Author: Roy Perrott
One of the themes in the Conservative Party’s manifesto for the April 2010 general election was the creation of a "Big Society". Some of the more ambitious plans fell by the wayside. However, other initiatives did take flight and were incorporated in the Localism Act 2011. One of these was the ability for local residents to temporarily block the sale of a building that was seen as an asset to the local community. This has become known as the "Community Right to Bid" (CRB).
The intention may originally have been to allow communities to force a sale but what was enshrined in the Localism Act falls some way short of that. Nevertheless, it is a significant development and one that has captured the imagination of many local communities since it was introduced in September 2012. Several dozen pubs have already been listed as an "asset of community value" and Camra (the Campaign for Real Ale) is targeting up to 300 more in 2013 alone.
What is the Community Right to Bid?
The CRB gives local groups the right to nominate land that they see as of particular importance to the local community. The current use of the land must further the "social well-being or social interests of the local community". Most of the examples that we have seen so far are pubs but the list of potential assets is much longer and could include village halls, cinemas, sports grounds, etc. Residential property, however, is generally excluded. Once nominated, the local authority must consider whether the property meets the criteria and falls within the Act. If it does, the council will list the property for a period of up to five years. The owner is given an opportunity to object to the listing.
If the objection is unsuccessful, when the owner wishes to sell the property with vacant possession it must first notify the council, who will inform the community group. The community group has an initial six week window in which to decide whether it wishes to bid for the property. If it decides to do so, the moratorium is extended to six months. During the moratorium, the owner may continue to market the property but it will be unable to sell it (or grant a long lease) to anyone other than the community group until the six months are up. The six month moratorium is designed to give the community group time to raise finance to buy the property.
It is important to stress that the owner is not obliged to sell the property to the community group. This is a right to bid, not a right to buy. At the end of the moratorium, the owner is free to sell to whomever it wants, and at whatever price. In reality, therefore, unless you have a very public-spirited owner, the right to bid is only likely to be effective if the community group matches or exceeds the price that the owner could fetch for the property in the open market. There is also no restriction on what the owner can itself do with the property during the moratorium. If the owner decides not to sell the property but to redevelop it (or even to demolish it, assuming the property is not a listed building or in a conservation area), it is allowed to do so.
The Localism Act includes the ability for the owner to apply for compensation, payable by the local authority. To be entitled to compensation, the owner must establish that it has suffered a financial loss that it would not have been likely to have incurred if the land had not been listed.
Will it work?
When the CRB was first mooted, there was concern that it would be a "meddler’s charter". Local pressure groups would apply to list a property, not in the expectation of being able to buy it, but to cause enough of a nuisance to stop it from being sold. This does not seem to have happened. The legislation is quite carefully drafted to ensure that the residents have to "put up or shut up".
The CRB has attracted a lot of press coverage. Since it was introduced, it has achieved a number of notable successes. Several historic buildings, in particular pubs, have been saved from the wrecker’s ball or from being turned into expensive flats. Of course, being "saved" is only part of the battle. These pubs were closed down for a reason: they were not making money. Once the surge of goodwill has subsided, will the local community be able to make them work financially? They may have little or no experience of running a business, and personalities and egos may clash. The assets will be loaded with substantial amounts of debt that will need to be paid off or refinanced: a difficult task in the current market. Concerned residents may be only too happy to join a support group to "save our pub/cinema/hall" but will they be prepared to put their hands in their pockets to make the venture a success?
Once the initial excitement has died down, will the CRB prove to be a damp squib? Only time will tell. The effort involved in listing the asset and, in particular, raising finance to buy it means that the CRB is more likely to be used in affluent communities.
Roy Perrott, Professional Support Lawyer, Fladgate LLP (firstname.lastname@example.org)