The recent decision by the House of Lords in Standard Commercial Property Securities Ltd & ors v Glasgow City Council & ors [2006] has clarified the legal position with regard to so-called back-to-back agreements whereby local planning authorities (LPAs) transfer compulsorily acquired land to a private developer to facilitate development.

The statutory authority

The case itself concerned the application of Scottish law but the principles are just as relevant to decisions made by local authorities in England.

The facts revolved around the disposal of land acquired for planning purposes as laid out in the Town and Country Planning Act (Scotland) 1997. This grants a general right to dispose of such land to whomsoever the local authority chooses, subject to the qualifications contained in s191.

The interpretation of these clauses lay at the heart of the debate in the cases leading to the Lords’ decision.

These provisions are for the most part mirrored in English law in s233 of the Town and Country Planning Act 1990, which essentially provides that where a council disposes of land that has been acquired or appropriated for planning purposes, it must secure the best use of the land for the ‘proper planning of the area’ and ensure that the consideration for any disposal is not ‘less than the best that can reasonably be obtained’.

Background facts

The case concerned a run-down site in a prime location in Glasgow city centre. Glasgow City Council did not have the resources to redevelop the site itself and so resolved to identify a suitable developer to enter into a binding agreement under which the Council would acquire the site compulsorily with a view to disposing of it to the selected developer. In return the developer would carry out the development and indemnify the Council for just the costs of making the site available. The fact that the Council did not seek to make any profit from this arrangement would be crucial to the proceedings that followed.

There was never any question that the site needed to be redeveloped. The issue was whether the Council’s approach to bringing it about was within the scope of s191.

The site was in multiple ownership and occupation, and two of the owners, Standard Commercial Properties Services Ltd (Standard) and Atlas Investments Ltd (Atlas), were interested in developing the site.

When, in August 1999, the Council made a decision to nominate Atlas as ‘preferred developer’, Standard presented a petition for judicial review in which it sought a declaration that the Council’s decision was ultra vires. Lord Nimmo Smith allowed the application on the basis that the Council had failed to take into account all relevant and material considerations under the Act, ie it had not considered the possibility of promoting a scheme with more than one developer, or separate but mutually compatible redevelopments. In his ruling he considered the Council’s discretion to enter a back-toback agreement under s191. He held that an LPA is not prohibited from doing so provided the disposal is for the best price or best terms. He felt that it was clear from the wording of s191(3) that the elements of ‘best price’ and ‘best terms’ were distinct from each other and that a failure to secure the former would not necessarily be fatal to such disposals, so long as the terms offered satisfied the planning purpose.

The Council started anew and in October 2000 approved a framework for use of its compulsory powers in conjunction with a back-to-back agreement that was a direct consequence of Lord Nimmo Smith’s comments. Both Standard and Atlas were invited to formally present their proposals and they were assessed against criteria set out in the Council’s framework. Atlas scored highest in the evaluation and it was once more selected as the preferred developer.

Following that decision Standard submitted an application for judicial review of the Council’s decision. In June 2004 the Lord Ordinary dismissed the petition. Supporting Lord Nimmo Smith’s interpretation of s191, she held that in utilising its framework based on Lord Nimmo Smith’s guidance, the Council had carried out an evaluation process that was detailed, fair, open and directed to obtaining the best use of the land. The Council had demonstrated that the ‘best terms’ under s191(3) had been achieved and this was sufficient to satisfy the requirements of the Act, notwithstanding whether the ‘best price’ had been obtained.

Standard appealed that decision and in December 2004 the First Division allowed the appeal and held that the Council’s decision was ultra vires and unreasonable. Central to the decision was Lord Reed’s disagreement with Lord Nimmo Smith’s construction of ‘best terms’ in s191(3). Lord Reed understood s191(3) as being solely concerned with commercial terms rather than those for planning purposes, which he felt was already covered by ss191(1) and (2). Subsection (3), therefore, should be read as a supplementary factor to this general objective that was designed to protect the public purse from disposals at an undervalue.

In light of this, the First Division found that the Council had acted outside the Act because it had unreasonably assumed that the indemnity constituted the best price reasonably obtainable without considering the value of the site or what other developers would offer for it.

The Council was also criticised for assuming that a back-to-back agreement with a single developer in respect of the entire site was the most appropriate way of dealing with the site. No evidence was produced that it was appropriate for the Council to decide to enter the back-toback agreement prior to receiving or determining planning permission.

The Council and Atlas appealed on the basis that the proper construction of s191(3) was found in the opinion of Lord Nimmo Smith, which the Council had applied. On this basis, even if an indemnity might not be the best price that could reasonably be obtained, the Council could properly conclude that Atlas offered the best terms in that its satisfaction of the criteria set out in the Council’s framework indicated that it would be the most suitable developer to carry out the development.

Standard argued that the Council had failed to take into account all relevant and material considerations by not directing its attention to the question of whether these were the best terms that could be obtained.

The House of Lords’ decision

In allowing the appeal, the Lords noted that the Act had two objectives:

(1) to control the aspects of the disposal to secure the best use of the land and the proper planning use of the area (ss191(1) and (2)); and

(2) to protect the public purse by securing the best price/terms (s191(3)).

Although they broadly agreed with the First Division’s view that the ‘best terms’ in s191(3) meant best commercial terms, the distinction between the expressions ‘price’ and ‘terms’ in the wording of the provision indicated that terms that would produce planning benefits and gains of value to the authority could be taken into account, as well as terms resulting in financial benefits. As regards that test, the Lords found that the background documents and facts of the case supported the Council’s conclusions that it had obtained ‘best terms’ and, importantly, the Lords confirmed that there was no need for the Council to carry out a full marketing exercise or seek the determination of planning permission before it could enter into a back-to-back arrangement.

In respect of the issue whether it would be appropriate to consider an extra profit payable to the Council over and above the cost indemnity, whilst the Lords agreed in principle that it may be, the fact that neither Standard nor Atlas had proposed such a payment meant that it was a moot point.

Comment

The Lords’ decision will be welcomed by developers and local authorities alike, particularly in schemes dependant on compulsory acquisition for assembly that have been delayed through the issues arising from the First Division’s decision. They will be particularly relieved that the Lords have tackled head on the assertion that before making disposals under s191 it may be necessary to undertake a full marketing exercises to ascertain ‘best price’, and the need also for a grant of planning permission to accurately assess the full development value of the site in those circumstances.

Such concerns were assuaged by Lord Hope, who commented that:

I can see nothing to prevent a decision to enter into such an arrangement being taken in advance of acquiring the land and obtaining planning permission.

It is important to bear in mind that the Lords’ decision does not mean that local authorities can avoid the task of considering whether a costs-only indemnity is adequate consideration, as that will ultimately turn on the facts in each case.

For completeness, there is a note of caution to be raised in the application of this case to English law. The reason for this is that while s191 refers to both a ‘best price’ and a ‘best terms’ test (and much of the argument in the above case revolved around the meaning of ‘best terms’ and whether this could include planning benefits as well as financial benefits), the wording of s233 in the 1990 Act is much narrower in that it refers only to the disposal of land not being for ‘a consideration less than the best that can reasonably be obtained’. This strictly only equates to the ‘best price’ test in s191 and there is a potential argument that s233 can be distinguished on that point. In practice, however, there has been a move in recent years to include social, economic and planning benefits in the section 233 test, particularly as this distinguishes that section from the more stringent financial test arising from s123 of the Local Government Act 1972. The courts may therefore be less likely to interfere in decisions that are supported by robust evidence of regeneration benefits.  © Property Law Journal