Disposal of Property, Plant &

DISPOSAL OF PROPERTY, PLANT AND EQUIPMENT

Contents:

Scope

Key Points

Background

General principles

Disposal of property

Disposal of other plant and equipment assets

Transfer of functions

Disposal of assets at less than market value

Public Private Partnerships

Accounting for proceeds from disposals

Clawback

Annex: Disposal of Property

Scope

1. This section gives guidance on the review and disposal of rights in property, plant and equipment. The guidance is aimed at all organisations to which the Scottish Public Finance Manual (SPFM) is directly applicable, in particular the core Scottish Government (SG), the Crown Office and Procurator Fiscal Service (COPFS), SG Executive Agencies, non-ministerial departments and bodies sponsored by the SG. However, some flexibility in relation to the application of certain aspects of this guidance may be appropriate e.g. in respect of properties held, and disposed of, by SG sponsored bodies as part of their core business activities. Any doubts with regard to the application of this guidance should be discussed with the SG's Property Advice Division.

2. The principles in the guidance should be applied, so far as appropriate, by all organisations to which the SPFM is directly applicable in cases where they have an interest in a disposal by a third party e.g. where funding is being provided as part of a financial package involving proceeds from a disposal.

Key points

3. Holdings of property, plant and equipment should be kept under constant review with a view to disposing of surplus assets as quickly as possible. Surplus land and buildings should usually be disposed of within 3 years of being identified as surplus, and surplus residential properties should usually be sold within 6 months of becoming vacant.

4. All organisations to which the SPFM is directly applicable must ensure that the SG's Property Advice Division is notified of relevant proposed disposals of surplus property at the earliest opportunity - in advance of any disposal arrangements being entered into and at least 1 month prior to the properties being advertised on the open market. See the guidance in the Annex on Internal Advertising / Guidelines for the Transfer of Property within the Scottish Public Sector.

5. Business areas within the core SG, COPFS, SG Executive Agencies and non-ministerial departments must seek advice at the earliest opportunity from the SG's Property Advice Division when a disposal of property or the disposal of an interest in a property is being considered. The SG's Financial Reporting Unit (within Finance Directorate) and the relevant Finance Business Partner (or equivalent) must be notified as soon as a relevant property or interest in a property is identified as being surplus to requirements to ensure that the budgeting and accounting implications are taken into consideration

6. Assets sold on the open market should normally be disposed of at market value as defined in the Royal Institution of Chartered Surveyors Appraisal and Valuation Standards, but reflecting special value and the effect of any voluntary conditions imposed by the seller. The extent to which assets are disposed of at less than market value, whichever definition is being used, would constitute a gift and may have State Aid implications.

7. Disposals of assets at less than market value by the core SG, COPFS, SG Executive Agencies, non-ministerial departments and bodies sponsored by the SG must be approved in advance by Ministers, taking account of advice from the SG's Finance Directorate / Health Finance, the SG's State Aid Unit and, where appropriate, the SG's Property Advice Division.

8. The proceeds - or an appropriate proportion thereof - from the disposal of assets acquired or improved with the aid of grant or grant in aid from the Scottish Ministers should normally be clawed back by the Scottish Ministers or reinvested in accordance with conditions attached to the grant or grant in aid.

Background

9. Assets are either non-current assets or current assets and can be defined as a resource controlled by an organisation as a result of past events and from which future economic benefits are expected to flow to the organisation:

  • non-current assets - property, plant and equipment, intangible or financial assets (investments) - are assets with an expected life of more than one year.
  • current assets are cash or other assets which can reasonably be expected to become cash in the normal course of business, including stocks, debtors, accrued income and payments in advance.

10. The guidance in this section is essentially concerned with the disposal of property, plant and equipment i.e. property rights in land and buildings, plant and machinery and vehicles.

General principles

11. Holdings of property, plant and equipment should be kept under constant review, using the organisation's asset register or electronic Property Information Mapping System (ePIMS) as appropriate. Once surplus assets have been identified they should be sold as quickly as possible subject to value for money considerations. The best possible price should normally be obtained for surplus assets. Assets should therefore normally be sold on the open market - unless transferred, where appropriate, under the Guidelines for the Transfer of Property within the Scottish Public Sector. At the balance sheet date any non-current assets classified as being held for sale will be disclosed as current assets. This will occur where the following requirements are met:

  • the asset is available for immediate sale;
  • the asset is to be actively marketed and there is an expectation that the sale will be completed in less than twelve months; and
  • the appropriate level of management is committed to a plan to sell the asset.

12. To ensure that value for money is achieved and that high standards of propriety are maintained, there should be proper supervision of staff and clear separation of responsibilities particularly in relation to the valuation and disposal process.

Disposal of property

13. Holdings of land and buildings should be limited to the minimum needed to meet present and planned future requirements. Surplus properties should usually be disposed of within 3 years, subject to the need to obtain the best price reasonably available, taking into account any conditions imposed by the seller. Surplus residential properties should usually be disposed of within 6 months of becoming vacant. If, by then, no sale is in progress, such properties should be considered for sale by auction. Joint development vehicles may also be considered where unfavourable market conditions militate against conventional methods of disposal. Such vehicles would however have to provide the best value for money option and meet standard requirements with regard to propriety and safeguarding the public interest.

14. Land and buildings identified for disposal should be valued professionally. The District Valuer or suitably qualified private sector valuers - and in some exceptional cases in-house valuers - may be used. Advice should also be sought on development potential (which may lead to the need for a clawback clause in any sale agreement) and marketing strategy.

15. Detailed guidance on the disposal of property by the SG is set out in the Annex to this section. All other organisations to which the SPFM is directly applicable should follow procedures consistent with the guidance. All such organisations should also note that they are subject to the guidance in the Annex on Internal Advertising / Guidelines for the Transfer of Property within the Scottish Public Sector and must ensure that the SG's Property Advice Division is notified of relevant proposed disposals of surplus property at the earliest opportunity - in advance of any disposal arrangements being entered into and at least 1 month prior to them being advertised on the open market.

Disposal of other plant and equipment assets

16. Other plant and equipment assets which are surplus to requirements should normally be sold by public auction or tender. Payment should normally be required to be made before goods are released for collection or delivery. The law implies that any goods sold are of merchantable quality and fit for the purpose for which they are sold. If there is any reason to believe that goods are faulty or sub standard, it should be made clear that they are sold "as seen" and without any implied warranties as to quality or fitness.

Transfer of functions

17. Where assets are transferred without charge from one part of the public sector to another - including local authorities - as a result of a merger or transfer of functions (Machinery of Government changes) the assets should be transferred at net book value. Transfers between parties within the SG's resource budgeting boundary should include provision to cover depreciation. If it is necessary to amend legislation in order to enable a public body to undertake a function previously undertaken by another public body then the amending legislation should cover the arrangements for the transfer of any associated assets. Any such changes should be agreed by Ministers, either specifically in legislation or on a case by case basis.

Disposal of assets at less than market value

18. In certain special circumstances the disposal of assets at less than market value may be appropriate. Examples of these special circumstances include the disposal of historic buildings where the overriding objective should be to obtain the best return consistent with the Scottish Ministers' policies on the protection of historic buildings and areas. And normally tenants of tied houses (i.e. those which are occupied as a condition of employment) owned by the Scottish Ministers and surplus to requirements should be offered the opportunity to purchase the property on the same terms and conditions as would apply to a Right to Buy purchase from local authorities. However, the extent to which assets are disposed of at less than market value (or rented out / leased at concessionary rates), would constitute a gift and be subject to the procedures described in the section of the SPFM on Gifts. There may also be VAT implications for the recipient which should be considered.

19. Assets sold on the open market should normally be disposed of at market value as defined in the Royal Institution of Chartered Surveyors Appraisal and Valuation Standards, but reflecting special value and the effect of any voluntary conditions imposed by the seller. The extent to which assets are disposed of at less than market value, whichever definition is being used, would constitute a gift and may have State Aid implications. Disposals of assets at less than market value by the SG, COPFS, SG Executive Agencies, non-ministerial departments and bodies sponsored by the SG must be approved in advance by Ministers, taking account of advice from the SG's Finance Directorate / Health Finance, SG's State Aid Unit and, where appropriate, the SG's Property Advice Division. Any loss on disposal (i.e. the extent to which the proceeds from a disposal were less than the net book value of the asset) by a body within the SG's resource budgeting boundary would score against that body's resource budget and result in a corresponding reduction in its spending power.

Public Private Partnerships

20. The investment appraisal for a Public Private Partnership (PPP) project may suggest that the option offering best overall value for money involves disposing of an operational asset - i.e. an asset which will form part of the project facility - at less than market value. However, if the market value of the operational asset is fully reflected in reduced rental or service payments the question of a gift does not arise.

21. Detailed guidance on PPP related disposals is available from the SG's Property Advice Division and the Scottish Futures Trust.

Accounting for proceeds from disposals

22. Guidance on accounting for the proceeds from disposals is included in the Government Financial Reporting Manual. Direct disposal expenses may be deducted from the sale proceeds to arrive at the profit / loss on disposal ie the extent that the proceeds are more or less than the net book value of the asset. PPP disposals of operational assets at less than market value where the market value of the asset is fully reflected in reduced rental or service payments should be the subject of separate notes in the accounts.

Clawback

23. Where assets acquired or improved with the aid of grant or grant in aid from the Scottish Ministers are disposed of, the proceeds - or an appropriate proportion of them if the grant was for less than the whole cost of acquisition or improvement - should normally be clawed back by the Scottish Ministers or reinvested in accordance with conditions attached to the grant or grant in aid. In appropriate circumstances an alternative to the physical surrender of proceeds would be the corresponding reduction of later grants or grants in aid. General guidance on the introduction of a charge / clawback condition over a publicly funded asset is provided in the section of the SPFM on Grant and Grant in Aid.

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Page Published / Updated: September 2010