Since the Academies Act 2010 came into effect Hertfordshire County Council Legal Services has administered 71 academy conversions. Adeola Sonola looks at the practical issues commonly encountered in a conversion.
The legal background
The Academies Act 2010 (the “Academies Act”) received Royal Assent on 27 July 2010 and since then several schools in England have converted, changing their status from local government maintained schools to an academy.
Section 1 of the Academies Act includes a lengthy definition of an academy which can be paraphrased as a company which enters into an agreement with the Secretary of State under which the company gives certain undertakings and the Secretary of State agrees to make payments in consideration for those undertakings.
Academies are independent schools operated by charitable companies known as Trusts. Academy trusts are established and funded by the Secretary of State under a funding agreement. There are no restrictions on the type of schools that can convert. Secondary, Primary, Special Schools and also Pupil Referral Units/Educational Support Centres are all eligible.
Under the Academies Act, governing bodies of maintained schools can set up their own academy trusts and convert the school to an academy, if the requirements of Department for Education (DfE) are met. This differs from the conversion seen under the Labour Government where academy trusts were set up by sponsors to take over poor performing or undersubscribed schools.
Contractual agreements required for conversion
The main agreements required for a conversion are as follows:
- Funding agreement: between the academy trust and the Secretary of State;
- Commercial transfer agreement (“CTA”): between the academy trust, the governing body and the local authority (the “LA”);
- Lease: between the academy trust, the governing body and the LA.
In the funding agreement entered into between the academy trust and the Sectary of State, the academy trust have to give certain undertakings to the Secretary of State, some of which include undertaking to provide an independent school, have a balanced and broadly based curriculum, provide education to pupils with differing abilities, provide education to pupils wholly or mainly drawn from the area in which the school is situated. The Secretary of State gives an undertaking to make payments to the academy trust in consideration for the undertaken given.
Commercial transfer agreement
The CTA is entered into between the academy trust, the governing body and the LA. The CTA is a standard document provided by the DfE to facilitate smooth conversions without elongated negotiation between the parties. The usual practice is that the DfE funds the fees of external solicitors acting for the academy trust and the LA is represented by its in-house lawyers. The governing body, even though a party to the CTA, will not usually be involved in any of the negotiations. The CTA covers usual contract terms and apportions legal rights, obligations and liabilities to the parties. Please note that in some cases, the LA is not a party to the CTA. This is the case, for example where voluntarily aided schools convert.
The CTA comes into effect on the date of transfer, which is the date the funding agreement is executed between the academy trust and the DfE. Once these two agreements are executed, the maintained school officially changes its status to an academy and becomes a legal entity separate from the LA.
This is drafted and agreed between property lawyers acting for the academy trust and the LA. Land transfer arrangements should be determined by agreement. DfE key principles are to ensure the appropriate protection of public land, secure the future of the academy on the site and to ensure the protection of both public and trustee land held by another trust for the purposes of the academy. This means that all land and building occupied by the school at the date of the application to convert should be made available for the use of the academy at the date of the conversion.
In the lease, the LA is the landlord and the academy trust is the tenant. Land is transferred freehold or leasehold to the academy trust. The term is usually 125 years and payment is peppercorn. The lease contains covenants imposed on the parties, insurance issues and other property arrangements.
Best practice dictates that the lease is executed simultaneously with the CTA and funding agreements, but this is not usually the case. In practice, the property lawyers for the LA and the academy trust continue to negotiate this until it is agreed and signed.
Checklist of practical issues
When negotiating the CTA and the lease, it is essential to work with client departments to ensure that robust clauses are included in both documents to safeguard the interest of the LA. The following are some of the practical issues to consider:
- Asset transfer: this includes all property rights and assets, whether tangible or intangible, used for the purposes of the school. A list of assets included and excluded in the asset transfer has to be collated. Some excluded assets may include freehold titles to the school, cash in hand or at bank, benefits of grants made to the school in respect of periods before the transfer, any artwork on loan to the school;
- Balancing schools accounts and historical liabilities;
- Current service contracts e.g. lists of existing contractual arrangements;
- Third party / community use of facilities on site;
- Site due diligence e.g; on-going FM obligations, work in progress repairs or construction works on site, broken boilers and roofing (should this be repaired or replaced before or after conversion?). How will repairs or replacement costs be apportioned between the parties?
- How are warranties given to the LA by the contractor going to be passed to the academy trust?
- Current workforce information;
- Staff consultation in relation to TUPE  transfer – it may be necessary to agree upfront any TUPE liabilities the LA is willing to underwrite;
- What would happen to staff and their pensions, particularly any pension fund deficit?
- List of equipment and assets to be provided;
- If the school has a budget deficit, will the LA indemnify the academy trust in relation to this?
- What about the caretaker's accommodation?
- Pupil records;
- Shared/dual use of parking space, kitchens/boilers between schools e.g. a converting school and a non converting school;
- Continued funding of sports hall, swimming pool, football pitches, shared boundaries after conversion. What about repair and maintenance obligations? When is the sports hall or swimming pool open to the local community for use?
Separate legal entity
As a separate legal entity, the academy trust enjoys a number of freedoms such as freedom from LA control and unnecessary bureaucracy from the LA, ability to set staff pay and conditions, freedom from the national curriculum, ability to alter the length of school days and terms and so on.
These freedoms however come at a cost as the academy, following conversion, is exposed to all the risks and liabilities previously borne by the LA, for example:
- Personal injury, employment tribunal claims, general costs of running and maintaining the school and buildings;
- Managing its own budget by taking financial responsibility including managing its own contracts;
- Statutory obligations under FOI  and EIR  – given 60 days to respond to a FOI request for information made out of term time;
- Statutory obligations under the Public Contract Regulations 2006 (as amended) (the “Regulations”): which means that it must procure all required goods, services and works competitively, via a tender process if the value of such requirements exceeds the established thresholds;
- Despite being a private charitable company and an independent school, an academy can be subject to judicial review, since it is publicly funded (see R v Governors of Haberdashers’ Aske’s Hatcham College Trust, ex parte T )
The staff from the maintained school transfer under TUPE to the academy. This means that the pensions of the transferred staff either under Teachers Pensions Scheme or Local Government Pensions Scheme (LGPS) has to be protected. The CTA usually covers basic provisions to deal with how pensions of staff in the LGPS will be protected. Since the academy is a scheme employer under the LGPS (Administration) Regulations 2008, the continued participation of eligible staff should be smooth, even though the academy trust will now have to bear the financial burden of any increased employer contributions. The academy trust will also be required to address any deficit issues.
The academy trust becomes a scheme employer. So where it outsources any of its services to third party contractors (usually catering, cleaning, FM, cleaning & grounds), for TUPE transferred staff to continue to enjoy the benefit of their pensions in the LGPS, the contractor needs to become an admitted body under the LGPS (Administration) Regulations. This means that the academy trust as a schemeemployer will enter into an admission agreement with the administering authority and the contractor, where certain guarantees may be required from the academy trust.
Free schools are a specific type of academy. They are independent schools operated by charitable companies known as trusts. Free school trusts are established and funded by the Secretary of Sate under a funding agreement. They have the same legal structure as academies, are funded in the same way, have the same freedoms and are subject to the same legal requirements. The main difference is that free schools are used to establish brand new state-funded schools while academies simply replace maintained schools. Free schools can be set up by anyone e.g. group of parents, community groups or charities. The promoters of the free school are required to find suitable land or premises or seek assistance from the LA in seeking suitable premises.
The LA will enter into a development agreement with the free school, which may incorporate a design and build contract and other related documents. Most of the practical problems encountered when drafting a CTA are not present here, since the free school is established brand new. Some practical problems include issues relating to a LA-run nursery on site, boundary disputes and other related property related issues.
Local authority services
The LA through a traded service contract executed between itself and the academy trust sells back services to academy and free school trusts. The academy and free school trusts are not obliged to buy these services from their local LA, but they will, if fees paid demonstrate value for money (cheaper than the market rate). The traded services contract are negotiated and agreed on a commercial basis.
Despite the freedom from the LA control that academies enjoy, the LA still has a strategic role to play under the Education Act 1996, the School Standard and Framework Act 1998 (as amended by the Education Act 2002) – since the LA has statutory duties to provide education in its community.
Even though the level of co-operation between the LA and individual academies is left to the discretion of each academy, there is much scope for the LA to retain key strategic role in the local education within its community. The LA needs to build strong relationships with the academy or free school trusts. The LA can create a coherent local education by being proactive, influencing education strategies within academy or free school trusts.
It is yet to be seen how the academies' freedoms will be balanced against the LA’s statutory duties, but time will tell. Perhaps it is when academies and free schools begin to fail that LA statutory duties will be better implemented.