Lemon Land Ltd, R (on the application of) v London Borough Of Hackney [2001] EWHC Admin 336 (11th May, 2001)

Neutral Citation Number: [2001] EWHC Admin 336 IN THE HIGH COURT OF JUSTICE QUEEN'S BENCH DIVISION ADMINISTRATIVE COURT Royal Courts of Justice Strand, London, WC2A 2LL Friday 11 th May 2001 B e f o r e : THE HONOURABLE MR JUSTICE LIGHTMAN - - - - - - - - - - - - - - - - - - - - - THE QUEEN on the application of LEMON LAND LIMITED Claimant - and - THE MAYOR AND BURGESSES OF THE LONDON BOROUGH OF HACKNEY Defendants - - - - - - - - - - - - - - - - - - - - - (Transcript of the Handed Down Judgment of Smith Bernal Reporting Limited, 190 Fleet Street London EC4A 2AG Tel No: 020 7421 4040, Fax No: 020 7831 8838 Official Shorthand Writers to the Court) - - - - - - - - - - - - - - - - - - - - - Mr Timothy Mould (instructed by Messrs Charles Russell, 8-10 New Fetter Lane, London EC4A 1RS for the Claimant) Mr Richard Clayton (instructed by Hackney Legal Services, 183/187 Stoke Newington High Street, London N16 0LH for the Defendants) - - - - - - - - - - - - - - - - - - - - - Judgment As Approved by the Court Crown Copyright © MR JUSTICE LIGHTMAN: INTRODUCTION 1. This is an application made by Lemon Land Limited ("Lemon") pursuant to permission granted on the 1st February 2001 by Ouseley J for judicial review of a decision made by the Regeneration Committee of the Mayor and Burgesses of the London Borough of Hackney ("the Council") to sell 2-10 Hertford Road Shoreditch ("the Property") to the London Development Agency ("the LDA"). The issue raised is whether the sale is "for a consideration less than the best that can reasonably be obtained" within the meaning of section 123(2) of the Local Government Act 1972 ("the 1972 Act"). Lemon is interested as an alternative prospective purchaser who claims to have offered a higher price and consequently a better consideration. Whether Lemon has done so turns on the question whether, and if so to what extent, the Council can treat as part of the consideration offered by LDA the value placed by the Council on the prospects of job creation perceived to be afforded by the proposed use of the Property which will follow the LDA purchase. FACTS 2. The LDA (a division of the Greater London Authority) is one of nine Regional Development Agencies ("RDAs") created by the Regional Development Agency Act 1998. The remit of LDA as a RDA is threefold, namely (1) to prepare and implement strategic economic plans for the region addressing economic development, social and physical regeneration, competitiveness and innovation; (2) to market the region and develop financial packages for inward investment; and (3) to be responsible for administering specific regeneration packages on behalf of sponsor bodies. The LDA manages the Economic Development function of the Greater London Authority and uses its funding when it is required to ensure that development is socially, economically and environmentally sustainable. The LDA's Project Team appraises and manages major projects. 3. Both the Council and the LDA are anxious to ensure that the use and development of the Property are such as generate employment opportunities for the Borough. The need to retain such uses of land within the Borough is perceived to be fundamental to its long term prosperity: for there is extensive unemployment. A serious obstacle in the way of retaining such land use is that developers will pay more for the use of land for residential purposes. To this end the Council wishes to sell the Property to the LDA; and the LDA has agreed draft Heads of Terms with a company called Strongroom (also known as Basin Developments Limited) providing for the grant to Strongroom of a building licence to develop the Property for commercial purposes which will generate jobs and of an option on completion of the development to purchase the Property. Accordingly on the 11th January 2001 the Council (through its Regeneration Committee) resolved to sell the Property to the LDA, accepting their offer in preference to that of Lemon. The question raised is whether this proposed sale is in conformity with section 123(2) of the 1972 Act. Section 123(1) confers upon the Council the necessary power of sale, but section 123(2) provides: "Except with the consent of the Secretary of State a council shall not dispose of land under this section otherwise than by way of a short tenancy for a consideration less than the best that can reasonably be obtained." The Council has not and is not willing (at least at present) to seek the consent of the Secretary of State. In this, as in at least one previous similar transaction, it has taken the view that such consent is unnecessary. 4. The valuation evidence before the court in respect of the Property reveals that as at the 11th January 2001 its open market value (reflecting the realistic assumption that planning permission would be granted use of for up to 50% of the Property for residential accommodation) was £2.2 million. On the assumption that planning permission would be granted for use of the entire Property for residential accommodation the value was £2.5 million. 5. As at the 11th January 2001 the Council had on the table two rival offers. The first was from LDA for £1.65 million and the other was from Lemon for £2.064 million. The offer by LDA represented the existing (non residential) use value of the Property, for the LDA is unwilling to pay for any "hope value" i.e. the prospect that planning permission may be given for an alternative (and in particular residential) use. The offers from the LDA and Lemon were made on different bases. The offer from LDA was for the Property with vacant possession. The offer from Lemon was made on the basis that the Property was sold encumbered by an obligation to continue to accommodate a charity rent free on the party of the Property. The Council had long previously told Lemon that this was the case, and only disabused Lemon on the 9th January 2001 long after the Lemon offer had been made. After Lemon had the opportunity to reconsider the offer it was willing to make in the light of this new information, on the 12th February 2001 it increased its offer to £2.45 million. 6. The Council resolved to accept the LDA offer on the ground that, whilst the proposed development by Lemon would create between 160-200 jobs, the proposed development by LDA would create 322 jobs; that the value of the 120 extra jobs to be created by the LDA development (valuing each job at £6,000) was some £732,000; and that adding the value of this non-monetary benefit of £732,000 to the offer of £1.65 million, the offer by the LDA provided the better consideration and therefore could and should be accepted. The issue before me is whether for the purposes of section 123(2) the value attributed to the job generation benefits of the LDA offer can be treated as part of the consideration in this way. I may add that the sale to the LDA is to be subject to an Overage Agreement yet to be drafted entitling the Council to 50% of any net additional value received within 10 years by the LDA upon disposal (except to Strongroom under an approved form of development agreement) or any use of the Property for residential purposes. But it is not argued that the potential benefits under that proposed agreement affect the issues before me. 7. The valuation of a "job" is a familiar concept in the field of grant making for public sector grant funding purposes: it is a tool used to measure the socio-economic benefits of job creation. Mr Scarth, the Senior Development Manager of the LDA says in paragraph 31 of his witness statement: "31. In working with Basin, the LDA takes account of the number of jobs that will be created and `values' the outputs in accordance with accepted criteria to justify its involvement. The criteria have been used for many years by the Governments Regeneration Agency, English Partnership. The criteria is defined in its Development Practice notes four and six. Note 4 states that the usual cost per job is in the region of £10,000." 8. The Council argues that it is entitled to adopt the conservative criterion of £6,000 a job in valuing the offer made by the LDA and treat the resultant figure as part of the consideration obtained by accepting that offer. The Council also say, as well as treating the sum of £732,000 so arrived at as part of the consideration received, it can also at the same time treat the sum (for the purpose of securing matching funds contributed by the central government to the relevant local regeneration scheme) as a grant made by the Council. This, it says, is likewise a benefit and part of the consideration obtained by acceptance of the LDA's offer, and indeed a benefit of particular value because the Council is in dire financial straits. 9. In my view, the provisions of section 123(2) do not allow the Council to treat any part of the sum of £732,000 as part of the purchase consideration. Section 123(2) requires the Council to obtain the highest price that can be got for the land: less can only be accepted, however meritorious the reason for accepting less, if the Secretary of State accepts the political responsibility for the decision by giving his consent: see Tomkins v. Commission for New Towns [1989] 1 EGLR 24. In R v Middlesborough BC ex p Frostree 16 December 1988 Roch J stated: "In my judgment, the word `consideration' in section 123(2) of the Local Government Act 1972 refers to the price payable for the land. That price may consist simply of the sum of money offered for the land or may consist in part of such a sum and in part of other elements such as rights in the nature of easements or a right to repurchase reserved to the selling authority, provided such elements have a commercial or monetary value which is capable of being assessed by those expert in the valuation of land. The word `consideration' does not, in my judgment, include elements which are not capable of having a commercial or monetary value to the vending council." 10. I held the same in R v. Pembrokeshire CC Ex parte Coker [1999] 4 All ER 1007 at 1012: "It is clear that an authority may lawfully and properly take into account, when deciding whether to make a disposition and the identity of the disponee, the social value of the effect of the disposition on job creation. But the social value of a disposition cannot be taken into account when questions arise of compliance with the obligation under s 123 to obtain the best consideration obtainable. Section 123 requires the consent of the Secretary of State before this obligation can be relaxed. When deciding whether (for the purposes of s 123) the best consideration reasonably obtainable has been obtained, the only consideration to which regard may be had is that which consists of those elements of the transaction of commercial or monetary value to the local authority; and undertakings to create a number of jobs or use land for a particular desirable purpose do not (as least normally) count as such consideration: see R v Middlesborough BC ex p Frostree Ltd (16 December 1988, unreported). Accordingly the council could not in this case, without obtaining the consent of the Secretary of State, allow the perceived social value of job creation to be reflected as entitling CSSL to some discount on, or as part satisfaction of, the commercial monetary value was required to obtain." 11. The policy behind section 123(2) is that in the sale of land by a local authority a distinction must be drawn between commercial and non-commercial transactions. If there is any element of discount or grant in a transaction, the consent of the Secretary of State is necessary. The requirement that the elements in the consideration should be capable of having a commercial or monetary value to the local authority reposes on the local authority the responsibilities of a trustee of its land and enables its stewardship to be effectively audited. Job creation anticipated to flow from a sale of the local authority's land is not part of any consideration received by the local authority, let alone a part having a commercial or monetary value to the local authority. The fact that anticipated job creation is a motive for, or an intended consequence of, the sale does not bring it within the meaning of the word "consideration" in section 123(2). In reality the element in the consideration attributed to the prospective job creation is a disguised grant to the LDA for what is perceived to be a socially desirable project. Indeed the Council as much as recognises this when it says that it can treat the £732,000 for the purpose of securing matching funds from the central government as a grant made by the Council. The fact that for socio-economic purposes (including decision making on grants) a monetary value can be attributed to the creation of a job does not mean that on a sale of its land by a local authority the job creation potential of the sale can likewise be treated as part of the consideration obtained by the Council. This is not to undervalue job creation, but to recognise that, where such creation is sought to be used as a justification for a lower price, the consent of the Secretary of State is required. The arguments before me as to the benefits to the Council of the proposed sale to the LDA and development by Strongroom suggest that the Council should be reasonably confident that the necessary consent would be forthcoming. Indeed at one stage the Council recognised the need for and proposed to obtain such consent, but for undisclosed reasons it subsequently changed its mind. The Council maintain that it is common practice for local authorities without the consent of the Secretary of State to sell land at a price below market value but with the shortfall made up by attribution of value to the likely consequent job creation and reference is made to a previous sale by the Council itself of a property worth £900,000 for £1 on this basis. I can only say that, if there is any such practice, the sooner it ends the better. 12. For these reasons I hold that Lemon is entitled to the relief which it seeks. *************************** MR JUSTICE LIGHTMAN : For the reasons set out in the judgment which I have handed down, I hold that the resolution of the Council is unlawful and void. MR MOULD : My Lord, my application then is that the relief sought in the claim form should be granted which is, essentially, a quashing order in relation to that decision. My Lord, I apply for an order for costs in favour of the claimant. I can deal with the question of amount in a moment, if that is convenient. MR JUSTICE LIGHTMAN : Yes. MR CLAYTON : My Lord, we do not oppose either the relief sought or the order for costs. We do, however, have an application for permission. My Lord, the application for permission is to test your Lordship's holding that the failure to give best consideration -- that the Council failed to do that, despite his evidence that he received an additional sum of monetary value of some £70,000 odd. My Lord, I make the application on the two grounds which are set out in the rules. I am not sure whether it is necessary to take your Lordship to them. MR JUSTICE LIGHTMAN : Will you just say, in a word, what are they? MR CLAYTON : My Lord, there are two bases. One, the appeal should have a real prospect of success or there is some other compelling reason why the appeal should be heard. My Lord, I particularly draw attention to the second ground which is, in effect, whether there is a public interest justification for the matter to be taken further. My Lord, the bases for the application for permission are these: the first is that the issue that we are concerned with is a pure point of law, one of statutory construction. The second is that the issue which your Lordship determined is not covered by authority in the sense that there has been no case hitherto where the Council's evidence that it obtained value was, in effect, rejected. The third basis is that this decision has important consequences not merely for Hackney Council but for a large number of other authorities because of the statutory power in question. It is, my Lord, a statutory power that is routinely applied. The fourth, and in some ways the most important basis, is that there is an absence of authority on this power which is exercised. Effectively, my Lord, the authorities are the most -- other than your Lordship's authority of R v Pembrokeshire CC ex parte Coker [1999] 4 ALL. E. R 1007, there are two first instance decisions Thomkins v Commission of New Town [1989] 1 EGLR 24 and R v Middlesborough BC ex parte Frostree . MR JUSTICE LIGHTMAN : Thomkins was the Court of Appeal, was it not? One of them is the Court of Appeal. MR CLAYTON : I am going to come to the Court of Appeal authority in a moment, but just dealing with the first instant authorities, the two most important, the most extensive analysis of the section, if I can put them in that way, are reported as Frostree and the decision by McNeil J. In relation to the Court of Appeal there is, as your Lordship points out, a Court of Appeal authority, but, my Lord, I had observed that the issue between the parties in the Court of Appeal case was a very broad one indeed and the issues were not subject to the more refined analysis which we have been obliged to consider in this case. Your Lordship will recall the contentions of the party were, on the one hand, that fair administration meant that a local authority could do, effectively, as it felt fit and on the other that it had a much more specific meaning. My Lord, what, in our submission, the Court of Appeal authority does not provide a great deal of assistance about is how one computes consideration or how one deals with socioeconomic benefit which the evidence from the authority is confers that view to it. My Lord, in those circumstances we would respectfully suggest that guidance by the Court of Appeal about the proper scope and application of the section would be valuable certainly to local authorities and to those who wish to dispute decisions of local authorities. MR JUSTICE LIGHTMAN : Well, I shall not give permission to appeal. I think you should go to the Court of Appeal. In my view the law is clear and the appeal does not have a realistic prospect of success, but you have your chance to ask the Court of Appeal to take a different view. Thank you both. MR MOULD : May I just return to the question of costs because I do invite your Lordship just to consider assessing the costs in this case-- MR JUSTICE LIGHTMAN : Yes. MR MOULD : -- in accordance with the practice. MR JUSTICE LIGHTMAN : Do you object to an assessment? MR CLAYTON : Well, my Lord, I think we have effectively agreed quantum. MR JUSTICE LIGHTMAN : How much? MR MOULD : The figure is £17,250. MR JUSTICE LIGHTMAN : Well, if you both agree that, I assess the costs at £17,250. MR MOULD : That is right. MR JUSTICE LIGHTMAN : That is very sensible. MR MOULD : I am grateful. MR JUSTICE LIGHTMAN : Thank you both for your help in the case as well. MR MOULD : I am grateful. © 2001 Crown Copyright BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII