Properties sold for millions below market value

From office blocks to old pubs, council deals fall short. reports

When it comes to gaining the best value for money from selling public property assets, one local councillor in Middlesbrough believes “five-year-olds could do it better” than her town’s leaders.

The fear of more local authority bankruptcies looms large and Middlesbrough Council is one of those under financial pressure. It was forced to raise council tax by the maximum possible amount – 4.99 per cent – this year, due to a £4.7m budget shortfall.

The Labour administration in the North Yorkshire town has approved plans for savings and increased bills to raise £13.9m, while also applying to the Government for “exceptional financial support”.

Over recent decades, many councils have invested hundreds of millions of pounds in assets such as office blocks, leisure facilities, development sites and – in

Middlesbrough’s case at least – even the odd derelict pub.

Analysis by i has found that councils across England have gone on to sell such property investments, sometimes for under market value, only for them to be put back on sale by buyers who can generate a profit.

In October, Middlesbrough Council was accused of selling a building for “well below market value” after new owners put it back on sale at three times its 2019 price. The council denies such claims.

Vancouver House (pictured top left), a mixed-use office and retail block in Middlesbrough, was sold by the authority in June 2019 for £822,375. Last autumn, it was back on the market for £2.6m. This is despite office buildings’ values being hit by Covid lockdowns and rising inflation in the four-year period between 2019 and 2023.

Middlesbrough Council said the process had been “open and

competitive” and noted that the asking price was yet to be met.

But an independent councillor, Joan McTigue, said it was an example “of assets being sold for peanuts,” adding: “Five-year-olds could have done better.”

The council bought a derelict pub for £750,000 in February last year despite the premises being valued at just £460,000 – a figure obtained by the local authority.

It bought the Crown pub site (main) under the administration led by the former independent mayor Andy Preston. The site required about £5.5m in renovations.

The pub, less than half a mile from the town hall, has now been taken off the council’s hands by the Levelling up Secretary, Michael Gove, who has handed the responsibility for it to the Middlesbrough Development Corporation (MDC).

A total of £14.7m in public assets – including the Crown pub, car parks, the town’s Civic Centre, Broadcasting House Enterprise Centre and the bus station – will be transferred to the MDC.

Mr Preston said: “It’s great for Middlesbrough that the decaying eyesore, The Crown, can now be transformed along with the land behind it, bringing new jobs and energy into a decaying retail area.

“The foreign owners weren’t keen to sell, so I’m pleased that council staff managed to negotiate a way forward for the town. Talk of staff paying over the odds is fiction – there was no market value for it. Doing nothing was not an option.”

The MDC has not been without controversy of its own. Its chairman is Teesside’s Conservative Mayor, Lord Houchen, who has been making headlines in his other chairmanship role at South Tees Development Corporation (STDC).

STDC’s stewardship of a local freeport project, Teesworks, was recently criticised by a panel appointed by Mr Gove and has faced allegations of wasting public money.

No wrongdoing was found to have been committed by STDC. But a judge summarised in a High Court ruling that one of the corporation’s former board members – Paul Booth, who also sits on the MDC board – admitted that the corporation wanted to leverage disputed access rights in order to buy the port company responsible for Teesworks at a discount and then “flip it” for a profit.

While Lord Houchen claims that the transfer of assets to the MDC will allow long-overdue improvements to be made, the town’s Mayor, Ben Cooke, said he expected the council to be “properly compensated for any loss of income”, adding that the local authority had “various concerns” about the asset transfer.

Middlesbrough isn’t the only council accused of selling off assets at substantially below market value. Bolton Council, which Labour leads in a minority administration, sold three patches of land for £2m less than their true value of £3.5m in September.

The £1.5m sale was made in order to meet April’s deadline to spend funding on the development of 160 new affordable homes in the town.

The Labour councillor Sue Haworth recommended the sale in a report to the council, claiming that otherwise the local authority would lose brownfield grants from the Greater Manchester Combined Authority and Homes England.

She claimed that the funding of more than £4m was critical to the development of affordable homes.

In April last year, Bolton agreed to sell another site for more than £500,000 less than was initially agreed with developers.

The council accepted a reduced offer of £385,000 to unlock the second phase of the 208-home Moor Lane scheme – £554,000 less than originally agreed.

The council said the reduced offer was due to “high inflation and supply chain challenges”, which have increased costs and put a strain on the scheme’s viability.

In March 2021, Bolton Council agreed to dispose of a 4.5-acre former bus station (bottom left) for £1.85m to a developer, which had already paid £925,000 to start work on the first phase of the project for 94 townhouses.

To facilitate the next part of the scheme, which included 114 apartments across two blocks, the developer originally agreed to pay the council £927,000 for land in March 2021, before the £385,000 offer was made and accepted.

A spokeswoman for Bolton Council said: “The selling of council land under the strategic asset management plan looks at ‘best consideration’ for its use.

“In this instance, the disposal of council-owned land at less than market value enables the provision of additional affordable homes, which is a statutory responsibility.

“The delivery of these homes will assist with the housing need and remove families from the housing waiting list, reducing the cost to the council.”

As well as selling assets for less than their market value, councils have also faced increasing criticism for property investment decisions.

Some portfolios have plummeted in value, adding to the financial crises faced by local authorities, as payments on the borrowings on those assets balloon due to rising interest payments.

In Essex, Thurrock Council is reported to be seeking to recoup £1bn to help repay £1.5bn of debts by selling off its investments to “the fullest extent possible”, after it issued a Section 114 notice of effective bankruptcy in December 2022.