City centre free schools in unsuitable buildings would be rebuilt on “smaller footprints” with flats above them, under plans set out in a new report.

LocatED, a private firm which is contracted to deliver free school sites for the Department for Education, is looking at a self-funding model to rebuild schools with “condition issues”.

In the company’s latest annual accounts, chief executive Lara Newman says that very few schools in London or other city centres have surplus space, and she warned that land values remained extremely high.

She added: “We are therefore considering how we may adapt our approach in a different way; to address serious condition issues on constrained sites.

“We are researching the concept of ‘building up’ using a self-funding model to rebuild the school on a smaller footprint - maintaining the sports and play space, with homes above to offset development costs.

“We hope to progress and test this concept that would provide schools with brand new facilities fit for the future and communities with new affordable homes, all at no extra cost to taxpayers.”

The accounts show LocatED has worked on six school-led mixed-use developments.

The report adds: “This culminated with the successful handover of Fulham Boys’ School, the first of LocatED’s mixed-use schemes to complete, in February 2021.

“This was a technically complex project on a very constrained site providing a school for 800 pupils with police facilities and nine penthouse apartments, the latter helping to offset the school construction costs.”

Now LocatED is looking at a model where the mixed use development site pays for the school construction costs to avoid using public money.

Tes has asked LocatED how many city centre free schools have sites with condition issues which could be identified to be rebuilt, but it had not responded at the time of writing.

LocatED is publicly funded and in December 2019 the Treasury approved the business case for it to continue for a further three years, up to 31 March 2023.

The annual accounts says that in 2022-23 the DfE will submit a further business case to the Treasury for LocatED’s operation beyond March 2023.

LocatED was given a budget of £9.5m to cover its operating costs in the 2020-2021 financial year. This included £4.5m for “project related pre-acquisition costs for sites, mixed-use developments and disposals.”

The accounts shows that LocatED completed 28 site acquisition commissions in 2020-21 and managed more than 90 properties held for free schools but not yet in use.

In 2021-22 LocatED will continue to get all its funding from grant-in-aid provided by the DfE, the accounts say.