in London. Other local authorities (LAs) are likely to require more assistance from their private sector partners. 

2. Setting up the deal

The size of the site, its value, and the council’s expectations for its new use will influence the structure. It could be a straight sale of LA land, or a sale and lease back. It could be a joint venture agreement or landowners’ collaboration agreement, if both council and private land are to be developed and marketed together. Once the final objectives of the parties, and the subject matter, are clear, the parties can establish the correct structure and identify what other issues fall to be resolved. 

3. Consents and powers

As creatures of statute, LAs have to be sure that legislation gives them the power to carry out roles assigned to them in the deal structure. To avoid disappointment and delay it is worth establishing this early. The general power of competence introduced by the Localism Act 2011 is not quite as good as it sounds. Although it allows LAs to do “anything that individuals generally may do”, they are still constrained by public law principles and cannot use the power to get around public sector borrowing restrictions. 

4. Pricing the deal: best consideration

Any disposal of LA land has to be for the “best consideration” that is reasonably obtainable. This needs to be evidenced by valuer’s advice, and a disposal for less than best consideration requires specific consent from the Department for Communities and Local Government. The Housing White Paper suggests that rules around obtaining best consideration could be loosened, and the requirement to obtain consent could be abolished. 

5. Pricing the deal: state aid

A council cannot give “state aid” (which is currently illegal under EU law, potentially subject to Brexit). A sale for less than best consideration could be interpreted as favouring a particular undertaking. Unlawful state aid has to be given back by the party found to have received it, so should not be seen purely as a compliance risk for the LA. Commission guidance indicates that sales will not constitute state aid when conducted following a well-publicised marketing process, through an unconditional bidding procedure or auction, or without using unconditional bids if the market value has been established by independent valuers before an offer is accepted. State aid needs to be considered at two points in the deal: when acquiring land from the LA; and (if there is a development) when dealing with disposals of any completed parts of the site by the council. 

6. Procurement

If the structure involves the LA requiring a party to carry out “public works” that cost more than £4.1m then, strictly, the contract for the structure should be procured through EU rules. A straight land disposal is exempt from EU procurement rules, but councils will often want to have some influence over how sites are developed and will have expectations that affordable housing or social infrastructure should be provided. The LA should establish at an early stage if its proposals for land will need to be procured and private parties need to make sure that the LA has considered this before too much time is spent on a structure that is ultimately subject to being challenged or sanctioned. This is not just a council risk. 

7. Funding and security

These issues are not going to be relevant to most simple sales but, in any ongoing project between the public and private sector, there may be a need to generate debt finance, which likely will need to be secured against land. If a joint venture or other project deals with LA and private land, the private partner needs to be aware that the starting point is that councils are prohibited by statute from using their land as security for borrowing. 

8. Managing an ongoing project

In any ongoing project, the parties need to establish a workable process for regularly meeting, keeping each other informed, and ensuring that decisions can be made in a timely way. LAs will need to ensure that any agreement does not purport to bind the discretion of the councillors. This can be addressed by making sure that decisions are made by each party at their discretion but recommended or prompted through a jointly represented project board. 

9. Regulatory issues

Private parties need to remember and address the fact that LAs are subject to the Freedom of Information Act 2000 and also to the Environmental Information Regulations 2004.

10. Collaboration is key

The key message for developers is to be prepared and to work collaboratively with councils at the earliest possible stage to ensure that the issues identified above do not impede the successful regeneration of LA land.

This article appeared first on EGi on 18 April 2017