Local government –– Sale of land –– Section 123 of Local Government Act 1972 –– Land capable of residential and/or employment-creation development –– Higher bid received for land for residential development –– Local authority proposing to sell land for employment-creation development at lower price –– Economic benefit in employment creation –– Whether employment-creation benefits relevant in determining whether consideration best that could reasonably be obtained
The defendant council proposed to sell a development site to the London Development Agency (LDA) to enable it to be developed to generate employment opportunities. The open market value of the site, on a realistic assumption that planning permission for residential development would be available for up to 50% of the site, was £2.2m. On the assumption that the entire site could be used for residential development, the open market value was £2.5m. The LDA was prepared to pay £1.65m; this offer represented the site’s non-residential value. The claimant company had made an offer of £2.064m for the site (later increased to £2.45m), which represented its value for residential development. The council resolved to accept the LDA offer without seeking the consent of the Secretary of State. The claimant applied for judicial review of that decision. The council contended that the economic benefits of job creation were to be taken into account when considering the application of section 123(2) of the Local Government Act 1972, which required that the site should not be sold for a consideration less than the best that could reasonably be obtained. They accordingly submitted that those benefits (£732,000) should be added to the LDA offer of £1.65m.
Held: The application was allowed. The policy behind section 123(2) of the 1972 Act is that, in a sale of land by a local authority, a distinction must be drawn between commercial and non-commercial transactions. If there is an element of discount or grant in a transaction, the consent of the Secretary of State is necessary. The requirement that the elements in the consideration should be capable of having a commercial or monetary value to the local authority reposes upon the local authority the responsibilities of trustees of their land and enables their stewardship to be effectively audited. The fact that anticipated job creation was a motive for, or an intended consequence of, the sale did not bring it within the meaning of the word “consideration” in section 123(2).
The following cases are referred to in this report.
R v Middlesbrough Borough Council, ex parte Frostree Ltd unreported 16 December 1988
R v Pembrokeshire County Council, ex parte Coker [1999] 4 All ER 1007
Tomkins v Commission for the New Towns [1989] 1 EGLR 24; [1989] 12 EG 59, CA
This was an application by the claimant, Lemon Land Ltd, for judicial review of a decision of the defendants, Hackney London Borough Council.
Timothy Mould (instructed by Charles Russell) appeared for the claimant; Richard Clayton (instructed by the solicitor to Hackney London Borough Council) represented the defendants.
Giving judgment, LIGHTMAN J said:
Introduction
1. This is an application made by Lemon Land Ltd (Lemon), pursuant to permission granted on 1 February 2001 by Ouseley J for judicial review of a decision made by the regeneration committee of Hackney London Borough Council (the council) to sell 2-10 Hertford Road, Shoreditch (the property) to the London Development Agency (the LDA). The issue raised is whether the sale is “for a consideration less than the best that can reasonably be obtained” within the meaning of section 123(2) of the Local Government Act 1972 (the 1972 Act). Lemon is interested as an alternative prospective purchaser that claims to have offered a higher price, and consequently a better consideration. Whether Lemon has done so turns upon the question of whether, and if so to what extent, the council can treat as part of the consideration offered by LDA the value placed by the council upon the prospect of job creation perceived to be afforded by the proposed use of the property that will follow the LDA purchase.
Facts
2. The LDA (a division of the Greater London Authority) is one of nine regional development agencies (RDAs) created by the Regional Development Agency Act 1998. The remit of the LDA, as an RDA, is threefold, namely: (1) to prepare and implement strategic economic plans for the region, addressing economic development, social and physical regeneration, competitiveness and innovation; (2) to market the region and develop financial packages for inward investment; and (3) to be responsible for administering specific regeneration packages on behalf of sponsor bodies. The LDA manages the economic development function of the Greater London Authority and uses its funding, when it is required, to ensure that development is socially, economically and environmentally sustainable. The LDA’s project team appraises and manages major projects.
3. Both the council and the LDA are anxious to ensure that the use and development of the property are such as to generate employment opportunities for the borough. The need to retain such uses of land within the borough is perceived to be fundamental to its long-term prosperity, for there is extensive unemployment. A serious obstacle in the way of retaining such land use is that developers will pay more for the use of land for residential purposes. To this end, the council wish to sell the property to the LDA, and the LDA has agreed draft heads of
Except with the consent of the Secretary of State a council shall not dispose of land under this section otherwise than by way of a short tenancy for a consideration less than the best that can reasonably be obtained.
The council have not sought, and are not willing (at least at present) to seek, the consent of the Secretary of State. In this, as in at least one previous similar transaction, they have taken the view that such consent is unnecessary.
4. The valuation evidence before the court in respect of the property reveals that, as at 11 January 2001, its open market value (reflecting the realistic assumption that planning permission would be granted for use of up to 50% of the property for residential accommodation) was £2.2m. On the assumption that planning permission would be granted for use of the entire property for residential accommodation, the value was £2.5m.
5. As at 11 January 2001, the council had on the table two rival offers. The first was from the LDA for £1.65m and the other was from Lemon for £2.064m. The offer by the LDA represented the existing (non-residential) use value of the property, for the LDA is unwilling to pay for any “hope value”, ie the prospect that planning permission may be given for an alternative (and, in particular, residential) use. The offers from the LDA and Lemon were made on different bases. The offer from the LDA was for the property with vacant possession. The offer from Lemon was made on the basis that the property was sold encumbered by an obligation to continue to accommodate a charity, rent free, on part of the property. The council had long previously told Lemon that this was the case, and only disabused Lemon on 9 January 2001, long after the Lemon offer had been made. After Lemon had the opportunity to reconsider the offer it was willing to make in the light of this new information, on 12 February 2001 it increased its offer to £2.45m.
6. The council resolved to accept the LDA offer on the ground that, while the proposed development by Lemon would create between 160 and 200 jobs, the proposed development by the LDA would create 322 jobs; the value of the 120 extra jobs to be created by the LDA development (valuing each job at £6,000) was some £732,000; and that adding the value of this non-monetary benefit of £732,000 to the offer of £1.65m, the offer by the LDA provided the better consideration, and, therefore, could, and should, be accepted. The issue before me is whether, for the purposes of section 123(2), the value attributed to the job-generation benefits of the LDA offer can be treated as part of the consideration in this way. I may add that the sale to the LDA is to be subject to an overage agreement, yet to be drafted, entitling the council to 50% of any net additional value received within 10 years by the LDA upon disposal (except to Strongroom under an approved form of development agreement) or any use of the property for residential purposes. But it is not argued that the potential benefits under that proposed agreement affect the issues before me.
7. The valuation of a “job” is a familiar concept in the field of grant-making for public sector grant-funding purposes: it is a tool used to measure the socio-economic benefits of job creation. Mr Scarth, the senior development manager of the LDA, says in para 31 of his witness statement:
In working with Basin, the LDA takes account of the number of jobs that will be created and “values” the outputs in accordance with accepted criteria to justify its involvement. The criteria have been used for many years by the Government’s Regeneration Agency, English Partnership. The criteria is defined in its Development Practice notes four and six. Note 4 states that the usual cost per job is in the region of £10,000.
8. The council argue that they are entitled to adopt the conservative criterion of £6,000 per job in valuing the offer made by the LDA, and treat the resultant figure as part of the consideration obtained by accepting that offer. The council also say, as well as treating the sum of £732,000 so arrived at as part of the consideration received, that they can also, at the same time, treat the sum (for the purpose of securing matching funds contributed by the central government to the relevant local regeneration scheme) as a grant made by the council. This, they say, is likewise a benefit and part of the consideration obtained by acceptance of the LDA’s offer, and, indeed, a benefit of particular value because the council are in dire financial straits.
9. In my view, the provisions of section 123(2) do not allow the council to treat any part of the sum of £732,000 as part of the purchase consideration. Section 123(2) requires the council to obtain the highest price that can be got for the land: less can only be accepted, however meritorious the reason for accepting less, if the Secretary of State accepts the political responsibility for the decision by giving his consent: see Tomkins v Commission for the New Towns [1989] 1 EGLR 24. In R v Middlesborough Borough Council, ex parte Frostree Ltd unreported 16 December 1988, Roch J stated:
In my judgment, the word “consideration” in section 123(2) of the Local Government Act 1972 refers to the price payable for the land. That price may consist simply of the sum of money offered for the land or may consist in part of such a sum and in part of other elements such as rights in the nature of easements or a right to repurchase reserved to the selling authority, provided such elements have a commercial or monetary value which is capable of being assessed by those expert in the valuation of land. The word “consideration” does not, in my judgment, include elements which are not capable of having a commercial or monetary value to the vending council.
10. I held the same in R v Pembrokeshire County Council, ex parte Coker [1999] 4 All ER 1007 at 1012J:
It is clear that an authority may lawfully and properly take into account, when deciding whether to make a disposition and the identity of the disponee, the social value of the effect of the disposition on job creation. But the social value of a disposition cannot be taken into account when questions arise of compliance with the obligation under s 123 to obtain the best consideration obtainable. Section 123 requires the consent of the Secretary of State before this obligation can be relaxed. When deciding whether (for the purposes of s 123) the best consideration reasonably obtainable has been obtained, the only consideration to which regard may be had is that which consists of those elements of the transaction of commercial or monetary value to the local authority; and undertakings to create a number of jobs or use land for a particular desirable purpose do not (as least normally) count as such consideration: see R v Middlesborough Borough Council, ex parte Frostree Ltd (16 December 1988, unreported). Accordingly the council could not in this case, without obtaining the consent of the Secretary of State, allow the perceived social value of job creation to be reflected as entitling CSSL to some discount on, or as part satisfaction of, the commercial monetary value it was required to obtain.
11. The policy behind section 123(2) is that in the sale of land by a local authority, a distinction must be drawn between commercial and non-commercial transactions. If there is any element of discount or grant in a transaction, the consent of the Secretary of State is necessary. The requirement that the elements in the consideration should be capable of having a commercial or monetary value to the local authority reposes upon the local authority the responsibilities of trustees of their land and enables their stewardship to be effectively audited. Job creation anticipated to flow from a sale of the local authority’s land is not part of any consideration received by the local authority, let alone a part having a commercial or monetary value to the local authority. The fact that anticipated job creation is a motive for, or an intended consequence of, the sale does not bring it within the meaning of the word “consideration” in section 123(2). In reality, the element in the consideration attributed to the prospective job creation is a disguised grant to the LDA for what is perceived to be a socially desirable project. Indeed, the council as much as recognise this when they say that they
12. For these reasons, I hold that Lemon is entitled to the relief that it seeks.
Application allowed.
