A bird in the hand…

The main power at a local authority’s disposal to sell land is found in section 123 Local Government Act 1972.

The power provides that a local authority may dispose of land in any way that it wishes subject to the requirement that if the disposal is of freehold land or by way of lease for more than 7 years (or the assignment of an existing lease with more than 7 years to run) then the consideration received on account of the disposal must be – unless the Secretary of State’s consent is obtained or it satisfies the requirements of the general disposal consent Circular 06/03 – the “best that can reasonably be obtained”.

So, what constitutes best consideration?

A bird in the hand…Generally speaking, a local authority is required to accept the nominally highest bid or offer, the ‘bird in the hand’ principle – i.e. following the adage a bird in the hand is worth two in the bush.

However, because a bid is not the highest it does not follow that it does not represent best consideration. In the case of the Jewish Girls High Ltd, R (on the application of) v London Borough of Barnet [2013] EWHC 523 (Admin) (20 February 2013) (bailii.org) the Council had two offers on the table to acquire the freehold of land formerly used by Hendon Football Club. On the one hand the Jewish Girls High Limited had offered the cash sum of £3.5m. On the other, a developer, MontClare had offered £2.8m in cash together with overage with a minimum total payment guaranteed of £3.8m as the judge noted,“

The likelihood that the overage payments would not be achieved was at least outweighed by the likelihood that they would be significantly exceeded. Accordingly, I reject his criticism of the approach to that issue”

On this basis the Court held that the lower bid with overage represented the best consideration that could reasonably be obtained.

In the recent decision in Cilldara Group Holdings Ltd v West Northamptonshire Council [2023] EWHC 1675 (Admin) (05 July 2023) (bailii.org) the High Court was asked to consider a proposal by West Northamptonshire Council to dispose of land adjacent to Sixfield Stadium the home of the Cobblers (Northampton Town Football Club). There were effectively two bidders, CDNL and Cilldara. Cilldara (the claimant) had offered significantly more than CDNL but in practice probably too much because,“..it was not irrational in the circumstances for the Council to be highly suspicious that Cilldara’s offer appeared to be too generous to be credible.”

Given the facts it was reasonable, according to the Court, for the Council to conclude that, “there was a high risk Cilldara was not seriously considering purchasing the Land, but rather was seeking to disrupt the process to avoid CDNL doing so”

In practice both bids had their weaknesses, and they were both significantly higher that the ‘red book’ valuation. In practice, judged objectively, the offer made by CDNL was more credible than the one made by Cilldara and it was reasonable for the Council to favour the CDNL bid, even if it was for a lesser sum, for this reason.

Our comments

This case is a helpful reminder of the principles that apply to assessing best consideration, namely that:

1. Consideration is limited to commercial or monetary value to the local authority i.e., social benefits do not count.
2. As a general proposition the “bird in the hand” principle is sound although it may on occasion be open to a local authority to regard a lower offer with a substantially higher prospect of proceeding to completion as more commercially valuable than an offer for a higher sum which has a substantially lower prospect of coming to fruition.
3. What constitutes consideration that is “the best that can reasonably be obtained” is for the local authority to determine, subject only to challenge on public law grounds. The court is not entitled to substitute its own opinion on the facts and merits.
4. A local authority does not have to follow a competitive process to demonstrate that it has achieved best consideration. If it chooses not to follows a competitive process then it will need to demonstrate how it has arrived at achieving best consideration which will mean obtaining independent valuation which it follows unless it is so plainly erroneous that in accepting it the council concerned must have known, or at least ought to have known, that it was acting unreasonably.
5. Section 123 Local Government Act 1972 is not concerned with procedural fairness as between rival bidders.

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If you have any queries or want more information on this please contact Nathan Holden or another member of our Local Government team.