6.4 In circumstances where a tangible asset is vested in the JV, the public sector body should ensure that, in the event of disposal of the asset, an appropriate share of the proceeds accrues to the Exchequer.
6.5 Managing Public Money (Annex 4.8 Asset Management) sets out the protocol for disposals of land, property and other assets. Further guidance on the disposal of surplus property is provided by the OGC54 and in the Green Book.55 The overarching protocol is that public sector bodies should dispose of surplus land and property within three years and should not hold land speculatively.
6.6 Central government bodies should identify disposals as part of their asset management strategies and would normally be expected to plan to use the proceeds. HM Treasury approval is usually required if departments do not have 'Estimate' cover for spending receipts and if sponsored bodies want to retain receipts from disposal of assets. Whilst local authorities are generally able to retain receipts some restrictions still apply (see below).
6.7 Disposal in such circumstances would normally imply an arm's length sale on the open market for the best possible monetary outcome, subject to wider VfM considerations. Disposal may include provision for 'clawback' or 'overage' arrangements where windfall gains are anticipated or it is difficult to determine the final value at the time of transfer.
6.8 In the case of land and property transferring to the JV it would still normally be expected that the public sector body has taken reasonable steps to maximise the value of surplus land prior to transfer, e.g. by obtaining outline planning consent or a planning brief for the most valuable alternative use. There are of course some JVs where part of the object of the venture is to prepare land for sale e.g. by undertaking remediation and clearance and obtaining planning consent. A list of issues is set out in Box 6.A.
| Box 6.A: Issues to consider for land and property JVs ● Have ownership, title, liability, security and other due diligence issues affecting disposal been fully explored? ● Is there a possible requirement to 'offer back' to former owners if property was compulsorily acquired? ● For central departments, has surplus land first been offered for transfer between public sector organisations? ● What are the implications of public sector bodies' requirements to uphold wider policies such as sustainability and social or economic development on values? ● Are there particular sensitivities around the timing and levels of receipts if already incorporated into budget Estimate plans? ● Is the timing of the sale appropriate relative to the prevailing market? ● Are the current whole life cost and value of the assets understood (assessed in both accounting and Market Value terms, especially where an accounting loss or 'impairment' might arise)? ● Has the accounting treatment of any land and property transfer into the JV been considered when assessing the affordability of the JV? |
6.9 In exceptional circumstances VfM may be better served by transferring assets at less than the expected best price achievable, however the off-setting benefits must be clearly quantifiable, e.g. the delivery of regeneration or economic benefits in areas of market failure. The sale or lease of an asset at less than Market Value to the JV is likely to constitute a 'gift' requiring notification to Parliament56 and consent from the Secretary of State. Local authorities should be aware of the provisions of the Local Government Act 1972: General Disposal Consent 200357 which in certain circumstances provides for the removal of ministerial consents where the "undervalue" is less than two million pounds.
6.10 Disposing of land at less than its Market Value may also give rise to State Aid issues (see Chapter 3). This applies both to any initial transfer to the JV and subsequent transactions, e.g. on exit or termination.
| Example 7: Alternative approaches to exploiting property through a JV One NorthEast 'Buildings for Business' - transfer of surplus investment properties In April 2004 a new limited partnership entity (Buildings for Business) was formed between UK Land Estates and the North East regional development agency, ONE NorthEast. The partnership had an extensive property portfolio comprising some 1,500 industrial properties on 22 estates. ONE NorthEast established the partnership with UK Land Estates to bring in private sector expertise to running the properties. As well as managing the properties, UK Land Estates has a 50% share in the deadlocked limited partnership. The partnership holds and manages the investment portfolio, which was 100% transferred into the JV, and through disposals will inject substantial resources to regenerate the properties and estates, providing high quality business accommodation throughout the region. In return for contributing its assets ONE NorthEast receives an interest bearing loan note from the JV as security equivalent to the book value of the assets. Additionally the private sector participant's equity is effectively locked up through a second loan note arrangement as further security. (Source: ONE NorthEast) British Waterways ISIS - contribution of development land through options ISIS is a waterside regeneration company formed in October 2002 by British Waterways with Igloo (the regeneration fund of Morley Fund Management) and AMEC Developments (now MUSE Developments). British Waterways already had considerable success in the regeneration of its urban and rural waterways, forming site-specific JVs to unlock the value of its land. ISIS built on the successes of these ventures, however, unlike them it took a nationwide, multi-site approach, focusing on major waterside developments across the UK. Initially, the ISIS limited partnership JV had options on ten British Waterways sites supplemented by a pipeline of additional British Waterways and third party land as opportunities arise. A VfM mechanism and detailed investment criteria for transferring assets into the JV were established within the JV Agreements. (Source: British Waterways) |
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54 OGC Guide for the disposal of surplus property, November 2005.
55 HM Treasury Green Book Appraisal and Evaluation in Central Government.
56 See Managing Public Money, Annex 4.12 Gifts.
57 Circular 06/03: Local Government Act 1972 general disposal consent (England) 2003 disposal of land for less than the best consideration that can reasonably be obtained.