Part D1: Appendix – Common transactions and areas of operation – Acquisition and financing of school property and land
D1.1 Property
A school will operate for profit if it makes a payment for real property that is not required for the current or future operation of the school (see B1), if it makes a payment for real property at more than reasonable market value (see B2) or, if it makes a payment for real property that is in any other way unreasonable having regard to the fact that financial assistance is provided to the school (see B3).
- Documents evidencing land valuations
- Business records that demonstrate the need to purchase property for the operation of the school such as governing body minutes, strategic/masterplans and concept plans
- Business records evidencing the intended use of the land such as development applications, local council advice regarding the zoning/rezoning of land and professional advice obtained
- Documentary evidence that conflicts of interest and relationships with related parties (if any) have been appropriately identified and managed
Note: This list is only a guide. It is not intended to be exhaustive or prescriptive. For further detail read our section on Records to demonstrate compliance.
D1.2 Acquiring land for a future purpose
Schools may require land to expand the school, for example, to accommodate increased enrolments. A school may wish to acquire land (e.g. adjacent to or near the school, or for another campus) as it becomes available, however the school may not be in a position to use the land (e.g. by constructing new facilities) until some later date. For example, the school may need to acquire further adjacent land before there is sufficient space to construct the new facilities.
A school will not operate for profit merely because the land is not (or cannot be) used for its intended purpose immediately. However, the land must still be acquired at no more than reasonable market value, noting that there are many factors that influence what is ‘reasonable market value’ (see B2) and the purchase must be for the purpose of the operation of the school (see B1).
In some circumstances, proprietors/schools may enter into arrangements for the future purchase of land for school use, such as option agreements. These arrangements must also ensure that the eventual acquisition occurs at no more than reasonable market value.
Once land has been acquired schools may put in place plans for the interim use of the property pending the execution of future plans for the expansion of the school. Where this occurs, schools must ensure that any interim use arrangements comply with the not for profit requirements and follow the guidance provided in these.
- Advice from a suitably qualified independent person (for example a valuer/consultant) on the future value of land (based on current value with considered escalation).
- Documents which evidence the purchase is at no more than reasonable market value (see B2).
- Documents which record the purpose of the acquisition
- Any initial masterplans, concept plans and/or governing body records (e.g. reports and minutes).
- Expected timeframes and plans for any subsequent developments or property purchases which may be required.
- Details of any interim rental agreements over the land.
Note: This list is only a guide. It is not intended to be exhaustive or prescriptive. For further detail read our section on Records to demonstrate compliance.
D1.3 Mortgages and loans (land)
Proprietors and schools may need to arrange loans or obtain finance for the operation of the school, including to purchase land. This includes obtaining finance from a lender of their choice and determining the type and structure of finance most appropriate for the school.
Generally, a proprietor or school will borrow money from a financial institution (bank, credit union or building society) or other entity of their choice. Features of mortgage loans, such as the size of the loan, maturity of the loan, interest rate, method of repayment and other characteristics can vary.
To remain eligible for NSW funding, the property secured by the mortgage must be required for the operation of the school (see B1), interest payments and other fees must not be above reasonable market value (see B2), and not be unreasonable having regard to the fact that financial assistance is provided to or for the benefit of the school by the Minister (see B3). For example, the payment of an interest rate that is above the reasonable market value of interest rates on comparable loans indicates that a school may operate for profit.
- Evidence that the school has tested the market when obtaining finance.
- Written loan agreements which include relevant terms and conditions (e.g. loan repayment schedules).
- Documents evidencing registration of land title and land valuations.
- Appropriate documented reasons to support any school loans or other finance with a combined rate of interest and fees that could be considered unusually high given the type of loan, security provided, loan valuation ratio or other relevant circumstances.
- Business records that document prior approval to enter the agreement by the school's governing body.
- Business records demonstrating the need to purchase property or otherwise obtain finance for the purpose of the operation of the school.
Note: This list is only a guide. It is not intended to be exhaustive or prescriptive. For further detail read our section on Records to demonstrate compliance.
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