Legal firms are advising colleges to sell surplus buildings and land in the next 18 months before a possible change in the rules on what they can do with the proceeds.
Eversheds Sutherland and Bates Wells, which represents more than 110 colleges in England, has told its clients they “might want to consider” quickly offloading any under-utilised assets ahead of a reclassification review in March 2025.
There are concerns that the review, which will be led by the Department for Education, could result in profits from land sales going to the government. Currently, colleges can retain any surplus cash they make from land sales and can use it in a variety of different ways, such as paying down debts.
“If there are surplus assets, colleges might want to consider whether or not they dispose of those assets prior to March 2025,” Nathan Lucas, principal associate at Eversheds Sutherland told FE Week.
He added that March 2025 is not “necessarily a drop-dead date, where restrictions will be imposed. It just means that there will be a review.”
But it could see colleges make moves to sell surplus assets in case the rules change.
‘Freedoms and flexibilities’
Colleges were reclassified as public sector organisations on November 29, 2022. It marked a move away from a 2012 policy introduced when colleges were classified as private sector bodies, to let colleges control their own financial plans.
The policy, called “Freedoms and Flexibilities”, allowed colleges to be “nimble about being entrepreneurial”, Jean Tsang, head of education at Bates Wells, said.
Following last year’s switch back to the public sector, Education and Skills Funding Agency chief executive David Withey told college leaders: “Colleges will continue to be able to manage their assets, including their estate, and to retain the proceeds of disposals. However, colleges will be required to ringfence the proceeds for reinvestment in capital assets.
“We will keep this approach in place until the end of the current spending review period (31 March 2025), when it will be reviewed.”
Tsang said: “We don’t know what’s going to happen. If you’re going to sell [a building], sell it sooner rather than later.”
There were concerns that rules would already tighten after reclassification. There are some limits on how colleges can spend funds made through asset sales – money can now only be spent paying back loans from the DfE, or banks, or on capital assets. They could also use that money as working capital to avoid insolvency if they get permission from the DfE.
Colleges selling land and buildings is nothing new, with many opting to do so in recent years to balance the books and keep financially stable. But it can be controversial locally.
Last month, Warwickshire College Group was finally allowed to sell off its Malvern Hills campus to a non-education entity after a drawn-out court case. It had faced strong opposition from locals and its local MP, Harriet Baldwin, who bemoaned the college’s “asset-stripping exercise”.
Julian Gravatt, deputy chief executive of the Association of Colleges, said it is “up to colleges to take their own decisions based on appropriate advice”, pointing out that a lawyer “might favour a quick sale” while a surveyor “might point out that property prices have fallen recently”.
He added: “Planning is always difficult, but it really doesn’t help that colleges don’t know whether current capital budgets will continue after 2025, what the borrowing rules will be and whether Treasury will try to change rules on capital receipts.”
‘Simply don’t know where we are’
Though there are now some limits on how colleges spend funds made through asset sales, colleges do not need consent to sell assets or give their sale profits to the government. But that could change, and there remain other uncertainties while colleges and their legal teams await the publication of a new financial handbook, expected by August 2024.
“I think from my perspective, we simply don’t know where we are,” Lucas, from Eversheds Sutherland said. “We are waiting for the financial handbook to be released, which we expect to be based largely on the existing academies handbook.”
But in the latest version of the academies handbook, published earlier this year, academies do need to get prior approval from the ESFA to sell off any kind of fixed assets, including buildings.
An upcoming consultation will look at the handbook and how colleges should operate in the public sphere.
Tsang said colleges understand they are in the public sphere but want the government to “give them as much freedom as possible within those confines”.