R (on the application of Lemon Land Ltd) v Hackney London Borough Council

Defendant local authority seeking to dispose of property – Claimant submitting offer – Defendant accepting rival offer – Claimant seeking to challenge decision – Whether defendant obtaining less than best consideration for sale – Whether defendant able to treat value of job creation as part of consideration – Section 123(2) of Local Government Act 1972 – Claim allowed The defendant local authority received two rival offers for freehold property that they had put up for sale. The first was an offer of £1.65m from the London Development Agency (LDA) and the second was an offer of £2.064m from Lemon Land Ltd (the claimant), which was later raised to £2.45m.The defendants’ regeneration committee considered a report that advised that the open market value of the property was £2.2m. Both the defendant and LDA were anxious to ensure that the use and development of the property would generate employment opportunities within the borough. The defendants accordingly accepted the LDA offer upon the basis that, while the proposed development by the claimant would create between 160 and 200 jobs, LDA’s proposed development would create 322 jobs. The defendents calculated that the value of those extra jobs would amount to £732,000, and that by adding the value of that non-monetary benefit to the offer of £1.65m, LDA’s proposal seemed the better consideration. The claimant challenged the defendants’ decision, contending that its offer of a higher price was the best consideration. Section 123(2) of the Local Government Act 1972 provided that “except with the consent of the Secretary of State, a council shall not dispose of land… for a consideration less than the best that can reasonably be obtained”. The defendants had not sought the Secretary of State’s consent in the matter, so the issue was whether the sale to LDA was for a consideration less than the best that could reasonably be obtained within the meaning of section 123(2). This depended upon the extent to which the defendants could treat the value they placed upon the prospects of job creation flowing from LDA’s proposed use as part of the consideration offered by LDA. Held: The claim was allowed. 1. The provisions of section 123(2) did not allow the defendants to treat any part of the £732,000 as part of the purchase consideration. The policy behind section 123(2) was that, in the event of a sale of land by a local authority, a distinction had to be drawn between commercial and non-commercial transactions. 2. The requirement that the elements of the consideration should be capable of having a commercial or monetary value to the local authority placed upon the authority the responsibilities of a trustee of their land and enabled their stewardship to be effectively audited. The section also required the defendants to obtain the highest possible price for the land. A lesser amount could be accepted only with the consent of the Secretary of State: see Tomkins v Commission for the New Towns [1989] 1 EGLR 24. 3. The fact that anticipated job creation was a motive for (or an intended consequence of) the sale did not bring it within the meaning of the “best consideration” in section 123(2). Timothy Mould (instructed by Charles Russell) appeared for the claimant; Richard Clayton (instructed by the solicitor to Hackney London Borough Council) appeared for the defendants. Sarah Addenbrooke, barrister