Making the case: 1. The context

This chapter is part of our guide to making the case for community-led housing on public land.

Making the case: an introduction
1. The context: legislation and regulations
2. Addressing the ​‘best consideration’ requirement – and winning
3. Case studies
4. Building an evidence base
5. Backing up your arguments

How do public sector bodies sell land? And what does this mean for community groups? This section introduces the relevant rules and regulations, and shows how the legislation often leads to the sale of land to the highest bidder, not to those groups aiming to maximise community benefit.

What does ​‘best consideration’ mean?

When public sector bodies are making decisions about selling public land, they are subject to something called the ​‘best consideration’ requirement (sometimes called ​‘best value’). This means that the public sector body is obliged to secure the highest possible financial return from land sales, so the bidder able to offer the highest amount for the land is likely to win the contract.

This puts community groups looking to provide affordable housing at a disadvantage, as they cannot compete with high-value housing developments led by private developers.

But there is confusion about how the best consideration requirement applies to different parts of the public sector– the rules are notoriously murky with regulatory and cultural differences, meaning responses often differ.

Local authorities

When the body selling the public land is a local authority, they are subject to Section 123 of the Local Government Act (1972), which states that, except with the consent of the Secretary of State, councils cannot dispose of land ​“for a consideration less than the best that can be reasonably obtained”. Court interpretations of s123 have repeatedly defined consideration as financial consideration only.

But, subsequent legislation gives local authorities the powers to promote wellbeing (Local Government Act 2000) and the powers of general competence (Localism Act 2011). This means that interpretations of ​‘best consideration’ could be widened by local authorities to include other policy objectives, including the social and economic benefits that come with affordable, community-led housing.

Other public sector bodies

These powers do not apply to other parts of the public sector. However, this does not necessarily mean that financial benefit is the only thing that other public sector bodies can take into account. The Treasury’s guidance on the use of public assets states that:

“the public sector holds financial, corporate and physical assets in the pursuit of policy objectives and not for its own sake or for the creation of profit. In pursuing policy objectives […] public sector assessment of value is based upon the interests of society as a whole and is not an assessment of value to the public sector alone.”

A culture of financial assumptions

Confusingly, this contradicts previous legal interpretations of ​’best consideration’ as being only financial. It is possible that much of the insistence on the financial nature of best consideration (both in local authorities and in the rest of the public sector) is a cultural assumption – something that planning experts also argue:

“The natural expectation that the Treasury expects councils to secure the largest cash receipt from the sale of land is deeply embedded in the culture of councils, the profession and indeed the public at large: whereas the concept of ​‘best value’ should, and indeed does, have a much richer set of meanings to influence how that land is used and valued.”

Since 2003, the Local Government Act has given councils the power to accept ​‘less than best consideration’ for individual bids of up to £2 million below market value per transaction, and below £10 million over a year. But despite the leeway, the assumption that the Treasury expects councils to secure the largest cash receipt from the sale of land provides a strong incentive to maximise financial benefits and embeds it in the culture of local authorities and the wider public sector.

Because official documents are vague on what criteria should be applied to the sale of land, much is left to the interpretation of officials in charge of the disposals. Unsurprisingly, especially given the context of austerity, this vacuum is filled by the pressing need to raise funds. As a result, a tension emerges between disposing of land to plug funding gaps and developing high quality and affordable housing and infrastructure (for more on this tension, see the Civic Housebuilding blog and Rethinking the Economics of Land and Housing).

Some public bodies are open to collaboration with affordable housing providers at the expense of achieving best consideration for their land. Many have pointed out that NHS trust land, for example, is ideal for providing affordable homes for hospital staff and sheltered housing. If the provision of quality affordable homes with decent infrastructure is possible, this should be taken into account as part of ​‘best consideration’. However, the fiscal, legal and policy pressures we have outlined push in the opposite direction.

Going beyond the financial

In theory, selling at undervalue can be justified by broader social or economic benefits, in both UK procurement law and EU state aid rules. Demonstrating these benefits by quantifying them, ideally in monetary terms, is ideal – but affordable housing providers still risk being challenged by ​‘best consideration’. Judicial decisions have been inconsistent. So, without specific consent from the Secretary of State, specialist lawyers have advised that local authorities (and the broader public sector) should avoid being seen to be awarding ​‘give-aways’ (or unjustified de-facto grants) and err on the side of caution by showing preference for bids with the highest financial return.

This is one of the reasons why we, along with the Royal Institute of British Architects (RIBA) and Shelter, have been calling for public benefit to be taken more clearly into account by legislation and guidance on the valuation of housing projects across the entire public sector. This could be achieved by expanding the legislation and regulation that government departments and local authorities use to assess the value of assets and services, to make clear that these valuations can apply to public land.

The Treasury’s Green Book valuation processes can capture wider public benefits. However, experts argue that there is a lack of expertise in carrying out rigorous valuations. Moreover, there is a lack of understanding that valuation is not an exact science, but a social process that should involve multiple stakeholders to make a judgement on value. The challenge for future guidance is therefore to devise a valuation process that is both accessible and rigorous.

But where does this leave community groups now? Since community groups often seek to maximise affordable housing provision, along with other community benefits, they simply cannot compete for public sites solely on financial terms. Community groups need to have the resources to challenge ​‘best consideration’ in order to compete with private developers. And this is what we explore in the following section:

2. Addressing the ​‘best consideration’ requirements – and winning

This guide was created with the generous support of the Nationwide Foundation.