Calculating Education Contributions

We class schools, you see, into four grades: Leading School, First-rate School, Good School, and School. Frankly,” said Mr Levy, “School is pretty bad…”

(Evelyn Waugh, Decline and Fall)

The government has been fine-tuning its guidance as to the extent to which developers in England should be required to fund education provision.

Serendipitously for this blog post, the High Court last month handed down judgment in Thompson v Conwy County Borough Council (Dove J, 26 March 2019). Not only does the case provide an introduction to some of the existing uncertainties, but, as is clear from Dove J’s introduction, there is a link to one of the greatest comic literary depictions of a private school:

The site in question in relation to these proceedings is the Fair View Inn in Llanddulas. It appears that Evelyn Waugh was at one time a patron of the Fair View Inn when he taught at a nearby preparatory school. The Fair View Inn features as “Mrs Robert’s Pub” both in his diaries and also in his first novel, Decline and Fall.”

Remember that section in Decline and Fall, where Paul Pennyfeather gets sent to Llanabba Castle School in north Wales to teach subjects he knows nothing about, and his trips to Mrs Roberts’ pub with Captain Grimes? (If not, do put this blog post down and pick up D&F – much more entertaining).

One of the grounds of challenge to the grant of planning permission for residential development on the site of the Inn was that the planning committee, in approving the proposal on the basis of a commuted sum towards education provision, “were misled by inaccurate information being provided in relation to education school capacity.” It was submitted by the claimant (a representative of the campaign group Passionate about Llanddulas) that “although members were advised that the commuted sum would be used to improve existing school facilities in the near future, including the construction of a new school, the position […] is significantly different. [The claimant] contends that the position in truth is that the school in Llanddulas will remain over capacity on the basis that there is no guarantee at present that any new school would be secured through the provision of a commuted sum for education“.

The local school is indeed already oversubscribed. The education officer sought a financial contribution of £17,009, towards the costs of a new school in due course, based on approximately two additional nursery and primary pupils being added to the local school population. An internal email from the education officer was disclosed: “… we will be building a new school there in less than 5 years and the money will come in handy!

The claimant sought to rely on correspondence from the same officer that post-dated the permission and which set out the steps that would need to be taken to secure Welsh Government funding for a new school, the outcome of which was uncertain notwithstanding confidence expressed by the officer.

Dove J unsurprisingly took the position that “the question of whether or not officers misled members should be considered on the basis of the material as known to the officers at the time of the Committee report, rather than taking account of matters that arose or came to light after the decision was reached.”

But in any event he held that what was later set out by the officer in correspondence was “not in substance different from the succinct email he sent to Ms Roberts earlier in the year, namely that the Education Section of the Defendant has it in mind to use the commuted sum towards the redevelopment of the school in Llanddulas within five years. In my view it would subject the advice that the members were given to an illegitimate and overly forensic scrutiny to suggest that it was necessary also to spell out the further statutory and administrative processes which would be required before the new school would be open for use. The issue about which members were being advised was the question of whether or not there was a legitimate objective for the commuted sum in respect of education. The advice which the members were provided with accurately reflected the view of the Education Section given by Mr Jones and did not in my judgment mislead them. I am therefore satisfied on the basis of the information which has become available since the grant of permission that the members were not misled. Thus, even were account taken of material provided after the decision the position remains the same.”

No point appears to have been expressly taken as to whether the contribution failed the regulation 122(2) test within the CIL Regulations:

A planning obligation may only constitute a reason for granting planning permission for the development if the obligation is—

(a) necessary to make the development acceptable in planning terms;

(b) directly related to the development; and

(c) irly and reasonably related in scale and kind to the development.

Nor whether it offended the (soon to be abolished) pooling restriction in regulation 123.

Whilst the permission thereby survived the campaign group’s legal challenge, when you step back for a moment, the basis for requirements for contributions towards education provision, and the expensive uncertainty which developers and residents in new developments are expected to put up with, is faintly bizarre. New homes may contain children. Those children would need schooling somewhere regardless of the particular development. And yet, an application for planning permission for residential development is an opportunity that the Government pretty much requires local authorities to take in order to reduce the financial burden on the state and on direct taxation to secure financial contributions towards new and expanded schools. That cost reduces the financial viability of schemes, thereby reducing the amount affordable housing that the developer can subsidise (I’ve commented before on that logical disconnect conveniently ignored by successive Governments looking to minimise headline tax rates – so building market housing increases the amount of subsidised affordable housing that needs to be provided does it?). And, as in that Llanddulas example, where development proceeds on the basis of a financial contribution to something somewhere in the future, the developer and those who end up living in the development are at the whim of demographics and the education department’s forward planning and funds-securing nous as to whether, and where, necessary school places will become available. Rarely is the lack of available school places a reason to refuse planning permission.

But this is the policy environment.

Relevant passages in the Government’s Planning Practice Guidance were amended on 15 March 2019:

What funding is available for education?

Government provides funding to local authorities for the provision of new school places, based on forecast shortfalls in school capacity. There is also a central programme for the delivery of new free schools.

Funding is reduced however to take account of developer contributions, to avoid double funding of new school places. Government funding and delivery programmes do not replace the requirement for developer contributions in principle.

Plan makers and local authorities for education should therefore agree the most appropriate developer funding mechanisms for education, assessing the extent to which developments should be required to mitigate their direct impacts.

Paragraph: 007 Reference ID: 23b-007-20190315

Revision date: 15 03 2019

What contributions are required towards education?

Plans should support the efficient and timely creation, expansion and alteration of high-quality schools. Plans should set out the contributions expected from development. This should include contributions needed for education, based on known pupil yields from all homes where children live, along with other types of infrastructure including affordable housing.

Plan makers and decision makers should consider existing or planned/committed school capacity and whether it is sufficient to accommodate proposed development within the relevant school place planning areas. Developer contributions towards additional capacity may be required and if so this requirement should be set out in the plan. Requirements should include all school phases age 0-19 years, special educational needs (which could involve greater travel distances), and both temporary and permanent needs where relevant (such as school transport costs and temporary school provision before a permanent new school opens).

Plan makers should also consider whether pupils from planned development are likely to attend schools outside of the plan area and whether developer contributions may be required to expand schools outside of the area.


When local authorities forward-fund school places in advance of developer contributions being received, those contributions remain necessary as mitigation for the development.

Paragraph: 008 Reference ID: 23b-008-20190315

Revision date: 15 03 2019

The Department for Education published some detailed guidance for local authorities on 11 April 2019 to help them in securing developer contributions for education and on the approach to education provision in garden communities.

The guidance purports not to “advise the construction/development industry on its duties or responsibilities in paying for infrastructure” or to replace or override “policy/guidance produced by other government departments“. However, if you are negotiating section 106 agreement obligations, it is essential reading.

Securing developer contributions for education sets out the following principles:

• Housing development should mitigate its impact on community infrastructure, including schools;

• Pupil yield factors should be based on up-to-date evidence from recent housing developments;

• Developer contributions towards new school places should provide both funding for construction and land where applicable, subject to viability assessment when strategic plans are prepared and using up-to-date cost information;

• The early delivery of new schools within strategic developments should be supported where it would not undermine the viability of the school, or of existing schools in the area.”

Planning obligations should “allow enough time for developer contributions to be spent (often this is 10 years, or no time limit is specified“. But personally, I would push against such long timescales save where specifically justified!

In terms of the inter-relationship between government and developer funding:

5. Central government basic need grant, the DfE free schools programme and other capital funding do not negate housing developers’ responsibility to mitigate the impact of their development on education. When the DfE free schools programme is delivering a new school for a development, we expect the developer to make an appropriate contribution to the cost of the project, allowing DfE to secure the school site on a peppercorn basis and make use of developer contributions towards construction. National Planning Practice Guidance explains how local planning authorities should account for development viability when planning for the provision of infrastructure.2 There should be an initial assumption that both land and funding for construction will be provided for new schools planned within housing developments

6. While basic need funding can be used for new school places that are required due to housing development, we would expect this to be the minimum amount necessary to maintain development viability, having taken into account all infrastructure requirements Where you have a reasonable expectation of developer funding being received for certain school places,3 and you have declared this in your SCAP return (or plan to do so), then basic need funding should not be considered available for those school places other than as forward funding to be reimbursed by developer contributions later.

7. There are other options besides basic need grant for forward-funding school places, including the use of local authority borrowing powers where necessary. Where developer contributions have been secured through a planning obligation, you can recoup the borrowing costs from developer contributions later, provided these costs have been incurred as a result of housing growth. Local authorities can bid for funding under government grant programmes such as the Housing Infrastructure Fund (HIF) as they become available, while developers delivering schools directly as an ‘in kind’ contribution may be eligible for loan funding from DfE or Homes England, allowing a new school to be delivered at an earlier stage in the development than would have been possible otherwise.”

Pupil yield factors should be based on up-to-date evidence from recent local housing developments“. DfE is working on a detailed methodology.

All new primary schools are now expected to include a nursery. There must be sufficient primary and secondary education up to the age of 19 as well as special educational needs and disabilities (SEN) provision.

The assumed cost of mainstream school places should be based on national average costs published by the DfE, adjusted to reflect regional costs differences. The cost of early years provision should be assumed as the same as primary provision. Contributions to special school provision should be set at four times the cost of a mainstream school place.

All temporary and permanent education needs should be properly addressed, including school transport costs and temporary school provision. Where appropriate, both a preferred and “contingency” school expansion project should be identified in a section 106 planning obligation.

23. You may wish to safeguard additional land when new schools within development sites are being planned, to allow for anticipated future expansion or the reconfiguration of schools to create a single site. ‘Future-proofing’ can sometimes be achieved informally through a site layout that places open space adjacent to a school site. Where justified by forecast need for school places, additional land can be designated specifically for education use and made available for purchase by the local authority within an agreed timescale, after which the land may be developed for other uses.

24. While developers can only be expected to provide free land to meet the education need from their development, the allocation of additional land should also preclude alternative uses, enabling you to acquire the site at an appropriate cost. Land equalisation approaches can be used in multi-phase developments to ensure the development ‘hosting’ a new school (and any additional safeguarded land) is not disadvantaged. Nevertheless, the market price for the land will depend on its permissible uses. Land allocated for educational use in a local plan would usually have no prospect of achieving planning permission for any other uses. Independent land valuation may be required to establish an acquisition cost. National Planning Practice Guidance provides advice on land valuation for the purposes of viability assessment.

(There are elements of paragraphs 23 and 24 with which I would take issue or which may be too generally expressed. For example, if the reservation of additional land for a school (or for further forms of entry to an existing school) and the need for those additional school places is not generated by the development within which the land is situated, why should that land not be acquired at the development value it would otherwise have enjoyed?).

The guidance annexes advice on compliance with state aid and public procurement legislation.

There is specific guidance on strategic developments and new settlements (with more detailed separate guidance on garden communities), including on multiple phase school provision, the timing of provision and use of viability review mechanisms where the initial education contribution has been reduced on viability grounds.

Whether your education contribution is in the low tens of thousands of pounds as per the Llanddulas case or in the low tens of millions of pounds, as may be the case with a new settlement, arriving at efficient, practical solutions is key. Travelling optimistically, let us hope that the new guidance will assist in arriving at those solutions, rather than encouraging authorities to add to the current list of requests.

Simon Ricketts, 13 April 2019

Personal views, et cetera

Section 106 Agreements & Public Procurement

Faraday v West Berkshire Council (Court of Appeal, 14 November 2018) is essential reading for those advising on development agreements between local authorities and developers: the fact that the developer has the benefit of an option as to whether to take an interest in the relevant land and carry out the development does not prevent the agreement from being treated as a public works contract. Quite a reversal from Holgate J at first instance.

For planners and planning lawyers advising on section 106 agreements, the case is more reassuring than for those struggling with development agreements. The Court of Appeal considered that the position in relation to development agreements was to be distinguished with that in relation to section 106 agreement. It expressed the position more firmly than the High Court had previously needed to in Midlands Co-Operative Society Ltd, R (on the application of) v Birmingham City Council and Tesco Stores Limited (Hickinbottom J, 16 March 2012).

The Midlands Co-Operative case concerned a deal reached between Birmingham City Council and Tesco for the redevelopment of land in Stirchley owned by the council on which there was an indoor bowls and community centre. Part of the arrangements between the council and Tesco included a section 106 agreement to provide and fit-out a replacement community centre and indoor bowls facility. The decisions to enter into a contract to sell the site and to use CPO powers to assist with assembly of the remainder of the development site were challenged by a competing developer, the Co-op, which asserted that the arrangements amounted to a public works contract and that that public procurement requirements had been breached.

Hickinbottom J rejected the challenge, on the basis that whilst the council had exchanged contracts to sell the land to Tesco there was no legally enforceable obligation on Tesco to carry out the works unless it chose to proceed. Whether it proceeded with the scheme was at its discretion.

For those reasons, I do not consider that Tesco is now under any legally enforceable obligation to perform any relevant works that mean that the arrangements between it and the Council or any of them (including the contract for the sale of the Community Facility) fall within the scope of “public works contract” for the purposes of the 2006 Regulations; and, hence, the procurement provisions of those Regulations do not apply.

If there had been legally enforceable obligations to perform works, at least the three further potential issues would have arisen, namely (i) whether those obligations were mere planning obligations that would not invoke the provisions of the 2006 Regulations, (ii) whether the 2006 Regulations would not apply, because the main purpose of the arrangement was not the procurement of works, and (iii) whether the 2006 Regulations only give rise to private rights, such that a public law claim based upon them is inappropriate. In the light of my finding that the arrangement involved no legally enforceable obligation to perform works, those issues do not arise in this case; and it is unnecessary for me to consider them further.”

The Court of Appeal in Faraday rejected the notion that if the developer is not under a legally enforceable obligation there cannot be a public works contract. In the lead judgment, Lindblom LJ set out the court’s reasoning as follows:

The touchstone, then, is whether, in substance, the agreement in question, at the date it is concluded, provides for a relevant procurement.

In this case, judged by that test, the development agreement clearly did provide, at the date it was entered into, for a procurement by the council of the development it was intended to deliver. At that date, no further act of procurement by the council remained to be done, for which a lawful public procurement procedure could later be conducted. The time for that had passed. When it entered into the development agreement, the council had nothing more to do to ensure that a “public works contract” would come into being. It had, in fact, done all that it needed to do to procure. It had committed itself contractually, without any further steps being required of it, to a transaction that will fully satisfy the requirements of a “public works contract”. It had committed itself to procuring the development from St Modwen. The development agreement constitutes a procurement in its result, and a procurement without a lawful procurement procedure under the 2004 Directive and the 2006 regulations. The procurement crystallizes when St Modwen draws down the land. The ground lease entered into by St Modwen will contain an unqualified obligation to carry out works, and a corresponding obligation will also be brought into effect in the development agreement itself. The development agreement made that commitment on the part of the council final and provided also for a reciprocal commitment on the part of St Modwen. It did so without a public procurement process, and without affording any opportunity for such a process to be gone through before the “public works contract” materializes. At that stage it would be too late. Thus a “public works contract” will have come into being without a lawful procurement process. The regulation of the council’s actions in procuring the development will have been frustrated.

By entering into the development agreement, therefore, the council effectively agreed to act unlawfully in the future. In effect, it committed itself to acting in breach of the legislative regime for procurement. As Mr Giffin submitted, that is in itself unlawful, whether as an actual or anticipatory breach of the requirements for lawful procurement under the 2004 Directive and the 2006 regulations, or simply as public law illegality, or both. The only other possibility would be that a contracting authority is at liberty to construct a sequence of arrangements in a transaction such as this, whose combined effect is to constitute a “public works contract”, without ever having to follow a public procurement procedure. That would defeat the operation of the legislative regime.”

Whilst it was not necessary to deal with the point for the determination of this case, Lindblom LJ was careful not to suggest that this meant that the section 106 agreement in the Midlands Co-Operative case would on his reasoning have amounted to a public works contract:

The section 106 planning obligation was […] a very different kind of agreement. It had a distinct status and role in the statutory planning scheme. Its purpose was to regulate the development of land for which the local planning authority was granting planning permission. By its terms the developer, and its successors in title, would not be able lawfully to proceed with the development for which planning permission was granted, and in particular would not be able to demolish the existing community facilities on the development site, until it had constructed replacement facilities. The section 106 agreement did not oblige the developer to proceed with the development. But in any case it was not the kind of transaction that is governed by the public procurement regime. By its very nature, it was not a “public works contract”. Its essential object – and its necessary justification in the interests of the proper planning of the local planning authority’s area – was to ensure that the community facilities would be replaced if the planning permission were implemented. Otherwise, the proposed development itself would not have been acceptable, and planning permission should not have been granted for it. As Hickinbottom J. said (in paragraph 116 of his judgment), “the council’s primary objective was of a planning nature – to develop the Site – rather than having performed the works involved in replacing the community facility”. In this case, by contrast, when it entered into the development agreement, the council was not exercising any of the functions of a local planning authority under the statutory planning scheme. It was entering into a contract whose essential object was the execution of the works for which it provided. It therefore fell within the scope of the public procurement regime.”

That is an important paragraph, because if obligations on developers in section 106 agreements to carry out works were to trigger public procurement requirements, the whole practice of using planning obligations to achieve acceptable development would rapidly have come to a halt. Instead, we have clarity that there is not a problem.

Good news. And also good news that as a planning lawyer I may not now need to focus so much on the Public Procurement (Amendment etc.) (EU Exit) Regulations 2019 – laid before Parliament on 13 December 2018 and prepared with the objective of continuing the current public procurement regime post Brexit.

Simon Ricketts, 12 January 2019

Personal views, et cetera

PS Some chat about the lawyers involved in these cases:

Leading counsel for the unsuccessful claimant in Midlands Co-Operative was David Holgate QC, as he was back in 2012 – and the position as a judge he later took at first instance in Faraday was very much in line with the approach that Hickinbottom J had taken in Midlands Co-Operative in the face of Holgate’s submissions – no legally binding obligation on the part of the developer, therefore no public works contract.

Junior counsel for the city council in Midlands Co-Operative was a very young Charlie Banner, who deservedly becomes Charles Banner QC on 11 March 2019. He was led in Midlands Co-Operative by David Elvin QC, whilst in Faraday Banner would appear for the claimant (and at first instance was given some of the treatment from Holgate that in Midlands Co-Operative Holgate had himself received from Hickinbottom) (with Elvin appearing on the other side for the defendant council).

Photograph via Sothebys

An Update On CIL: Reform Promised, Meanwhile Continuing & Increasingly Expensive Uncertainties

Well done for getting past the heading.

Someone recently asked me whether the Government ever changes its proposals as a result of a consultation process. For an example of just such a thing, I was able to point to the Government response to supporting housing delivery through developer contributions: a summary of consultation responses and the Government’s view on the way forward (29 October 2018). The proposals set out in the Government’s March 2018 consultation paper (summarised in my 10 March 2018 blog post Developer Contributions, CIL, Viability: Are We Nearly There Yet?) have been modified significantly as a result of consultation, mostly for the better in my view at least.

This blog post focuses on the changed proposals and then looks at some looming issues facing phased developments in areas where charging authorities are looking to increase rates (I’m focusing on the Mayor of London’s MCIL2 but I’m sure the issue is of wider application).

The Government response

The document acknowledges some of the flaws of the current system:

The complexity and uncertainty of the current system of developer contributions is acting as a barrier to the delivery of housing. The system does not react quickly to changes in market conditions or allow local authorities to effectively secure the contributions needed to support new development. It is also not as transparent as it should be; local communities are not clear what infrastructure is provided alongside new development. And the current system could also be more effective in securing funding towards strategic infrastructure and supporting cross boundary planning.”

The Government intends to consult on draft regulations “later this year” to implement the changes set out in the March 2018 consultation document, as now modified. It is important to note that the Government will “also consider whether changes could be made to the Community Infrastructure Levy to incentivise the build out of developments.” (perhaps something that Sir Oliver Letwin might have looked at but…).

The Government has now modified its proposed changes as follows:

1. The previous proposal to replace charging authorities’ current statutory consultation requirements, in relation to proposed charging schedules, with self-certification as to whether it has sought “an appropriate level of engagement” has been amended. The Government “intends to take forward a modified proposal to ensure that regulations continue to require charging authorities to consult on draft charging schedules, whilst removing the current statutory requirement for two separate rounds of consultation in every circumstance.”

2. The pooling restriction will now be removed in its entirety in all areas. Hooray! Although of course there is the risk that tariff-type section 106 contribution requirements will again become more prevalent, in my view the pooling restriction led to many unnecessary problems and uncertainties, which would have continued under the Government’s March 208 idea of only removing the restriction in in areas where specified criteria were met.

3. The Government had intended to introduce a two month grace period for developers to submit a commencement notice in relation to exempted development, to address disproportionately severe problems arising for eg self-builders who, if they fail to meet procedural requirements, find not only that they fail to qualify for any exemption but that all CIL due has become immediately payable. The Government will not now introduce the grace period (which local authorities considered could lead to practical complications) but instead will be “making changes to the penalties associated with the failure to submit a Commencement Notice prior to development being started. This will ensure that any penalty is set at a proportionate level and will not result in the whole liability becoming payable immediately.”

There may also be more guidance as to potential exemptions: “A number of responses sought additional exemptions to address the unintended viability impacts of Levy liabilities on particular forms of development. The Government will consider how guidance could be used to manage these effects by encouraging authorities to take account of these issues when setting Levy rates and choosing how they use existing powers for discretionary social housing relief. In addition, the Government has already committed to bring forward legislation to exempt Starter Homes from the Community Infrastructure Levy.”

4. The complicated proposal in the March 2018 consultation document that charging schedules might be set with reference to the existing use of land has been dropped. “However, the Government has reviewed this proposal and considers there are existing flexibilities in the Community Infrastructure Levy Regulations that, through the use of differential Levy rates, will allow local authorities to go some way towards achieving the objective of the proposed reform. The Government therefore proposes to make changes to guidance to support local authorities to set differential rates more effectively.

5. At the time that it publishes the draft amendment regulations, the Government intends to “consult on changes to indexation of Levy rates and the way in which it would be implemented“. Its current preference is to index CIL rates “for residential development to the House Price Index using local-level data on an annual basis” and to index rates for non-residential development to the Consumer Price Index. It recognises the transitional issues that will arise.

6. The Government still intends to remove the restriction in relation to section 106 obligations that relate to an infrastructure project or type of infrastructure that is set out in the authority’s Regulation 123 list. “New reporting standards, which are set out in the Infrastructure Funding Statement, will address concerns about double dipping by ensuring that there is transparency over how developer contributions from both CIL and section 106 planning obligations are being used, rather than by placing formal restrictions in regulations.” We need to watch this one with care!

In relation to one specific issue that often leads to wrangles: “The Government also recognises the need to address existing uncertainty around using section 106 planning obligations to collect monitoring sums. The Government therefore intends to take forward proposals to make clear that local authorities can seek a fee from applicants towards monitoring planning obligations. In developing these proposals, the Government will consider how best to ensure that monitoring sums are set at an appropriate level.”

7. The Government had intended to give combined authorities and joint committees with strategic planning powers the ability to charge a Strategic Infrastructure Tariff. “The Government has decided to take forward a modified proposal, to enable Combined Authorities with strategic planning powers to take forward a Strategic Infrastructure Tariff, and to encourage groups of charging authorities to use existing powers to more effectively support the delivery of strategic infrastructure through the pooling of their local Community Infrastructure Levy receipts. In the longer term, the Government will bring forward proposals for allowing joint planning committees to charge the tariff, and will review options for giving other groups the power to levy a Tariff.”

The Government had also included a final “catch all” question seeking any other comments. Particular issues that were raised in responses included “the definition of gross internal area, implementation of the Levy in particular circumstances (such as in relation to development that takes place in a number of phases or there is a change of use), and the operation of exemptions and reliefs, indexation and in-kind payment.

Issues such as these are indeed causing much uncertainty.

The implications of increased rates/MCIL2

Whilst we wait for eventual reform of the system, of more immediate focus are the implications of gradual increases by charging authorities in CIL rates.

In London, the Mayor of London is waiting for the inspector’s report following the examination into the draft charging schedule for MCIL2. MCIL2 is proposed to part-fund Crossrail 2, in the way that MCIL1 (together with a related policy of seeking section 106 contributions in relation to some areas and types of development) is part-funding Crossrail 1.

The charging schedule for MCIL1 was adopted on 1 April 2012 (which is why there are many section 106 agreements and permissions dated March 2012, as developers and boroughs scrambled to ensure that permissions were not subject to the levy!).

This table sets out borough by borough the significant sums of money that MCIL1 has now raised:

The section 106 contributions policy for Crossrail (set out in the Mayor’s Crossrail Funding SPG, updated March 2016) predated MCIL1 and provided for section 106 contributions based on the following table and plans:

The standardised wording included in relevant section 106 agreements provides that any MCIL1 which is payable reduces the contributions which are required to be made under the relevant section 106 agreement.

As long as the inspector’s report is received on time and gives it a clean bill of health, MCIL2 will be adopted on 1 April 2019. The changes in rates, compared to where the 2012 rates currently sit with indexation applied, are mostly not huge, but they are significant in some areas. In areas where the increases are material, I am sure we will see a similar rush to beat the deadline.

One uncertainty is of course whether the examination inspector will accept a charging schedule that is predicated on Crossrail 2 coming forward. Little has progressed on the project since my 1 July 2017 blog post, Crossrail 2: Where Are You? We are all still awaiting outcome of an independent affordability review being chaired by Mike Gerrard. The Mayor is hedging his bets, simply indicating:

Should the Crossrail 2 project not be taken forwards, the Mayor would be able to apply the MCIL 2 proceeds to fund other strategic infrastructure.”

Assuming that MCIL2 is waved through and the charging schedule is adopted on 1 April, the relevant point at which it takes effect is determined by everyone’s least favourite phrase in the CIL Regulations: “at the time planning permission first permits the chargeable development“.

For a non-phased permission, this is the date of the permission – easy.

For a phased outline permission, this is either “the date of final approval of the last reserved matter associated with that phase” or “if earlier, and if agreed in writing by the collecting authority before commencement of any development under that permission, on the day final approval is given under any pre-commencement condition associated with that phase“.

For a phased full permission, this is either “the day final approval is given under any pre-commencement condition associated with that phase” or “where there are no pre-commencement conditions associated with that phase, on the day planning permission is granted“.

It will be seen that (1) the revised charging schedule is liable to bite in respect any phase of an existing phased permission if sufficient progress has not been made in relation to reserved matters or discharging pre-commencement conditions in relation to that phase and (2) that there are inherent uncertainties in the drafting, eg

⁃ What does “associated with that phase” mean?

⁃ Does “any” mean “any” or, in fact, “all“?

As a final example of the inadequacies of the legislation: where there is a phased permission and a revised charging schedule is subsequently adopted, the only indexation that applies is of the amount arising from the initial charging schedule up to the end of the year prior to the date of the permission. There is no further indexation through to commencement of development or any indexation of the revised charging schedule insofar as it applies to the phases! Would it not be simpler and more predictable if indexation were not to stop at the initial grant of the permission and instead to continue through to final approval (or even commencement of development) in relation to each phase, but if the potential application of revised charging schedules were removed?

In case anyone has made it down this far…

In conclusion:

⁃ the proposed reforms, and most recent proposals, look to be mainly positive

⁃ but the whole regime really does still need simplifying: to state the obvious, significant liabilities can unexpectedly arise for the unwary – and large sums of money can turn on uncertain issues of interpretation.

Simon Ricketts, 9 November 2018

Personal views, et cetera

What If? The Trinity One Case

What if your development were subject to a section 106 agreement that provided for a commuted sum to be paid towards affordable housing, the precise amount payable to be calculated in accordance with a formula; at the date that the agreement was completed in 2003 the formula would have arrived at a commuted sum of between £500,000 and £700,000 but by the time that it was triggered the basis for calculating the formula had been abolished and so there was no way of arriving at an appropriate figure? Would you go to the High Court and Court of Appeal to seek to resist a claim from the local planning authority that was seeking a sum of £533,058 plus interest?

Well that was what the developer did in the Council of the City of York v Trinity One (Leeds) Limited (Court of Appeal, 21 February 2018). Not only that but they pursued a separate section 106BA and BC application and appeal, before the 30 April 2016 deadline for applications under that procedure, to seek to argue that in any event it should be released from the obligation in order to prevent its development from being economically unviable (a process where it is separately currently pursuing a second judicial review). I don’t know the facts beyond what is stated in the Court of Appeal’s judgment but I would suspect that this saga must pretty much have cost the parties in legal fees the sum being fought over and there remains the possibility of the local planning authority losing out on a substantial contribution towards affordable housing. Mediation anyone?

Hindsight is of course a wonderful thing but the dispute has arisen from not enough “what if?” questions being asked when the agreement was negotiated in 2003.

The relevant clause in the agreement provided that the commuted sum “shall be calculated on the amount of Social Housing Grant necessary to secure affordable rented homes of an equivalent type and size on another site [in a similar residential area in the City of York] which grant for the avoidance of doubt shall be calculated at normal grant levels from regional TCI tables provided on an annual basis by the Housing Corporation or such equivalent grant calculation current at the time and supported by the Housing Corporation”.

Social Housing Grant was defined as “the grant that may be provided in respect of affordable housing in the Council’s administrative area in accordance with Government and Housing Corporation Guidance.”

Some of you may remember the Total Cost Indicator tables that were previously used by the (now defunct) Housing Corporation as a basis for calculating the level of (now defunct) Social Housing Grant.

The lawyers negotiating the agreement at least had asked themselves what if TCI tables were no longer provided on an annual basis by the Housing Corporation but beyond that there was little imagination as to how far the affordable housing funding arrangements might change: if TCI tables ceased to be published, the calculation was to be done on the basis of “such equivalent grant calculation current at the time and supported by the Housing Corporation”. Hmm. No “what if social housing grant and/or the Housing Corporation cease to exist“? No provision for the parties to agree another reasonable benchmark, with the ability to go to an independent expert in the event of dispute?

The Court of Appeal identified that the issue “turns on the balance between giving effect to the intention of the parties and the language of the contract“. It upheld the ruling of the High Court that the clause was not unenforceable due to the lack of certainty as to how the sum was now to be calculated. The court sets out in some detail the approach to be taken, drawing upon principles articulated by the Supreme Court in Arnold v Britton (Supreme Court, 10 June 2015).

The Supreme Court in that case had considered the interpretation of service charge contribution provisions in the leases of a number of chalets in a caravan park in South Wales, and whether annual increases in service charge were to be calculated on a compound basis, resulting in absurdly high increases. Lord Neuberger summarised the correct approach as follows:

When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”, to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101, para 14. And it does so by focussing on the meaning of the relevant words, in this case clause 3(2) of each of the 25 leases, in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party’s intentions.”

Lord Neuberger set out six principles and the Court of Appeal in Trinity One drew particularly the first and sixth:

First, the reliance placed in some cases on commercial common sense and surrounding circumstances (eg in Chartbrook, paras 16-26) should not be invoked to undervalue the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision.”

Sixthly, in some cases, an event subsequently occurs which was plainly not intended or contemplated by the parties, judging from the language of their contract. In such a case, if it is clear what the parties would have intended, the court will give effect to that intention. An example of such a case is Aberdeen City Council v Stewart Milne Group Ltd[2011] UKSC 56, 2012 SCLR 114, where the court concluded that ‘any … approach’ other than that which was adopted ‘would defeat the parties’ clear objectives’, but the conclusion was based on what the parties ‘had in mind when they entered into’ the contract (see paras 17 and 22).”

Applying these principles, the Court of Appeal in Trinity One identified that:

⁃ the intention of the parties was that a commuted sum was to be paid.

⁃ the uncertainty related to quantification rather than the principle of payment.

⁃ “It would defeat the underlying purpose of the Agreement if the clause were unenforceable due to lack of certainty. The consequence would be that TOL would receive the benefit of planning permission without providing affordable housing or a commuted sum. In simple terms, that was not the bargain.”

⁃ “…the quantification of that sum should be that which is equivalent to the amount of money which would have been provided had the SHG remained in being. Although this is a departure from the literal words of the contract, this is the only sensible solution to the problem posed by the abolition of the SHG on which the clause is premised. The clause provides that the developer should pay enough money so that the Council can provide equivalent affordable housing: the best the court can do is work out a roughly equivalent figure for that sum.”

⁃ The figure that had been arrived at of £533,508 was a “reasonable attempt to reach a figure equivalent to the SHG which would have been payable before 2006“.

To a non-lawyer this may all seem obvious, but who wants to go to the Court of Appeal to establish what a provision means, just because not enough “what if” questions weren’t asked at the outset?

York Council isn’t yet entirely out of the woods. I mentioned the pending judicial review in relation to the developer’s section 106BC appeal. The Court of Appeal held that if the section 106BC appeal is ultimately successful, it will have retrospective effect notwithstanding that the council’s rights to be paid had already accrued. That seems strange to me, but given that the section 106BA and BC procedure is no longer available, this issue is of limited continuing wider relevance.

So please remain patient when your solicitor asks you yet another series of “what if” questions. In another part of our legal world, the European Medicines Agency is reported to be seeking to set aside its lease at Canary Wharf on the basis that Brexit will amount to an event of frustration. It was reported elsewhere that the “what if” question may in fact have been asked and then set on one side. Now that can be even more awkward.

This blog post is a belated companion to my 14 October 2017 post, Flawed Drafting: Interpreting Planning Permissions.

Simon Ricketts, 8 September 2018

Personal views, et cetera

Community Benefits

The road to the High Court is paved with good intentions. Who doesn’t want development to deliver all manner of gains to a community? But at the planning application or appeal stage, the developer and decision maker need to be clear in their thinking as to whether each commitment made is material to the decision-making process and, if documented by way of section 106 agreement, meets the statutory tests.

This piece was initially prompted by the High Court’s ruling in Good Energy Generation Limited v Secretary of State (Lang J, 25 May 2018) and the earlier ruling of the Court of Appeal in R (Wright) v Forest of Dean District Council (Court of Appeal, 14 December 2017), which is now heading to the Supreme Court.

I then saw this piece in the Standard on the way home last night which got me thinking as to how blurred the lines are in all of this.

As you might expect, the position is dealt with in a more upfront way in the United States, where the practice has grown up of developers negotiating “community benefits agreements” with local communities to build support for, or at least reduce opposition to, major development projects. There is a good paper published by the New York City Bar, The Role of community benefit agreements in New York City’s land use process (8 March 2010). The scope of the agreements referred to, in relation to projects such as Hudson Yards and the relocation of the Mets and Yankees stadia, sounds remarkably similar to many English section 106 agreements but the agreements are negotiated direct with the communities affected. An additional complication does of course arise as to determining which groups should be included in the negotiation, as well as to how the agreement is to be enforced, but for good or bad the process does not appear to lead to the intellectual agonising engaged in by our courts as to whether particular commitments are or are not to be taken into account in the decision making process.

The traditional position in England, Scotland and Wales is represented by the Supreme Court’s judgment last year in Aberdeen City and Shire Strategic Development Planning Authority v Elsick Development Company Limited (25 October 2017):

“A planning obligation, which required as a pre-condition for commencing development that a developer pay a financial contribution for a purpose which did not relate to the burdened land, could be said to restrict the development of the site, but it would also be unlawful. Were such a restriction lawful, a planning authority could use a planning obligation in the context of an application for planning permission to extract from a developer benefits for the community which were wholly unconnected with the proposed development, thereby undermining the obligation on the planning authority to determine the application on its merits. Similarly, a developer could seek to obtain a planning permission by unilaterally undertaking a planning obligation not to develop its site until it had funded extraneous infrastructure or other community facilities unconnected with its development. This could amount to the buying and selling of a planning permission.”

Furthermore:

The inclusion of a policy in the development plan, that the planning authority will seek such a planning obligation from developers, would not make relevant what otherwise would be irrelevant.”

(For further detail see my 28 October 2017 blog post Aberdeen: Supreme Court, Planning Obligations).

However, that traditional position is now overlaid, in England and Wales, with the additional restriction contained in regulation 122 of the Community Infrastructure Levy Regulations 2010, which provides that a “planning obligation may only constitute a reason for granting planning permission for the development if the obligation is—
(a) necessary to make the development acceptable in planning terms;
(b) directly related to the development; and
(c) fairly and reasonably related in scale and kind to the development.

The two most recent cases that examine the appropriateness of developers’ commitments as to benefits for the local community both involve wind farm projects. That’s probably no surprise because, against the background of frequent local hostility, the Government has encouraged promoters to bring forward community benefits packages (see for example the 2014 DECC guidance, Community Benefits from Onshore Wind Developments: Best Practice for England). The PPG also encourages “community led renewable energy developments” and “community based initiatives“. However the principles from the case law of course apply equally to all types of development.

R (Wright) v Forest of Dean District Council (Court of Appeal, 14 December 2017) considered the “issue of whether, on an application for development proposed to be undertaken by a community benefit society, a proposed donation to the community of a proportion of the turnover derived from the development is a material consideration.” In that case, which concerned a scheme for a single community-scale 500kW wind turbine, it was “proposed that the turbine would be erected and run by a community benefit society, and the application included a promise that an annual donation would be made to a local community fund based on 4% of turnover from the operation of the turbine over its projected life of 25 years, to be achieved by way of a condition that the development be undertaken by such a society with the donation as part of the scheme.” The commitment was not to be delivered by way of section 106 agreement (and so regulation 122 was not relevant) but by way of a condition requiring that the development be undertaken by a community benefit society, details of which were to be provided to the authority prior to commencement.

The local planning authority took that commitment (which looks a pretty loose one to me!) into account as a material consideration in granting planning permission. A local resident challenged the decision on the basis that it was not a material planning consideration. Dove J upheld the challenge and the local planning authority and promoter appealed to the Court of Appeal.

In front of the Court of Appeal, counsel for the local planning authority and the promoter both “accepted that, on a planning application, it would be unlawful for a planning authority to take into consideration a donation to a community benefit fund by a commercial wind farm developer, because such a donation would not be a material consideration. For similar reasons, they accepted that an authority could not require such a donation as a planning obligation, whoever the developer might be. However, they each submitted that the circumstances of this case, notably the voluntary donation derived from a community-led project and made to benefit the community, were materially different“.

Hickinbottom J disagreed, commenting as follows:

where a financial contribution that is not a material consideration is put forward as part of an application for proposed development, it is sometimes said that that is an attempt to “buy” planning permission. In my view, that terminology (or even more pejorative terms such as “bribe”) is generally unhelpful. In respect of materiality, the proper focus is upon the Newbury criteria. No matter how well-intentioned the proposed donor might be (and I accept that, here, Resilient Severndale is well-intentioned), and no matter how publicly desirable such a donation might be (and I accept that, here, the proposed community benefit fund would benefit the community), such a donation will not be material for planning purposes unless it satisfies those criteria.

As I have indicated (paragraph 28(ii) above), a planning purpose is one which relates to the character or use of the land. It is proposed that the donation by the developer here will be put into a community benefit fund, administered by local people for the benefit of the community, but without any other restriction, e.g. a restriction to use it for a planning purpose. I have set out some of the beneficiaries of the similar fund set up in respect of the St Briavels Wind Farm (see paragraph 22 above). I accept that all these are worthy community causes, but the provision of waterproofs for young people, and lunch for older people, do not seem to address any obvious planning purpose. As Dove J found (at [48] of his judgment), “beyond being of some benefit to the local community, as recognised or defined by the local people administering the fund, there is no limitation on how the money might be used”.

He concluded:

In my view, for the reasons I have given, Dove J, who referred to and applied the relevant authorities, was right to proceed on the basis that the nature of the community benefit fund donation, and the vehicle it was proposed would provide it, were not such as to preclude examination of the contributions associated with it to see whether they satisfied the legal requirements of being a material consideration in the planning decision. He was entitled to conclude that “the community donation is an untargeted contribution of off-site community benefits which is not designed to address a planning purpose” (see [55] of his judgment). He was also entitled to conclude that there is “no real connection between the development of a wind turbine and the gift of monies to be used for any purpose which appointed members of the community consider their community would derive benefit” (see [56]). Indeed, he was in my view, undoubtedly right to draw such conclusions: and to conclude that, consequently, the Council was not entitled to take into account as a material consideration the offer of the community benefit fund donation made as part of Resilient Severndale’s proposal, as it did.”

That case will ultimately be considered by the Supreme Court, so watch this space. In the meantime, the High Court last month handed down its judgment in Good Energy Generation Limited v Secretary of State (Lang J, 25 May 2018). Here, an appeal had been dismissed by the Secretary of State (following the recommendations of an inspector) in relation to the proposed development of a wind farm in Cornwall. The promoter challenged the decision on two grounds but for present purposes I am only focusing on the first ground, namely:

The Claimant submitted that, in assessing the planning balance, the Secretary of State and the Inspector erred in law in disregarding the benefits offered by the Claimant in a unilateral undertaking made under section 106 TCPA 1990, as these were material considerations, which were not excluded by regulation 122 of the CIL Regulations 2010.

In summary, the main benefits offered by the Claimant were:


i) financial contributions to a community benefit fund;
ii) a community investment scheme open to local residents; and
iii) a reduced electricity tariff, open to local residents.

The Claimant’s pleaded case was that all three of these community benefits were material planning considerations. They were for a planning purpose since they furthered the Government’s legitimate planning policy objectives of encouraging local community involvement in renewable energy schemes and providing positive local benefit from renewable energy development. They also complied with specific aspects of local development plan policy. Furthermore, the benefits were directly related to, and derived from, the use of the land for the operation of the development.

However, after the claim was issued, the Court of Appeal decided in R (on the application of Peter Wright) v Forest of Dean District Council & Resilient Energy Serverndale Limited [2017] EWCA Civ 2102 that the local planning authority had erred in taking into account a proposed donation to the community (4% of turnover) from the operators of a wind turbine development as a material consideration weighing in favour of the grant of planning permission. It did not serve a planning purpose, nor did it fairly and reasonably relate to the development proposed.

In the light of the decision in Wright, at the hearing before me, the Claimant abandoned its challenge in respect of the community benefit fund, but continued with the challenge in respect of the community investment scheme and the reduced electricity tariff scheme open to local residents.

The Claimant further submitted that, in applying regulation 122 of the CIL Regulations 2010, the Inspector and the Secretary of State failed to exercise their planning judgment in deciding whether or not the obligations were “necessary” on the facts of the case. If they did exercise their planning judgment, they failed to give adequate reasons for their conclusions.”

The community benefits set out in the section 106 agreement included:

“(a) a £5,000 per megawatt of installed capacity community benefit contribution to be paid into a community benefit fund;
(b) a community investment scheme open to local residents; and
(c) a reduced electricity tariff, also open to local residents
.”

Lang J set out the case law and stated that the tests in regulation 122 are “more stringent than the common law tests“. She found that “the inspector and the Secretary of State were entitled to conclude, in the exercise of their judgment, that no weight could be attached to the local tariff and the community investment scheme in determining the appeal as they were not material considerations which complied with regulation 122 of the CIL Regulations 2010.”

She rejected any suggestion that the local tariff (amounting to at least a 20% reduction in electricity bills, funded by the community benefit fund) could be said to be a community-led initiative within the meaning of the PPG: “the local tariff was essentially an inducement to make the proposal more attractive to local residents and to the local planning authority. The scheme was not necessary to make the development acceptable in planning terms under regulation 122 of the CIL Regulations 2010.

She found that the terms of the community investment scheme were uncertain. The section 106 unilateral undertaking simply committed the developer to its establishment within six months of first generation.

The lack of any specific details, combined with uncertainty about the scheme’s commencement and long-term future, meant that the connection between the benefit and the development was remote and uncertain, rather than real.

…It was merely a potential investment opportunity“.

What lessons do we draw?

There is nothing at all wrong with developers making commitments to deliver community benefits. However, be careful to ensure that these are only taken into account in decision making if they are material planning considerations and meet the strict requirements of regulation 122.

Can we do things differently? There is nothing to prevent developers negotiating community benefits agreements, perhaps labelled indeed as such, with communities as long as matters which are not material planning considerations are not taken into account in decision making (although I accept that the position can become pretty artificial, where committee members are asked for the sake of form in their decision making to close their eyes to what is plainly on offer).

At present section 106 agreement negotiations, particularly in relation to major projects, can become somewhat of a fudge, where it can be difficult to separate those commitments which are genuinely required to make the development acceptable from those which are required in practice to secure political and community acceptance. To the extent to which regulation 122 has either introduced an additional JR trip hazard (as it has) or, through leading to caution on the part of promoter and authority alike, discouraged commitments to what would have been worthwhile public benefits, better for all, is regulation 122 causing more harm than good?

Finally, the way in which all of this to be reported to committee will be tidied up as and when section 155 of the Housing and Planning Act 2016 is brought into force, in that “financial benefits information” will need to be included in officers’ reports, including “a list of any financial benefits (whether or not material to the application) which are local finance considerations or benefits of a prescribed description, and which appear to the person making the report to be likely to be obtained” by the authority or third parties within a description to be prescribed, as a result of the proposed development, together with “in relation to each listed financial benefit, a statement of the opinion of the person making the report as to whether the benefit is material to the application” as well as any other prescribed information about each listed financial benefit.

Whether or not section 155 is brought into force, this approach would be a useful discipline and may provide a safer basis for developers who do indeed for a range of reasons (reputation, securing quality outcomes in the longer term, building support and reducing suspicion with local communities and, in some cases such as renewable energy, shale and major transportation projects, seeking to address the perceived unfairness of expecting one community to take all of the adverse effects of development for the wider good) wish to deliver community benefits without unnecessarily adding to the risk of judicial review.

Simon Ricketts, 2 June 2018

Personal views, et cetera

Developer Contributions, CIL, Viability: Are We Nearly There Yet?

Bookends to this last week:
On Monday 5 March 2018 the draft revised NPPF , accompanying consultation proposals document and the Government’s response to the housing white paper consultation were all published, as well as the two documents I’ll focus on in this blog post:
Supporting housing delivery through developer contributions: Reforming developer contributions to affordable housing and infrastructure (which also addresses proposed reform to CIL); and 

Draft Planning Practice Guidance for Viability 
On Friday 9 March 2018 Draft Planning Practice Guidance: Draft updates to planning guidance which will form part of the Government’s online Planning Practice Guidance was published. 

The draft revised NPPF itself says very little on developer contributions, CIL and viability. 
On contributions, paragraph 34 of the draft (headed, in contrast to the “developer contributions” document, “development contributions” – consistency of terminology would be good!) states:
Plans should set out the contributions expected in association with particular sites and types of development. This should include setting out the levels and types of affordable housing provision required, along with other infrastructure (such as that needed for education, health, transport, green and digital infrastructure). Such policies should not make development unviable, and should be supported by evidence to demonstrate this. Plans should also set out any circumstances in which further viability assessment may be required in determining individual applications.”

On viability:

58. Where proposals for development accord with all the relevant policies in an up-to- date development plan, no viability assessment should be required to accompany the application. Where a viability assessment is needed, it should reflect the recommended approach in national planning guidance, including standardised inputs, and should be made publicly available.”
The Developer Contributions consultation document (responses sought by 10 May) addresses both contributions by way of section 106 planning obligations and by way of CIL. The document is accompanied by a research report commissioned from the University of Liverpool, The Incidence, Value and Delivery of Planning Obligations and Community Infrastructure Levy in England in 2016-17 which has some interesting statistics, underlining for me the scale of monies already being secured from development, over £6bn in 2016/2017:

It is clear from the consultation document that we are still on a journey to an unknown destination:
“The reforms set out in this document could provide a springboard for going further, and the Government will continue to explore options to create a clearer and more robust developer contribution system that really delivers for prospective homeowners and communities accommodating new development. 

One option could be for developer contributions [towards affordable housing as well as infrastructure] to be set nationally and made non negotiable. We recognise that we will need to engage and consult more widely on any new developer contribution system and provide appropriate transitions. This would allow developers to take account of reforms and reflect the contributions as they secure sites for development. 

The proposals in this consultation are an important first step in this conversation and towards ensuring that developers are clear about their commitments, local authorities are empowered to hold them to account and communities feel confident that their needs will be met.”
First step in a conversation??
Contributions via section 106 planning obligations
The document sets out perceived disadvantages of relying on section 106 planning obligations, including:
– delays (but there is no mention of how these could easily be reduced by prescriptive use of template drafts and more robust guidance and the Government’s previous proposal for an adjudication process to resolve logjams in negotiations has been dropped)
– the frequency of renegotiations, most frequently changing the type or amount of affordable housing (but with no analysis of why this is so – often in my experience for wholly necessary reasons, often linked to scheme changes or reflection of changed government affordable housing priorities or funding arrangements)

– a concern that they may “only have captured a small proportion of the increase in value” that has occurred over the time period covered by the University of Liverpool research report (but, aside from where the scale of contributions has been depressed from a policy compliant position due to lack of viability, why is this relevant? Planning obligations should be about necessary mitigation of the impacts from development, not about capture of uplifts in land value ). 

– lack of transparency. 

– lack of support for cross boundary planning. 

Despite these criticisms, the document does not propose significant changes to the section 106 process (or provide any timescale for the further review it alludes to) save for proposing to remove the pooling restriction (Regulation 123 of the CIL Regulations 2010) in areas:

* “that have adopted CIL; 


* where authorities fall under a threshold based on the tenth percentile of 
average new build house prices, meaning CIL cannot feasibly charged; 


* or where development is planned on several strategic sites

The Government is consulting on what approach should be taken to strategic sites for this purpose, the two options being stated as:
“a) remove the pooling restriction in a limited number of authorities, and across the whole authority area, when a set percentage of homes, set out in a plan, are being delivered through a limited number of large strategic sites. For example, where a plan is reliant on ten sites or fewer to deliver 50% or more of their homes; 

b) amend the restriction across England but only for large strategic sites (identified in plans) so that all planning obligations from a strategic site count as one planning obligation. It may be necessary to define large strategic sites in legislation.”
I would prefer to see the pooling restriction dropped across the board. If authorities choose not to adopt a CIL charging schedule but to rely on section 106 planning obligations to make contributions towards infrastructure then why not let them, subject to the usual Regulation 122 test? I thought we wanted a simpler system?
There are sensible proposals for summaries of section 106 agreements to be provided in standard form (although we do not yet have the template), so that information as to planning obligations can be more easily made available to the public, collated and monitored. 
Contributions via CIL
The Government’s thinking on CIL continues along the lines set out alongside the Autumn 2017 budget and summarised in my 24 November 2017 blog post CIL: Haven’t Found What I’m Looking For ie wandering dangerously away from the CIL review panel’s ideas of a simpler, more uniform but lower charge regime. The proposed ability for authorities to set different CIL rates based on the existing use of land is inevitably going to make an overly complex system even worse, introducing another uncertainty, namely how the existing use of the land is to be categorised. The Government recognises that risk:

Some complex sites for development may have multiple existing uses. This could create significant additional complexity in assessing how different CIL rates should be apportioned within a site, if a charging authority has chosen to set rates based on the existing use of land. 

In these circumstances, the Government proposes to simplify the charging of CIL on complex sites, by: 

* encouraging the use of specific rates for large strategic sites (i.e. with a single rate set for the entire site) 


* charging on the basis of the majority use where 80% of the site is in a single existing use, or where the site is particularly small; and 


* other complex sites could be charged at a generic rate, set without reference to the existing use of the land, or have charges apportioned between the different existing uses.”

One wonders how this would play out in practice. 

It seems that the requirement for regulation 123 lists (of the infrastructure projects or types of infrastructure which the authority intends to fund via CIL – and which therefore cannot be secured via section 106) is to be removed, which is of concern since regulation 123 lists (the use of which should be tightened rather than loosened) serve at least some degree of protection for developers from being double-charged. 
 The Government is proposing to address one of the most draconian aspects of the CIL process – the current absolute requirement for a commencement notice to be served ahead of commencement of development, if exemptions and the right to make phased payments (where allowed by the authority) are not to be lost, is to be replaced by a two months’ grace period. However, this does not avoid all current problems as any exemptions would still need to be secured prior to commencement.

A specific problem as to the application of abatement provisions to pre-CIL phased planning permissions is to be fixed. These flaws in the legislation continue to emerge, a function of the complexity and artificiality of the whole edifice, which the panel’s proposals would significantly have reduced. In the meantime, we are some way away from actual improvements to the system we are all grappling with day by day, with no firm timescale for the next set of amending Regulations. 
Viability
The thrust of the draft planning practice guidance for viability is understood and reflects what had been heralded in the September 2017 Planning for the right homes in the right places consultation document – focus viability consideration at allocation stage, standardise, make more transparent – but there are some surprising/interesting passages:
– Is the Government contemplating review mechanisms that don’t just ratchet upwards? Good if so:
It is important that local authorities are sufficiently flexible to prevent planned development being stalled in the context of significant changes in costs and values that occur after a plan is adopted. Including policies in plans that set out when and how review mechanisms may be included in section 106 agreements will help to provide more certainty through economic cycles. 

For all development where review mechanisms are appropriate they can be used to amend developer contributions to help to account for significant changes in costs and values over the lifetime of a development. Review mechanisms can be used to re- apportion or change the timing of contributions towards different items of infrastructure and affordable housing. This can help to deliver sites that would otherwise stall as a result of significant changes in costs and values of the lifetime of a development.”
– Review mechanisms are appropriate for “large or multi phased development” in contrast to the ten homes threshold in draft London Plan policy H6 (which threshold is surely too low). 
– The document advises that in arriving at a benchmark land value, the EUV+ approach (ie existing use value plus premium) should be used. The London Mayor will have been pleased to see that but will then have choked on his cornflakes when the Government’s definition of EUV+ is set out. According to the Government, EUV is not only “the value of the land in its existing use” (reflecting the GLA approach) but also “the right to implement any development for which there are extant planning consents, including realistic deemed consents, but without regard to other possible uses that require planning consent, technical consent or unrealistic permitted development” (which is more like the GLA’s approach to Alternative Use Value!). 
Then when it comes to assessing the premium, market comparables are introduced:
When undertaking any viability assessment, an appropriate minimum premium to the landowner can be established by looking at data from comparable sites of the same site type that have recently been granted planning consent in accordance with relevant policies. The EUV of those comparable sites should then be established. 

The price paid for those comparable sites should then be established, having regard to outliers in market transactions, the quality of land, expectations of local landowners and different site scales. This evidence of the price paid on top of existing use value should then be used to inform a judgement on an appropriate minimum premium to the landowner.”

I am struggling to interpret the document as tightening the methodologies that are currently followed, or indeed introducing any material standardisation of approach. 

The EUV+ position is covered in more detail by George Venning in an excellent blog post.
– There is a gesture towards standardisation in the indication that for “the purpose of plan making an assumption of 20% of Gross Development Value (GDV) may be considered a suitable return to developers in order to establish viability of the plan policies. A lower figure of 6% of GDV may be more appropriate in consideration of delivery of affordable housing in circumstances where this guarantees an end sale at a known value and reduces the risk.” However, there is no certainty: “Alternative figures may be appropriate for different development types e.g. build to rent. Plan makers may choose to apply alternative figures where there is evidence to support this according to the type, scale and risk profile of planned development.
More fundamentally, I am sceptical that viability-testing allocations at plan-making stage is going to deliver. At that stage the work is inevitably broad-brush, based on typologies rather than site specific factors, often without the detailed input at that stage of a development team such that values and costs can be properly interrogated and without an understanding of any public sector funding that may be available. If the approach did actually deliver, significantly reducing policy requirements, so much the better, but that isn’t going to happen without viability arguments swamping the current, already swamped, local plan examination process.
Indeed, as was always going to be the case with the understandable drive towards greater transparency, the process is becoming increasingly theoretical (think retail impact assessment) and further away from developers opening their books to demonstrate what the commercial tipping point for them is in reality, given business models, funding arrangements, actual projected costs (save for land), and actual projected values. “Information used in viability assessment is not usually specific to that developer and thereby need not contain commercially sensitive data“. 
The document contains more wishful thinking:
A range of other sector led guidance on viability is widely available which practitioners may wish to refer to.”
Excellent. Such as?
Topically, this week, on 6 and 7 March, Holgate J heard Parkhurst Road Limited’s challenge to the Parkhurst Road decision letter that I referred to in my 24 June 2017 blog post Viability & Affordable Housing: Update. The challenge turns on the inspector’s conclusions on viability. Judgment is reserved. 

We also should watch out for Holgate J’s hearing on 1 and 2 May of McCarthy and Stone & others v Mayor of London, the judicial review you will recall that various retirement living companies have brought of the Mayor of London’s affordable housing and viability SPG. 
The great thing about about writing a planning law blog is that the well never runs dry, that’s for sure. (Nothing else is). 
Simon Ricketts, 10 March 2018
Personal views, et cetera

CIL: Haven’t Found What I’m Looking For

So now we know. We will all be continuing to scratch our heads over CIL. 
My 25 March 2017 blog post CIL: Kill Or Cure? summarised the main October 2016 (but only published February 2017) recommendations of the CIL review team: “the replacement of the current system with a more standardised approach of Local Infrastructure Tariffs (LITs) and, in combined authority areas, Strategic Infrastructure Tariffs (SITs). LITs would supposedly be set at a low level calculated by reference to a proportion of the market value per square metre of an average three bedroom property in the local authority area…For developments of ten dwellings or more, there would be a return to the flexibility of section 106 for provision of site-specific infrastructure (netting off LIT liability) and of course abolition of the pooling restriction.”

The team’s brief had been:
“Assess the extent to which CIL does or can provide an effective mechanism for funding infrastructure, and to recommend changes that would improve its operation in support of the Government’s wider housing and growth objectives.” 
In February, the Government promised to respond to the team’s recommendations alongside the Autumn 2017 budget.  Here we are, two years on from when the CIL review team’s work was commissioned in November 2015. The Autumn budget policy paper published on 22 November 2017 does indeed respond to the team’s recommendations, in the following terms:


Going through the proposals:

Removal of section 106 pooling restrictions, recommended by the CIL review team, is to be welcomed. Of course that should not be a green light for authorities in relation to a development proposal to revert to blanket tariff type section 106 requirements which would fail the regulation 123 test and wider principles recently set out by the Supreme Court in the Aberdeen case (see my 28 October 2017 blog post). 
Speeding up the process of setting and revising CIL, also recommended by the CIL review team, needs greater care in my view. It made sense as part of the review team’s concept of lower rates, arrived at in a more mechanistic manner than is currently the case. But there is no hint of lower rates in the Government’s proposal. Accordingly, close scrutiny is required. It is difficult enough as it is to have a meaningful influence on the process. The indication that higher zonal CILs could quickly be introduced to seek to capture land value uplifts around stations for instance is interesting but such interventions will need to be introduced with care if they are not in fact to discourage land owners from making their property available. 
Allowing authorities to set rates that better reflect the uplift in land values between a proposed and existing use was not a proposal that was considered by the CIL review team. It adds a further degree of complexity to the process. Charging schedules will have more categories. Precise floorspace calculations will be required not just of the proposed development but of the building that is to be replaced. Unintended consequences will inevitably arise and influence development strategies.  
A change of the indexation basis to house price inflation from build costs was not recommended by the CIL review team and will marginally complicate the process of calculating indexation, given that different areas will be experiencing differing inflation rates. And why is house price inflation relevant to non-residential floorspace?
Allowing combined authorities and planning joint committees with statutory plan-making functions the option to levy a Strategic Infrastructure Tariff was recommended by the CIL review team but that was against the backdrop of CIL being replaced with a lower “local infrastructure tariff”. Any additional net cost to owners and developers will directly affect viability, ie reduce the amount of affordable housing that schemes could otherwise afford. If the ability to rely on viability arguments is to be reduced, as the Government separately proposes, this is definitely going to impede delivery. Furthermore, why does affordable housing always lose out to infrastructure, particularly when charging authorities are proving very slow in spending the CIL monies that they have so far collected?
The proposals make no mention of the CIL Review team’s proposal, widely supported, of allowing infrastructure to be delivered via section 106 agreements in connection with larger developments, recovering the flexibility and opportunities for efficiency that the CIL system has removed. 
What next?
There will be detailed consultation on these and other changes, ahead of or possibly alongside the draft revised NPPF (rumoured now to have slipped to April 2018) before regulations are made which would probably now not come into force until early 2019. Earlier regulations are expected to deal with the specific ambiguity within regulation 128A affecting section 73 applications (highlighted in the VOA ruling mentioned in my CIL: Kill Or Cure blog post and since challenged by way of judicial review by the charging authority, Wandsworth) – but the transitional provisions within those regulations, and the extent to which the clarification should have retrospective effect, will need careful thought. 
For my part I find it incredibly disappointing that this whole process has been so slow and that the considered recommendations of the review team appear to have been cherry picked, destroying any internal coherence in what is proposed. Aside from correcting some obvious flaws, there appears to be nothing that will reduce CIL’s complexity, the problems arising from the multiplicity of exemptions, the straitjacket that it imposes in relation to more complex schemes and the high rates that are being set with little real scrutiny – indeed quite the reverse. The Government may have answers to these criticisms but simply relying on one paragraph in the budget policy paper really isn’t good enough.  
Simon Ricketts, 24 November 2017
Personal views, et cetera