11. Price, Valuation and Non-financial benefits
11.1. The Act does not say how much should be paid to purchase an asset or in rent, whether it should be at market value or at a discount. The community transfer body has to state in the asset transfer request how much they are prepared to pay, alongside the benefits the project will deliver, and the relevant authority has to decide whether to accept that price. This can be a difficult area for both sides. The Scottish Government brought together a Short-Life Working Group to look at the issues of Valuation and Assessment of Non-Financial Benefits, and they have developed the guidance in this chapter. Details of the group's membership and a link to its papers are provided at Annex B.
11.2. All relevant authorities have a duty to secure Best Value in their operations, including when disposing of or letting property. However, it has long been recognised that best value does not always mean the highest possible price, and all authorities have the ability to dispose of property at less than market value where there are wider public benefits to be gained. This is set out in the Disposal of Land by Local Authorities (Scotland) Regulations 2010, and in the Scottish Public Finance Manual for other relevant authorities. It is a question of balancing the financial and non-financial impacts, both positive and negative, of the different options.
11.3. The likely price of the asset is something the community transfer body will need to consider at an early stage in developing its proposals, along with the initial and ongoing costs of the project. Advice on developing feasibility studies and business cases is available from COSS and other organisations listed in annex C. Early discussion with the relevant authority will also help you to understand their expectations and perhaps agree a price before submitting your asset transfer request. Community transfer bodies should not assume that asset transfers will be at a nominal sum. You will also need to consider how you will secure funding for the price you offer.
11.4. When deciding how much to offer for an asset, it is helpful to start by having an idea of the "market value" - how much could the relevant authority expect to get if they sold, leased or hired out the property on a commercial basis, with no additional benefits involved? For purchase or lease, both parties are likely to need a formal valuation for accounting and funding purposes. Chapter 12 explains how this could be done on a joint basis. For other rights such as hire of rooms or use of land, if the relevant authority does not have a list of fees, you may be able to compare with similar property in the area. You should also enquire whether the relevant authority offers discounts for particular types of organisation, which you may be eligible for.
11.5. The relevant authority will also need to take into account any additional costs to them that may arise as a result of agreeing to the request. Most asset transfer requests are for property which is unused or to be closed. If you want to request a building or site which is in use, there may be significant costs to the relevant authority for relocating staff and services, which may offset the value of the non-financial benefits of your proposal. On the other hand, there may be savings from the community transfer body taking over maintenance or other responsibilities. Similarly, a request for use of a property outside normal hours, for example, may incur additional costs such as safety and security arrangements. It will help you to decide what property may be suitable and to make your case, if you are aware of these kinds of issues. In some cases it may be possible to make joint arrangements with the authority to reduce costs, for example by leasing part of the space back to them.
11.6. If the community transfer body decides to offer a price that is less than the market value, the relevant authority will need to assess whether the non-financial benefits offered by the proposals justify that reduced price. If the authority is likely to incur additional costs, greater benefits may be required to justify agreeing to the request. Chapter 13 provides guidance for relevant authorities in doing this. You may want to carry out some analysis yourself and put forward your views of the value of the benefits the project will provide in your request.
11.7. If the relevant authority does agree to transfer the property at less than market value, it may seek to "protect" the reduction by placing conditions in the contract. This means that if the project fails or does not deliver the benefits expected over a certain period, or if property sold to the community transfer body is sold on at a profit, the community transfer body may have to make an additional payment to the relevant authority, of all or part of the amount by which the price was reduced. Chapter 14 provides more guidance on this. Such arrangements should always be proportionate to the relevant authority's interest in the project, and community transfer bodies should always examine them carefully, as they may affect your ability to obtain funding from some sources.
11.8. EU State Aid Rules are in place to regulate financial assistance from public authorities that could distort competition between EU Member States. It applies to any type of financial assistance, including grants and discounts, and any organisation carrying out "economic activity", even if it is not for profit. "Economic activity" covers offering any goods or services that could, in principle, be carried out by someone for payment. The relevant authority will have to consider whether any reduction from market value is allowed under the State Aid Rules. However, if any assistance is found to have breached the Rules, it is the organisation that received it that has to pay it back, so you should understand how it might affect you. There is also a "de minimis" rule that allows small amounts of assistance to be given over a rolling 3-year period. If you receive funding from different sources on a "de minimis" basis, you need to keep a record of that rolling total.
11.9. COSS has a useful introductory briefing on State Aid, http://www.dtascommunityownership.org.uk/resources/finances/eu-state-aid-rules-and-community-transfer and further guidance can be found on the Scottish Government website http://www.gov.scot/Topics/Government/State-Aid.
Email: Jean Waddie
Phone: 0300 244 4000 – Central Enquiry Unit
The Scottish Government
St Andrew's House