Public Authority Review - December 2008
The ripples of the credit crunch continue to spread across the country. A number of local authorities who might have felt themselves relatively immune from the crisis within the banking sector found themselves suffering substantially with the failure of Icelandic Banks. These include East Midlands Authorities with a total exposure in excess of £50m or even dubious “hedge” funds. In these troubled times, what steps can local authorities reasonably take to minimise their exposure to the potential insolvency of third parties with whom they have legal relationships?
There may not be too many answers. Here are a few ideas.
A step-by-step guide to the ‘Enforced sales’ procedure
Property searches: new charging framework
Freeth Cartwright appointed to the Treasury Solicitor’s litigation panel
There may not be too many answers. Here are a few ideas.
Contract Structures - many suppliers, especially in these times, will seek to change the payment structure of contracts so that you are liable to pay within a shorter-than-usual payment period, or even demand some degree of advance payment. The traditional rule, that payment should be made in arrears and, for example, in contracts for works should equate to milestones or a certified sign-off, is good advice.
Guarantees - traditionally, many local authorities insist as a matter of course on a bank guarantee or bond to secure contract performance or payment of employers’ pension contributions.
Unfortunately, in the current market these guarantees can be particularly expensive even for a supplier who is not at a particular risk of failure, due to the general level of uncertainty within the market and the insolvency of at least one large American Guarantee Company. In days when we are all seeking to maximise value for money, a difficult balance has to be drawn between security and getting a best-value contract.
Parent Company Guarantees - in the current environment, parents may be less likely to want to guarantee the performance of their subsidiaries, particularly when the parent is non-UK based. However, this does not have a financial ‘cost’ in itself and is something that would, in our view, be worth pressing for - however, credit searches that you do in terms of insolvency and strength of the company need to take into account the track record of that parent rather than the subsidiary with whom you are entering into a contract.
Keep up to date - some criticism has been levelled at authorities that, even when the credit rating of some financial institutions was falling, relied on external financial advisers to keep an eye on such matters and failed to try to withdraw their monies until it was too late - unlike a lot of private investors who were able to withdraw before the Icelandic Banks ceased to allow withdrawals.
The message seems to be keep up to the minute in terms of financial markets, and during an interim period of poor liquidity it may be appropriate to get out of longer-term investments for short-term requirements at an easily accessible source, for example with HM Paymaster General. When procuring, ensure that you have a right to reject tenders after PQQ stage if their insolvency is in doubt.
Raising Finance for Future Developments - a number of authorities with whom we are dealing are finding that their private sector partners are unable to go forward with a regeneration or major redevelopment scheme because they are unable to raise capital. One way to improve liquidity, and to seek to assist partners who might have difficulty raising funds based on reduced balance sheet valuations is to create a Local Asset Backed Vehicle (”LABV”), ie a special purpose vehicle company jointly owned by a local authority, other public sector bodies, Regional Development Agency and the private sector which is likely to be able to attract funds via an institutional investor.
Given the substantial asset value of many authorities, subject to dealing with such issues as state aid, procurement and ‘best consideration’ for disposal of land, this model may be an attractive way forward and compared to the traditional ‘risk transfer’ inherent in PFI could be a valuable way forward, particularly in terms of unlocking delayed urban regeneration projects.
If you wish to discuss any of these matters, please contact Stephen Pearson
Direct Line: 0115 985 3206
Email:stephen.pearson@freethcartwright.co.uk
A step-by-step guide to the ‘Enforced sales’ procedure
Abandoned properties can cause problems for a number of different reasons, they are an eyesore and can ‘devalue’ a neighbourhood; they can attract squatters which can be a nuisance both for neighbours and other local residents; and they can cause health and safety concerns both as a result of their internal and external condition.
So how can these properties be put back into private ownership?
Often the Local Council will have obtained, or will be in a position to obtain, Liability Orders over these properties in respect of unpaid Council tax. Such Orders are obtained in the Magistrates Court and in themselves are of limited value in terms of securing the sale of the property. However, these Orders can be converted into Money Judgments in the County Court which in turn can be enforced by way of a Charging Order and subsequently an Order for Sale of the property. Steps to be taken to enforce by such a method are as follows:
Firstly, attempts need to be made to locate the owner of the property. If the owner can be located, it is always worth an initial approach to try and secure their co-operation to put the property back into a habitable state or to place it on the open market. This would be the fastest and most cost-effective way to achieve the end result. In any event, if you are considering seeking an Order for Sale you must be in a position to show that reasonable steps have been taken to locate the owner for the purposes of service of Court proceedings. Usually the more details that can be passed to a tracing agent the better, for example full name; date of birth; and national insurance number of the owner.
Secondly, if the owner is located and won’t co-operate or if the owner can’t be located, the next step is to apply to the County Court (local to the owner) for an Order to Enforce an Award (being the Liability Orders obtained in the Magistrates Court). This is a simple paper application which will result in an Order for Recovery in the County Court. This Order can be enforced through the County Courts including by way of an Application for a Charging Order.
Thirdly, the first step to obtain a Charging Order is again a paper application in the County Court in which the Order for Recovery was obtained. The application will usually result in an interim charge which should be registered against the property title to safeguard your interest.
Fourthly, when granting the interim charge, the Court will list the matter for a hearing. The hearing date must be served on the property owner. If the owner could not be located (see paragraph 1 above), an application should be made to the Court for service by an alternative method, for example by way of notice in a local paper.
Fifth, at the hearing the Court will decide whether to make the interim charge final with or without modifications. If a final charge is obtained this will sit as security for the Judgment debt.
And sixth, if the main aim is to place the property back into private ownership, however, a Part 8 Application for an Order for Sale is required.
An Order for Sale is a draconian step, however if the property is abandoned there seems little reason for the Order not to be made. The whole process is time consuming, it can take 9-12 months. It is also costly, however some costs can be incorporated into the Charging Order and recovered on sale, provided a willing buyer can be found.
There are other methods of dealing with such properties under various pieces of legislation including the Town & Country Planning Act; Building Act; and Housing Act. These fall outside the scope of this article but a member of the Freeth Cartwright planning team would be happy to discuss these options should you require more information.
For more information on this article please contact Lucie Wigham
Direct Line: 0115 935 0639
Email: lucie.wigham@freethcartwright.co.uk
Property searches: new charging framework
In the May issue of our Public Sector review we highlighted the Government’s concern over the lack of a level playing field between Local Authorities (LA) and Personal Search Companies (PSC) compiling searches for HIPs, due to limited access to data to PSC and lack of guidance on charges for LA (”Property searches - HIPs drive revised Government guidance”).
Although the Government issued guidance designed to provide a foundation for good practice between LA and PSC (”Personal searches of the local land charges register and other records held by local authorities: Good practice guidance for local authorities and personal searches”), its research shows that there is still no uniform practice amongst LA; partly due to costs pressure, many do not have appropriate arrangements in place to provide unrestricted access to records. LA fees are often not set on a costs-recovery basis, resulting in overcharging and, in some cases, LA are losing out by undercharging.
The Government consulted on the LA’s charging framework (”Local Authority Property Search Services: Charges for Property Search Services - A consultation paper”), which has led to it producing draft regulations on what can be charged for and how. The consultation ended on 30 September 2008 and it hopes the regulations will commence by the end of the year (”Local Authorities (Charges for Property Searches) (England) (Wales) Regulations: A consultation paper”).
The draft regulations:
• enable LA to charge for access to unrefined data on a local cost recovery basis, negating the need for insurance to cover missing data
• provide detailed provisions for calculating LA’s charges
• enable LA to charge for compiled searches on a local cost-recovery basis
• allow LA to make additional charges where it offers a choice of services
• provide for transparency in setting charges
LA should be prepared to review their charges and arrangements for the provision of services for searches in the light of the Government’s good practice guidance and the impending regulations, as it is anticipated that PSC will have the ability to legally challenge LA where access to data is restricted or overcharged.
‘Local Authorities (Charges for Property Searches) (England) (Wales) Regulations: A consultation paper’ can be viewed on www.communities.gov.uk
Freeth Cartwright appointed to the Treasury Solicitor’s litigation panel
Freeth Cartwright LLP has been appointed to a panel to provide litigation services to The Treasury Solicitor’s Department and other central government bodies for a period of three years, with the possibility of extension for a further year.
The Treasury Solicitor’s Department provides legal services to over 180 central government departments and other publicly funded bodies in England and Wales.
We have been appointed to the panels dealing with employment litigation and other forms of litigation including commercial, property and public law and will service North West England, North Wales, the Midlands and West Wales.
Philippa Dempster, Head of the Public Sector team comments:
“We are delighted to have been included on the litigation panel which is testament to our existing track record of service to many public sector bodies, as well as to the business community.”
For more information, please contact:
Philippa Dempster, Cumberland Court, 80 Mount Street, Nottingham NG1 6HH
Direct line: 0115 936 9334
philippa.dempster@freethcartwright.co.uk
Stephen Pearson. Cumberland Court, 80 Mount Street, Nottingham NG1 6HH
Direct line: 0115 985 3206
stephen.pearson@freethcartwright.co.uk