2.3 Sale of endowment land

Local government: Results of the 2003-04 audits.

In our 2001 report, we discussed the findings of our review of local authorities’ compliance with the procedures in the Local Government Act 1974 (the 1974 Act) for the sale and disposal of land, particularly endowment land.5 We had received a number of complaints about those procedures, and asked our auditors to review a small sample of property transactions at each local authority. Our aim was to assess each authority’s compliance with the legal requirements, as well as to consider any concerns that the authorities themselves had about the requirements.

On the whole, we found that councils were aware of the legal requirements and complexities involved in the disposal of land. We noted that the legal requirements of the 1974 Act were reasonably prescriptive, and that the review of the Act then being undertaken provided an opportunity to reconsider them.

While the Local Government Act 2002 (the 2002 Act) made some changes to requirements concerning the disposal of land, we continue to receive enquiries from councils and complaints from ratepayers.

In this article, we discuss the requirements in the 2002 Act concerning the disposal of endowment land, and highlight some issues that have arisen in complying with those requirements.

Local Government Act 2002

The 2002 Act made some changes in the area of land disposal and removed some of the rules that applied. Unlike under the 1974 Act, a council does not now need to give public notice of its intention to sell or lease land on each occasion, but it does have to consider the planning and decision-making framework in Part 6 of the 2002 Act.

As well, specific procedures continue to apply to endowment land, in terms of both a council’s ability to dispose of such land and its use of sale proceeds. The provisions of the 2002 Act are in some respects more restrictive than the 1974 Act, as a council must include information about its intentions in its draft LTCCP, rather than give public notice of each intended disposal. The relevant provisions of the 2002 Act are as follows.

Section 140 requires a council to retain endowment or trust property for the purpose for which the property was vested in the council. However, section 140(4)(b) authorises a council:

  • to sell or exchange such property unless disposal is expressly prohibited by the terms of the endowment or trust; and
  • to use the proceeds of sale or exchange for a purpose identified in accordance with section 141.

Section 141 states that a council must not exercise the power to sell or exchange given by section 140(4)(b) unless–

1 The proposed use of the proceeds of sale is consistent with the terms of the endowment; and

2 The council has first included in its draft LTCCP a statement of–

(a) its intention to sell or exchange the property; and

(b) the use to which the proceeds of the sale or exchange will be put; and

3 The council has adopted the LTCCP in accordance with Part 6 of the Act.

Additional requirements apply where the Crown was the donor of the property.6 In other cases, the council must make a reasonable attempt to notify the donor of the property, or his or her successor, of its intention to sell the property.7

Councils have taken different approaches to meeting the requirements of section 141, and some councils that adopted early LTCCPs (i.e. for the period commencing 1 July 2003) have had to amend them when planning to dispose of endowment properties. The following 2 examples illustrate the different approaches.

Example 1

A council that had not included its intention to sell a particular piece of endowment property in its LTCCP amended it to provide for the sale and to advise the community of its intended use of the sale proceeds. Part of the property was a building in the central city leased predominantly to community groups. Following the amendment to its LTCCP, and after considering public comment, the council sold the particular property.

Example 2

Following a review of its endowment land portfolio, a council decided to dispose of several leasehold properties during the period of its LTCCP. The council’s LTCCP for 2003-2013 referred to the review and described its property portfolio in general terms. The LTCCP said that the proceeds from sale of endowment land would be used to purchase replacement endowment land. The document did not describe the nature, number or type of the council’s endowment properties, and did not refer to any specific property intended for disposal; nor did it give the estimated expenses and revenue associated with the disposal of the properties.

The council amended its LTCCP to include information about the projected expenses and revenue associated with the sale of endowment land, and information about other amendments to the LTCCP. At that time, the Auditor- General was required to audit an amendment to a local authority’s first LTCCP, even though the original document had not been audited.8

The council provided us with a list of properties intended for sale so that we could verify the forecast expenses and revenue figures to be included in the amended LTCCP. However, the statement of proposal for the amendment did not identify particular properties that were to be sold.

As well as a number of leasehold urban properties, the council intended to dispose of part of a block of rural land that had been vested in it by statute. A ratepayer asked us to consider whether the council had met the requirements of section 141 in relation to that particular land.

We found that the council’s proposed use of the sale proceeds was consistent with the original vesting. However, we considered that the council had not provided sufficient information in the statement of proposal to amend its LTCCP in respect of its intention to sell part of the particular property (or indeed any particular property) and its proposed use of the sale proceeds.

We noted that the proposed use of the sale proceeds was slightly different from the general statement in the LTCCP that sale proceeds would be reinvested. While the statement of proposal did not provide members of the public with an opportunity to comment on the council’s intentions in relation to the particular land, the council had consulted interested persons in its area. Therefore, we did not think that those persons had been disadvantaged through the lack of information in the statement of proposal.

Comment on the requirements of section 141

Our understanding is that the intention of section 141(1)(b) is to provide members of the public with an opportunity to comment on a proposed sale or exchange of endowment land and the intended use of the proceeds. This requires councils to provide sufficient information about their intentions to ensure meaningful consultation.

The approach may differ, depending on the size of each council’s endowment property portfolio. We think it would be unduly onerous for a council with a large number of endowment properties of the same or similar type to list all properties intended for sale (and to have to amend the LTCCP if a property of that type but not on the list were to be sold). However, we also think that an LTCCP should contain a description of the nature and type of endowment properties that are to be sold or exchanged to give members of the public enough information on which to comment.

Councils may have a range of endowment properties, including urban leasehold properties held for income-generating purposes, and land vested under legislation for the benefit of a particular area. Where that is the case, general statements in the LTCCP covering all types of endowment property do not appear to provide the public with sufficient information to fully meet the requirements of section 141.

5: Local Government: Results of the 1999-2000 Audits, parliamentary paper B.29[01a], pages 61-66.

6: The council must notify the Minister of Land Information and the Minister in Charge of Treaty Negotiations of its intention to sell or exchange the land – section 141(1)(c).

7: Section 141(1)(d).

8: This requirement was removed by the Local Government Act 2002 Amendment Act 2004.

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