UK: Be Aware Of The Prospect Of A Property Being Listed As An Asset Of Community Value (ACV) And The Consequences This Brings

Last Updated: 29 October 2015
Article by Wedlake Bell

Local authorities have the power under the Localism Act 2011 and the Asset of Community Value Regulations (England) 2012 to list a building as an Asset of Community Value. An Asset of Community Value is something judged to be of value to the local community. This of course is widely open to interpretation.

The asset can be owned in the private or public sector. To date a number of buildings have been listed across the country and these include public houses, churches, schools and libraries. However we have recently seen a number of buildings which typically you would not expect to see listed.

In order to qualify as an ACV, the property must pass legal tests. The use of the property must further the social wellbeing or social interests of the local community and that use must not be an ancillary use. It must also be realistic to think that its use can continue.

An eligible body must make a "community nomination" by way of application to the relevant local authority. The property owner can make written representations to the local authority objecting, but it must be made within eight weeks of receipt of notice of the decision. The Act places restrictions on disposal during the moratorium period.

Furthermore the Act requires the owner of the property to notify the council of their intention to sell. There is an initial six week moratorium in which a community group, typically a community interest company can give notice of its intention of bidding for an ACV. If it does then a six month moratorium comes into effect during which the seller cannot conduct a sale with any party other than the community group. The right to bid does not confer any particular advantage to the community group save for giving them time to plan and organise its finances. It is not a right of first refusal or a right to buy. This could be hugely problematic to an investor who was seeking to sell on a property or a developer who has bought the building using development finance which is typically for a set period and carries a fairly high repayment rate. The investor now has the issue that "hope value" for a change of use is ruled out at least short term which might have enabled them to sell on for a profit in the first place. The developer now has an uphill battle with planning on a site that three months before would have been planning compliant not to mention a major issue with their funder.

Regulation 14 of the Act contains detailed provisions about claiming compensation. All owners, other than public authorities, can claim compensation for loss or expense incurred as a result of listing and complying with any of the procedures required by the scheme (eg. legal fees). A claim should be made in writing to the local authority within 13 weeks of the loss or expenses being incurred or having finished being incurred. We cannot see that the intention of Regulation 14 is there to assist property speculators who will inevitably lose out.

The Act provides for the listings to be removed after five years. It is too soon to know whether this will happen automatically or whether owners will need to prompt the local authority to do so, but they will be entitled to have the asset removed from the list of ACVs. Once an asset is an ACV then parties will be able to re-apply in the five year window to retain the listed status.

Our advice to any client who receives a nomination for an ACV is to seek specialist legal advice and typically bring on board a planning consultant at an early stage that can assist with the representations made. It is imperative for the property owner to act within the timescales and forward any correspondence on immediately to their professional advisors so a well balanced counter claim can be prepared.

We are increasingly seeing cases of tenants applying to list buildings which have re-development potential for residential use. Whilst the listing does not prevent the owner from applying for planning permission to change the use the ACV is likely to be a material consideration to the planning department and affect the planning process and ultimately have a negative impact on the value of the owner's holdings. Typically a tenant may have rights under Part II of the Landlord and Tenant Act 1954 (as amended) so the Landlord's chances of proving ground (f)(redevelopment) are likely to reduce meaning the landlord cannot get possession and the tenant wins the right for a new lease.

Landlords need to consider whether to introduce terms to leases to control excessive community uses which might lead to a property becoming an ACV. The landlord is often in a difficult situation as excessively restrictive user clauses often negatively affect value at lease renewal and rent review.

It is clearly very important that landlords do not turn a blind eye as to what is happening in the property so they should ensure that user clauses are kept up to date and be wary of applications for a change of use. Furthermore it is important that applications to sub-let and assign are dealt with by visiting the proposed assignee or sub tenant's existing premises as once a landlord ends up with an application for an ACV it is often too late.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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