Legal threat to development plans

The new homes bonus, which rewards councils that build housing by matching the council tax for the first six years, is subject to state aid rules. This means councils that provide land for developments without putting it out to tender will be vulnerable to litigation.

However, lawyers this week warned that few councils are aware of the threat and are reluctant to spend time and money procuring land they would have previously given to developers for free.

Prior to the introduction of the new homes bonus in April, councils commonly gifted land to developers, including housing associations. The gift would be recorded as land disposal and would not therefore be subject to EU procurement rules.

Rebecca Rees, partner at law firm Trowers & Hamlins, which has been approached by several concerned council clients, said: ‘The new homes bonus muddies the water. If a local authority wants to dispose of land to enable development, an EU procurement process may be required and such a process can take a long time.’

‘What local authorities are nervous about is that because the council will receive the new homes bonus for every home built on the land there may be a direct economic benefit between the disposal of the land and what is built on it - and that may mean they will have to consider EU procurement law,’ Ms Rees added

Law firm Eversheds confirmed that procurement classification is always a consideration for local authorities but that each case needs considering on its facts.

There are now fears that schemes such as Liverpool Council’s plans for a £130 million housing investment scheme in which housing associations will build 2,000 homes on land gifted by the council could be challenged unless the land is procured.

A council source confirmed that, at present, work would not be put out to tender - although legal advice would be taken on this.

Other councils, such as York, operate a similar system in which land is usually allocated to development partners on a flexible ‘turn by turn basis’.

Trowers & Hamlins Ms Rees said she had seen an increase in challenges over tendering decisions. In 2006 only two decisions were challenged and this had increased to more than 30 in 2010.

The Communities and Local Government department said it was up to councils to procure on a ‘case by case basis’.

Inside Housing is calling for more land to be brought forward for development through our Get on our land campaign.