ACVs are land or buildings which are regarded as having value to the community by furthering social wellbeing or social interests of the local communities. ACVs can include village shops, pubs, parks, historic buildings and sporting venues. Notable examples in Yorkshire include Elland Road and Hillsborough football stadiums.
Once a property has been successfully nominated as an ACV, it is subject to special rules under the Act before it can be sold (or otherwise disposed of). We will consider the rules in section 95(1), the possible exemptions that can apply in distressed real estate situations and the proposed changes to the Act which could create a right of first refusal in favour of community interest groups.
Section 95(1) of the Localism Act
The owner of property or land designated as an ACV cannot enter into a sale of the property unless the following conditions are met:
- the local authority has been notified in writing of the intention to dispose of the ACV property; and
- either:
- the interim moratorium period of six weeks has ended without the local authority receiving a written request from a community interest group that they want to be treated as a potential bidder; or
- the full moratorium period of six months has elapsed; and
- the protected period has not ended.
This interim and full moratorium periods and the protected period will be further considered below.
Interim moratorium period
Following the local authority receiving notice of an owner’s intention to sell or otherwise dispose of the ACV property, the local authority will publicise the prospective sale to the local community. This is known as the interim moratorium period.
The interim moratorium period is six weeks and commences from the date which the local authority receives notice of the proposed disposal of the ACV property. During this period, a community interest group is to notify the local authority if it wishes to be treated as a potential bidder for the property.
If a request to be treated as a potential bidder is not received from a community interest group within the interim moratorium period, the owner of the ACV property is free to sell (or otherwise dispose of) the property once the interim moratorium has elapsed.
If, however, a community interest group gives notice of their intention to be treated as a potential bidder, the full six months moratorium period will apply.
Full moratorium period
The full moratorium period is six months from the which the local authority receives notice of the proposed disposal of the ACV property.
During the full moratorium period, the owner of the property is free to market the property and negotiate sales with prospective purchasers, but the seller can only exchange contracts or enter into a binding contract to exchange contracts for the sale of the property with the community interest group during that period.
The owner cannot enter into a binding contract for the sale of the property to any party other than the community interest group until the full six months moratorium period has elapsed. Once the full moratorium period has elapsed, the owner of the property can enter into a contract to sell it to whoever they choose.
Protected period
The protected period applies if no community interest group has submitted a request to be treated as a potential bidder and/or has not proceeded to purchase the property during the interim or full moratorium period.
The protected period is 18 months from the date which the local authority receives notice of a proposed sale of the property. During the protected period, the owner is free to sell the property without further delay.
The protected period is designed to protect owners from repeated attempts by a community interest group to prevent a sale where they have not submitted a bid during the full moratorium period or have failed to successfully pursue a bid through to completion.
Disposals of ACV property by administrators, liquidators or fixed charge receivers
Certain disposals of ACV property are exempt from the restrictions in section 95 of the Act. The exemptions are set out in Schedule 3 of the Assets of Community Value (England) Regulations 2012/2421 (2012 Regulations). For the purposes of disposals of ACV property in distressed real estate situations these exemptions include:
- a disposal in exercise of a power of sale of land by a person who has that power granted by security for a debt (including the power implied by section 101(1)(i) of the Law of Property Act 1925) (Paragraph 6 of Schedule 3 of the 2012 Regulations); and
- a disposal pursuant to insolvency proceedings defined as proceedings under the Insolvency Act 1986 and the Insolvency (England and Wales) Rules 2016 (Paragraph 7 of Schedule 3 of the 2012 Regulations).
The restrictions on disposals of ACV land therefore do not apply to sales by mortgagees in exercise of their power of sale and disposals by administrators or liquidators of companies that own properties designated as ACVs.
Section 95(5)(j) of the Act states that the prohibition in section 95(1) does not apply to such disposals as set out in the Regulations, therefore it could be argued that mortgagees, administrators and liquidators cannot follow the section 95(1) process even if they wanted to so that a future purchaser acquires the property free from the restrictions. This is a grey area, though should a mortgagee, administrator or liquidator wish to follow the section 95 process instead of relying on the exemptions, we would expect that a local authority would not refuse that given the spirit and purpose for which section 95 was enacted.
A disposal of ACV property by a fixed charge receiver may still be caught by the Act. The receiver acts as agent of the owner of the property and subject to the disposal being a relevant disposal, he is bound by the provisions in the legislation. There is a question mark as to whether a sale by a receiver is deemed a relevant disposal for the purposes of the Act as a receiver does not sell the property with contractual vacant possession (as is required by the definition of “relevant disposal”, see section 96 of the Act). Again, this is a grey area, but based on our experience of the sale of an ACV by fixed charge receivers, the local authority accepted the receivers’ notice of intention to sell the property and the full moratorium period was followed.
Subsequent sales of an asset of community value
A property that is designated as an asset of community value should have a restriction registered against its title at HM Land Registry in Form QQ which prevents a transfer or lease of the property being registered without a certificate signed by a conveyancer confirming that the transfer or lease did not contravene section 95(1) of the Act.
Once the property has been subject to a relevant disposal that has complied with section 95, the local authority must, as soon as practicable after receiving the relevant information, update its list of ACVs to amend or otherwise remove the property that has been subject to that relevant disposal and apply to remove the Form QQ restriction registered against the property’s title (Regulations 2(b) and 18 of the 2012 Regulations).
In circumstances where the property has been sold without following the requirements of section 95(1) of the Act and relying on an exemption under section 95(5), the property will remain designated as an ACV and subject to the Form QQ restriction and any future owner of the property will have to satisfy the conditions in section 95(1) when they come to later sell or dispose of the property. Of course this could be unattractive to prospective purchasers, particularly where the property may be ripe for residential redevelopment or if they want to quickly flip the property.
A right to bid, but soon may be a right of first refusal
An important point is that section 95(1) of the Act creates right to bid provisions; it does not currently create a right of first refusal or an exclusive right to buy in favour of the community interest group. Nor does the Act restrict who the property may be sold to or at what price. The ACV process is intended to give community groups an opportunity and time to develop a bid and raise the necessary funds to purchase the property.
Having said that, the English Devolution and Community Empowerment Bill (Bill) proposes to introduce a Community Right to Buy which will give community groups the first opportunity to purchase the ACV and extend the moratorium to 12 months. The Bill also proposes to introduce a new Sporting Asset of Community Value (SACV) so that all eligible sporting grounds will automatically be designated as SACVs and benefit from the enhanced protections. The Bill is currently in the House of Commons so watch this space for wider and enhanced protections to land and buildings which provide social and community benefits.
