Disposing of assets

Local authority disposals

• Under section 123 of the Local Government Act 1972, a local authority has the power to dispose of land. The main caveat to this power is that the council must not do so for “a consideration less than the best that can be reasonably obtained”. This is interpreted as being the best price achievable in the open market. 
• The focus of the duty is on the outcome rather than any particular process being followed.[1]  That said, if a disposal were to be challenged, the Courts are likely to find the duty to obtain best consideration has not been complied with where:
  • there is a failure to take proper advice;
  • proper advice has been obtained but there has been a failure to follow it for reasons that cannot be justified; or
  • advice has been obtained and followed, but the advice is so plainly wrong that the Council either knew or ought to have known it was acting unreasonably

• Section 123 specifically excludes short tenancies (i.e. less than 7 years) 
• It is possible to dispose of land at less than best consideration with the consent of the Secretary of State for Housing, Communities and Local Government, and to do this the council should be able to show that value is being received in other ways that justify the monies foregone to the public purse
• There is a current General Consent (the General Disposal Consent (England) 2003), which gives consent to the disposal of any interest in land at less than best consideration where the council considers it will help it to secure the promotion or improvement of the economic social or environmental well-being of its area, subject to the condition that the undervalue (i.e. the difference between the consideration obtained and the best consideration that can reasonably be obtained) does not exceed £2million
• The technical appendix to the General Disposal Consent gives specific guidance on valuations. Where the General Consent does not apply then an application for specific consent must be made to DHCLG
• Notwithstanding the above, any disposal must not involve the council giving unlawful State Aid whether by deliberately disposing at less than market value or accepting non-cash consideration that in practice is not equivalent to the market value of the land
• Where the land is open space then notice of the council’s intention to dispose must be advertised for two weeks in a local newspaper.  Any objections received as a result must be considered by the council before disposing of the open space land
• Obtaining best consideration involves two steps:
• valuing the land – in disposing of land without market engagement, an independent valuation should be obtained to demonstrate best consideration is being obtained.  This would be consistent with the views of the European Commission when considering State aid implications of land transactions;[2]
• once a valuation is obtained ensure that the form of consideration meets or exceeds that valuation
• In principle there is no restriction on the form of the consideration obtained provided that it has a commercial or monetary value to the council[3] equivalent to (or indeed exceeding) the value of the land.  Elements of purely social value for example job creation as a result of development[4] cannot form part of the consideration for section 123, but may in certain circumstances complement the relevant commercial / monetary elements.[5]  The benefits to the council from any onward development (e.g. the creation of affordable housing and payments under a section 106 agreement) are also irrelevant when determining best consideration
• Where any part of the land is held for planning purposes then the disposal regime is set out in the Town and Country Planning Act 1998 and the General Consent would not apply.  If any part of the land was earlier acquired by (or under threat of) compulsory purchase then the Council should consider whether the ‘Crichel Down Rules’ apply to the disposal 

Disposals by Charities

There are several circumstances where a charity can dispose of its land or buildings for less than best price and/or without the consent of the Charity Commission:

• where it is leasing to a beneficiary of the charity, and the premises are to be occupied for the purposes of the charity
• where, in selling, leasing or otherwise transferring land to another charity it is carrying out the purposes of the charity and it is therefore a practical application of the charitable trust’s purpose
• where the charity has the power to sell, lease or transfer property to another charity
• where the overall offer is the best that can reasonably be obtained and the charity’s surveyor recommends acceptance

Charity Commission guidance on disposals and leases at less than best price is available here.

If charities have any doubts about whether they can do this, they should take legal advice.

Disposals by Churches

• Many churches and religious bodies would like to dispose of redundant buildings or surplus land to provide affordable housing but believe that they are obliged to obtain the ‘best price’ for their assets. Charities selling or leasing land or buildings in England or Wales are normally required to be satisfied that that they are disposing of them on the best terms that can be obtained. The requirements are set out in Sections 117 - 119 of the Charities Act 2011. However, if the disposal would further the purpose of the church, then it may be permissible to sell or lease at below best price.
• There are also specific exemptions to the requirement for best terms for the disposal of redundant churches owned by the Church of England.
• The Charities Act 2011 requires that the trustees of a charity must get a written report from a suitably qualified surveyor acting for the charity before agreeing to a lease or sale. They must be satisfied that the proposed agreement is at the best terms that can reasonably be obtained
• ‘Best terms’ has been interpreted in various ways by different churches and denominations. Some have sold on the open market whilst others have disposed of land or buildings to housing associations on relatively generous terms
• There is longstanding advice for religious bodies about what constitutes ‘best terms’. It is generally interpreted as the best price that can be obtained for the land or buildings on the open market
• Affordable housing is defined as housing provided for sale or rent at sub-market prices for people whose needs are not met by the market. Such people are mostly on lower incomes and often vulnerable due for example to mental health issues, disability etc
• As the rents charged are below market rents, housing associations (and by extension community-led housing organisations) may be unable to offer the best price for a site. However, trustees may also consider how the provision of affordable housing in an area can further the overall mission of the church when assessing best terms

Further advice on church disposals of land and buildings at less than best price is here.

[1] R (Salford Estates) v Salford City Council [2011] EWHC 3135 (Admin) as approved by R(Midlands Co-operative Ltd) v Birmingham City Council [2012] EWHC 620 (Admin)

[2] Commission Notice on the notion of State Aid as referred to in Article 107(1) of the Treaty on the Functioning of the European Union (2016/C 262/01) at paragraph 103.

[3] R v Middlesbrough BC ex p Frostree (16 December 1988) and R v Pembrokeshire County Council ex p Coker [1999] 4 All ER 1007

[4] R (Lemon Land Limited) v Hackney LBC [2001] EWHC Admin 336

[5] R(Faraday Development Limited) v West Berkshire Council and St Modwen Developments Limited [2016] EWHC 2166 (Admin)