Legal report - Playing safe on valuation in disposal of public land

Gareth Phillips, a senior associate in the planning and public law team at Denton Wilde Sapte, Planning, 17 October 2008

Councils making their land available is one good way of achieving this. However, the statutory tests applicable to the disposal of local authority-owned land should be remembered. Authorities are under a duty to secure the "best consideration" for any disposal of land, unless they receive the secretary of state's consent to do otherwise.

"Best consideration" is generally taken as meaning the highest market value. In determining whether this is being obtained, councils can take a range of financial factors into account and they do not necessarily have to accept the highest cash offer. Yet they cannot generally take account of non-pecuniary matters, such as the wider social or environmental benefits of any particular offer.

Ministers can back exemptions

In most cases, authorities need ministerial consent to dispose of land below open market value. In the past, the application process and the threat of legal challenge has put some councils off selling land at lower values. However, the procedure is not complex and, if there are adequate reasons, the secretary of state usually takes a sensible view.

Developers should not be dissuaded from doing deals with local authorities, because section 128 of the Local Government Act 1972 affords protection. Provided that the transaction is made in good faith and there has been no deliberate attempt to avoid a disposal for best consideration, the courts will not set it aside on the basis that the necessary consent has not been obtained.

Moreover, specific consent may not be necessary. A general consent is available for disposals that will help secure the social, economic or environmental well-being of an area where the difference in value does not exceed £2 million. The council is the principal body for determining whether the well-being criteria are met in using the general consent.

The secretary of state will apply the same criteria when asked to endorse a disposal where the difference in value is larger than £2 million. This might apply, for example, where the sale of property for a socially useful purpose might not be viable at full market value. In either event, the courts are unlikely to overturn any decision that has a strong evidence base and is properly and sensibly made.

This does not necessarily mean that developers proposing a comprehensive scheme will be able to acquire local authority land on the cheap. Indeed, if the council were to sell at less than market value, it might be characterised as state aid or raise procurement issues. However, a carefully prepared and executed competitive process or clear independent valuation advice should overcome this hurdle.

Guidance failing to keep pace

The policy guidance on the circumstances in which authorities can use the well-being power is skeletal. As land transactions become more complex, councils and even ministerial advisers are unsure as to the conditions that can legitimately be imposed on disposal and the stage at which consent should be obtained.

For example, if a council aims to exceed normal design or renewable energy standards, these are likely to have a deflating effect on the value of the land in question. But how far can the requirement to obtain best consideration be bent before exemplary achievement of policy objectives is considered too costly?

An agreement may span several years and disposal may not occur until the development is complete. Consent would normally be required for the actual transfer, but neither the developer nor the local authority would welcome the risk of the transaction falling down at that stage. Updated guidance in these areas would be welcome, as would an increase in the £2 million limit.

In the meantime, consent applications supported by a robust valuation and a clear statement of the policy justification for the well-being conditions that give rise to an undervalue should succeed. However, councils should carefully balance the desire to enable an exemplary development with their duty to obtain best consideration. They should always be aware of the risk that they will be treated as "procuring" whatever works are subsidised by a sale at below the market rate.