Section 111 would cover this expenditure, as it's incidental to the council's work, but the figure concerns me. A specialist solicitor would probably charge significantly more than this (I was quoted over £11k two years ago). The council should have legal advice cover under its insurance package, which might be worth pursuing. CIO conversion is run-of-the-mill for the ACRE county organisations, so your local ACRE could provide plenty of support and steer you towards your local specialists.
I try not to be pessimistic, but from my prior knowledge of your community, the parish council and its relationships with key local organisations, creating a membership-based CIO to perform such an important function in the heart of the community will probably trigger conflict on an unprecedented scale.