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Local authority land deals – unlocking regeneration opportunities

Lucy Doran looks at the role land deals can play in maximising local authority assets and delivering regeneration.

When it comes to local authority real estate deals, frustration is often expressed that redevelopments do not go ahead because of the perceived amount of red tape, resources and expense involved – often such projects can stall before the local authority has even engaged with the market. It can sometimes feel to both the local authority and private sector parties involved as if there are ever increasing barriers to maximising the potential of underdeveloped areas. This need not be the case and we are seeing more and more local authorities and other public sector bodies opt for "land deals" as a way to navigate these obstacles – they may not be appropriate for every project but they are a useful tool in unlocking regeneration opportunities.

For those of us that can cast our memory back some years, redevelopments used to seem relatively straightforward. With deeper pockets, local authorities were more readily able to identify sites for development, allocate expertise and resources to progress the site and then engage with and pay a developer to deliver the project.

Prior to 2007, it was also widely understood that development deals sat outside of the procurement rules so deals were struck directly between private and public sector or informal competitions were run. A series of European and then domestic cases put paid to this and from 2007 public bodies were put on notice that they should either formally procure their developments via a regulated process or structure them without falling foul of the relevant anti-avoidance rules so that they did not amount to public works contracts and thus fell outside of the procurement rules. We often refer to these latter type of arrangements as "land deals".

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Although these land deals do not allow for the same level of control that a typical development agreement might allow, if structured carefully, a formal procurement process is not required and the local authority can engage directly with a developer of choice. This is not a "ruse" to get around the rules as the local authority will have to accept much less control over what a developer does to and on the relevant site. However, over the years, case law and guidance has afforded a number of protections which can be employed by the local authority over the land and subsequent development to provide some degree of comfort. As the Courts have acknowledged, it is a trade-off that a public body will have to accept that it has much less control in exchange for not having to go through a procurement process.

Whilst there are still a number of formally procured development deals in the UK, we have seen the frequency of such deals diminishing as the public sector is increasingly being told to cut back on spending and reduce budgets. What we have noticed in response to the viability challenge is an uptake in the amount of land deals going ahead; whether it is with public and private sector or even public sector collaborating with other public sector bodies.

Faced with the reality that often all a local authority is able to bring to the table is the land itself, teaming up with a developer or another public body for a land deal is an attractive option. Granted, the local authority will need to fully understand the parameters and restrictions on opting for such a model but often it will make the difference between a site being redeveloped or remaining dormant for several years. With huge demand for housing in the UK, land deals are a becoming a popular solution to this demand. An increased Government focus on public sector collaboration has also led to more interest in the models, particularly for areas such as key worker accommodation where the NHS and registered providers have shared agendas and objectives and can work together to achieve these.  

This is a crucial time for local authorities – the Levelling Up agenda is a prime example of the opportunity to rethink the relationship between central and local government and put Councils at the heart of delivering change in communities. This new role will necessitate making the most of public sector assets and being flexible and innovative in approaches to short and long term income generation. Whilst there are many different ways that this can be done, land deals are a tried and tested route to maximising dormant assets and can be an important step to unlocking capital for other initiatives.

With the publication of the Procurement Bill in May, it is reassuring to see that the provisions underpinning the structuring of land deals are relatively unchanged and we understand that it is not the intention to change the position that we currently have. This gives the sector the green light to carry on with these arrangements going forward and to encourage more local authorities to consider it as an option alongside more traditional routes to market.

Lucy Doran is a Partner at Trowers & Hamlins LLP.

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