81. Unless there are strong supporting commercial reasons, surplus land not integral to the development should be excluded from PFI procurements. The criteria listed below should be considered in determining the suitability of surplus land for inclusion in a PFI procurement.
82. The following criteria should be used to evaluate suitability:
a. before commencing a PFI test, MOD should explicitly review what parcel(s) of land/buildings might be associated with a particular scheme and ascertain into which of the following categories it/they would fall:
(i) land/buildings that would remain in operational use within the proposed development;
(ii) land/buildings that would become surplus to requirements as a consequence of the proposed development (and by implication would not become surplus if the proposed development did not proceed);
(iii) land/buildings with the potential to release development gain (i.e. enhanced value or more valuable planning consent) on either itself/themselves or other land/buildings if they were to be disposed of by the MOD;
b. in the case of (i) then such land/buildings are clearly integral to the overall deal and the economic assessment of the overall PFI scheme would also suffice for the economic assessment of any such land transactions. In the case of (ii) and (iii) two tests of value for money would be required:
(i) the economic assessment of the overall PFI scheme, and
(ii) the economic assessment of the land disposal;
c. surplus land should only be considered for inclusion within a PFI test if the MOD considers that the alternative of conventional sale and reinvestment of the proceeds in another project that has not secured private finance would not command a higher priority. Acquisition teams should agree explicitly what proportion of the proceeds arising from the disposal of surplus land will be included in the PFI Scheme in order that any implications for affordability can be assessed early. Acquisition teams should also consider whether improved value for money and affordability can be achieved by reinvestment of the proceeds in equipment or in publicly funding the refurbished elements of the scheme;
(i) consideration should be given to whether the inclusion of any surplus land would facilitate achievement of other national/local priorities and objectives;
(ii) reference should be made to MOD's estate strategy in making decisions on whether to associate surplus land with a PFI scheme. The absence of an MOD estate strategy would tend to favour a decision not to associate land with a PFI project;
(iii) in assessing both the relative returns and relative priority between inclusion in a PFI project and conventional disposal, acquisition teams should also take into account:
- the levels of risk and ease of disposal;
- the potential timing of disposal;
- the opportunities for securing planning permission;
- the holding costs of the land (eg continuing capital charges, security, essential health and safety expenditure etc) prior to its disposal; and
- the impact of any delay and/or uncertainty in realising disposal values arising from inclusion within the PFI project that would be associated with each option;
(iv) in the cases of both the retained estate and MOD vested land, legal advice should be obtained to ensure that proper title to the land exists and that there are no impediments or reversionary clauses (e.g. the Crichel Down rules) that would prevent the proposed disposal route or impose restrictions on the future use of the land. The Crichel Down rules, for example, require that the original owner of land acquired under compulsory purchase should be given the first option if the land is to be sold. Particular care should be taken where the actual conveyancing of the land to the MOD, although intended, is not complete.