Chief Legal Officer:
Mirza F.N. Ahmad MBA LLM Barrister
11-14 Cannon Street,
Birmingham B2 5EN
BRIEFING NOTE : SECTION 123 LGA 1972 - BEST CONSIDERATION
1. The Courts have recently decided cases in relation to Section 123 of the Local Government Act 1972 and it is, therefore, appropriate to reconsider the current position.
2. Section 123(1) indicates that, subject to the other provisions of this section, a local authority may dispose of land held by it in any way it wishes but there is no obligation on the Council to dispose of its land if it does not wish to do so [R -v- Bolsover District Council ex parte Pepper  EGCS107], even after an advertising and procurement process has commenced.
- Section 123(2) requires that except with the specific consent of the Secretary of State the Council may not dispose of land for a consideration less than the best that can reasonably be obtained other than by way of a short tenancy1. There are, however, a number of General Disposal Consents (see Section H below) covering routine matters. Please consult the Public Law and Property Division of the Legal Services Office if you require further information in respect of the General Disposal Consent Orders.
B RECENT CASE LAW
4. In R (on the application of Lidl) UK (GMBH) -v- Swale Borough Council and Aldi Stores Limited  EWHC Admin 405, the Court determined that:
"The Council is in the position of a Trustee in relation to the land which it holds on behalf of the community. Section 123 requires [the local authority] to obtain the best consideration reasonably available. That does not mean that the highest offer on the table is always the best, because a Council is entitled to conclude that "a bird in the hand is worth two in the bush", as this case demonstrates".
- This case was brought as a result of a bid by Lidl on a site which Aldi had been assembling with the consent and approval of the Borough Council and which Lidl decided to try and delay whilst their own planning application (on another property in the same town) was receiving consideration from the Planning Committee. Lidl's bid was regarded as a spoiling tactic and not to be taken seriously.
- In R (on the application of Structadene Limited) -v- Hackney London Borough Council  12 EG 168, Hackney LBC intended to sell property at auction and appeared to have two interested parties prior to auction. On the morning of the auction, Hackney LBC decided that it would sell to the tenants at a particular figure. Structadene made two bids (prior to the auction), the second bid was 125% of the other bid. Hackney LBC exchanged contracts with the Underbidder. An injunction restrained Hackney from completing the sale and the matter went to judicial review.
- Contrast the Structadene case with the tender/bid disposal of a car park where bidder A submitted 2 bids" one fixed and one being in excess of all other bids with a ceiling of £165,000". Both A and the other bidder B were invited to resubmit fixed price bids as the bid from A required the disclosure of the bid from B in breach of the tender conditions. A repeated its 2 bids after being told that the referenced bid was void and B increased its bid (and won). From a best practice point of view, it is essential to state in the Tender Conditions that a bid by reference to other bids will be rejected and that only fixed priced bids will be considered.
- With regard to the effective date of the disposal, although Structadene was effectively decided on the failure by Hackney LBC, in other respects Judge Elias set out his understanding of the law in order to attempt to clarify it; although it is arguable that his reasoning was wrong. Please consult, therefore, with the Public Law and Property Division if there is a challenge on an effective date.
C KEY PRINCIPLES
- In R (on the application of Lemon Land Limited) -v- Hackney London Borough Council  EWHC Admin 336;  2EG165 (SC) it was ruled that a lower bid which produced more employment should not have been accepted as the creation of jobs was not part of the consideration. That bid should have been rejected on the basis that it was the underbidder.
- Based on the Lidl decision (23 February 2001), it is essential for the Council:-
- to consider all offers received;
- to have a valuation of the land/property on the files (and preferably in the relevant Report to the Cabinet / Cabinet Member) so as to establish the relevant data; and
- where the Council takes the initiative to sell a site, it must be openly marketed to establish a competitive value and the bids should then be assessed against the (internal or external) valuation and the Tender criteria.
- From legal, probity and propriety points of view, where the Invitation to Tender sets out the evaluation criteria, these cannot be changed when the bids are all in. A development project without design criteria may force acceptance of the highest fiscal bid, even if this will result in an unexciting design. It is essential, therefore, that great care is taken to formulate the relevant Tender criteria. These should, as a minimum, cover the financial standing of the bidder, the economic viability of the scheme and the likelihood of it being completed on time.
D VALUATION ISSUES
- In assessing the value of the land / property to be disposed of against which bids are to be evaluated, the Council must disregard the effect on value of any restrictions that the Council seeks to impose because of its own policy. The only restrictions to be taken into account in valuation are those that burden the land / property prior to the acquisition by the Council. The depressing effect on valuation of any requirements that the Council may impose are not to be taken into account.
- In this regard the terms of DOE circular 6/93 should be borne in mind. Unnecessary or unrealistic restrictions may be challenged and will, invariably, not satisfy the legal requirements on the Council to obtain the best consideration for the land / property.
- Provided, therefore, a site is sold for the best consideration reasonably obtainable, having regard to the relevant probing of the bids received and being Wednesbury reasonable then all should be in order.
E ETHICAL AND OTHER CONSIDERATIONS
- Whilst there may in many cases be strong sympathies with a developer who spends time assembling a site and then seeks to acquire Council land, it may be thought that there is an ethical obligation to proceed with that developer in contrast to a higher bid from a rival developer. The legal position, however, is clear : "the Council should realise that when it comes to selling their property (or rather the property that they essentially hold in trust for the ratepayers), ethical considerations are unlikely to have any lawful place in their consideration of rival bids" as per Judge Morrison in the Lidl case.
F PUBLIC OPEN SPACES
- Any sale of land to which the General Public has access is public Open Space (whether formally as defined in the planning legislation or not) and must be advertised first. Please consult the Public Law and Property Division for clarification if there may be doubts.
- The same advertising requirement applies where Open Land to which the public has access is being formally appropriated. It is also likely that, in assessing the bids, a competing bidder may in fact not be able to demonstrate that their scheme is viable or that a development can take place on the land without the acquisition of land held by the first developer. The assessment of the bids may well result in the underbidders position being regarded, therefore, as a stronger and more deliverable bid than the higher biddersí.
G REPORT WRITING & CONFIDENTIALITY
- It is vital that in reporting to Cabinet or a Cabinet Member in a situation where there is a strong possibility of legal or audit action, that there is spelt out in the report the latest position with regard to the law, the duty to be Wednesbury reasonable and those aspects of the bid which can and cannot be taken into account before taking a decision.
- The report must also be clearly written and should stand up to scrutiny if "called-in" by the Overview & Scrutiny Members. Equally, the report should set out the proper valuations and any relevant legal justification and statutory provisions for the recommended action.
- If any legal advice is to be set out in the report or any lawyer is to be quoted, the relevant lawyer must check the draft report before it is finalised. Clients should obtain legal advice, therefore, well in advance of finalising any report. Failure to do so may also prompt the Councilís Monitoring Officer (Chief Legal Officer), or the Chief Finance Officer (Strategic Director of Resources) taking action to halt any decision-making process if an unlawful, illegal or procedurally deficient action is being proposed in a report.
- If an external consultantís report or value is used, the report should accurately set out the consultantís relevant assumptions or conclusions on the matter. These will be important considerations, if the final decision is ever challenged by the District Auditor or a third party.
- Where considered appropriate and as a matter of good practice, a copy of the external consultantís report must be available for the relevant decision-maker(s) to consult/read (if required) before any decision is taken on the matter. Any internal difference of opinion with regard to an external consultantís advice or recommendation, must also be clearly and satisfactorily explained in the relevant covering report.
- Confidentiality is important between parties and must be maintained at all times. Anyone found to have breached a bidderís (or potential bidderís) confidentiality will be disciplined and, depending upon the severity of the breach, could be dismissed by the Council.
H GENERAL DISPOSAL CONSENTS
- In the event that a disposal at less than best consideration is considered appropriate for policy, regeneration or other reasons it is open to the Council to make an application to the Secretary of State for specific consent should the General Consents not cover the position. In Structadene it is clear that if Hackney LBC had indicated to Structadene that it was applying to the Secretary of State for consent to dispose at less than best consideration, the case may not have come before the court.
- The General Disposal Consents permit a sale at undervalue where leasehold land is passing to Health Service bodies and medical professionals, charities, provide leisure facilities and for certain functions supported by or required by statute.
- Freehold disposals can be made under the General Disposal Consents where the use is consistent with the Unitary Development Plan or other statutory plan and is for leisure use, place of worship, certain housing and business uses with additional restrictions.
- There are also specific Consents under s.133 Housing Act 1985 relating to small disposals under £50,000 outside London, preserved Right to Buy, the transfer of freeholds under Shared Ownership Schemes, the grant of shop leases and short leases for community purposes or special needs.
- In any circumstances where it is thought that General Disposal Consent may apply, please contact Legal Services Office as the Consents are liable to change and there are specific conditions attaching to some of the Consents.
24th JULY 2002
For the purposes of Section 123 a disposal by way of short tenancy is for the grant of a lease not exceeding 7 years or an assignment of an existing term with no more than 7 years still to run.