Acquisition of Property and Compliance with Section 83C, Education Act 1990 (NSW)
1. Statutory Framework
Section 83C of the Act provides that a non-government school is taken to operate for profit (and thus risks loss of government funding) if it pays more than reasonable market value for property, goods, or services. The section is strictly construed and does not permit payment of any premium above market value, regardless of the strategic importance of the property to the school.
The Department of Education’s Not-for-Profit Guidelines (March 2024) reinforce this position, requiring that all acquisitions be supported by an independent, arm’s-length valuation that reflects the property’s highest and best use, including any realistic development or rezoning potential.
3. Application to the Proposed Acquisition
(a) Market Value and Development Potential
The school may pay a price that reflects the property’s development or rezoning potential, but only if that potential is objectively recognised by the market and confirmed by an independent valuer.
Strategic or unique value to the school alone does not justify a premium above market value.
(b) Valuation Process
The school should instruct an independent valuer to assess the market value of the property, specifically requesting consideration of any development or rezoning potential that would be recognised by the market (please contact us for a sample letter of instruction).
The valuer’s report should be detailed, transparent, and suitable for regulatory scrutiny.
(c) Documentation and Board Process
The board’s decision to acquire the property should be based on the independent valuation and clearly minuted (please contact us for a board paper template).
All due diligence steps should be completed and documented (please contact us for a due diligence checklist).
4. Due Diligence and Risk Management
To ensure compliance with section 83C and to mitigate regulatory and funding risks, the following steps are recommended:
Obtain an independent market valuation that considers all relevant planning and development factors.
Ensure the purchase price does not exceed the independently assessed market value.
Complete all due diligence steps (title, planning, legal, financial, and contract review).
Document the board’s decision-making process and retain all supporting materials for audit and regulatory purposes.
5. Conclusion
Provided the acquisition is at or below the independently assessed market value, and all due diligence and documentation requirements are met, the transaction will comply with section 83C of the Act. This will protect the school’s not-for-profit status and its eligibility for government funding.
Should you require further assistance with the valuation process, board documentation, or any aspect of the acquisition, please do contact Wilding & Co Lawyers accrodingly.