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 Partnership Accounting for proceeds from disposals Disposal of assets wholly or partly funded by grant or grant in aid 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 primarily at the constituent parts of the Scottish Administration (including the core Scottish Government (SG) and Executive Agencies). However, other organisations to which the Scottish Public Finance Manual (SPFM) is directly applicable, including sponsored bodies, must ensure compliance with any relevant provisions and arrange for procedures consistent with the guidance to be put in place. 2. The principles in the guidance should also be applied, so far as appropriate, by all bodies 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 assets 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 six months of becoming empty. 4. Business areas within the Scottish Administration 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. In addition the SG's Financial Reporting Unit (within Finance Directorate) and the relevant portfolio Finance Team must be notified as soon as a property is identified as being surplus to requirements to ensure that the budgeting and accounting implications are taken into consideration. 5. All relevant business areas within the Scottish Administration, sponsored bodies and other bodies to which the SPFM is directly applicable must ensure that the Scottish Government's Property Advice Division is notified of relevant proposed disposals of property at the earliest opportunity and at least 3 months prior to them being advertised on the open market. 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. 7. Loss on disposal i.e. the extent to which the proceeds from a disposal were less than the net book value of the asset would be a charge on the Resource Budget. Profit on disposal not covered by Budget Act (as revised by Budget Amendment Order) must by default be surrendered to the Scottish Consolidated Fund. 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: 10. The guidance in this section is essentially concerned with the disposal of assets within the category of property, plant and equipment assets i.e. property rights in land and buildings, plant and machinery, vehicles and information and communications technology (ICT). Guidance in relation to the disposal of intangible assets (e.g. software licences, mineral rights, intellectual property rights), financial assets (investments) or current assets should be sought on a case by case basis from, in the first instance, relevant portfolio Finance Teams.
General principles 11. Holdings of property, plant and equipment should be kept under constant review. The asset register maintained by the Financial Reporting Unit within the SG's Finance Directorate and local asset registers maintained by relevant Finance Teams can be accessed for this purpose. 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. 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 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 be disposed of within 6 months of becoming vacant. If, by then, no sale is in progress, such properties should normally be considered for sale by auction. 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. 14. All relevant business areas within the Scottish Administration, sponsored bodies and other bodies to which the SPFM is directly applicable must ensure that the SG's Property Advice Division is notified of proposed disposals of property at the earliest opportunity and at least 3 months prior to them 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. Business areas within the Scottish Administration must seek advice at the earliest opportunity from Property Advice Division when a disposal of property is being considered. Detailed guidance on the disposal of property held by the Scottish Ministers and Guidelines for the Transfer of Property within the Scottish Public Sector is set out in the Annex.
Disposal of other plant and equipment assets 15. 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 16. 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 Resource Budgeting boundary should include provision to cover charges for cost of capital and depreciation. If it is necessary to amend legislation in order to enable a public sector body to undertake a function previously undertaken by another public sector body then the amending legislation should cover the arrangements for the transfer of any associated assets.
Disposal of assets at less than market value 17. In certain special circumstances the disposal of assets at less than market value may be appropriate. Such circumstances must be approved in advance by Ministers, taking account of advice from the SG's Finance Directorate and, where appropriate, the SG's Property Advice Division. 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), including capital grants in kind, 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. Any contribution towards the cost of an asset disposed of to a sponsored body should be made by means of an increase in the agreed resource and capital budgets and in the related grant in aid (which would be subject to Budget Act authority) and not through disposal at a concessionary price. Loss on disposal i.e. the extent to which the proceeds from a disposal were less than the net book value of the asset would be a charge on the Resource Budget.
Public Private Partnership 18. 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. 19. Non-operational assets should not be included in PPP deals directly but rather sold separately and the receipts put towards the cost of the projects subject to the agreement of Scottish Ministers and the necessary Budget Act authority. Planning should be dealt with in a way that minimises uncertainty in relation to the projects. Outline consent should be obtained for any development, if possible before going to tender (detailed consent is a contractor risk). 20. Property forming an operational asset is dealt with under a head lease/sub lease arrangement. The Scottish Ministers retain the feuhold and grants a contractor a head lease over the entire site. The contractor would in turn grant the Scottish Ministers a sub lease over those bits it needed to occupy. The leases would be at a nominal rent and, except where there was some residual value, would fall at the end of the initial contract term. This arrangement gives the Scottish Ministers the ability to control what happens on that part of the site that it is not occupying and it gives protection over ownership should something go wrong. In such an event if the head lease is not coterminous with the sub lease the Scottish Ministers can buy out the contractor's interest on the basis defined in the contract. 21. Detailed guidance on PPP related disposals should always be sought 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. Profit on disposal not covered by Budget Act (as revised by Budget Amendment Order) must by default be surrendered to the Scottish Consolidated Fund. Loss on disposal would be a charge on the Resource Budget. 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.
Disposal of assets wholly or partly funded by grant or grant in aid 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. 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. In appropriate circumstances an alternative to the physical surrender of proceeds would be the corresponding reduction of later grants or grants in aid. Back to top Page Published / Updated: June 2009 |