What policy does this replace?

The Crown asset transfer and disposal policy replaces a previous policy about the management of land and buildings. Previously, if a tertiary education institution (TEI) wanted to dispose of a Crown asset and retain the net proceeds of sale, or to have an asset transferred into its ownership, Ministers or Cabinet would make decisions about this on a case-by-case basis. This meant that TEIs had little certainty when they approached the Crown to apply for a transfer or disposal about the outcome of the process and whether they would receive any income from any asset sale. It also resulted in a lack of consistency in decision-making about similar cases over time. The policy, introduced in 2009, addresses these problems.

What are the benefits of the new policy for the Crown and TEIs?

The Crown asset transfer and disposal policy is transparent, treats like cases alike, and provides more certainty to TEIs about the outcome of a disposal or transfer. It consequently provides TEIs with better incentives to formalise arrangements for their Crown asset holdings in whatever way allows them to extract the most value from them.

What is the value of Crown asset holdings by TEIs?

The total estimated value of Crown title assets managed by TEIs as at 31 December 2009, when the policy came into effect, was approximately $3.3 billion.

What are the principles in operation here?

The basic principles on which the policy is based are:

• decisions about transfers and disposals should be fair and transparent, and like cases should be treated alike 
• when they approach the Crown to initiate transfers or disposals, TEIs should understand what the process involves, and what decisions have to be made and why
• TEIs are autonomous and, provided the public interest is protected, they should manage their own assets in the way they believe best supports their institution in achieving its goals
• the Crown should give TEIs incentives to manage their capital strategically and efficiently, in a way that supports their investment plans and preserves the value of the tertiary asset base in the long term.

What assets are eligible for transfer or disposal under this policy?

This policy applies to assets that a TEI has managed since at least 1990. The aim is to target the sizeable group of assets that have been used and managed by TEIs for as long as the Crown has owned the assets. This is distinct from the smaller number of Crown-owned assets leased by TEIs in recent years to meet their changing needs, to which the policy does not apply.

1990 is the year in which TEIs were first established in legislation in their current form and thus provides a useful cut-off.

Does this policy change existing processes for transfers and disposals, such as those set out in the Public Works Act or in Cabinet-agreed policies?

No. The policy does not change the statutory or policy requirements of the actual transfer or disposal processes, which take between 12 months and three years to complete.

What might constitute a legal or policy reason not to transfer or dispose of an asset?

An example of a policy reason for choosing not to transfer an asset might be that the asset is currently being considered for inclusion in a Treaty of Waitangi settlement. In such a case, officials might recommend to offer a lease over the asset(s) to the TEI until all Treaty claims in the area are settled. Otherwise, the TEI may decide to place its application on hold indefinitely until any outstanding Treaty claims have been settled. This would be determined on a case-by-case basis.

A legal reason not to transfer an asset might be that the current ownership of the asset was the subject of a dispute between the Crown and a third party. This would be very rare.

In terms of disposals, an asset that is surplus to a TEI’s needs may be required for another educational purpose or by another Crown agency. Where there is no public purpose for the retention of an asset that is surplus to a TEI’s needs it will be sold. It cannot be retained in Crown title for purely policy reasons.

How can I find out more about this new policy?

For further information, TEIs should email camenquiries@tec.govt.nz.

What are the eligibility criteria for transfers?

Cabinet agreed a range of criteria that a TEI must meet for a Crown asset to be transferred into its ownership. The TEI must:

• have managed the asset since at least 1990
• be taking part in the Government’s Capital Asset Management (CAM) programme as per the Tertiary Education Commission’s (the TEC's) specific requirements
• have its educational and financial risk assessed by the TEC to ensure the transfer is appropriate
• demonstrate that it has an ongoing educational need for the asset, that this fits in with its investment plan as agreed with the TEC and supports the institution’s strategic plan and strategic capital asset plan
• confirm there is no disagreement with any third party over which the TEI should receive the transferred asset (with particular reference to past and current usage and management). In addition, the Crown must be satisfied there are no overwhelming legal or policy risks to retain the asset in Crown title. Potential use in a future Treaty of Waitangi settlement could sometimes be an overriding policy reason not to transfer the land and/or buildings.

What is the process for transfers?

A step-by-step guide to the transfer process is available in the Crown Asset Policy Guidance (PDF 118 KB) document. In summary, the transfer process has six stages:

1. The TEI identifies (in discussion with its TEC Investment Manager) an asset in Crown title for which it has ongoing need, and submits an application for transfer.
2. The TEC assesses the application against Cabinet-agreed criteria.
3. Officials report to the Minister of Finance and the Minister for Tertiary Education, Skills and Employment with a recommendation about whether the transfer should go ahead.
4. The Ministry develops a Memorandum of Understanding with the TEI about how the transfer process will be managed. 
5. The transfer process starts per existing legislative and Cabinet-agreed processes. Transfers will be made under the Public Works Act 1981.
6. When the necessary clearances have been obtained, Land Information New Zealand approves the transfer, any agreed encumbrances are added to the title, and the property is transferred (via a Deed of Sale) into the TEI’s ownership.

How long does the transfer process take?

Officials expect the first three stages of the transfer process, which the new policy has altered, to take around three to six months to complete. The later stages are highly variable, depending on whether there is any difficulty in agreeing a Memorandum of Understanding or obtaining the various clearances required by law and by Cabinet. Most transfers take between 12 and 24 months.

Can a TEI apply for an asset to be transferred, and then sell it and recoup 100% of the sale proceeds?

The Crown will only transfer an asset into TEI ownership if the TEI can demonstrate that it has an ongoing need for that asset. However, it is possible that, as a result of an unforeseen change in a TEI’s delivery, the asset might become surplus to the TEI’s needs sooner than expected.

A condition will be attached to the sale and purchase agreement by which any land and/or building is transferred from the Crown to a TEI, stating that if the TEI re-sells the asset within five years from the date of transfer, then the TEI must pay 20% of the net proceeds of sale to the Crown.

What if a transfer process is started but not finished?

The transfer process could be stopped at the request of the TEI (for example), or Ministers might decline the transfer application. In this case, the application will either be placed on hold indefinitely or if the asset is not already on a lease (i.e. if the current occupancy arrangements are informal), the Ministry of Education may offer a TEI a standard head lease for the asset(s) in question.

What are the eligibility criteria for disposals?

Cabinet agreed a range of criteria that a TEI must meet to receive any proportion of the net proceeds of the sale of a surplus asset. Principal among them is that the TEI must present a business case outlining how it intends to reinvest the net proceeds of sale. Detailed guidelines about requirements for this business case are available.

As an overarching consideration, the TEI’s proposed reinvestment must not be contrary to the Crown’s objective of achieving a more efficiently managed tertiary asset base. As well as developing a satisfactory business case, the TEI must:

• have managed the asset since at least 1990
• be taking part in the Government’s Capital Asset Management programme as per the TEC’s specific requirements
• have its educational and financial risk assessed by the TEC to ensure the proposed reinvestment of proceeds is appropriate
• confirm that there is no disagreement with any third party over which TEI should receive the net disposal proceeds (with particular reference to past and current usage and management).

What is the process for disposals?

A step-by-step guide to the disposal process is summarised in the seven steps below:

1. The TEI (in discussion with its TEC Investment Manager) identifies an asset in Crown title that is surplus to its needs, and presents a business case for how it would reinvest the net proceeds of sale of the asset.
2. The TEC assesses the business case and application against Cabinet-agreed criteria.
3. Officials report to the Minister of Finance and the Minister for Tertiary Education, Skills and Employment with a recommendation about what proportion of net disposal proceeds the TEI should receive. (NB. If an asset is surplus, but the TEI cannot develop a satisfactory business case for reinvestment of the sale proceeds, the asset will still be made available for sale but the TEI will not receive any net proceeds of sale unless joint Ministers determine that it should).
4. The Secretary for Education declares that the asset(s) are surplus by gazette notice.
5. The Ministry of Education develops a Memorandum of Understanding with the TEI about how the disposal process will be managed.
6. The disposal process starts per existing legislative and Cabinet-agreed processes. When the necessary clearances have been obtained, Land Information New Zealand approves the disposal, and the property is listed for sale by the Ministry of Education.
7. When the property sells, the agreed proportion of net disposal proceeds are paid by the Ministry to the TEI.

Why do TEIs have to provide a business case to the TEC?

The taxpaying public has a legitimate interest in the tertiary asset base being efficiently managed both now and in the long term. The Crown has a duty to protect this interest. Before the Crown provides a TEI with net proceeds from the sale of a Crown-owned asset, therefore, it must be satisfied that the TEI will reinvest those proceeds in a sustainable and appropriate way. This is what the business case is for.

What does the business case contain?

The business case will explain how the TEI intends to reinvest the net proceeds of sale, how this reinvestment supports the TEI’s Investment Plan, and how the proposed project creates identifiable and tangible financial and/or educational benefits that are over and above those available from the status quo or alternative uses of the disposal proceeds.

The business case will be supported by documentation such as the TEI’s Investment Plan and financial forecasting information, much of which may already be held by the TEC (in which case it does not need to be supplied again).

What does it mean for an asset to be declared as surplus?

Once land is surplus to the Crown’s needs, whether or not it has been formally declared as surplus, the Public Works Act 1981 requires that it be made available for sale. This requirement applies to all Crown-owned land managed by TEIs, and the general principle in operation is that the Crown should not own land unless it has a use for it.

This means that if a TEI manages an asset that is surplus to its needs, but it cannot develop a satisfactory business case for reinvestment of the sale proceeds, the asset must still be made available for sale. If the TEI had still not developed a satisfactory business case by the time the asset sold, then the TEI would not receive any net proceeds of sale unless joint Ministers determined that it should.

How long does the disposal process take?

Officials expect the first three stages of the transfer process, which the new policy has altered, to take around three to six months to complete. The later stages are highly variable, depending on whether there is any difficulty in agreeing a Memorandum of Understanding or obtaining the various clearances required by law and by Cabinet, and how long the property takes to sell on the open market.

Most disposals take between 18 and 36 months.

What happens if, at stage 6 of the disposal process, another Crown agency wants to acquire the property?

If another Crown agency wants to acquire surplus Crown property in TEI management, it will purchase the property from the Ministry of Education. The TEI will receive a proportion of net proceeds of sale as agreed by joint Ministers, just as if the property had sold on the open market.

If the Ministry of Education itself wants to retain the property for another education use, compensation for the TEI will be considered on a case-by-case basis. Decisions in all cases will be made by Ministers based on advice from officials.

Is this helping TEIs to “sell off the family silver”?

No. The aim of the policy is to allow TEIs to get the maximum possible value from the Crown assets under their management. If they do not need those assets, it is appropriate that they dispose of them and reinvest the proceeds in assets that better support their ongoing educational provision.

To receive any net proceeds of sale of an asset, TEIs will be required to submit a business case explaining how they will reinvest the proceeds. The TEI’s proposed reinvestment must not be contrary to the Crown’s objective of achieving a more efficiently managed tertiary asset base, and there is a thorough assessment process in place to ensure this.