- This is particularly pertinent where the council is acting commercially, where it must by law act through a company (the general power of competence given to local authorities in section 1 of the Localism Act 2011 permits councils to do things for a “commercial purpose” but only through a company). Commercial developments (of housing for market sale or private / market rent) or mixed developments which are, at least in part, commercial must be undertaken through a company
- Each local authority is driven by different policy goals, and by the varying needs of its communities, which means that each council company may look and act in a different way
- For some, the development of housing in the area is undertaken with a view to generating an income stream for the council, to support the provision of council services. For others, it is to correct a failure in the local housing market – a lack of affordable rental properties, for example
- The nature of any company created should depend on the business case that the council identifies: is there a viable rental market, for example, or will the council develop housing for private sale?
A local authority development company can work effectively to deliver community-led housing if established with this as one of its key objectives. It can be a major driver for CLH expansion in its area of operation. Palace Green Homes in East Cambridgeshire is a good example – see the case study snapshot below.
When setting up a new company, a council will need to consider:
- the background law which will influence the Council’s decision making, including:
- the Council’s powers and duties – in relation to both setting up and participating in the company – and the wider local government law that the Council will need to act within;
- the different legal structures that are available, how they differ and the impact each would have on the governance arrangements and the relationship between the Council and the company;
- exactly how the EU procurement rules will apply and how to mitigate risk where there is uncertainty in any respect;
- the flow of money and the transfer of land which requires analysis for each initiative from a State aid perspective;
- regulatory compliance, including compliance with any requirements of the Ministry for Housing, Communities and Local Government and Homes England and the Regulator of Social Housing;
- the tax implications of different structural models: particularly SDLT, VAT and Corporation Tax; planning and environmental law matters;
- any consultation the council would need to undertake before proceeding;
- the funding and finance arrangements to be put in place;
- the governance of the company:
- the relationship the Council will have with the company and how it will manage its affairs. Although the legal mechanics of forming a company are relatively straightforward, it is important to ensure a good understanding of the implications of doing so. Duties of directors to the company and addressing how the council wear different “hats” are pertinent;
- the council’s shareholder role and the mechanics of a share company (general meetings and shareholder decisions - reserved matters - and the mechanics of decision making);
- governance and operational arrangements – the Board of Directors, any chair, how they are appointed and removed, their decision making, and a description of Directors’ duties;
- future-proofing the company or group structure – how future relationships are managed