Local authorities are being encouraged to build more homes, and (alongside housing associations) to bid for government funds to support affordable housing. Increasing numbers of councils are considering delivering the need for more housing in their area through a wholly owned development company, or through a joint venture with partners from the housing sector.
- This is particularly pertinent where the council is acting commercially, where it must by law act through a company (the general power of competence given to local authorities in section 1 of the Localism Act 2011 permits councils to do things for a “commercial purpose” but only through a company). Commercial developments (of housing for market sale or private / market rent) or mixed developments which are, at least in part, commercial must be undertaken through a company
- Each local authority is driven by different policy goals, and by the varying needs of its communities, which means that each council company may look and act in a different way
- For some, the development of housing in the area is undertaken with a view to generating an income stream for the council, to support the provision of council services. For others, it is to correct a failure in the local housing market – a lack of affordable rental properties, for example
- The nature of any company created should depend on the business case that the council identifies: is there a viable rental market, for example, or will the council develop housing for private sale?
A local authority development company can work effectively to deliver community-led housing if established with this as one of its key objectives. It can be a major driver for CLH expansion in its area of operation. Palace Green Homes in East Cambridgeshire is a good example – see the case study snapshot below.
When setting up a new company, a council will need to consider:
- the background law which will influence the Council’s decision making, including:
- the Council’s powers and duties – in relation to both setting up and participating in the company – and the wider local government law that the Council will need to act within;
- the different legal structures that are available, how they differ and the impact each would have on the governance arrangements and the relationship between the Council and the company;
- exactly how the EU procurement rules will apply and how to mitigate risk where there is uncertainty in any respect;
- the flow of money and the transfer of land which requires analysis for each initiative from a State aid perspective;
- regulatory compliance, including compliance with any requirements of the Ministry for Housing, Communities and Local Government and Homes England;
- the tax implications of different structural models: particularly SDLT, VAT and Corporation Tax; planning and environmental law matters;
- any consultation the council would need to undertake before proceeding;
- the funding and finance arrangements to be put in place;
- the governance of the company:
- the relationship the Council will have with the company and how it will manage its affairs. Although the legal mechanics of forming a company are relatively straightforward, it is important to ensure a good understanding of the implications of doing so. Duties of directors to the company and addressing how the council wear different “hats” are pertinent;
- the council’s shareholder role and the mechanics of a share company (general meetings and shareholder decisions - reserved matters - and the mechanics of decision making);
- governance and operational arrangements – the Board of Directors, any chair, how they are appointed and removed, their decision making, and a description of Directors’ duties;
- future-proofing the company or group structure – how future relationships are managed