Property acquisition guidance
Application and interpretation
1. Any queries on the application or interpretation of these Guidelines should be referred to Property Division. Contact PropertyDivision@gov.scot. Property Division is also happy to advise on any specific points arising from any of the Guidance, including appointment of professional advisers, Statement of Need, Option Appraisal, preparation of the business case etc or on any novel or contentious matters.
Background
2. Property transactions, by their very nature, are generally expensive and acquisitions usually result in long term financial commitments. There is scope for substantial financial loss if they are mishandled and reversal, if possible, can be very expensive.
3. The decision to acquire property should be part of an overall strategic plan for the organisation's needs. Acquiring property is not necessarily the way to solve operational problems.
4. The guidance in this section essentially covers the acquisition (by purchase or lease) of property for accommodation. However, the principles are equally applicable to the acquisition of land and buildings for other purposes although the detail of determining the requirement and obtaining approval for the acquisition may be different. For all acquisitions, there must be an identified need and strong justification, backed by an appropriate business case and approval must be in place before the conclusion of any agreements.
Stages:
- Consideration of the acquisition of additional property must be in line with the strategic plan for the organisation.
- For accommodation, a Space Requirement Questionnaire, Business Needs Analysis and Statement of Need must be prepared.
- In relation to property for accommodation, advice must be sought from Property Controls team on the availability of any options within the public estate.
- Where a search of options outwith the public estate is required, professional advisers are to be appointed to assist with property search and provision of information to assist in decision-making. The professional advisers should be externally appointed, unless the organisation employs its own advisers, who may undertake the task. In all cases, the personnel appointed should be suitably qualified and experienced. They should also be used in any subsequent negotiations.
- An option appraisal, consistent with the requirements of the Green Book, must be undertaken.
- The options for the procurement of the new property should also be considered and will form part of the option appraisal.
- The preferred option will be identified from the results of the analysis alongside the budgetary considerations and financial appraisal to give the best value option(s).
- A business case should be drafted explaining the chosen option supported by the option appraisal. Property Division should be consulted for advice and to provide comment.
- In compliance with the SG’s Asset Management Policy, if the preferred option involves either the acquisition of additional accommodation or electing not to exercise a break option, the approval of the Cabinet Secretary for Finance and the Constitution, is required to the proposed action.
- Initial approvals should be obtained prior to commencing negotiations.
Meeting the strategic property requirements of the organisation
5. Before embarking upon the process of acquiring new or additional property or accommodation, the business area must ensure that any such acquisition meets with the strategic plan for the organisation. In order to help determine suitable accommodation and location options, the organisation should first undertake a Business Needs Analysis. This comprises a review of the organisation’s business functions, how these are delivered and to what extent any of them are location dependent. It includes a review of staffing, IT and accommodation considerations.
The information required from this exercise is set out in the Business Needs Analysis form, copies of which should be submitted to both the organisation’s Sponsor Division and to Property Division. In order to identify the most important characteristics of any new premises a Space Requirement Questionnaire is to be undertaken.
Property Division is able to assist all stages of this.
Requirement to seek professional advice
6. When a requirement for additional property for accommodation is being considered business areas within the Scottish Administration (core SG, Crown Office and Procurator Fiscal Service, SG Executive Agencies, and non-ministerial departments) must seek advice from the SG's Property Division. (Other organisations to which the SPFM is directly applicable may seek advice from Property Division on a voluntary basis or, in the case of bodies sponsored by the SG, where required to do so under the terms of their framework document.) However, detailed reference of each case to Property Division is not necessary for the acquisition of land and buildings for other purposes (e.g. acquisitions by Transport Scotland for road schemes) provided that appropriate professional advice is obtained from other sources.
7. The SG Legal Directorate (SGLD) does not undertake conveyancing work. External solicitors must, therefore, be appointed to deal with any disposals, except in the case of Transport Scotland and such other bodies as have their own arrangements. In all cases, suitably qualified and experienced solicitors must be used. Property Division can assist with making an appropriate appointment under the SGLD Framework Agreement for the provision of Property Legal Services.
8. Transfers of property between separate accounting entities where ownership remains with the Scottish Ministers do not, however, entail the transfer of title and can be undertaken by way of an Appropriation Order. This is a very simple document which sets out the transfer. It can be prepared by solicitors, although care must be taken to ensure that their involvement is proportionate. Alternatively, it can be done by disposition, requiring the involvement of solicitors. Property Division can advise on which approach to use.
9. Prior to any acquisition, it is important to obtain professional advice covering valuation and negotiation and possibly also for undertaking a search and for planning matters. The valuer used must be a professional member of an appropriate body, such as the Royal Institution of Chartered Surveyors (RICS) or the Institute of Revenues Rating and Valuation, and suitably qualified with sufficient current local and national knowledge of the particular market, and with the skills and understanding to undertake the valuation competently. Selection of the valuer is to be guided by value for money considerations, weighing the expertise and service offered against the cost. There may be circumstances in which a valuer (external or internal to the organisation) may be unable to act in a particular case. In any event, where a matter is deemed by the Accountable Officer to be novel or contentious, a suitably qualified and experienced external valuer should be used to provide valuation advice.
10. Normally, appointments will be by way of Framework Agreements with professional firms that have been pre-tendered, existing Service Level Agreements or competitive tendering. Property Division can assist in selecting a firm or undertaking a procurement exercise in order to make an appointment.
Statement of need
11. The Scottish Ministers' policy is that property holdings should be kept to the minimum required to meet current or planned needs. The case for acquiring property for accommodation must be set out as specified in the Statement of Need to ensure that property is acquired only after the Statement of Need criteria have been fulfilled. The Statement of Need criteria are designed to enable a wide range of alternative options to be considered including different locations, types of properties and tenures.
12. The Statement of Need gives clear direction to the search and forms the foundation for the ‘Instruction’ to external property advisers, when appointed, to identify suitable properties. More detailed guidance on how to instruct property advisers in order to achieve the best results can be obtained from Property Division.
The search for suitable accommodation
13. There is a strong presumption in favour of using existing property rather than acquiring new accommodation. Prior to searching for accommodation more widely, existing property holdings of the acquiring organisation, SG bodies and wider public sector must be reviewed to establish if the accommodation requirement could be met from existing property holdings. Where appropriate, any acquisition should be made using the Guidelines for the Transfer of Property within the Scottish Public Sector. (Property acquired using the Guidelines can be acquired without the need for external property advisers and without incurring unnecessary costs.)
14. Where it has not been possible to satisfy the property requirement from within existing property stock, an external property adviser can undertake a search of the property market and report on all options that meet the criteria set out in the ‘instruction’, and help the business area and its internal advisers draw up a short-list.
15. The Scottish Government is committed to the future success of town centres including through the Town Centre First Principle which seeks to deliver the best local outcomes by adopting a collaborative partnership approach which aligns policies and targets available resources to agreed local priorities. Therefore consideration must also be given to town centre locations, where possible, when searching for suitable accommodation. Where no town centre properties are to be considered as one of the options, or where a town centre property has been excluded, reasons must be clearly stated.
Option appraisal
16. An Option Appraisal consistent with the SPFM guidelines on Appraisal and Evaluation must be undertaken (business areas within the Scottish Administration should consult as appropriate with the relevant Analytical Services Division and/or Property Division) to examine the total costs and benefits of different potential solutions. This will include fixed and variable costs taken over the expected life of the project. The economic costs to be appraised - these exclude capital charges and depreciation - will include the following:
- for new build, the construction costs, including cost of land, consultant fees, fitting out, etc.;
- for existing property, the purchase price and expenditure in adapting the property to meet the specific needs of the customer;
- rent, service charge, rates, annual repair costs, insurance if appropriate;
- transaction costs, e.g. professional fees, premiums, etc.;
- repairs, immediate and cyclical, and decoration;
- dilapidations;
- running costs, services, cleaning, security costs etc.;
- staff costs, travel relocation expenses, removal costs;
- any unusual or onerous lease conditions;
- any penalties for break options in the lease;
- quantifiable benefits e.g. part of a larger than necessary building leased out to a third party at a commercial rate; and
- residual value of the property at the end of the appraisal period.
17. A decision must not be taken on a particular solution before a range of options has been fully considered and appraised - including an analysis of the risks involved. The Option Appraisal will consider the availability of existing property, the surrender of existing property (if appropriate) and other specific points which may give rise to costs during the appraisal period.
18. All costs should be as at the date of the appraisal, which is usually the present date. The costs must be on a comparable basis throughout the appraisal period which must be defined. No adjustment should be made for future inflation although future significant relative price changes should be included in the calculation. The advisory team will give advice on costs, timing and discount rates. The cash flow generated will then be converted into NPV or NPC terms using the appropriate discount rate (usually HM Treasury discount rate).
19. Alternative outcomes should be studied by sensitivity testing. The appraiser can take the preferred and next best options and see how they respond to changes such as unexpected rises in costs, the exercising of lease break clauses or premature termination.
Procurement options
20. The options for the procurement of the new accommodation will form a separate section of the appraisal document. Possible methods of procurement include purchase, lease or the provision of serviced accommodation by means of the non-profit distributing public private partnership model (NPD) - see the section of the SPFM on Public Private Partnerships. If NPD is being used, the negotiation process will be quite different from a conventional procurement and will be conducted under EU procurement procedures on the basis of an output specification. Advice on the suitability of projects for NPD, and on public private partnership procurement methodology should be sought from the Scottish Futures Trust.
21. Acquisition by both lease and purchase should be considered. The financial commitment in each case is different and the decision should only be made after full consideration of professional advice on the matter.
22. New lease contracts should be examined carefully to determine if they constitute operating or finance leases and ensure that accounting treatment issues have been fully considered. Advice should be sought from the relevant Finance Business Partner.
23. Acquisition by way of site purchase and new build is a complicated process that usually demands time and considerable input from a variety of professional disciplines. Advice on selecting and purchasing a site can be obtained from Property Division and advice on building procurement is available from http://www.gov.scot/Topics/Government/Procurement
Non-quantifiable benefits
24. In some circumstances, the options will differ significantly in terms of their non-quantifiable benefits, such as town centre location, accessibility, ambience and general environmental features. These can be assessed using weighting and scoring methodology. Under this methodology, the different options can be given a score for each of the factors, such as town centre location. Then each of the factors can be given a weight, representing their relative importance, by the advisory team. The sum of weighted scores can then be used to rank the options by their level of output.
Preferred option
25. The economic and financial costs of the options, the results of the sensitivity testing and the ranking of options in terms of their outputs and policy considerations should then be considered together to determine which option gives the best value for money. This will not always be the cheapest option, as other options may offer a much better balance of benefits to cost, or be significantly less risky. The budgetary consequences and affordability of the preferred option must also be considered and it is therefore essential that a separate financial appraisal is undertaken and that the relevant specialist finance function is involved in the evaluation process. It may be useful to undertake a weighting and scoring exercise (as outlined above) to determine the shortlist of options.
26. Once a provisional decision on appropriate properties or locations has been taken, and the necessary approvals have been obtained, then negotiations for particular properties can be opened. As negotiations proceed, and the final terms of the purchase or sale emerge, it is necessary to revise the appraisal to ensure that the provisional decision on the best options remains valid. This is because appraisal is an iterative process. As the process brings better information to light the appraisal should be updated and revised to ensure that the original assumptions remain valid. The relevant specialist finance function should be informed immediately of any change in projected costs.
Negotiations
27. The external property adviser's report will recommend properties which the organisation will wish to view. It is advisable for the number of people viewing properties to be small and to be accompanied by a surveyor; Property Division can assist with this. Organisations must refrain from making any comment on the property, either privately to the sellers or their agents or publicly, whether positive or negative, as this may prejudice negotiations and the terms obtained.
28. During negotiations for the preferred option, a fall-back option should be pursued where possible to preserve bargaining power and in case the preferred option collapses. Options are often dependent upon variables such as planning consent which may not be forthcoming.
29. As more detailed information is obtained during negotiations, the appraisal should be continually updated and refined and provisional decisions re-examined to ensure that they remain valid.
30. If there will be a delay of 6 months or more between the initial decision and the conclusion of missives, then the Project Manager/Senior Responsible Owner (SRO) should seek advice on whether the figures should be adjusted, or if a further valuation or survey is required. This is important if the valuation is subject to special conditions or if the surveys undertaken or local knowledge suggests delay which will cause further expense.
31. When provisional negotiations are concluded the final package should be put to the Project Manager/SRO for approval. A current valuation should be part of the package. The Heads of Terms of Agreement to Lease or Purchase must be clearly stated. The Project Manager/SRO should consider whether any special conditions are to be included in the purchase offer and where none are required positive mention of this should be included in the instructions to legal advisers to formally conclude the transaction.
32. It is vital that a legally binding contract is not entered into until the appropriate time and as a result, all correspondence must comply with the Requirements of Writings (Scotland) Act 1995. Further advice on this is available from legal advisers or Property Division.
Acquisition price
33. The price paid on the acquisition by a public body will be open to scrutiny and it is essential that an independent valuation is correctly instructed. Acquisition in excess of the independently assessed market value is unusual and should be supported by the Option Appraisal showing that the option represents the best value for money. A proposed acquisition with a cost in excess of the market value should be cleared in advance by the relevant specialist finance function.
34. In public private partnerships value for money is determined by comparing the Net Present Value of the whole life costs of a conventionally procured public sector comparator, adjusted to reflect all the risks which are to be transferred to the private sector, with the Net Present Value of the public private partnership payments.
Building and specialist surveys
35. A full building survey is essential before purchasing or leasing an existing building in order to determine suitability of the structure and potential risks and financial outlay in ensuring the property is sound. The building survey should be sought at the earliest possible stage. Business areas within the Scottish Administration must seek advice on obtaining a survey from the SG's Property Division. Where existing properties are to be altered, refurbished, converted or otherwise developed, building surveys should always be commissioned prior to any commitment to acquire. Problems identified may require further investigation.
36. With listed buildings or scheduled monuments it is particularly important to get specialist advice on what can be done with the building, what adaptations, if any, will be allowed, and to assess the future running and maintenance costs.
37. With new-build options, site investigations will check that the ground can bear the proposed development, and check for environmental contamination of the site which may limit the use and value of the site, or lead to the purchaser becoming responsible for environmental remediation costs. Such investigations may also alert business areas to the presence of old mine-workings or archaeological remains which may delay, or preclude development.
38. With a new building there will normally be a liability period for the occupier to have defects remedied by the contractor. It is also important to secure collateral warranties from the building contractor, the architect and others associated with the building project and for the missives or the lease to specify the steps to be taken in the event of latent defects appearing. Legal advisers must be asked to advise on how best to protect the interests of the acquiring body.
39. Where an existing property is taken on lease the acquiring body must ensure it does not become obligated to return the property in a better condition than that in which it was acquired, unless this is part of a detailed agreement with financial benefit to the acquiring body. A Schedule of Condition must be prepared by a Building Surveyor and agreed by the landlord and tenant prior to occupation. This will record the condition and state of repair and decoration and assist the assessment of any dilapidations claim by the landlord at the end of the tenancy. Legal advisers must be asked to advise on how best to protect the interests of the acquiring body.
40. The information generated by these surveys and reports should be fed back into the appraisal to ensure any hidden costs they reveal are properly taken into account.
Closing date
41. In the event of a property being subject to a short closing date advice must be obtained from property advisers on the steps that require to be taken in order to ensure that value for money considerations are met.
Auctions
42. Auctions are becoming more common in Scotland than previously and properties may be acquired in this way. An authorised agent can bid up to a pre-arranged limit. Auctioneers will take instructions to do this on behalf of potential purchasers. One difficulty is that auctioneers usually require a deposit from the successful bidder at the auction so a member of staff with authority to sign for large sums of money will need to be present.
43. As any bid accepted is binding, the title, surveys and all other investigations must have been completed before the auction and so work will have to be undertaken as a priority to ensure such work is concluded prior to the auction. Property and legal advisers must therefore be involved prior to the auction to carry out the relevant investigations. The auctioneer may allow a joint deposit receipt system to be used in instances of difficulty. Property and legal advisers should be asked to have representatives present at the auction.
Fitting out
44. Fitting out a new building or converting and fitting out an existing building is specialised work and appropriate professional advice must be sought before committing to this. Property Division is able to advise on appropriate advisers to assist. The additional time and cost of fitting out must be taken into account at the appraisal stage.
Senior responsible officer (SRO)
45. In some cases the acquisition of property will be part of a major investment to which relevant guidance in the SPFM applies. In such instances property acquisition will be one of the responsibilities of the Senior Responsible Owner (SRO).
46. If the property acquisition is not part of a larger project the organisation should appoint a Project Manager to obtain an Option Appraisal to plan, co-ordinate and ensure that best practice is followed. Where other pressures require an abbreviated procedure and this presents a serious risk to best practice, the Project Sponsor has a duty to ensure that the implications are drawn to the attention of the relevant Accountable Officer so that decisions can be taken on how to proceed.
47. Further guidance on the role of SROs is given in the section in the SPFM on Major Investment Projects. Advice on the appointment of SROs should be obtained from the SG's Capability Development and Project Assurance Team.
Property database / fixed assets registers
48. Business areas within the Scottish Administration should update the Scottish Government Property Database (ePIMS) with full information on the acquisition of any asset. Where the business area does not have authority to update the system, you must contact Property Division with the full information to enable your records to be updated. Areas responsible for maintaining non-current (fixed) asset registers (e.g. the SG's Corporate Reporting Division) should also be informed.
Post appraisal evaluation
49. A post appraisal evaluation should be carried out within six months of acquisition being completed to assess whether or not the appraisal was done as well as possible and check that the property meets the current need. If the project involved a major construction contract, a formal Post Project Evaluation will be required.
Page Updated:February 2023