Local Authority Bankruptsy - Opportunity for Commercial Property?

Posted
AuthorDerek Austin

Local Authority Bankruptsy - Opportunity for Commercial Property?

With local authorities going bankrupt - what opportunities open up for commercial property?

It was reported recently that local councils own more than £23.2bn worth of investment property.¹ With these investments intended to create a revenue stream for local authorities, questions have now been raised about the status of their property portfolios, with many local councils now filing for bankruptcy.

There has been much talk in the press this week regarding a recent survey which interviewed council leaders, chief executives, chief finance officers and cabinet members for finance found 51 per cent fear bankruptcy. It revealed nearly one in 10 of those surveyed said they would be likely to declare effective bankruptcy - by issuing a Section 114 notice - in the next financial year.²

Nine councils have already issued section 114 notices since 2018 — including Thurrock, Woking, Birmingham City and Nottingham City, a sharp rise in recent years.

Derek Austin, Head of Commercial Property at Dutton Gregory Solicitors, has considered the impact on the commercial property market caused by the financial pressures bearing on some of the biggest landowners in the country, local councils.

Derek said: “It seems as if each day there is a new local council citing financial challenges, whether that be bankruptcy, or failing to publish their most recent financial statements. Local authorities own and control substantial estates of commercial property, including retail units and office buildings. With many of them now seeking to refinance their activities, they (or the commissioners appointed to oversee their activities) will undoubtedly be looking critically at these portfolios.”

“Owners occupiers and investors are already sitting on their hands waiting for the dust to settle after the budget and general election, having little confidence in the market. The biggest sector that could be affected, and which is already facing uncertainty, is retail. This investment has accounted for nearly a third of the value and local authority purchases over the last five years, many of these being shopping centres.”

“Many local authorities tend to move slowly, often being beaten to market adjustments by private landowners able to make quicker decisions. With those private landowners now holding back to assess the fallout from the decisions of our national political leaders and the electorate, local authorities can compete for opportunities on a more equal footing. A review of their property portfolios may identify opportunities to add value to their income streams, possibly from sales, leasebacks, joint ventures, reconfiguring buildings or applying for changes of use to add value and create flexibility.

“Where assets will require specialist expertise outside the local authority’s collective experience, a marketing strategy could then be worked up for a managed and timely disposal, without flooding the local market. Early consultation with lawyers, surveyors and planning officers can smooth the way for reduced holding costs, minimising void periods and eliminating disproportionate development expenses”

“Estate surveyors may need to liaise with finance officers to check if monies can be recycled into other projects. Finance officers may need to report to strategy committees (or commissioners) to enable decisions to be made. The point is local authorities should be doing this now so that decisions can be implemented in a timely manner once business confidence returns and demand increases for commercial property. We would encourage any local authorities to get in touch if they wish to discuss options for commercial properties within their portfolio”

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