4.2.1 As part of the Authority's feasibility study for a proposed Project, and prior to preparation of the Authority's Outline Business Case, the Authority should consider:
• the extent to which it will be required to transfer Assets, or grant a licence or lease, to the Contractor (so as to allow the Contractor to carry out and perform the Service);
• its ability to transfer such Assets4 or grant such a licence or lease to the Contractor; and
• the extent to which the Authority requires control over, and/or access to the Assets during the life of the Project.
4.2.2 If the Project will involve both the Authority and the Contractor accessing and using the asset (for example, school teachers or hospital clinicians accessing a building maintained by the Contractor), then the Authority should seek advice from its legal advisers as to the best way of ensuring that the Authority's rights of use are maintained following transfer of the asset, or grant of licence.
4.2.3 The Authority may already own the freehold to the land and property. In this case, it can grant an interest or right in the land and property to the Contractor, which allows it to access and use the land and property for the term of the Contract. The preferred approach is to grant the Contractor these access rights by way of licence. Where the Contractor may take a residual value interest in the Assets (such as on some Housing or Waste projects) however a lease structure (head lease and sublease) may be used. Where a lease structure is used it is important that (for the period of the PF2 contract at least) the Contractor does not impose additional obligations on the Authority under the lease. It should be a bare lease and (unless residual value options apply) coterminous with the PF2 Contract. In addition, where the PF2 Contract is sold in the market on a Contractor Default, the lease contract should be sold along with it.
4.2.4 If the Authority only has a leasehold interest in the land and property, and a lease structure is used, it is likely that the consent of the freeholder will be required before the Authority can grant any interest in the land and property to the Contractor.
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4 The nature of the Authority's interest in the relevant asset will dictate the extent to which, and manner in which, the Authority can transfer the benefit of the relevant asset to the Contractor. Legal due diligence over the Authority's interest in the asset will highlight any restrictive covenants, conditions of transfer and /or claims over the relevant asset. .