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The Procurement Regulations and Land Transactions

Wednesday June 6th, 2012

By Ruth McNaught, Solicitor at Harper Macleod LLP

A ruling of the High Court, which examined the applicability of the principles of European procurement law in relation to land transactions, was handed down in the case of  R (on the application of Midlands Co-operative Society Ltd) v Birmingham City Council [2012] EWHC 620 (Admin) in March this year.

The case centred around the sale of a parcel of land, comprising a bowling and community facility, by a local authority to a developer, which the court found did not fall within the scope of European procurement law nor the Public Contracts Regulations 2006 (the “Regulations”).

The sequence of events commenced in 2010 when Tesco (the “developer”) succeeded in its bid for the sale by Birmingham City Council (the “local authority”) of an area of land.

Midlands Co-operative Society Ltd (the “claimant”) challenged the transaction on the basis that it contravened the Regulations. The claimant argued that the sale of the land was part of a wider regeneration project with community benefit obligations to provide replacement bowling and community centre facilities, as agreed pursuant to section 106 of the Town and Country Planning Act 1990 (the “planning obligations”). The planning obligations were enforceable upon relevant planning permission being obtained for the development. The claimant submitted that the enforceability of the planning obligations meant that the transaction should have been characterised as a public works contract and, as such, fell within the scope of the Regulations. In addition, the claimant maintained that the contract award was invalid on the basis that the local authority had not obtained the best value for the contract as it was obligated to do under s.123(2) of the Local Government Act 1972.

The High Court held that the transaction was not a public works contract for the purposes of the Regulations. It did, however, agree with the claimant’s assertion that the broader context of which the land transaction formed part of should be taken into account: ‘hiving off’ a contractual obligation to carry out development work into a separate agreement from a land transaction does not defeat the application of the Regulations and the European procurement principles.

In considering the broader context, the court found that the developer was not legally required to comply with the planning obligations at the point at which the land transaction concluded, since planning permission had not yet been granted. That the local authority intended to enter into a works contract with the developer, short of a formal, legally enforceable commitment, was insufficient. The court, accordingly, held that the Regulations did not apply in this case.

Finally, the court considered the claimant’s argument under s.123(2) of the Local Government Act 1972 and found that the procedure by which the local authority undertook to obtain the best value of the land was not irrational, on the basis it had obtained a valuation from an expert which indicated that the developer’s bid represented a price within the range that could be expected at open market.

Ruth is a solicitor at Harper Macleod LLP and can be contacted at ruth.mcnaught@harpermacleod.co.uk

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