Protecting the Discount

Local Authorities have a duty to ensure that Best Value is achieved from public resources and that they are not misappropriated. Therefore, where an asset is being disposed of at less than best consideration, authorities will seek to identify (and reduce) the potential risks involved, while balancing these against the potential benefits to the public.

Section 14 of the Guidance Notes on Asset Transfer Requests outlines the use of conditions to protect the discount.  In the case of asset transfer to community bodies, disposal at less than market value, or with other support or concessions, may be justified by reference to the expected benefits to be delivered by the project. In that situation, relevant authorities sometimes seek to protect themselves against the risk that the benefits may not be delivered by including clauses in the contract requiring some form of restitution if the project fails.

It is for relevant authorities to determine whether it is appropriate to include such conditions in the contract (and for community transfer bodies to decide whether to accept the transfer on those terms). The aim of  the guidance is to ensure that, if conditions are used, it is done in an appropriate and proportionate way.
 
This form of protection may be supplemented by maintaining relationships with the community transfer body and supporting it to develop its capacity and deliver the project effectively.
 
Any conditions which the relevant authority proposes to impose to protect discount should be included in the decision notice, in sufficient detail that the community transfer body is able to decide whether they are acceptable or not. As a result, the community transfer body could seek to challenge them through the review and/or appeal process.
 
Where ownership of the asset is transferred, the main ways of protecting the
discount are:
  • where a reduced price was agreed in recognition of the benefits to be delivered, the community body may be required to repay the difference in price if the benefits are not delivered.
  • where the price was based on a lower valuation for a particular use, conditions may be imposed to return any increase in value to the authority, if the use of the property is changed or the expected benefits are not delivered.
  • If the property itself is important to the community, for example due to its heritage or location, arrangements may be made to enable the authority to recover the property if it is no longer used by the community body for the agreed purpose (or the community body is wound up).
The UK Government’s Department for Communities and Local Government’s 2008 publication 'Managing Risks in Asset Transfer - A Guide' (see below) sets out a range of ways in which risks to the public pound involving asset transfer can be managed. In some cases, it may be appropriate to impose title conditions (terms, burdens, obligations) on the future use and onward disposal of the asset in order to protect public monies. However, such conditions cannot be justified if the property is sold at best consideration.

Related Resources

Asset Transfer Guidance for Relevant Authorities

This guidance has been developed for relevant authorities.  Relevant authorities are required to have regard to guidance issued by the Scottish Ministers in carrying out their functions in relation to asset transfer.

PDF icon Asset Transfer RA Guidance Notes.pdf

Managing Risks in Asset Transfer

Very useful guide that can be used to meet the concerns of both local authorities and communities

PDF icon Managing Risks in Asset Transfer