Setting up L.A. property companies

Scott Dorling looks at the opportunities and challenges presented by local authority property companies.

Many local authorities have established, or are in the process of establishing, vehicles to develop and/or acquire properties. In many areas this is a response to perceived disfunction in the local housing markets. Others see the establishment of such a vehicle as an opportunity to generate revenue into the General Fund. Whatever the reason, the reform of Housing Revenue Account financing has been a catalyst for many local authorities to consider the benefits to be derived from the establishment of a vehicle to intervene in the private housing market. This brief article looks at some of the issues that need to be worked through for any local authority contemplating the idea of setting up a property company.

The introduction of the general power of competence in Section 1 of the Localism Act 2011 has, in a number of respects, simplified local authority vires. However, the compliance with "pre‑commencement limitations" needs to be fully understood and the crossover with other complimentary powers, such as the trading power in Section 95 of the Local Government Act 2003, needs to be carefully worked through.

The existence of a relevant power will not in itself give vires to the establishment of a property company and, as always, the use of the power will need to be justified in the circumstances. Every local authority lawyer knows that powers must be used for proper purposes. The council's rationale for establishing the property company, the rents and tenures proposed and the routes of access by tenants to the properties will all be factors that need to be carefully considered to determine the veracity of the use of certain powers. Principal housing powers contained in the Housing Act 1985 will also be relevant for consideration but will have an effect on accounting treatment which local authorities might be hoping to avoid in establishing a property company. 

Councils might wish to "kick start" a property company with the transfer of land and/or dwellings. The powers to dispose of land need to be carefully worked through, as do any general consents issued by the Secretary of State under the Housing Act 1985, the Local Government Act 1988 and/or the Local Government Act 1972. State aid considerations are also important here, particularly if there is any disposal of land at an undervalue or in the giving by the local authority of loan finance to the company.

The provision of loan finance by the local authority gives rise to a whole series of additional vires issues and balance sheet impacts which need to be fully considered and understood, in addition to ensuring full compliance with capital finance regulations and Minimum Revenue Provision.

There are a number of procurement implications arising from the establishment of a local authority property company, including the exploration of whether the property company is a Contracting Authority for the purposes of the Public Contract Regulations, the applicability of the Teckal or "in‑house" exemption from tendering, and the applicability of reverse Teckal. Many local authorities establishing property companies wish to have contracts back to the local authority for the provision of housing management services, but there may be restrictions on the availability of such arrangement arising from certain general consents.

Additionally, understanding both the market involved and the risks associated with the venture (including having a well-developed exit strategy) are crucial components of any local authority property company initiative.

We have advised and are continuing to advise many local authorities who have or are in the process of establishing property companies. The range of issues to be considered is significant, but by carefully working through them on a systematic basis many local authorities are developing successful property ventures.

Scott Dorling is a real estate partner at Trowers & Hamlins. He can be contacted on 020 7423 8391 or This email address is being protected from spambots. You need JavaScript enabled to view it..