At your disposal

Many authorities are looking to dispose of their surplus property. Sangita Unadkat and Sam Folley provide some top tips about how they should go about the process.

Local authority funding from central government is set to be cut by 27% over the next four years.  As a result all local authorities are looking for more innovative ways to save money and initiatives have included merging back office functions, or even amalgamating entire departments with other local authorities. One consequence of all of these measures is to create surplus property which can be disposed of on the open market, which in turn allows the authority to release capital or generate revenue from its real estate.

In this context, we have set out some "top tips" on legal issues when considering disposal of surplus local authority property.

Achieving best value

A local authority may not dispose of land for a consideration less than the best that can be reasonably obtained. Before disposing of any land, the authority must give consideration as to whether or not this would be prudent and in line with its fiduciary duties and financial circumstances. Authorities cannot lose sight of these principles as pressure increases to manage cuts in a challenging economic environment.

Site assembly/Pre-empting problems

In order to minimise transactional delays:

• Ascertain whether the site is registered. If not, consider an application for voluntary registration. This will undoubtedly be helpful for the purchaser and avoid attempts to “chip” price on the basis of uncertainties on the title. It will also help identify potential title problems early on.
• Examine all deeds for any problematic restrictive covenants, easements and any other adverse rights and identify legal and commercial solutions. Is modification under section 84 of the Law of Property Act 1925 feasible or is section 237 of the Town and Country Planning Act relevant?
• Compile a property bible to assist the buyer comprising of a set of standard searches (local authority (Parts I and II), drainage and water, index map, highways authority) and non-standard searches (which in London may include DLR, London Underground, enquiries with Port of London Authority, Civil Aviation Authority and Crossrail safeguarding).
• Compile replies to standard pre-contract enquiries, CPSE 1 and identify the appropriate Council officer who has knowledge of the site to give true and accurate replies.
• Consider a site inspection. This will help put the site in context and will be useful to identify the existence of any overriding interests, rights of light or other incumbrances not obvious from a desktop review.

Imposing overage provisions

It is not unusual to include overage or clawback provisions in the sale of local authority property to secure a share in future enhancement in value not captured on day one. The authority will be keen to retain this right if redevelopment takes place.

Options include:

• Impose a positive covenant in the transfer deed requiring payment on a future trigger (such as the grant of planning permission or an enhanced consent). Note however that this will be personal to the buyer and does not bind the site or the buyer’s successors in title; and is dependent on the continuing financial strength of the buyer.
• Impose a positive covenant, but with drafting to capture successors, coupled with restriction on title. Although popular, this route can be cumbersome for future buyers and requires negotiation to ensure prior rights of funders are protected.
• Require the buyer to give a charge over the site to the authority. When overage is triggered (e.g. when planning permission is granted), the overage payment is due and secured by the legal charge. Some commentators challenge this approach on technical grounds and a third party funder will require priority.
• Instead of transferring freehold, the authority can grant the buyer a long lease with a positive covenant securing the overage payment. This could be combined with an option to purchase the freehold once the payment has been made. Although a long lease may be unattractive compared with freehold sale, this is an effective way of ensuring the positive covenant runs with the land.

Reserving and granting rights

On any disposal, it is important to ascertain whether the local authority will be retaining any land adjoining the site to be sold. If it will be, officers and legal draftsmen will need to carefully consider what rights the local authority may need to grant and reserve. Most commonly this will be access to the public highway or to mains utilities if they will no longer be direct following the transfer. Consider carefully current and possible future uses of the land. All rights which need to be granted need to be clearly set out in the transfer deed. Some of the more common issues to keep in mind when drafting are:

• Ensuring the local authority's rights are drafted adequately. For example, an access right should be drafted to be clearly for vehicles and pedestrians and at all times and for all purposes. If the site is to be developed the right of way should be for all construction traffic as well.
• Specify whether the right of way can be used for parking and/or deliveries as well, and if so, consider regulations or particular spaces.
• Include a clear mechanism for requiring a contribution towards the maintenance of any roads. This could be based upon a fixed or variable percentage taking all matters into account including the intensity of the user.
• The right can be expressed to be subject to the payment of a contribution and therefore may not be exercised if payment is not made, alternatively a positive covenant to pay coupled with a restriction on title could be utilised.
• Provide for sufficient servicing capacity. If new conduits will be constructed, make it clear their permitted route and size. Liaise with the technical team to ensure practical matters are not missed – such as avoiding grant of drainage rights which go up hill!

Sangita Unadkat is a partner and Sam Folley is a solicitor at Trowers & Hamlins (www.trowers.com). Sangita can be contacted on 020 7423 8442 or by email at This email address is being protected from spambots. You need JavaScript enabled to view it., while Sam can be contacted on 020 7423 8251 or by email at This email address is being protected from spambots. You need JavaScript enabled to view it..