DISPOSAL OF PROPERTY, PLANT AND EQUIPMENT: ANNEX
DISPOSAL OF PROPERTY BY THE SCOTTISH GOVERNMENT
Timely Disposal
1. Immediately property is identified as likely to become surplus to requirements thought must be given to arrangements for its disposal. The earlier a property is identified as being surplus the easier it is to plan its disposal or re-use. Early identification allows consultation with other potential users and planning authorities. Vacant buildings can be difficult to sell and can also be very costly to heat, maintain and keep secure. And while properties identified as being surplus to requirements (where material they are disclosed separately in the annual accounts) are not subject to depreciation charges provided that they are no longer in use, capital charges still apply. The Financial Reporting Unit (within Finance Directorate) and the relevant Portfolio Finance Team must be notified as soon as a property or interest in a property is identified as being surplus to requirements to ensure that the budgeting and accounting implications are taken into consideration.
Main Stages
2. The main stages in disposing of surplus property are as follows:
- to follow the internal advertising procedure.
- to appoint solicitors to advise on pre-sale matters and to deal with the sale of the property.
- to check the application of the Crichel Down rules with the appointed solicitors.
- to establish the planning position and explore any potential for development.
- to obtain a pre-sale valuation.
- to appoint a professional selling agent to fully market the property.
- to consider offers received following the marketing campaign.
- to conclude legal requirements.
Internal Professional Advice
3. Business areas within the core Scottish Government (SG), Crown Office and Procurator Fiscal Service, SG Executive Agencies and non-ministerial Executive Agencies / Departments must seek advice from Property Advice Division at the earliest opportunity when a disposal of property or interest in a property is being considered. Property Advice Division deals with disposals and will clarify the application of these procedures in individual cases. Agricultural and Rural Delivery Division in the Rural Payments and Inspections Directorate advises on disposal of agricultural land where there is no development potential. If the disposal is part of a Public Private Partnership project an appraisal is required to demonstrate value for money usually through a public sector comparator: the property aspects of this will be undertaken by Property Advice Division.
External Professional Advice
4. The Scottish Government Legal Directorate (SGLD) does not undertake conveyancing work. External solicitors must, therefore, be appointed to deal with any disposals, except in the case of Transport Scotland, which has its own in-house team, as well as appointed out-sourced solicitors. A number of firms of solicitors are party to a contract for the provision of legal services to the SG and Property Advice Division can assist with making an appropriate appointment. Transfers of property between separate accounting entities where ownership remains with the Scottish Ministers do not however entail the transfer of title and the involvement of any appointed solicitors should cease as soon as such a transfer is set in motion.
5. It is also important to get external professional advice covering planning, valuation, marketing and negotiation of the sale for all but the smallest disposals i.e. where Property Advice Division estimates the value of the property to be under £10,000. Qualified private sector valuers or the District Valuer of the Valuation Office Agency Scotland (VOA) may be used with selection being guided by value for money considerations, weighing the expertise and service offered against the cost. Normally appointments will be by way of framework agreements with professional firms that have been pre-tendered by the Office of Government Commerce, existing Service Level Agreements, or competitive tendering. Not all firms of marketing agents have expertise in all types of property. Property Advice Division will advise on the choice of a short list of agents with suitable experience and resources for the particular property and help draw up the remit.
6. The Valuer appointed should be a corporate member of the Royal Institution of Chartered Surveyors with relevant experience of the type of property and locality in which it is situated. In some circumstances an Independent Valuer is also appointed. Normally in-house surveyors are not used to provide valuations on disposal.
Internal Advertising / Guidelines for the Transfer of Property within the Scottish Public Sector
7. This procedure provides a mechanism for the transfer - at market value - of property held within the public sector that avoids uncertainties, delays and the incurring of unnecessary costs. Property Advice Division arranges for details of surplus properties held by all organisations to which the Scottish Public Finance Manual (SPFM) - or the NHS Scotland Property Transactions Handbook (NHS PTH) - is directly applicable to be circulated electronically i.e. internally advertised. This process is commonly known as 'The Trawl'. Details of surplus properties held by other public sector bodies that have agreed to participate in a reciprocal arrangement are also circulated. Participating bodies then have the opportunity to transfer the property under the Guidelines for the Transfer of Property within the Scottish Public Sector - set out in Appendix 1.
8. All organisations to which the SPFM (or NHS PTH) is directly applicable, including bodies sponsored by the SG, must ensure that Property Advice Division is notified - either direct or via sponsoring divisions - of properties identified as being surplus to requirements. Notification should take place at the earliest opportunity and at least 1 month prior to the surplus properties being advertised on the open market. Properties identified as being surplus to requirements must not be disposed of in advance of the notification process. The notification process is applicable to all surplus properties except:
- a limited category of properties (advice may be obtained from Property Advice Division) being disposed of by private treaty arrangements e.g. for sale to sitting tenants;
- properties being disposed of by SG sponsored bodies (e.g. Scottish Enterprise and Highlands & Islands Enterprise) as part of their core business activities; and
- properties being disposed of by the Forestry Commission under the National Forest Land Scheme.
9. Notification to Property Advice Division of surplus land of less than 0.1 hectare is optional but consideration should be given on a case by case basis to the likely interest in such properties from potential transferees e.g. at least some small properties will be suitable for affordable housing. Properties which have not been identified as surplus to requirements should, where appropriate, also be disposed of under the Guidelines for the Transfer of Property within the Scottish Public Sector e.g. as a result of unsolicited interest from a participating organisation. Any such properties are however excluded from the notification process.
10. Notification should allow sufficient time for the adoption of the Guidelines for the Transfer of Property within the Scottish Public Sector. An Internal Advert must be provided using the proforma at Appendix 2, at least one month before properties are advertised on the open market. During the internal advertising period the holder of the property is obliged to agree to the adoption of the Guidelines in respect of transfers to bodies to which the SPFM (or NHS PTH) is directly applicable and other public sector bodies that have agreed to participate in a reciprocal arrangement.
11. In the event that two or more bodies seek to acquire a property under the Guidelines, the matter should be resolved by discussion between them. In the event that agreement cannot be reached, the matter should be referred to the Scottish Ministers for decision. To assist with the Ministers' decision-making, the Chief Property Adviser must be asked to comment on the property aspects of the respective proposals. The price that individual parties might be prepared to pay for the property will not be a factor in the decision making process. The price paid will be decided by the independent valuer.
12. In the absence of agreement by potential transferees to adhere to the Guidelines by the end of the internal advertising period disposal may proceed on the usual basis i.e. on the open market. The internal advertising procedure should not cause undue delay because preparations for disposal up to the point of inviting agents to tender for the commission can still proceed.
13. The Guidelines may also be adopted in relation to transfers between any public sector bodies after the property has been advertised on the open market - but only with the agreement of both of the parties involved.
Definition of Property to be Sold
14. Particularly when only part of a property is to be sold it is vital that proposed boundaries, accesses and rights over surplus land are carefully established both to safeguard the value of the property to be retained and to maximise the value of the surplus property. Property Advice Division will advise on the creation of new boundaries, rights and accesses. The appointed solicitors should be required to confirm existing boundaries, rights and accesses. Professional advice should be taken before demolition as this may constitute "development" and need planning or listed building consent.
15. In PPP projects the disposal of the land and buildings may be a subordinate component of the whole. Nevertheless the extent of the property to be transferred by sale or lease needs to be carefully defined and professional advice from Property Advice Division and the appointed solicitors is essential.
Crichel Down Rules
16. The Crichel Down rules apply, with a limited number of exceptions, to the disposal of surplus Government land acquired by, or under the threat of, compulsory purchase including acquisitions under the Blight provisions of Section 101 of the Town and Country Planning (Scotland) Act 1997. A threat of compulsion will be assumed in the case of a voluntary sale where the power to acquire the property compulsorily existed, even though it was not used at the time, unless there is evidence that the property was publicly or privately offered for sale immediately before the acquisition. The Rules exist to protect the interests of former owners of property. Property Advice Division and the appointed solicitors should be consulted on the disposal of all such property.
17. It is important to note that where a property is acquired by one government body (including NDPBs) from another under the Guidelines for the Transfer of Property within the Scottish Public Sector the obligation under the Crichel Down Rules to offer back to the original owner is not extinguished. This means that prior to any further disposal to a non-government body, the property must be offered back to the original owner - unless it forms one of the limited number of exceptions. Further advice may be obtained from Property Advice Division.
Development Potential / Mineral Rights
18. Explicit professional advice should be obtained on whether or not there is any potential for development, the type of development which would maximise sale proceeds and whether or not there are any particularly sensitive planning issues. Property which has potential for development will normally secure the best price if sold with the benefit of planning permission. Advice should be obtained from Property Advice Division in any cases where development potential might arise. Mineral rights are normally disposed of with the main interest on the basis that property interests should not be retained speculatively.
Clawback
19. Where there are uncertainties about the planning position of a property or doubt about the use which would generate the best price disposal may proceed without planning permission but in such circumstances consideration should be given to including a clawback clause in the terms of sale. Clawback should cover the whole or at least a substantial part of any increase in value attributable to the grant of planning permission for an alternative use during a specified period of time after the disposal terms have been agreed. This will mean that missives of sale have to include a clause requiring further payment by the purchaser if planning consent is subsequently granted or other stated occurrences trigger such a payment.
20. Clawback has the potential disadvantage that a purchaser may not be prepared to pay as high an initial price as in a straightforward sale. There may also be practical difficulties in monitoring and enforcing the arrangement if the purchaser subsequently becomes unwilling or unable to honour the obligations imposed. The appointed solicitors should be consulted on the appropriate legal arrangements and Property Advice Division should be consulted on all other terms of sale. In all such cases the sales particulars should indicate that clawback may be required.
Valuation
21. Before property is offered for sale on the open market a pre-sale valuation must be obtained to establish a guide price. However, in major disposals or potentially difficult cases an independent professional valuer should be appointed in addition to the marketing agents. The basis of valuation for the guide price is the market value of the property in accordance with the Royal Institution of Chartered Surveyors (RICS) Appraisal and Valuation Standards (The "Red Book"), but reflecting "special value" and the effect of any voluntary conditions imposed by the seller. "Special value" reflects any additional value accruing from a potential bid by a purchaser with a special interest such as a sitting tenant, a neighbouring owner or an owner with a property, physically, functionally, legally or economically associated with the property to be sold.
Appointment of Independent Valuer
22. Property Advice Division will advise if an independent valuer should be appointed, which firms should be approached and on the terms of the appointment. A brief must be prepared in consultation with Property Advice Division and the appointed solicitors and a detailed plan showing boundaries, access, servitudes and services crossing the site must be provided. It should be made clear to the valuer in the brief that he/she is to consider potential alternative uses or development values, and to consider whether or not there are likely to be bids from special purchasers such as neighbours, or sitting tenants.
23. The functions of the independent valuer should include:
- establishing the initial guide price.
- advising on whether the property should be offered for sale as a whole or in separate lots.
- advising on the range of offers which may be expected.
- advising on the acceptability of any offers received.
- advising on any authentic late or revised bids received after a closing date but before the sale has become legally binding.
24. Where a sale is proposed at a price below the initial guide price, the independent valuer should certify, jointly with the selling agent, that it is the best offer reasonably obtainable.
Appointment of a Marketing Agent and Marketing of the Property
25. Where Property Advice Division estimates the value of the property to be under £10,000 disposal may proceed without the appointment of a marketing agent. If it is proposed to dispense with a marketing agent for any other reason the relevant Accountable Officer must be informed.
26. However, it is normal to appoint a marketing agent in all other sales except sales to tenants under the Right to Buy procedures. The agent must be a firm with specialist knowledge of the market for the particular type of property involved and its locality. The expertise of agency firms varies considerably and Property Advice Division can advise on a range of appropriate firms. In some cases such as house sales in localities where the bulk of such sales are carried out by solicitors then a solicitor estate agent with wide and appropriate experience of the property market concerned may be employed.
27. The Scottish Government normally uses marketing and valuation services that have been subject to competitive tender. The Scottish Government has access to a number of framework agreements that have previously been tendered, and a Service Level Agreement which can save business areas the time and effort needed to tender separately. Property Advice Division can advise on which of these is most suitable for a particular case. If a special tendering exercise is required Property Advice Division can advise on the specification, assist in drawing up a short-list, liaise with Scottish Procurement Directorate and assist in interviews and analysis of tenders.
28. The marketing agent, in consultation with the business area responsible for the disposal, will normally:
29. Property Advice Division and the appointed solicitors can provide advice to business areas on all aspects of the agent/client relationship. This includes the handling of the disposal or the arrangements for fees. Property Advice Division will assist with monitoring the performance of the marketing agent to avoid unnecessary delay or the oversight of some important feature.
30. Once the property is placed on the market, unless there was agreement to adhere to the Guidelines for the Transfer of Property within the Scottish Public Sector, all enquiries from prospective purchasers or their agents should be directed to the marketing agent/solicitor handling the sale. If enquirers approach the business area directly before the property is put on the market business areas must not offer any advice on price, asking price or closing date. The onus is on the purchaser to inform himself/herself about the property and make up his/her own mind.
31. Any surplus property that is being disposed of on the open market or leased by bodies to which the SPFM (or NHS PTH) is directly applicable should be advertised on the Scottish Government website for surplus public sector property at: www.scottish-property.gov.uk. This applies whether a property is to be marketed by a marketing agent or otherwise. Property Advice Division will assist in posting properties on the site. The Scottish Government website also includes details of properties identified for disposal or lease by Scottish local authorities and other public bodies.
Sale by Auction
32. In Scotland sale by auction is sometimes perceived as a last resort, and can signal to the market that the property may not sell within a reasonable period by conventional marketing. The choice of firms of property auctioneers is limited. However, the method has benefits where disposal is urgent because the property is a liability or it is important for policy reasons to expose the property for sale by a certain date or in the case of some low value properties. It is less appropriate in complex cases e.g. where there is the possibility of gaining planning consent for alternative use.
33. Business areas wishing to sell at auction should seek professional legal and valuation advice beforehand, as legal documentation is needed well in advance of the auction date, and a reserve price needs to be fixed. Where an independent valuer has been appointed he/she should be consulted by the selling agent before a reserve price is fixed. Auction without reserve is not normally recommended. Attendance at an auction by legal advisers is necessary to receive deposits and similarly by Property Advice Division in case the reserve prices are not reached and the auctioneer receives post auction offers on auction terms. Property Advice Division and the appointed solicitors will advise on these issues.
Private Treaty Sales
34. For the purposes of this guidance the transfer of property under the Guidelines for the Transfer of Property within the Scottish Public Sector is not classed as a sale by private treaty.
35. Sale by private treaty (i.e. between two parties without competitive bidding) should be exceptional other than for sales to sitting tenants on Right to Buy terms or where the relevant Accountable Officer, in consultation with the relevant Portfolio Finance Team, is prepared to defend it as a deliberate concession. The following guidance applies to those exceptional cases:
- in opting for a private treaty method of sale professional advice must be taken.
- the private treaty approach should normally only be adopted when professional advice indicates a clear advantage over an open market sale. Examples might be where a tenant is prepared to pay more than the market value or where an adjoining proprietor requires the property for expansion. In such circumstances the sale should only be concluded where the professional adviser states in writing that the price finally agreed is at least equal to the best price achievable on the open market.
- it may be necessary or desirable to break off negotiations even at an advanced stage. Discussions should therefore avoid moral commitment and make it clear that the Scottish Ministers retain the right to resile from the negotiations until the latest possible time. Following the changes under the Requirement of Writing (Scotland) Act 1995, unintentionally entering into a binding contract in any correspondence regarding any disposal must be avoided. Accordingly, such correspondence (including any Heads of Terms) should contain a disclaimer to the effect that "This letter does not form part of a contract."
36. The sale of a property to a selected purchaser (e.g. a "heritage" body, a conservation body or a local community) by private treaty based solely on a market valuation where the professional advice is that the sale might not have a financial advantage over sale by tender or auction should be regarded as potentially concessionary. This is because in the absence of a test of the market it is possible that the best price will not be realised. Any such sale or scheme of sales should therefore only proceed if the relevant Accountable Officer is prepared to defend it as a deliberate concession and with the approval of the relevant Portfolio Finance Team.
Disposal of Historic Buildings
37. A historic building is a listed building, a scheduled ancient monument, or any building in a designated conservation area. Historic Scotland should be contacted for advice on the status of buildings, the degree of permissible alteration for re-use, and the likely grant situation a purchaser may face.
38. The standard principles of disposal apply to historic buildings in that normally the property should be sold on the open market, for the best price reasonably available after securing the benefit of any more valuable planning permission and, where appropriate, listed building consent for alternative use. However, in considering offers it is legitimate to consider the wider costs and benefits of a proposal including the ongoing costs of maintenance, costs to the Scottish Ministers of grants to future owners and any benefits accruing. If, taking these issues into account, an offer provides the highest Net Present Value (or lowest Net Present Cost) after a "Green Book" appraisal, the offer may be accepted even though it is not the highest offer. Property Advice Division can assist with the appraisal. The approval of the relevant Portfolio Finance Team should be obtained before accepting such offers.
39. Where it will increase the chances of securing appropriate ownership and use of historic buildings a method of disposal other than by competitive tender or public auction (e.g. private treaty sale) may be considered.
Joint Development Vehicles
40. Proposals for the disposal of property held by the Scottish Ministers by means of a joint development vehicle must be approved by Property Advice Division and the relevant Portfolio Finance Team. The Portfolio Finance Team should be engaged to advise on value for money and to assess the prospective accounting and budgeting implications.
Disposal of Leasehold Interests
41. There are a number of options which should be considered in the "disposal" of leasehold interests including the exercise of a break option, assignation, surrender and sub-letting. Advice on such proposals should always be obtained from Property Advice Division and, where appropriate, the appointed solicitors.
Sitting Tenants
42. Scottish Ministers are not bound by the Right to Buy legislation i.e. the Tenants Rights Etc (Scotland) Act 1980, the Housing (Scotland) Act 2001 and subsequent enactments. However, the same principles should be applied administratively in cases where a house is occupied as a condition of employment, although in certain circumstances the normal presumption that sitting tenants of such a tied house will be offered the house in which they live on Right to Buy terms can be overturned with Ministerial agreement. This might occur where the disposal of the dwelling might prejudice the value of land retained by compromising an access, or if it needs services to be maintained over neighbouring ground. Normally, however, tenants of tied houses owned by Scottish Ministers and surplus to requirements should be offered the opportunity to purchase the property on the same terms and conditions as would apply to a Right to Buy purchase from local authorities. Where a tenant is not occupying the property as a condition of employment, they may be offered the opportunity to purchase their home, but not at discount. Again, however, if the property is not offered on the market, such a sale may be regarded as potentially concessionary. Advice on procedures, discounts etc is available from the Scottish Government's Housing Directorate. Any discount would qualify as a gift and be subject to the procedures described in the section of the SPFM on Gifts.
Industrial Building Allowances
43. Although these are being phased out purchasers of industrial buildings, buildings with plant and machinery, hotels, agricultural buildings and scientific research facilities may be entitled to claim Industrial Buildings Allowances. If it is decided that purchasers are likely to be able to claim these allowances, then business areas and their selling agents should arrange to have these estimated beforehand, so that full information is given to interested purchasers. Reference should be made to the fact that this information is available in the sales particulars.
Delayed Disposal
44. There may be exceptional circumstances where it is preferable to delay disposal of a property beyond the recommended period because the market is overloaded, or because a phased disposal would produce greater overall receipts. Such a decision must be based on clear advice from the professional advisor, normally the marketing agent and cleared by Property Advice Division. If a sale is likely to be delayed, a short term lease may be considered as a strictly temporary measure. If the circumstances are novel or contentious, the relevant Portfolio Finance Team should be consulted.
Leasing
45. There are very few circumstances in which surplus property may be leased rather than sold. However, where property or part of a property will be vacant for a significant period before it is either sold or returned to operational use, then leasing the premises as an interim measure must be considered. Advice should be obtained from Property Advice Division.
Consideration of Offers
46. Normally the highest offer will be accepted unless it is significantly less than the guide price. An offer is particularly attractive if it is unconditional. Bids offering a certain sum over and above the highest tender must not be accepted. In special circumstances, phased payments are acceptable provided that the net present value is at least as good as any cash offer. (The appointed solicitors will arrange security for the outstanding amounts.) An offer may be conditional for acceptance by a stated time: if it is a good offer, every effort should be made to reach a decision by that closing date. If it becomes clear that this is impossible, the appointed solicitors should be asked to seek an extension from the offeror.
47. There are circumstances when the highest offer is not the best offer. Considerations relevant to an offer's acceptability include:
- where it is subject to conditions, and whether these are acceptable or can be satisfactorily amended.
- the time to achieve completion of sale.
- the possibility of obtaining a better price by remarketing.
- the cost of maintaining the property if vacant. If security and maintenance costs are significant, the business area should carry out an appraisal to determine the improvement in price necessary to cover the additional costs of retaining the property.
48. Proposals to accept an offer against professional advice (i.e. Property Advice Division, the appointed solicitors or the independent valuer) should be cleared with the relevant Accountable Officer and the relevant Portfolio Finance Team. Portfolio Finance Teams should also be informed about any case where the disposal is of significant value and the offers are less than the independent valuer's or marketing agent's valuation or are subject to unusual conditions. The approval of Portfolio Finance Teams should be sought before accepting any offers which are less than the market value. The European Commission has published guidance for Member States on the sale of land and buildings by public authorities and it is important that these are adhered to. The guidance states that sales should be conducted after an unconditional bidding procedure, or alternatively on the basis of an independent valuation. Any disposal below market value may be State aid - advice can be found at the State Aid Unit website and by contacting the State Aid Unit.
Liability for Rates
49 On disposal Property Advice Division will arrange for the Scottish Government Property Database to be amended and the Scottish Government Rating Advisors and, where appropriate, the Financial Reporting Unit to be informed. The relevant local authority assessor's department will thereafter be advised of any sale so that liability for rates ceases.
Capital Charges
50. Capital charges are applicable to all Scottish Government property. In order to ensure that such costs cease on disposal Property Advice Division will amend the property database and Finance Teams / the Financial Reporting Unit, as appropriate, will update the relevant Fixed Asset Register accordingly. Depreciation charges cease from when properties are identified as being surplus to requirements provided that they are no longer being used. It is important therefore that Finance Teams / the Financial Reporting Unit, as appropriate, are notified as soon as such properties are identified.
Legal Formalities
51. Once it has been decided which offer to accept, the business area should instruct the appointed solicitors who will inform the successful offeror and conclude missives. Property Advice Division is able to assist with decision making and ensuring instructions to solicitors are clear. The marketing agent will inform the unsuccessful offerors. Any direct approach made by an offeror to business areas after the appointed solicitors have been instructed to accept an offer should be referred to the marketing agent.
52. In major sales, the credit worthiness of the offeror should be examined before any bid is accepted. This can be put in hand by instructing the appointed solicitors or Property Advice Division. Where agents are used to establish the credit worthiness of bidders, business areas should ensure that they obtain in writing the advice and the nature of the evidence on which it is based. This is particularly important for any higher bids which are recommended for rejection because of doubts about the offeror's credentials.
53. Once missives have been concluded by the acceptance of an offer, the appointed solicitors will complete the transaction by handling the conveyancing.
Remarketing
54. If the marketing process is exhausted and the sale still cannot be concluded remarketing should be considered. The marketing agent will advise on the nature and timing of any re-advertisement in the light of the failed sale. Property Advice Division, the appointed solicitors, and the independent valuer should be consulted again about tactics and price.
Late Bids
55. Under certain exceptional circumstances late bids have to be considered. However, the duty to achieve the best possible price must be balanced against the risk of original bidders withdrawing their offers because of the delay, and the risk of accusation of impropriety in the marketing process. Any such bids must be discussed with Property Advice Division, the appointed solicitors, and the relevant Portfolio Finance Team.
56. Late bids or revised bids can only be considered where missives have not been concluded and no commitment has been made to another offeror. The Scottish Ministers must be seen to be scrupulously fair in dealing with offerors. It will also be necessary to take the advice of the independent valuer (if appointed), the marketing agent, Property Advice Division, and the appointed solicitors. It will be wholly exceptional that such a bid will be followed up and it will require the agreement of the relevant Accountable Officer. If it is decided that such a bid has to be taken into account then the following measures must be taken:
- all interested parties must be advised that the disposal is being reconsidered.
- if the exceptional bid is based on a different land use, the marketing agent must seek the opinion of the Planning Authority on the likelihood of that use being allowed.
- the business area should agree a revised closing date with the marketing agent that will give all interested parties a reasonable time to submit an offer.
- all previous offerors should be asked to submit a further offer by the revised closing date or asked to maintain their previous offer.
Page published / updated: September 2010