Managing property projects involving local authorities

Business are likely to find themselves engaging with local authorities more frequently than in the past. Local authorities are under pressure to replace reduced funding by increasing income through commercial investments.

The National Audit Office reports that £6.6 billion was spent by local authorities in years 2016/17 and 2018/19. Investments include office, retail and industrial sectors.

Businesses should be aware that the decision making landscape for such authorities is not quite the same as they may be accustomed to. Some awareness of a few key issues may help to manage potential delays to time critical projects and help to avoid mistakes that could jeopardise the project altogether.

Understand how decisions are made

For business people and members of the public, most day-to-day dealings with councils involve interacting with employed council officers who operate in accordance with the officer scheme of delegation and the council’s constitution. However, it is likely that decisions to invest in, dispose of or develop land will require specific authority of the council. Such decisions will need to be made by elected council members (councillors) in accordance with the constitution, either in cabinet meetings involving the leader of the council and other members responsible for key policy areas or a meeting of the full council, involving all elected members. All types of meetings are subject to statutory and council specific procedural requirements, so it is important you make sure at the outset of your negotiations that there is a properly made and minuted decision by the council authorising the transaction.

It pays to understand which specific terms and/or deal structure have actually been approved. We have often seen in the context of land transactions that new thinking emerges after negotiations have commenced e.g. to better manage tax, legal or commercial risks. If you can see such a situation arising, check early with your council contact to see if further authorisation is going to be needed as this process may take some time. This issue may be exacerbated in the current Covid-19 lockdown, although we note that regulations were passed at short notice in Parliament to allow councils to meet remotely, and further legislation may follow.

Finally, be careful when dealing with members individually in relation to your proposed transaction. You may have a strong relationship with a council member, but be aware that council decisions relating to such transactions will in most cases require the authority of the council or it’s cabinet, and must be implemented by officers. Council officers are responsible for the operational business of the council and only officers should be instructing the professionals advising on and implementing the transaction.

Legal and reputational restraints

It is also worth watching the local election time-table in terms of when you seek to agree a property deal in principle or get the legal documents signed. Local authorities are likely, for fear of allegation of bias or even of judicial challenge, to adopt a more conservative policy to making decisions, particularly ones which may be perceived as more political, during an election campaign period. Each council may adopt different specific practices however all councils will need to comply with the requirements and restrictions of the “purdah period” before an election.

Remember that public works over defined value thresholds require the council to advertise and follow an advertised competitive procurement procedure pursuant to the Public Contract Regulations 2015. This is well understood in the context of works contracts and does not generally apply to the acquisition of land interests by councils. However, since the Faraday¹ decision in 2018, strategic land transactions may need to be advertised if there is an expectation in the way the deal is structured that works will be carried out on the land that may exceed the procurement value thresholds. Consider the issue at an early stage to avoid any unintended consequences and to mitigate the risk of judicial challenge.

Always take care when buying land from councils, particularly where the terms may be unusual or not negotiated in the open market. Councils are required to demonstrate best value under section 123 of the Local Government Act 1972 and may frequently refer to valuers for an opinion.

The local authority will be making decisions as a landowner which do not legally bind the local authority planning team therefore an agreement with a local authority cannot eliminate planning risk even where properties are located in the local authority’s own area.

Conclusion

It pays to invest time considering these matters and applying them to the specific parties and transaction as early as possible. No two local authorities operate in exactly the same manner with different pressures driving the transaction. If you can successfully navigate these matters, you can gain the various benefits of dealing with local authorities. In particular, they have access to funding and extensive networks. Local authorities may also be a willing purchaser of land which would otherwise attract a limited pool of buyers thereby producing price discounts. They are alive to the ability to ‘clean’ a title of restrictive covenants etc. and this has potentially been made easier by recent changes to legislation. As a buyer they may enter into conditional contracts and take an interest in projects which deliver a longer term gain or serve a public purpose. Birketts has a specialist Public Sector team and works extensively with local authorities and private developers on local authority property transactions.

For further information regarding the above matters, please contact Dwight Patten, Isabel Wightman-Cooper or another member of the Commercial Property team.

¹Faraday Development Ltd v West Berkshire Council (2018) CA