Clawback is a general term referring to conditions used to safeguard the financial interests of a relevant authority. It is important that any use of clawback provisions complies with the Scottish Government guidance.
Title conditions can be imposed that give the authority first right of refusal over the property should the community organisation look to dispose of it for any reason. These are known as ‘pre-emption rights’ and can be triggered, for example, when an application is made for planning permission. However, many key funders of asset transfers feel that a right of pre-emption is often not appropriate for community asset purchases, which by their nature should remain within the community for use in perpetuity.
Clauses of this kind could put funding approval for purchases and post-acquisition development at risk. If a pre-emption is to be included, the terms and conditions need to be clear at the point of the valuation, buy-back should be at market value and ideally timebound.
Another example of conditions comes where the authority places restrictions on changes in use of the property (in planning terms). These should be defined explicitly in terms of what the property can be used for (permitted uses) rather than what it can’t.
Care should be taken with these conditions, as restricting a community body to a particular activity following an asset transfer can cause problems for the group and their funders. A group’s purposes can shift over time as the community’s needs and its operating environment changes.
For funders, the norm is not to have these conditions in place. If they are agreed, they should be strictly time limited. If conditions are too restrictive, funding for the purchase of the asset as well as post-purchase investment could be put at risk. It is important to remember that protection of the asset is provided by clauses in the group’s governing document, which has passed the eligibility criteria defined in the Community Empowerment Act specifically for this purpose.
Good practice principles
- Any mechanisms used to protect the relevant authority’s interest must be proportionate; or they must be appropriate for the scale of the project and take account of the opportunities to deliver community benefit.
- Mechanisms must only be included where there is a clear rationale for their use.
- The use of conditions should not unduly restrict the ability of the receiving organisation to maximise the asset’s potential as a base for a financially sustainable enterprise.
- Restrictions around how the asset is used and run on a day-to-day basis are unlikely to be appropriate and may undermine the achievement of the objectives behind the transfer.
- Conditions are only likely to be justified where there is a sizeable discount given.
- The justification for each mechanism should be clearly explained to the community.
- Mechanisms should have unambiguous trigger points and clearly defined processes.
Appropriate use of Clawback and Title Conditions
be appropriate in Community Asset Transfer. The starting point for good practice in asset transfer
should be for no mechanisms to be in place, particularly for small scale projects where relevant
authorities should consider whether the legal complexities of imposing conditions is worth the
potential returns.
However, there may be circumstances where these conditions can be used effectively without
being detrimental to the success of the project. Where conditions are used, the community group
must be informed at the earliest possible opportunity, ideally as part of the decision notice when
approving an asset transfer. This gives the community an opportunity to consider any conditions
before accepting the transfer, discuss with the relevant authority and appeal if necessary.
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Financial returns to relevant authority |
Restrictions on community use of asset |
Return of asset to relevant authority |
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Where used, it is essential to ensure any financial clawback is proportionate to the type and scale of asset transfer. |
Where used, restrictions should recognise the need for community groups to adapt and change their activities as their circumstances and the needs of their communities change. |
Where used, conditions must not act as a barrier to communities being able to access the funding they need. |
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Further information and guidance on appropriate use of clawback and title conditions can be found in the Managing Risk in Community Asset Transfer Guidance below.
