Local authority – Sale of land – Local Government Act 1972 – Defendant council deciding to sell land to interested party for residential development – Claimant submitting competing bid to purchase site – Whether sale to interested party breaching duty under section 123(2) of 1972 Act not to sell land for less than best considerable reasonably obtainable – Whether defendants wrongly taking into account matters not forming part of consideration when considering interested party’s bid – Claim dismissed
The defendant council owned the freehold of a 1.7ha site in London NW2 subject to a 99-year lease in favour of a football club. After the club ceased to operate from the site, the buildings were demolished and the site fell into a derelict state. The claimant, a registered charity incorporated to further the Jewish religious education of girls of high school age, was interested in developing a school on the site to replace its existing premises.
In 2011, the first interested party submitted proposals to the defendants to purchase the freehold of the site with a view to residential development. It offered a price of £2.8m, plus overage payments comprising £10,000 for each habitable room for which planning consent was granted in excess of 359 habitable rooms, of which 257 were to be for private housing and 102 for affordable housing; it further offered to pay 50% of any amount by which the price offered by registered social landlords for the affordable housing exceeded £4.1m.
The district valuer advised that the market value of the freehold was £2.8m and that the offer constituted the best consideration for the defendants. When the claimant learned of the defendants’ intention to sell, it made an unconditional offer to purchase the site for £3.5m, with a 5% deposit payable in 60 days and the balance in nine months’ time. At a subsequent meeting, the defendants resolved to complete the sale to the first interested party.
The claimant obtained an injunction to restrain the sale pending a judicial review of that decision. In light of that matter, the defendants retook the decision after considering a report prepared by their officers setting out the district valuer’s advice on both bids. The defendants confirmed their decision to sell to the first interested party. Heads of agreement were subsequently agreed that provided for a guaranteed minimum overage of £1m.
The claimant contended that the proposed sale would breach the defendants’ duty under section 123(2) of the Local Government Act 1972 not to sell land for less than the best consideration reasonably obtainable. It contended that, when assessing the first interested party’s offer, the defendants had: (i) wrongly taken into account perceived benefits that could not form part of the consideration for the sale of the land, including the provision of affordable housing units and payments promised under section 106 of the Town and Country Planning Act 1990; (ii) failed to evaluate and discount the overage payments promised by the first interested party; and (iii) given excessive weight to difficulties that the claimant would experience in the furtherance of its proposals to develop the site for a school.
Held: The claim was dismissed.
The only matters that could be taken into account as consideration for the purposes of the section 123 duty were those elements of the transaction that were of commercial or monetary value to the local authority: R v Pembrokeshire County Council, ex parte Coker [1999] 4 All ER 1007; [1999] PLSCS 172 applied. Elements of purely social value did not count. The advice given by the defendants’ officers did not clearly distinguish between benefits that could form part of the consideration and those that could not. Moreover, the difficulties of fulfilling the claimant’s development proposal should not have been treated as a relevant factor since the claimant’s proposal was unconditional and fully backed financially; it was not even “subject to contract” and could have been accepted as it stood. However, the decision was not vitiated by a failure to evaluate and discount the overage element of the first interested party’s offer, since the overage figures being advanced were conservative and the likelihood that they would not be achieved was outweighed by the likelihood that they would be significantly exceeded.
Although procedural failings could be relevant in relation to the section 123 duty, and some of the claimant’s criticisms of the defendants’ decision-making process were justified, those matters were not material to the outcome on the facts of the instant case: R (on the application of Midlands Co-operative Society Ltd) v Birmingham City Council [2012] EWHC 620 (Admin) considered. The heads of agreement negotiated subsequent to the making of the decision had established that the first interested party was willing to pay a price greater than the £3.5m offered by the claimant since it was guaranteeing a minimum payment of £3.8m. Since those were the only two bids on the table, the defendants would be in breach of their section 123 duty if they did not sell to the first interested party on those terms.
Per curiam: In the event that the claimant or a third party came up with a better bid at the eleventh hour, the defendants would have to give proper consideration to that bid provided it was viable, financially sound and not subject to conditions that required its apparent value to be significantly discounted. It was therefore appropriate for the court to offer its observations on what payments, other than the cash price and overage, might be taken into account in the event that such a bid was made. In considering any such bid, it would not be permissible to take into account as part of the consideration the creation of affordable housing units or any payment promised under section 106 of the 1990 Act to offset the costs to the defendants created by the completion of any development. Those elements did not relate to the sale of the land or the value of the purchase consideration offered for it, but instead represented payments to offset the costs of development, which were a different matter: R v Middlesbrough Borough Council, ex parte Frostree Ltd unreported 16 December 1988 applied. However, the value of nomination rights could potentially be taken into account, namely the right of the defendants, reserved in any sale to a registered social landlord, to nominate tenants of the housing units. By achieving that benefit, the defendants saved the costs of locating housing units for tenants elsewhere and so reduced the cost of fulfilling their housing duties under the Housing Act 1988. Those rights were benefits accruing to the defendants from the use of the land sold. They were elements of the transaction of commercial and monetary value to the defendants and, unlike the section 106 payments, they were not offset by any corresponding cost.
Jack Anderson (instructed by Fladgate LLP) appeared for the claimant; James Goudie QC and Heather Emmerson (instructed by the legal department of Barnet London Borough Council) appeared for the defendants; Katharine Holland QC and Katherine Olley (instructed by Berg Legal, of Manchester) appeared for the first and second interested parties; the third interested party did not appear and was not represented.
Sally Dobson, barrister
