Bungling councils sell properties for millions under market value

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

Like many councils around the UK, budgets are tight in Middlesbrough and the fear of more local authority bankruptcies looms large.

Middlesbrough is one of those under financial pressure, having been forced to raise council tax by the maximum amount of 4.99 per cent this year due to a £4.7m budget shortfall.

The Labour administration has also approved savings and increased bills to locals amounting to £13.9m, while also applying to the government for “exceptional financial support”.

It is no surprise, then, that how councils spend the little money they do have is under increasing scrutiny.

Over recent decades and under various political administrations, many councils have invested hundreds of millions of pounds in assets such as office blocks, leisure facilities, development sites and even the odd derelict pub in Middlesbrough’s case.

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 at a profit.

Just last October Middlesbrough Council was accused of selling a building “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, a mixed-use office and retail block in Middlesbrough, was sold by the authority in June 2019 for £822,375 but, last autumn, was back on the market for £2.6m.

During the four-year period between 2019 and 2023 office buildings saw values hit by the Covid lockdowns and rising inflation, yet Vancouver House appeared to have more than trebled in value.

Middlesbrough Council said the process had been “open and competitive”, but local Councillor Joan McTigue said it was an example “of assets being sold for peanuts”.

Ms McTigue added: “Five-year-olds could have done better.”

Another recent property deal that has come under the spotlight in Middlesbrough was the council’s purchase of a derelict pub for £750,000 in February last year, despite the premises being valued at just £460,000 – a figure obtained by the council.

Under the administration led by former independent Mayor Andy Preston, the council bought the Crown pub site, which required around £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 Levelling up Secretary Michael Gove, who has handed the responsibility for it to the Middlesbrough Development Corporation (MDC).

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

Mr Preston told i: “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. And doing nothing was not an option.”

MDC has not been without controversy of its own, given that its chairman is Teesside’s Conservative Mayor Lord Ben Houchen, who has been almost constantly in the local news regarding 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 been facing allegations of wasting public money.

While no wrongdoing was found to have been committed by STDC, 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, had 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 the transfer of the assets, including the Crown pub, to MDC would allow long overdue improvements to be made to Middlesbrough, the town’s current mayor Ben Cooke said he expected the council to be “properly compensated for any loss of income”, adding that the council had “various concerns” about the asset transfer.

Other Middlesbrough Council property deals that have come under scrutiny

Recent examples are by no means the only controversial property deals involving Middlesbrough Council.

In 2015, when Ray Mallon was the town’s elected mayor, a deal was done to sell a local site to his former election agent Nasser Din for £200,000 below its £600,000 market valuation, a figure obtained independently for the council.

Mr Din made a bid of £400,000 for the TAD Centre but said the council negotiated with him and the eventually agreed sale price was £450,000. The occupying children’s nursery tenant offered £500,000.

Following the sale, which completed three months after Mr Mallon left office, seven councillors called for a review of the sale, claiming “the process was flawed”, but a review was rejected.

Mr Din told i: “With reference to your enquiry regarding the sale of the TAD Centre in 2015. I can confirm that I was the political agent for Ray Mallon in 2011.

“I am also aware that Ray Mallon declared a conflict of interest when he was made aware that I had made an offer for the TAD Centre. He had no involvement in the process of the sale of the TAD Centre.

“The TAD centre was put up for sale by tender with sealed bids, to be submitted by a deadline, time and date, and the bids were opened by a committee. My bid was the highest offer received and I purchased the property.

“The sale of the property was agreed by officers after Ray Mallon left his post. There was a higher offer made of £500,000 by the nursery tenant but this was made after the nursery tenant was informed of my bid after the tender deadline, so it was rejected by the council.

“The council did further negotiate with me and the agreed sale price was £450,000.”

Known as a Robocop due to his zero-tolerance policing strategy while running the town’s CID, former police officer Mr Mallon was the subject of a lengthy anti-corruption investigation in 1997, but was never charged. He resigned from the force in 2001 and subsequently ran for the Mayoralty, which he won in 2002.

Mr Mallon told i that he declared Mr Din as a potential conflict of interest to the council’s chief executive after the developer had acted as his election agent.

“I had absolutely zero to do with the TAD centre and all of the evidence in the system proves that,” he said.

Asked if he benefited financially from either of the sales either via cash payments or from some form of benefit in kind, Mr Mallon added: “Definitely not. Absolutely not.”

Independent Councillor Jean McTigue is scathing of the council’s track record of selling assets.

A secretly recorded council meeting where the sale of the TAD Centre was discussed also cast doubt on the deal.

During the March 2015 meeting, which took place behind closed doors, one of the councillors present, said: “You cannot buy a decent detached house in Nunthorpe for this type of money.”

Another councillor referred to the deal as a political “timebomb”.

In another sell-off by the council in 2016, an independent review of its sale of a listed mansion and its grounds found that the sale price was less than half the £2m fee initially agreed.

Acklam Hall in the town was sold to developers for housing and a new medical centre for £907,000 in 2014, and while an investigation was conducted into the sale there were no findings of wrongdoing by the then mayor.

The Middlesbrough Council spokesman said: “The council’s priority was to protect Acklam Hall for future generations, but the cost of its restoration far outweighed any potential income that could be achieved from its sale.

“The joint disposal enabled major refurbishment, fully restoring the Hall from a disused and financially unviable building into a thriving restaurant and event space, surrounded by a brand new hospital and high quality housing.”

A spokesman for Middlesbrough Council said the sale of Vancouver House was “part of an open and competitive process” and “fully in line with the council’s asset disposal protocols”.

He also pointed to the fact that the block is yet to be sold at the current asking price.

Middlesbrough isn’t the only council accused of selling off assets at substantially below market value.

Last September, Bolton Council, which Labour leads with a minority administration, sold three patches of land for £2m less than their true value of £3.5m.

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

In a report to the council, Cllr Sue Haworth recommended the sale claiming that not proceeding would mean the council losing brownfield grants from Greater Manchester Combined Authority and Homes England.

The funding of more than £4m was, she claimed, critical to the development of 160 new affordable homes in the town.

In April last year, Bolton also agreed to sell another site for more than half a million pounds less than 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 claimed the reduced offer was a result of “high inflation and supply chain challenges”, which have increased costs and put a strain on the scheme’s viability, the developer said at the time.

In March 2021, Bolton Council agreed to dispose of the 4.5-acre former bus station for £1.85m to a developer, which had already paid £925,000 to commence 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 had originally agreed to pay the council £927,000 for the second phase land in March 2021.

However, Bolton accepted a significantly reduced offer of £385,000 to unlock the site.

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 of the council.

“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 undervaluing assets sold, councils have also faced increasing criticism for poor 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 a whopping £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 – effective bankruptcy – in December 2022.

However, despite the potential for losing council tax payers’ money on property assets, the government is expected to tell local authorities to sell billions of pounds worth of property assets to cover debts and fund local services rather than rely on further taxpayer bailouts, i understands.

Following a recent consultation with English councils, the Department of Levelling Up, Housing and Communities (DLUHC) has concluded that the some of the £23.2bn of property assets owned by councils should be sold following a government consultation with the sector during January.