Westferry Printworks Decision: LPA Reaction Unprintable

Tower Hamlets Council’s revised CIL charging schedule came into effect on 17 January 2020, imposing borough CIL for the first time on its large allocated sites, so you will appreciate its double disappointment at the Secretary of State allowing the Westferry Printworks site appeal, against the inquiry inspector’s recommendations, in a decision letter dated 14 January 2020. The CIL figure could have been up to £50m, according to evidence given at the inquiry on behalf of the appellant.

The scheme is for a “comprehensive mixed-use redevelopment comprising 1,524 residential units (Class C3), shops, offices, flexible workspaces, financial and professional services, restaurants and cafes, drinking establishments (Classes B1/A1/A2/A3/A4), community uses (Class D1), car and cycle basement parking, associated landscaping, new public realm and all other necessary enabling works” at Westferry Road on the Isle of Dogs.

There has been a furious response from the council. At a full council meeting the following day, 15 January 2020, a resolution was passed to examine “all available options, including a judicial review“. The East London Advertiser reports Mayor John Biggs as saying:

It is a massively tall and dense development. Something of 40 floors on the island is an outrage. By making the decision on Tuesday we also lose a massive sum of money. This development will place a huge impact on the island. It is a scandal and outrageous. We will be doing everything in our power [including] seeking a judicial review.”

The potential impact of borough CIL on the viability of the proposals obviously had been raised by the appellant as a potentially relevant matter, given that it would go to viability. Unsurprisingly, the appellant had sought to include a mechanism within its section 106 agreement for a potential reduction in affordable housing should the Secretary of State’s decision letter be issued after the revised CIL charging schedule had been adopted, a proposal which both the inspector and Secretary of State rejected.

The timing of the decision letter meant that this issue went away – it would have been an interesting one to test, given that the situation often arises where an applicant or appellant is in the hands of the decision maker as to whether permission will be issued before a revised CIL charging schedule comes into effect and why shouldn’t a section 106 agreement mechanism to neutralise the effect be appropriate where the viability appraisal has not taken the potential additional CIL liability into account?

The decision letter was plainly ready to be issued, why should it have been held back?

The appeal had been lodged in relation to an application submitted by Westferry Developments Limited (the owner of the site is Northern & Shell, the development manager is Mace) on 24 July 2018. The appeal was recovered for the Secretary of State’s own determination on 10 April 2019. Tower Hamlets asked for more time to formulate their position in relation to the proposals but this was refused by the Secretary of State, as recorded in a report to a meeting of Tower Hamlets’ strategic development committee on 14 May 2019:

This report is seeking the authority of the committee for officers to defend an appeal which has been submitted to the Secretary of State by the developer. The Secretary of State has imposed a timetable which requires that this report is considered by the Committee on 14th May 2019 in time for the council to submit a Statement of Case by 22nd May 2019 in order to avoid breaching the imposed timetable and making the authority liable for costs for unreasonable behaviour. As the report had not been written when the timetable was imposed, the Council asked Secretary of State to review the timetable and he has declined. These are the special circumstances justifying the urgency.”

The previous Mayor of London (whatever happened to him?) had intervened and granted planning permission for an earlier scheme for the site in 2016 for “comprehensive mixed use redevelopment of 118,738 m2 including buildings ranging from 2-30 storeys (tallest 110 m AOD) comprising: a secondary school, 722 residential units, retail use, restaurant and cafe and drinking establishment uses, office and financial and professional services uses, community uses, car and cycle basement parking, associated landscaping and new public realm“. That planning permission has been implemented by the demolition of the printworks and works to construct a new basement.

The latest application had been on the basis of an offer of 35% affordable housing, although not policy compliant due to the proposed tenure mix, justified by reference to viability appraisal. When the appeal was submitted, unsurprisingly, given that on appeal the decision maker would expect an updated viability appraisal, that offer was withdrawn and at the time of the 14 May 2019 committee meeting there was just an indication that a revised viability assessment would be submitted and that the revised offer would be less than 35%.

The committee resolved that the proposals would have been refused on the following grounds:

⁃ Townscape and visual impact

⁃ Wind Impact on the Docklands Sailing Centre

⁃ Affordable housing – amount

⁃ Housing mix and choice

The inquiry started on 7 August 2019. This was an important appeal for the council, as can be seen from this July 2019 Facebook post from a councillor, encouraging opposition to the proposals:

In the evidence for the inquiry, the affordable housing offer had been reduced to 21% on the basis of an updated viability assessment.

In this summary that follows I am plagiarising some of an internal note prepared by my Town partner Louise Samuel (into which I may now introduce errors, all mine):

• The inspector accepted that the existing permission should be treated as a fallback, which formed an appropriate basis for assessing an alternative use value for the purposes of arriving at a benchmark land value.

• However, the inspector did not agree with how the appellant had calculated the benchmark land value (see IR 507 on for BLV discussion) and considered that the 21% offer was unlikely to be the maximum reasonable provision for the site. He did not, however, set what the maximum reasonable provision would be.

• Whilst Tower Hamlets criticised the appellant for resiling from its previous 35% offer, the Inspector notes that it was clear that the appellant was responding to the Mayor’s fast-track approach (which requires at least 35%) and so took a commercial view despite the fact that it was not supported by the viability assessment at the time. He concluded that this was not, in itself, a reason to reduce the weight to be attached to the Assessment before him (see para 530 of the IR).

• The Inspector’s view was that the consented scheme provided many of the same benefits but without causing the same harm to heritage assets. Because of the consented fallback, the only benefits that carried weight were those in addition to the consented position.

• The Secretary of State agreed that it is likely that the scheme could provide more affordable housing (“21% does not…represent the maximum reasonable amount of affordable housing”) but still considered that the additional benefits (compared to the consented fallback scheme) of: (a) housing (802 more units of which 142 would be affordable, with a policy compliant tenure split of 70% affordable rent 30% intermediate); and (b) employment during construction, were enough to grant permission. The Secretary of State gave these benefits significant weight whereas the Inspector had attached moderate weight to these benefits. The Secretary of State took into account that “there is no evidence before him of any other scheme which might come forward or what level of affordable housing might be delivered by any such scheme”.

• The Secretary of State considered these benefits to be enough to outweigh harm to important heritage assets (Grade I Old Royal Naval College; Grade I Tower Bridge; and the Greenwich World Heritage Site).

• The section 106 agreement included both an early and late stage viability review, which means that the percentage of affordable housing may increase, albeit the Inspector criticised the limited effectiveness of these.

An interesting decision in that we would need to go back almost two years to find another recovered appeal for housing development which the Secretary of State has allowed in London. Contrast for instance with the 19 July 2019 Chiswick Curve decision letter, appeal dismissed by the Secretary of State against his inspector’s recommendations, where he gave only moderate weight to the provision of 327 dwellings, whereas the Inspector had given significant weight to the housing offer (the decision has been challenged by the appellant – Louise and colleagues acting), and contrast with for instance the 1 Cambridge Heath Road 10 June 2019 decision letter, again an appeal dismissed against his inspector’s recommendations.

Much to chew over for those promoting, or otherwise engaged with, major projects in London.

Simon Ricketts, 18 January 2020

Personal views, et cetera

 

Image courtesy of Westferry Printworks website

Elephant, Dove, Old Oak, RICS

I thought I would start 2020 by trying to establish some common ground, before then mentioning what happened shortly before Christmas in relation to the Elephant & Castle and Old Oak projects, both controversial in different ways. The questions are long but I hope that the answers are short.

Do we all agree that…

1. more housing is needed for those who cannot afford homes that are being built by the private sector in their local area, even when these are required to be sold or let at significant discounts to market rates – and that what we call that housing (eg social housing/socially rented) and the nature of the body that delivers and manages it (housing associations or other registered providers, local authorities) are secondary issues?

2. the current system of seeking to require developers to deliver that housing (whoever then manages it) is not working and is hugely inefficient, in that: (1) local policy expectations set out in local plans are often not met, due to those expectations being determined not to be viable – leading to prolonged negotiations and local objection (2) the complexities and multitude of inputs to any negotiated section 106 affordable housing package, often including intricate mechanisms to provide for later reviews of the viability position, are at best a costly distraction for all parties (needing to be tooled up with valuation and QS professionals) and at worst are prone to lead to huge delays and, over time, the prospect of renegotiation where the negotiated outcome is not sufficiently attractive to funders, or where (almost inevitably) circumstances have changed during the long course of the process?

3. it is in the public interest for communities within developments to be socially and economically diverse?

4. the system worked more easily when much more Government money was available to support affordable housing by way of grant (without grant obviously a requirement to deliver social housing has a huge impact on the viability of a scheme) and that we need to get back to a system that (1) is simple (2) delivers housing that is truly affordable for those who need it (3) is efficient and (4) does not delay development more generally?

5. government (ie our) money needs to be spent where it can have most beneficial impact and is most needed?

There has been a lot of government tinkering but don’t we have to get back to those fundamentals? I’m not sure that the Government’s promised Social Housing White Paper is going to get us there, given the absence of relevant detail about affordable housing in the Conservatives’ manifesto – talk about owning first homes is a world away from the very different challenges faced by so many.

I’m sorry to be a cracked record – see my 28 May 2017 blog post Affordable Housing Tax or 4 November 2017 blog post Viability Assessment Is Not A Loophole, It’s A Noose. We could look at the idea of expanding CIL to include a social housing contribution, so that local authorities can deliver or procure it, with the option of provision on site counting as works in kind? But I’ve previously been against further rolling out another complex and inefficient regime, ie CIL, and most authorities, hollowed out and stretched as they are, are not currently in any position to deliver or procure social housing at scale. Instead, personally I would simply prefer that we go back to the old way – grants to providers so as to reduce the impact on viability for the developer of providing social housing.

In the meantime, we have to make the current system work. My 8 June 2019 blog post The Bottom Line: Updates On CIL And Viability reported on the RICS professional statement on financial viability in planning, which came into effect on 1 September 2019, and mentioned the revisions made to viability passages of the PPG by the Government on 9 May 2019, reflecting changes to the NPPF that seek to ensure, amongst other things, that detailed viability examination takes place at plan-making stage rather than when applications come forward.

The RICS professional statement sets out the professional responsibilities of the surveyor in the viability appraisal process, to seek to ensure that the surveyor operates with professional independence and integrity throughout. The RICS is now consulting from 13 December 2019 until 9 February 2020 on a draft guidance note Assessing financial viability in planning under the National Planning Policy Framework for England, 1st edition that seeks to set out the methodology to be applied by those professionals, so as to give effect to Government policy.

We are not seeking comments contrasting the government framework with a market-based appraisal. Comments should focus on whether our draft guidance gives effect to government policy and practice guidance, in an administratively efficient way, in order to deliver the objectives of the NPPF.”

Make your views known.

In the meantime…

Elephant & Castle

Delancey’s proposed redevelopment of the Elephant & Castle shopping centre and London College of Communication has long been controversial. It proposes a large mixed-use development comprising a range of buildings of up to 35 storeys, with a mix of uses including 979 dwellings (proposed to be for rent rather than sale) and accommodation for retail, office, education, assembly and leisure along with a remodelling of the London Underground station. One of the lines of attack for objectors, including the 35% Campaign, has been the perceived lack of “genuinely affordable” housing.

Planning permission was granted by the London Borough of Southwark on 10 January 2019. Just before Christmas, in Flynn v London Borough of Southwark (Dove J, 20 December 2019), the High Court rejected a crowdfunded challenge to the permission brought on behalf of the 35% Campaign. The grounds of challenge all turned on the affordable housing deal that Southwark struck in the section 106 agreement with the developer.

The case doesn’t turn on any particularly interesting legal principles or make any new law. But the facts, set out in careful detail by Dove J, illustrate precisely the concerns that lay behind my attempt just now to establish some common ground:

The policy background is not straightforward, with a changing position both at borough level and at London Plan level.

The Mayor has set out criteria in his 2017 affordable housing and viability SPG for different tenures of affordable housing, including social rent (target rents determined through the national rent regime), affordable rent (rent controls requiring a rent of no more than 80% of the local market rent), intermediate (available for rent or sale at a cost above social rent but below market levels – and eligible only to households whose annual income is within a defined range) and intermediate London Living Rent (only available to households renting with a maximum income of £60,000 without sufficient current savings to purchase a home within the local area).

The adopted London Plan requires boroughs to seek the “maximum reasonable amount of affordable housing…when negotiating on individual private residential and mixed use schemes, having regard to” a number of factors, including “development viability” and the “availability of public subsidy”.

Within the Elephant & Castle area, Southwark’s adopted plan seeks a minimum requirement of 35%, on the basis of a split of 50% social rented and 50% intermediate housing. Its emerging plan seeks, in relation to build to rent developments, a different tenure split for the 35%: social rent equivalent (ie social rent level but not managed by registered provider) 34% minimum, affordable rent (aka discount market rent) capped at London Living Rent equivalent 52% minimum, affordable rent (aka discount market rent) for household incomes between £60,000 and £90,000 per year 14% minimum. The lack of social rent reflects the specific nature of build to rent developments, where it is more efficient for all of the housing to remain under single management rather than for a separate registered provider to be introduced.

At the time Delancey’s application first went to committee on 16 January 2018, its proposal was 36% affordable housing based upon habitable rooms, with the 36% made up as follows: 10% social rent equivalent, 46% London Living Rent, 43% discount market rent. The non policy compliant offer (in terms of tenure split) was based on an agreed viability assessment. Despite a recommendation for approval, members deferred a decision until a meeting scheduled for 30 January 2018 at which they intended to formulate reasons for refusal. The day before the follow-up meeting the developer made further proposals in relation to the affordable housing offer and the application was deferred to a subsequent meeting.

The revised proposal was to replace 33 social rent equivalent units with 74 socially rented units, all to be located on the western part of the development and to be owned and operated either by the borough or by a registered provider. This changed the tenure split (of the 35% affordable housing dwellings) to: social rent 24.9%, London Living Rent 27.9%, discount market rent 47.2%.

In June 2018 the offer was increased again. The developer’s consultants indicated that following “in-principle agreement from the GLA to provide grant funding towards the proposed scheme” the number of social rent units could be increased to 116 homes, or 38.1% of the 35% of the units that were to be affordable.

The application was approved at a committee meeting on 3 July 2018. It was acknowledged in the report that the proposed tenure split was still not policy compliant but was justified by way of the agreed viability appraisal. The report also noted that there would need to be a fallback arrangement in the section 106 agreement to cater for the possibility that the developer might choose after all to develop the western part of the development on a for sale rather than for rent basis (in which case the affordable housing requirement for that part of the site would return to 50% social rented, 50% intermediate).

If all of this does not start to give an idea of the inevitable complexity of negotiations on a scheme such as this, then consider the viability appraisal. As is common with a significant longterm development, where application of the more straightforward benchmark land value plus developer’s profit approach does not reflect accurately the financial modelling of a project over time, viability was judged against a minimum internal rate of return for the developer.

The latest RICS draft guidance defines internal rate of return (or “IRR”) as follows:

The rate of interest (expressed as a percentage) at which all future project cash flows (positive and negative) will be discounted in order that the net present value (NPV) of those cash flows, including the initial investment, be equal to zero. IRR can be assessed on both gross and net of finance.”

However, unless I have missed it, there is no guidance anywhere as to when an IRR approach is appropriate and how to arrive at and test the inputs and modelling.

The agreed benchmark was 7.15% IRR, with annual growth to 11% over the construction period. Review mechanisms in the section 106 agreement provide that 50% of any excess are to be applied to increasing the affordable housing provision up to a policy compliant level/tenure split.

The claimant had three grounds of challenge. The first turned on an alleged inaccuracy in the way that the GLA’s offer of funding had been reported – it had not been formally confirmed and discussions were at an “in principle stage”. The second alleged that one of the detailed mechanisms in the section 106 agreement departed from the relevant head of term in the committee resolution. The third related to the mechanism in the section 106 agreement for determining the affordable housing to be provided if the western part of the site turned into a “for sale” development, but a deed of variation had been entered into after the challenge was brought, largely correcting the error that had been identified.

Dove J rejected each of the grounds, whilst accepting that each was arguable. (1) The report did not materially mislead members. (2) The section 106 mechanism was not outside the scope of the committee resolution (“True it is that the solutions arrived at are not a literal interpretation of paragraph 364 [of the report to committee], in that they do not include for the provision of land and a substantial cash dowry to construct the social rented units but, in my judgment, that was not required in order to remain within the scope of the delegation granted by the members”). (3) The approach to the fallback (“for sale”) scenario was “entirely rational and appropriate”. Part of the claimant’s criticism of the arrangements turned on whether the additional affordable housing in these circumstances should be social rented units rather than the social rented equivalent units provided for. The judge saw nothing relevant in the distinction:

In terms of the matters raised by the Claimant the quality of tenure enjoyed by tenants in social rented equivalent properties are, as the nomenclature suggests, equivalent to those in social rented properties. Of course, there may well be nuanced differences between them as a consequence of them being separately defined. Furthermore, they will be managed in different ways as the definition implies. Be all of this as it may, in my view the important point is that the requirement of the officers’ report was a review in terms of affordable housing, and whether the additional habitable rooms were to be provided as social rented or social rented equivalent accommodation was not identified as being in any way a critical point upon which the delegation to the officers of authority to enter into the section 106 obligation turned. Put another way, whatever may be the nuanced differences between social rented equivalent property and social rented units that was not identified as a key requirement in relation to the review mechanism contemplated were the developer to take up the fall-back scenario.”

Will the new guidance make any of this more straight forward? I doubt it. Would proper funding for social rent and social rent equivalent housing? Of course it would.

Old Oak and Park Royal Local Plan

The recent NPPF and PPG changes of course seek to move the viability spotlight to the point at which sites are allocated for development. The Old Oak plan was examined last year under the previous NPPF but viability matters were still centre stage and the inspector’s findings may be an indicator of the detailed scrutiny that is likely to be given to the viability in particular of strategic sites (taken together with proposed policy requirements in terms of infrastructure delivery and affordable housing).

One of the key issues for the inspector was whether the proposed allocation of the 54 acre Cargiant site for residential and associated development was viable. Cargiant had itself attempted development of its site in the past. It had concluded that it would be unviable to contemplate relocating or extinguishing its business and carrying out the development – and took the position that there was no reasonable prospect within the plan period of the Old Oak and Park Royal Development Corporation (“OPDC”) being in a position to carry out such proposals, even by resorting to compulsory purchase and even with the benefit of £250m Housing and Infrastructure Fund monies which had been agreed in principle to be allocated by MHCLG.

My firm acted for Cargiant and so I will restrict myself to pointing out the level of detail to which the inspector went in his interim findings on viability of Cargiant site proposal (10 September 2019) before concluding that the allocation would be unviable and therefore unsound.

The day after the general election, on 13 December 2019, the OPDC announced that it would change its proposals, which will now leave Cargiant in place:

New focus for Old Oak and Park Royal regeneration:

The Old Oak and Park Royal Development Corporation (OPDC) has today set out a revised approach to deliver tens of thousands of new homes and jobs through collaboration with major public sector landowners.

The regeneration of Old Oak, Park Royal and surrounding areas in west London, has the potential to deliver 25,500 new homes and 65,000 jobs over the next 30 years. OPDC has already approved plans for over 5,000 homes including 1,500 already completed or being built.

The shift in approach has been triggered by recent, rapid increases in industrial land values in west London which mean that it is currently not financially viable to deliver OPDC’s early regeneration plans at Old Oak North. This area, close to the planned new HS2 interchange station, includes the 54-acre site that is owned and operated by Cargiant, which had originally been earmarked for development.

Earlier this year, the Planning Inspector, in his interim report on the OPDC’s draft Local Plan, de-designated the Cargiant site from Strategic Industrial Land, but also concluded that Old Oak North had become commercially unviable for residential-led development at this time.”

Whilst this situation might be taken to be an example of how viability matters can indeed in practice be taken into account at the plan-making stage, I do have concerns:

⁃ There is now a bigger onus on authorities to carry out proper viability work, including work to a sensible level of detail on strategic sites (albeit often with assistance from those promoting those sites for development), and is it actually going to be done?

⁃ Where it is not done, delays will occur in the examination process. At Old Oak, the necessary work had not been done and there was a significant hiatus whilst it was commissioned.

⁃ Development proposals are often not sufficiently worked up, at the stage that the plan is being prepared, so as to enable a sensible viability appraisal to be undertaken. And will developers be prepared always to come clean at the allocation stage as to the challenges they are facing in making the numbers stack up?

⁃ Will there always be participants in the local plan examination process with the motivation and resources to put authorities to proof on the work that has been carried out? If Cargiant hadn’t taken its stance (entailing lawyers and a team of consultants to challenge much of the inputs) I suspect the allocation would have been confirmed without challenge – and then proved over time to be undevelopable.

The next blog post will be shorter, I promise.

Simon Ricketts, 4 January 2020

Personal views, et cetera

Pic credit: Bizarro Comics

Clean Air: Promises, Promises

Lindblom LJ gave a short speech this week at drinks hosted by Cornerstone Barristers to mark the publication of Ashley Bowes’ A Practical Approach To Planning Law 14th edition. He made a nice joke about how many of the footnote references were to articles by one Dr Ashley Bowes.

No doubt Lindblom LJ’s judgment in Gladman Developments Limited v Secretary of State (Court of Appeal, 12 September 2019), where Ashley appeared for the successful third respondent, CPRE Kent, will now get a good airing in the 15th edition.

The case is an important addition to the growing jurisprudence in relation to the relevance of air quality issues to decision making on planning applications and appeals – and indeed is of wider relevance.

I last summarised the case law, as it was then, in my 2 February 2019 blog post What To Do About Poor Air Quality? The Shirley Case, supplemented by references to the High Court’s rulings in the Heathrow cases in my 4 May 2019 blog post Lessons From The Heathrow Cases.

In Gladman the developer had challenged an inspector’s decision letter which had dismissed its appeal in relation to a proposed residential and extra care development at Pond Farm, Newington, near Sittingbourne. The challenge was to the inspector’s conclusion as to the “effect of the appeal proposals, including any proposed mitigation measures, on air quality, particularly in the Newington and Rainham Air Quality Management Areas”.

The claim was rejected at first instance. The grounds of appeal raised “three broad issues: first, whether the inspector erred in failing to grasp the significance of Garnham J.’s decision in the ClientEarth proceedings, and the policy in paragraph 122 of the NPPF (grounds 1 and 2); second, whether he failed to deal properly with the proposed mitigation, whether he should have considered a condition preventing the development going ahead until effective mitigation had been secured, and whether his decision is vitiated by procedural unfairness (grounds 3, 4 and 5); and third, whether he failed properly to explain how Gladman’s approach to mitigation departed from the air quality action plans (ground 6).”

Or, perhaps, more plainly: was the inspector more sceptical than was legally permissible as to whether national air quality targets will be met and as to whether the developer’s proposed mitigation measures would be effective?

National air quality targets

Garnham J in the ClientEarth proceedings had ordered that the Secretary of State publish a modified air quality plan and aim to achieve compliance with the Air Quality Directive by the soonest date possible, must choose a route to that objective which reduces exposure to non-compliant air quality levels as quickly as possible and must take steps which mean that meeting the value limits is not just possible but is likely.

The inspector considered the air quality improvement objectives within Swale Borough Council’s action plans for the two relevant air quality management areas. He thought it “optimistic… to expect that NO2 concentrations will fall by the amount” predicted by Gladman in a “without development” scenario.

“The sensitivity scenarios are probably too pessimistic: as the appellants’ witness pointed out, tightening of emission standards for new vehicles should, over time, bring about substantial further reductions in NO2 emissions from traffic. But I was given no firm data on the rate at which this is likely to occur. In the absence of any conclusive evidence on this point, I consider it would be unsafe to rely on emission levels falling between 2015 and 2020 to the extent that informed the modelling of original Scenarios 2 to 5. My view is reinforced by the High Court’s finding on the excessive optimism of future emissions modelling. This means that original Scenarios 3 and 5 cannot be taken as reliable projections of the likely impacts of the appeal proposals on air quality.”

The judge at first instance did not accept Gladman’s submissions that this approach by the inspector was unlawful in that he did not take into account the extent of the duty on the Secretary of State to secure that air quality value limits were likely to be met as soon as possible. The inspector “was not required to assume that local air quality would improve by any particular amount within any particular timeframe”. The Court of Appeal agreed:

It was not known what measures the new draft national air quality plan would contain, let alone what the final version would contain following public consultation. The inspector did not know how any new national measures would relate to local measures, nor what would be “the soonest date possible” by which the new national air quality plan would aim to achieve compliance. He could not reach any view on whether the measures in the new national air quality plan were likely to be effective in securing compliance by any particular date (paragraph 31 of the judgment). In the judge’s view, the inspector had “properly engaged with the ClientEarth (No.2) decision”; had “understood what the judgment required”; had “carefully analysed the evidence that was presented before him (DL 99-106)”; had “formed a judgment as to what the air quality is likely to be in the future on the basis of that evidence”; and was “entitled to consider the evidence and not simply assume that the UK will soon become compliant with [the Air Quality Directive]” (paragraph 32).

I can see no error in any of those conclusions of the judge. In my view, as was submitted to us by Mr Richard Moules on behalf of the Secretary of State and Dr Ashley Bowes for CPRE Kent, the inspector did see the true significance and effect of Garnham J.’s judgment in ClientEarth (No.2). In deciding Gladman’s appeals, he had to consider the evidence before him, in the particular circumstances of the local area, including local air quality. That is plainly what he did. He was not obliged to embark on predictive judgments about the timing and likely effectiveness of the Government’s response to the decision in ClientEarth (No.2), and the requirement to produce a national air quality plan compliant with the Air Quality Directive.”

“It was not within the inspector’s duty as decision-maker to resolve the “tension”, as Mr Kimblin put it, between the Government’s responsibility to comply swiftly with the limit values for air pollutants and the remaining uncertainty over the means by which, and when, the relevant targets would be met. In different circumstances, and on different evidence, an inspector might be able to assess the impact of a particular development on local air quality by taking into account the content of a national air quality plan, compliant with the Air Quality Directive, which puts specific measures in place and thus enables a clear conclusion to be reached on the effect of those measures. But that was not so here.”

The Court of Appeal also held that Supperstone J at first instance was right to reject the submission that “the inspector failed to apply the principle that the planning system assumes other schemes of regulatory control will operate effectively. This policy, in his view, was directed at a situation where there is a parallel system of control…, the essential principle being that the planning system should not duplicate those other regulatory controls, but should generally assume they will operate effectively. As the judge saw it, the Air Quality Directive was “not a parallel consenting regime to which paragraph 122 is directed”. There was “no separate licensing or permitting decision that will address the specific air quality impacts of [Gladman’s] proposed development.

As Mr Moules and Dr Bowes submitted, the Air Quality Directive and the 2010 regulations are not a licensing or permitting regime of that kind. The Air Quality Directive is “programmatic in nature”. It imposes obligations on the state to comply with the relevant limit values within the shortest possible time, and by the means chosen to achieve compliance. In the United Kingdom the approach adopted by the Government is to promulgate an air quality plan for the relevant zones or agglomerations. Paragraph 122 of the NPPF, properly understood, did not contemplate any assumption being made about that process. It does not require a planning decision-maker to assume that the Government will have acted expeditiously to take the action required to discharge its own responsibilities under the legislative scheme for air quality.”

Proposed mitigation measures

Gladman submitted that “the inspector, in finding Gladman’s financial contribution to mitigation was unlikely to be effective, failed to grapple properly with its approach to mitigation, which was based on DEFRA’s “damage cost analysis”.”

The first instance judgment goes into more detail as to the mitigation measures. They amounted to a financial contribution of £311,018.80. There was no detail as to how the money was to be effectively spent.

The judge at first instance referred to Gladman’s expert witness’s own acknowledgement as to “the difficulty in predicting the effectiveness of the mitigation. The likely effectiveness of that mitigation was a “live issue” at the inquiry. The inspector had to reach his own conclusion on the matter, exercising his planning judgment – as did the Secretary of State in Shirley and the inspector in Secretary of State for Communities and Local Government v Wealden District Council [2017] EWCA Civ 39 (paragraph 50 of the judgment). In paragraphs 104 to 106 of his decision letter he had reached a conclusion on the evidence that he was entitled to reach, and he had explained what was wrong with the proposed mitigation. As the judge put it, the “contributions had not been shown to translate into actual measures likely to reduce the use of private petrol and diesel vehicles and hence reduce the forecast NO2 emissions …”

The Court of Appeal agreed:

It was not the methodology that was in contention. It was the likely effectiveness of the financial contributions themselves when translated into practical measures. The thrust of the objection by CPRE Kent, which the inspector accepted, was that it could not be demonstrated that the financial contributions would produce practical mitigation sufficient to overcome the likely effects of the development on local air quality.

This was a classic matter of planning judgment. The inspector did not have to accept that because an appropriate arithmetical method had been used in calculating the level of financial contributions, the mitigation measures themselves would be effective. It was for him to consider, in the exercise of his planning judgment, whether the mitigation would be effective. He was not confident that it would. Disagreement with this conclusion is not a proper basis for complaint in proceedings such as these.”

Lastly, should the inspector have imposed a Grampian-style condition of his own volition, to address his concerns, rather than simply dismiss the appeal?

The Court of Appeal disagreed:

There is no statutory requirement, or principle of law, to the effect that in determining an appeal under section 78 of the 1990 Act, the Secretary of State, or his inspector, must always – and even if entirely unprompted by any of the parties – seek to make an unacceptable proposal acceptable by imposing a planning condition in “Grampian” form to prevent the development going ahead until a particular objection to it is overcome.

Nor is there any statement of national planning policy creating such a requirement.”

Concluding remarks

An interesting case, the relevance of which goes beyond air quality matters:

⁃ a decision maker, in determining what is the baseline position, is not required to assume that targets in Government policy will actually be met.

⁃ a decision maker can of course decide not to have regard to proposed mitigation measures if the decision maker is not confident that they will achieve their intended objective.

Finally, a procedural point. CPRE Kent had been a rule 6 party at the inquiry. They chose to become an interested party in the litigation, given their particular interest in the issues and, quite possibly, a concern that the Secretary of State might not hold the position in terms of validity of the inspector’s approach (after all, the local planning authority was not represented at either stage of the proceedings). It’s a brave step for an NGO – unlikely to recover its costs for participating and indeed at risk of an adverse costs award in some circumstances – but no doubt here vindicated.

Simon Ricketts, 22 September 2019

Personal views, et cetera

Lindblom LJ & (in written form) Ashley Bowes

Money Money Money: Accounting For CIL

This tweet from MHCLG has been nagging away at me for a few days:

The announcement of course was in relation to the 1 September 2019 commencement date in the Community Infrastructure Levy (Amendment) (England) (No. 2) Regulations 2019 and the Government’s updated planning practice guidance in relation to CIL , planning obligations and viability.

I covered the background to the changes in my 8 June 2019 blog post The Bottom Line: Updates On CIL And Viability.

There was quite a splash on 1 September, with a MHCLG press statement Communities to see how housing developers cash benefits them thanks to new planning rules (1 September 2019) and media briefings by planning minister Esther McVey, duly reported in the professional press eg Councils forced to spell out details of CIL deals (Housing Today, 2 September 2019):

McVey said builders “spent a whopping £6bn towards local infrastructure in 2016/17” but councils had not been required to report on the total amount of funding they had received or how it was spent, “leaving residents in the dark”.

She went on: “The new rules … will allow residents to know how developers are contributing to the local community when they build new homes, whether that’s contributing to building a brand new school, roads, or a doctor’s surgery that the area needs.”

What has been nagging away at me in the tweet was the gif image: “Developers paid £6bn in contributions in 2016/2017…Community Infrastructure Levy”.

Huge if true.

But it’s not.

I have tracked the £6bn figure back to a research report The Incidence, Value and Delivery of Planning Obligations and Community Infrastructure Levy in England in 2016-17 by Dr Alex Lord, Dr Richard Dunning and Dr Bertie Dockerill (University of Liverpool), Dr Gemma Burgess (University of Cambridge), Dr Adrian Carro (University of Oxford) Professor Tony Crook and Professor Craig Watkins (University of Sheffield) and Professor Christine Whitehead (London School of Economics) published by MHCLG in March 2018.

From the executive summary:

There has been an increase in the aggregate value of planning obligations agreed and CIL levied since 2011/12, up 61% from £3.7bn to £6.0bn in 2016/17 (50% after adjusting for inflation).

So the £6bn is the total of the value of section 106 planning obligations agreed (not paid) and “CIL levied”. This is the table in the research document:

⁃ “The estimated value of planning obligations agreed and CIL levied in 2016/17 was £6.0 billion. This central valuation is premised upon the assumptions identified in the appendix, corresponding to survey validity, respondent representation and the distribution of values.

⁃ When adjusted to reflect inflation the total value of developer obligations in real terms is almost identical to the peak recorded in 2007/08 (£6.0 billion), but significantly higher than in 2011/12 (£3.9 billion). These changes coincide with changes in the number of dwellings granted planning permission over time.

⁃ 68% of the value of agreed developer obligations was for the provision of affordable housing, at £4.0 billion. 50,000 affordable housing dwellings were agreed in planning obligations in 2016/17.

⁃ The value of CIL levied by LPAs was £771 million in 2016/17, with a further £174 million levied by the Mayor of London.

⁃ The geographic distribution of planning obligations and CIL is weighted heavily towards the south of England. The South East and London regions account for 58% of the total value.

⁃ Direct payment contributions continue to provide a large proportion of the total contribution value for non-affordable housing obligations

But I am pretty sure there is a confusion over “CIL levied” too. The table shows that of the £6bn, £771m was LPA CIL and £174m was Mayoral CIL. As with the money attributed to planning obligations, I suspect that these CIL figures represent the amount of CIL that is calculated to be payable if development eventually proceeds pursuant to permissions issued in 2016/2017. After all we can cross-check the £174m against the MCIL monies actually collected by the Mayor from the boroughs in 2016/2017 which this GLA table shows to be only £137m.

There is something else important. Over two thirds of the “whopping £6bn towards local infrastructure” that developers allegedly spent in 2016/2017 was not even towards “local infrastructure” as defined by the Government – it was towards affordable housing!

So it’s not that developers are not committing huge sums towards local infrastructure, and even greater sums towards affordable housing.

And it’s not that CIL will not over time secure increasing contributions towards the provision of local infrastructure.

It’s the inaccuracies and exaggeration. £6bn was not received by local authorities in 2016/2017 to be spent on local infrastructure. Local authorities did not even accrue the right to that amount in the future. The reality is that planning permissions were issued which, could, in due course , deliver (subject to the application of CIL exemptions and reliefs in the case of the £945m CIL component) up to around £2bn.

The minister accuses authorities of “leaving residents in the dark” as to funding received and spent. Greater transparency from MHCLG on the numbers it uses would be equally helpful.

Simon Ricketts, 7 September 2019

Personal views, et cetera

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