Local authority land as a tool for promoting growth

If the mantra of the Tony Blair government was, "education, education, education," then for this government it has been, "growth, growth, growth."

If the mantra of the Tony Blair government was, "education, education, education," then for this government it has been, "growth, growth, growth." After an initial period when the signs of recovery were not encouraging it seems that growth is now returning to the economy. This follows a sustained focus on pushing regeneration as a mechanism for growth.

This has presented real challenges for local authorities. How, at the same time as delivering the largest cuts to budgets in living memory do you promote and stimulate growth in your area? The promotion of economic development is a key role of local authorities but how does funding for that compete with the need to provide social care and ensure that bins are collected and streets are kept clean? Councils need to be innovative and flexible to ensure that the economic benefits of regeneration of its land can be realised speedily whilst complying with the rules which govern such transactions.

The challenges faced by local authorities that we have seen in practice can create a complex range of issues.

The Council will need to think carefully about the outcome it is trying to achieve at the outset and which legal structure best delivers that outcome. The point at which the council disposes of its interests is a key consideration in ensuring that the development can proceed. Increasingly Councils are taking a measured approach to risk.

In balancing these priorities and coming to a decision on how to proceed consideration has to be given to the legal issues in taking a particular course of action.

Key factors are:

  • The general power of competence in section 1 of the Localism Act. This gives greater power and potential for innovation in development projects. However, consideration needs to be given to restrictions, statutory or contractual, that may apply to the use of the land in question.
  • The statutory restrictions relating to the disposal and acquisition of land, particularly section 123 of the Local Government Act 1972 which prohibits the disposal of land by local authorities "for a consideration less than the best that can be reasonably obtained". A disposal that does not satisfy this best consideration test is ultra vires and can be challenged by a third party through the judicial review process. It may also be picked up by the local authority's auditor. However, authorities can make use of the general consent to disposals at less than best consideration where the "undervalue" does not exceed £2million and the sale will contribute to the achievement of the improvement of social, economic or environmental wellbeing of residents.
  • Public procurement rules do not in general terms apply to contracts for the acquisition of land. However, where a project involves specified public works and the developer is under an obligation to carry them out issues of procurement can arise which need detailed consideration and thought
  • Compliance with the rules on state aid.
  • Problems with restrictive covenants over land, for example preventing a particular use of a nature proposed by a development project can create problems. Whilst some comfort on issues arising here may be seen in the summary power to override restrictive covenants under s237 of the Town and Country Planning Act 1990 in return for payment of compensation, issues over development can though still arise and developers (or more particularly their funders) can become reluctant to proceed with a project unless such issues are entirely resolved.
  • Other potential planning or CPO aspects may present challenges which again need detailed thought, consideration and legal advice

As well as legal issues that can arise there are also potential practical problems in my experience which represent

  • Barriers that hinder local authorities and
  • Present difficulties in providing targeted investment to strengthen infrastructure and opportunities for growth and regeneration

There are ways of potentially overcoming these barriers and in particular considering

  • Incentives and support for growth that may come from for example delivery of housing growth through the New Homes Bonus which is designed to encourage councils to promote local economic growth through enabling them to benefit from Government match funding for 6 years of the council tax generated by each new home as well as for empty homes brought into use.
  • Business rates adjustment measures are also available to benefit councils who permit new commercial premises to be built
  • There are opportunities for new funding from DCLG for disposal of surplus local authority land, perhaps to enable site risks to be overcome of the nature outlined earlier. Transfer to the Homes and Communities Agency might also be an option at open market value.

The challenge for local authorities is to find ways of incorporating surplus land into profitable schemes. There have been many examples of local authorities seeking innovative ways to promote regeneration through difficult times. Those that have done so may find that the benefit as the economy improves and the returns they reap as a result will not only support growth for their residents but help them deal with the cuts in their finances.

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