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Which land disposal method is best for Local Authorities?

Since 2021, six Local Authorities in England have been declared bankrupt and, with one in four councils expected to apply for bailout agreements to stave off bankruptcy in the next two financial years, Local Authority purse strings have never been tighter.
January 20, 2025
Since 2021, six Local Authorities in England have been declared bankrupt and, with one in four councils expected to apply for bailout agreements to stave off bankruptcy in the next two financial years, Local Authority purse strings have never been tighter.

No wonder then, that with approximately 1.3 million acres of land under local authority ownership, many are under increasing pressure to sell off their land for development – not just to generate vital revenue, but to help meet housing and development goals.

There are two types of land disposal used by local authorities – those that are ‘subject to planning’ (STP) sales and transactions under the Public Contract Regulations (PCR).

In this article, Head of Residential Property, Gary Jeffries, explores these commonly used methods of land disposal, comparing the pros and cons of each for local authorities.

What is a ‘Subject to Planning’ or STP sale?

A ‘subject to planning’ (STP) sale allows the buyer to acquire land contingent on securing planning permission for a proposed development. This approach has its benefits for local authorities, helping to maximise land value and providing an element of flexibility too.

What are the advantages of STP sales for local authorities?

Maximising land value

Developers often pay a premium for sites where planning permission is secured, enabling local authorities to maximise receipts.

Reduced risk for developers

Developers are less exposed to the risk of a failed planning application, which can encourage competitive bidding, which ultimately will benefit the local authority.

Flexibility for both parties

Local authorities can negotiate terms, such as the inclusion of affordable housing or community benefits, while developers have flexibility to tailor proposals.

Attracting interest

STP agreements can make sites more attractive to a wider pool of developers, especially for complex sites requiring more creative solutions.

However, there are also potential pitfalls to this approach which have to be taken into account.

What are the disadvantages of STP sales for local authorities?

Delayed completion

Local authorities must wait until planning permission is secured to realise the sale proceeds, which has the potential to delay revenue generation.

Uncertainty in planning outcomes

A failed planning application can terminate the deal, which can force local authorities to restart the disposal process again.

Reduced control over outcomes

Developers can submit planning applications that maximise profitability, but which may conflict with the local authority’s objectives.

Prolonged negotiations

Often, these transactions involve extensive negotiations which can become protracted, with the potential to increase legal and administrative costs as a result.

Disposals under Public Contract Regulations 2015 (PCR)

Another land sale route that local authorities can consider are disposals under the Public Contracts Regulations 2015.

The Regulations apply where the transaction involves public works or services, such as when a local authority imposes obligations on the buyer to develop the site in a specific way.

What are the advantages of disposals under the PCR framework?

A land disposal under the PCR 2015 can provide a more controlled route to disposal for local authorities, founded on transparency and fairness, whilst enabling an element of strategic delivery.

  1. Enhanced control:
    • Disposals under the PCR framework allow local authorities to retain greater control over the development in question, ensuring alignment with policy objectives such as affordable housing, sustainability, or regeneration.
  2. Transparency and fairness:
    • The competitive procurement process ensures transparency and compliance with legal requirements, reducing the risk of potential challenges.
  3. Fulfilment of strategic goals:
    • The PCR framework allows local authorities to embed social value requirements into contracts, supporting broader community benefits which are aligned with their strategic goals.
  4. Sharing the risk burden:
    • A deal under the PCR framework puts obligations on the buyer which can reduce the risk of land banking, ensuring timely delivery of developments.

What are the disadvantages of disposals under the PCR framework?

Undertaking a disposal under the PCR framework can be both complex and time consuming for local authorities – time which some may not have the luxury of.

  1. Complex and time consuming:
    • The procurement process can be lengthy and resource-intensive, requiring compliance with detailed regulatory requirements, not to mention additional cost.
  2. Potential for reduced financial receipts:
    • By imposing specific development obligations, local authorities disposing of land under the PCR framework may deter some bidders, reducing competition and the final sale price.
  3. Legal risk and compliance considerations:
    • Non-compliance with PCR requirements can lead to challenges, penalties, or reputational damage which local authorities will need to bear in mind.
  4. Administrative burden:
    • The administrative burden of a PCR transaction can prove significant. Authorities must manage the procurement processes, evaluate bids, and monitor compliance, increasing operational costs.

Top land disposal tips for Local Authorities

Choosing the right land disposal method is vital for local authorities and the choice between STP sales and PCR disposals will depend on several factors.

Here are some key land disposal considerations to take into account:

  1. Assess development objectives: If the priority is to achieve policy goals (such as regeneration or affordable housing), PCR disposals may be more suitable.
  2. Establish revenue priorities: STP sales often deliver higher financial returns but with less control over outcomes.
  3. Consider site complexity: For complex or contentious sites, PCR transactions provide a structured framework to manage risks.
  4. Evaluate timing: Authorities requiring swift capital receipts may prefer STP sales, which typically involve fewer procedural delays.
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The combination approach

It is important to highlight that local authorities can combine elements of both methods in order to achieve their objectives.

For example, a sale agreement might incorporate development obligations without triggering full PCR compliance, balancing control with efficiency.

On the south coast, local authorities have used both methods to facilitate land disposals. For instance:

  • Southampton: Regeneration projects in the city centre have often used PCR-compliant frameworks to ensure developments align with sustainability and housing goals.
  • Bournemouth: The council has successfully leveraged STP agreements to unlock value from its land portfolio, funding additional public services.
  • Portsmouth: Limited available land has prompted innovative approaches, blending STP and PCR methodologies to optimise outcomes while addressing local needs.

Both ‘subject to planning’ sales and PCR-compliant transactions offer unique benefits and challenges for local authorities.

The choice between which disposal type to deploy depends on the local authority in question balancing their financial objectives with broader development goals. Given the legal and practical complexities of both of these methods, expert advice is essential to ensure successful outcomes that meet strategic objectives whilst mitigating potential risks.

For strategic development land disposal advice for local authorities, get in touch.