Land Transactions between the Council and Celtic Football Club

Overview

In April 2009 Glasgow City Council sold the former recreation ground at Westthorn in the Parkhead area of the city to Celtic Football Club ("the Club") for £675,000. Westthorn was part of a larger set of transactions under which the Club were able to consolidate their land holdings in the immediate vicinity of Celtic Park and the Council was able to acquire sites required for both the East End Regeneration Route and  for the Commonwealth Games. 

Westthorn lies on the south side of London Road and is bounded by a whisky bond to the east, Council allotments and the River Clyde to the south and the former Belvedere Hospital to the west.  Westthorn is back lying, with the only access and egress restricted to an unadopted, narrow track running from London Road. 

The Club proposed to use Westthorn as a training facility.  The purchase price has been subject to adverse commentary that it did not reflect the market value of the land, and that this amounted to the Council granting unlawful State aid to the Club.

The issue of State aid has been independently investigated by the European Commission. The European Commission is the only body with the legal authority to investigate whether State aid is present in a measure.  The Westthorn sale was also scrutinised by the Council's external auditors Audit Scotland, to ensure that a market value was obtained in the Westthorn sale.  The European Commission investigation concluded that there had been no unlawful State aid given to the Club by the Council, while Audit Scotland concluded that a price in excess of market value had been obtained.  The Council achieved the best price possible for the site in question.

In November 2013 the Council commissioned an independent valuation of the site from an international real estate service company. This was done for the purposes of the European Commission investigation into the land sales. The report concluded that, in their opinion, the Market Value of Westthorn could be fairly stated as £200,000 ( Savills report & valuation November 2013 [3Mb],  Savills report & valuation November 2013 Appendix [1Mb]).  This figure is based both on benchmarking based on contemporaneous market evidence, less the significant abnormal ground condition costs at Westthorn. 

The Council holds a number of geotechnical reports which describe the ground conditions at Westthorn. For example, parts of Westthorn are contaminated with chemicals, there is one mine entrance on, and one other in close proximity to, the land and the land is underlain with abandoned mine workings from coal seams at various depths. Decontamination of Westthorn will require removal of soil and capping. The mine entrances and workings will require 'grouting', which involves pumping inert material into the voids under the site in order to stabilise the ground.  The site is also within the blast zone of a distillery and bonded warehouse meaning large parts of the site could not be used for residential development.  These abnormal costs have been assessed by an external expert and verified by the Council's in-house experts.  A guide to valuation methodology is provided below.

The Council has received a large number of requests under the Freedom of Information (Scotland) Act 2002 and Environmental Information (Scotland) Regulations 2004 for information regarding the sale of the land to the Club, the surveys and other reports on the condition and value of the site, and for documents submitted to the European Commission and Audit Scotland in relation to their respective investigations.   Given this continuing interest in this matter the Council has decided to publish the material it holds on this topic.  This can be accessed through the related content area.  For a comprehensive review of the history of the transaction as a whole we recommend reading the first item, which is the formal submission from the Scottish Government to the European Commission in respect of the alleged breach of State aid rules.

Information published here has been redacted (i.e. content removed or obscured) in two main ways.  Firstly, some of the financial information within these documents is considered to be commercially sensitive and so it has been withheld on the basis that its disclosure would, or would be likely to, prejudice substantially the financial interests of the parties it relates to.  Secondly, we have generally redacted names of all individuals concerned with this matter, on the basis that this is personal data and disclosure of staff identities would breach the data protection principles.

The transactions between the Council and the Club have a long and complex history, so to assist understanding the context of this transaction we have also produced a chronology of significant events which can be accessed here.

We have also included some Frequently asked questions relating to this.

Valuation Methodology

The valuation of land is generally undertaken by independent chartered surveyors whom are members of the Royal Institution of Chartered Surveyors ("the RICS") thus ensuring independence and objectivity.  All members must adhere to the following stringent guidance, the RICS Valuation - Professional Standards global and UK editions ("the Red Book").

The Red Book is issued by the RICS Valuation Faculty and contains mandatory rules and best practice guidelines for all RICS members undertaking valuation services worldwide.  Membership of the RICS ensures that the surveyor preparing the valuation would have the appropriate knowledge, skills and understanding to accept such an instruction.

The Council's actions in disposing of land are subject to statutory provisions, in particular, to the overriding duty on a local authority, under section 74 of the Local Government (Scotland) Act 1973 as amended by Section 11 of the Local Government in Scotland Act 2003, to obtain the best consideration that can be reasonably obtained for the disposal of land.

The methods adopted in relation to this transaction are exactly the same as the methods the Council (or any other landowner) would adopt in any land disposal.

For the avoidance of doubt all valuations were undertaken by members of the RICS in accordance with the Red Book. 

The parties involved in the negotiations were as follows:

Montagu Evans - Appointed by the Club in October 2004 to negotiate the acquisition of various sites from the Council, including Westthorn.

The District Valuer ("the DV") - Appointed by Glasgow City Council in January 2005 to provide an opinion of value/comments on the various Council owned sites.

The Council - A senior Chartered Surveyor, who was a RICS member, was involved at an operational level to dispose of sites together with the Director of Development and Regeneration Services to deliver the wider regeneration agenda.

Ultimately it was for the Council officers to make final recommendations to the Executive Committee of the Council and both were committed to delivering the regeneration of this area whist still securing the best consideration for the Council.

Essentially, the Council disposes of land almost exclusively for the purposes of development (such as office, residential, industrial etc.) and does not generally dispose of land for the purposes of land banking.  

With regards to Westthorn, the proposal was for the development of training facilities for the Club which they were currently using at that time.  To protect the Council's interests in the course of this transaction, it was agreed at the outset that the valuation of Westthorn would be on the assumption that the land would be regarded as being suitable for residential development, which is the most valuable zoning that could be applied.  This was despite the fact that at the time of negotiation, sale and currently, the land continues to be used for recreational purposes.  The adoption of this assumption of residential use generated a significantly higher Market Value than that for open space or sports facility use.

Generally, in arriving at an opinion of Market Value, the approach is to calculate the net developable area deducting, in this case, for an undevelopable section of the land caused by the presence of the whisky bond blast and buffer zone.  Market Value is then calculated taking reference from recent comparable market transactions and adjusting accordingly.  From this gross figure it is then necessary to adjust further to take account of the presence of any abnormal ground conditions, such as the contamination on the site or addressing shallow mine workings underneath it. This results in a net figure, which is deemed to be market value. 

An alternative approach is to determine a hypothetical residential housing density for the land and calculate a land value per unit based on a net area taking into account the reduction for the blast and buffer zone, instead of working on a rate per hectare/acre basis; either approach produces a gross figure from which various abnormal costs must be deducted in order to arrive at an opinion of Market Value. 

Prior to negotiations commencing with the Council and the District Valuer, ("the DV") was asked to provide his opinion and comments on the value of Westthorn.  The DV's opinion was based on Westthorn comprising some 5.38 hectares/13.29 acres gross. It should be noted this did not allow for the deduction of the undevelopable part of Westthorn burdened by the blast and buffer zone.  This resulted in the DV's opinion of high line value for Westthorn to be £7.5 million, a figure which is only the starting point in the calculation of the actual market value.  The area that was eventually sold to the Club measured some 5.1 hectares/12.3 acres, slightly smaller than valued by the DV.  The smaller of the two areas was subsequently used to determine the residential unit density, ignoring the existence of the blast and buffer zones and abnormal costs.  The density was agreed between the parties, in consultation with GCC planning, at around 60 units per hectare.   The resultant figure was then multiplied by the higher end of the range of land value per unit rate (£22,000 to £26,000) for residential use before any deductions for abnormal ground conditions, the blast zone and for the restricted access were taken into consideration.  This gave a high line value of Westthorn of circa £7.5 million. This was later acknowledged by the DV to be unrealistic. 

As mentioned above , Westthorn is in close proximity to two high risk industrial premises.  This led to the Health and Safety Executive (HSE) commenting on the proposals.  The HSE stipulated that blast and buffer zones were required around these high risk premises which meant that more than half of the site was undevelopable.  Factoring in the blast and buffer zones, this resulted in a net developable area of approximately 2.72 hectares hectares/6.75 acres.  As is normal in transactions of this nature, abnormal ground conditions require to be taken into account.  The site was particularly problematic in terms of abnormals:  there is contamination on the site which would need to be dealt with through capping and removal. There are also shallow mine workings under the site, a disused mineshaft in one corner of the site and another in close proximity, which would need to be dealt with through grouting. Grouting is a particularly expensive process.  

Site investigation works were carried out by an independent contractor and subsequently verified by the Council's in-house experts.  The figure initially proposed by the surveyors acting for the Club was £6,000,000, based on the original area of 5.38 hectares/13.29 acres gross.  Normal practice would be for this figure to be deducted, i.e. this £6,000,000 figure would be deducted from the agreed gross land value to arrive at a net land value figure.  However this was based on a developable area of circa 5.38 hectares/13.29 acres as opposed to the actual developable site, taking account of the HSE blast and buffer zone requirements, of 2.72 hectares/6.75 acres.  The actual cost of the abnormals was accordingly negotiated down to £3.515 million, and the value of the developable area of the site also reduced pro rata.

Therefore, instead of Westthorn being worth £7.5 million (based on a 5.38 hectare/13.29 acres developable site and ignoring the abnormals and the SHE blast and buffer zones) in commercial reality Westthorn was a 2.72 hectare/6.75 acres development site with significant abnormals which resulted in a net disposal figure of £675,000.   

Summary Valuation Table

Westthorn was retrospectively valued at £200,000 by an independent chartered surveyor. This report also indicates that there was no realistic prospect of the site being sold on the open market (i.e. to anyone other than the Club) at the relevant time.   The report also found that it would be wholly uneconomic to design and develop Westthorn for residential housing.

In accordance with normal practice, the legal documentation for a land transaction of this nature will include an overage provision. This means that the sale price is based on a hypothetical housing density which can be developed upon the site, the seller is protected by a mechanism whereby the seller receives a further payment in the event the purchasers are granted planning permission for a greater residential density than initially agreed.

Such a mechanism was included in the Westthorn transaction as an additional safeguard for the Council's position, notwithstanding the fact that neither party to the transaction had any intention or expectation that the site would ever be developed for housing.  The Club agreed to pay the Council 50% of any increase in value on certain disposals by the Club within 5 years of 5 April 2009.  This protected the Council if the Club realised an increase in the value of Westthorn through a subsequent sale or other disposal as a result of obtaining planning consent for a more valuable use.  The overage agreement is included in the related content area.