Understanding Section 123 of the Local Government Act 1972

This article outlines the key principles of Section 123, focusing on the requirements for “best consideration,” additional safeguards for open space, and the rules surrounding transactions at an undervalue.

Section 123: An Overview

Section 123 states that a local authority may dispose of land in any manner it wishes, but subject to the important restriction that it must not dispose of land for a consideration less than the best that can reasonably be obtained, unless specific statutory exceptions apply. The aim is to ensure public assets are managed prudently, preventing local authorities from transferring property in a way that could be financially disadvantageous to the public purse.

Analysis of “best consideration reasonably obtainable”

The principle of “best consideration reasonably obtainable” (BCRO) underpins this provision. Authorities are expected to take reasonable steps to secure the BCRO. While authorities have discretion in determining the method of disposal, failure to achieve BCRO can expose the authority to legal challenge, particularly from local taxpayers or competing bidders.

BCRO is about evidencing value and decision making, not simply accepting the top headline figure.

Key considerations include:

Independent valuation: Obtain a RICS valuation to evidence market value, including any “special purchaser” premium as BCRO calculations will take this into account
Consideration: Ensure that the consideration has a quantifiable value. Future payments, such as overage, can be included in determining overall BCRO.
Offer conditions: an authority can consider the strength and credibility of competing offers, together with risk allocation. These factors could make a lower headline price the 'best' overall consideration.
Marketing and competition: Open marketing and competitive processes often help demonstrate BCRO, but are not a statutory requirement. Targeted routes, such as disposals to an adjoining owner, may still achieve BCRO if properly justified by valuation evidence.
Record keeping: Reports to members or decision-makers should explain the valuation basis, options considered, and why the chosen route secures BCRO.

Additional requirements for open space

Disposing of “open space” involves additional statutory steps under Section 123. Open space will include land laid out as a public garden, used for public recreation, or a disused burial ground.

Statutory advertising: The proposed disposal must be advertised for two consecutive weeks in a local newspaper, and any objections must be considered.
Considering objections: The decision record should summarise, assess, and weigh objections.

Disposals at an undervalue

An authority can depart from BCRO where a valid consent applies and the public benefits justify it.

General Disposal Consent (England) 2003: This general consent permits disposals if both of the following apply:
- the amount of the undervalue does not exceed £2,000,000; and
- The disposal will help secure the promotion or improvement of the economic, social or environmental well being of the area. Authorities must be satisfied on reasonable grounds that the well-being benefits justify the undervalue and be able to evidence that assessment.
Above £2m undervalue: If the undervalue exceeds £2,000,000, specific consent from the Secretary of State is required.

Authorities should prepare a clear, quantified case covering outputs and outcomes (e.g. jobs, affordable workspace, regeneration, environmental enhancements), timescales and deliverability. This should be linked to your plans and relevant statutory duties.

Other points to consider

Subsidy control: An undervalue can amount to a subsidy. Assess compliance with the Subsidy Control Act 2022, including whether any exemption applies.
Procurement and development agreements: If a disposal is linked to works or services, consider whether public procurement rules apply and structure accordingly.

Practical tips to reduce risk

Engage valuers early to shape the transaction and capture value through overage or other mechanisms
For open space, timetable statutory notices and allow for consideration of objections before making a decision
If contemplating an undervalue, quantify both the undervalue and the well being benefits; keep the reasoning clear
Document subsidy control analysis and any procurement considerations
Ensure robust governance, including clear officer recommendations, member awareness of risks/alternatives, and a comprehensive audit trail
Build in conditions precedent (e.g. planning, funding) and enforcement tools (e.g. step in rights, buy back provisions) to protect public value.

Conclusion

Section 123 gives authorities flexibility, but decisions must be underpinned by sound valuation evidence, statutory process (especially for open space), and a defensible public interest case where an undervalue is proposed. A clear audit trail helps protect against challenge and will help you deliver projects that maximise benefits for your community.

How we can help

If you’re dealing with matters related to Section 123 of the Local Government Act 1972, whether it’s about land disposals, compliance, or navigating the legal requirements, we’re here to help. At VWV, our Real Estate team has extensive experience advising on these issues and can provide tailored, practical solutions to meet your needs.