Key issues in land disposal
When local authorities dispose of land, there are several important legal issues for them to consider. A recent case considered by the Supreme Court showed the importance of considering one such issue – the duties associated with disposing of land consisting of open space, write Paul Hilsdon and Matthew Holtam.
Open Space
When a local authority uses the power in section 123(1) of the Local Government Act 1972 to dispose of land, section 123(2A) requires the local authority to advertise the intended disposal in a local newspaper in two consecutive weeks and to consider any objections that are made before taking a decision to proceed. A local authority should give genuine consideration to all objections and be able to demonstrate that it has considered these objections with an open mind to avoid the possibility of challenge. Section 123(2B) provides that where a local authority, having complied with section 123(2A), disposes of land which is held (a) for the purposes of section 164 of the Public Health Act 1875 (pleasure grounds) or (b) in accordance with section 10 of the Open Spaces Act 1906 (open spaces and burial grounds), the disposal frees the land from any trust arising solely by virtue of its being land held in trust for enjoyment by the public.
In the case of R (on the application of Day) v Shropshire Council [2023] UKSC 8, a parish council had sold land to a developer without complying with its obligations to advertise the disposal and consider objections. That meant that the purchaser did not obtain the benefit of section 123(2B) of the Local Government Act 1972 and so experienced difficulty when it sought planning permission to develop the land. The Supreme Court found that the consequence of the failure to comply with the requirements of section 123(2A) of the Local Government Act 1972 was that the statutory trust affecting the land continued to apply to the open space even after legal title to the land vested in a developer. The Supreme Court found that section 128(2) did not operate to extinguish the rights enjoyed by the public under statutory trusts. Those rights were only extinguished if the local authority disposing of land complied with the procedure set out at section 123(2A). Unfortunately for the developer, it had therefore acquired the land subject to a statutory trust. The consequence of failure to advertise the disposal and the continued survival of the statutory trust caused the Supreme Court to quash a decision by the local planning authority to grant planning permission for development as the existence of the statutory trust was a material planning consideration.
It is also important for a local authority to be clear about the purpose for which it holds land, as this will affect the power which the local authority uses to dispose of that land. Different powers come with different associated requirements. Local authorities will often use section 123(1) of the Local Government Act 1972 which gives a local authority power to dispose of land held by it. As well as the obligations relating to open space mentioned earlier, a local authority exercising that power is subject to a duty under section 123(2) to obtain the best consideration that can reasonably be obtained unless the disposal is by way of a short tenancy or the local authority has the consent of the Secretary of State.
Best consideration and subsidy control
A local authority trying to determine “best consideration which is reasonably obtainable” should only consider that consideration which is capable of having a commercial, economic or monetary value. The fact that a disposal may achieve other objectives should not be taken into account unless an economic value can be attributed to such achievements.
Section 123 of the Local Government Act 1972 does not oblige a local authority to follow a particular process to secure the outcome of achieving best consideration. An approach of going to the market with a competitive bidding process is a straightforward way for a local authority to show that it has achieved the best consideration reasonably obtainable. Another option would be to obtain an independent valuation of the land and secure a price which is equivalent to the market value shown in that valuation. Case law has shown that there are various ways in which a local authority could secure best consideration. For example, in one case, the court accepted that a local authority could comply with the duty to secure best consideration by negotiating with one developer where the circumstances meant that going to the market would not achieve the best consideration that can reasonably be obtained.[1] In other cases, the court has applied the approach that “a bird in the hand is worth two in the bush” and accepted that it is appropriate for a local authority to accept a comprehensive and well-founded offer rather that pursuing the possibility of a higher offer from a speculative approach.[2]
Local authorities may rely upon the general consents issued by the Secretary of State and the Welsh Ministers for them to use the power in section 123 of the LGA to dispose of land for less than best consideration. These consents apply when a local authority considers that the purpose of the disposal is likely to contribute to the promotion or improvement of the economic, social or environmental well-being of its area and the extent of the undervalue does not exceed £2 million. If a local authority intends to rely on this, the information considered by its decision makers will need to show how the disposal could contribute to well-being and the extent of the undervalue.
A local authority which intends to dispose of land will also need to assess whether the terms of the disposal will provide a subsidy to the purchaser and, if so, how the disposal will comply with the requirements of the Subsidy Control Act 2022. That Act defines “subsidy” as financial assistance, given from public resources by a public authority which confers a specific economic advantage on an enterprise and which could have an effect on competition or investment in the UK or trade or investment between the UK and other countries. Disposing of local authority land on favourable terms is likely to qualify as a subsidy.
Powers to dispose of land can be very useful to local authorities as they strive to manage their resources to the best effect. When they decide to exercise those powers, it is important for local authorities to ensure that they comply with all relevant legal obligations, take reasonable decisions and keep clear records.
Paul Hilsdon is a Partner and Matthew Holtam is a Trainee Solicitor at Geldards.
[1] R (on the application of Salford Estates (No 2) Ltd) v Salford City Council [2011] EWHC 2097 (Admin)
[2] R v Pembrokeshire Count y Council ex parte Coker [1999] 4 All ER 1007
