Viability – SIMONICITY

Section 73 Or Section 73B

Whether tis nobler in the mind to suffer the slings and arrows of outrageous fortune. Or to take arms against a sea of troubles by amending your permission to reflect current market or occupier requirements? Because, of course, in the equally timeless words of Gary Barlow, everything changes.

The main part of this blog post is a detailed examination by my Town Legal colleague Susie Herbert of the potential opportunities arising from use of section 73B of the 1990 Act, introduced by way of the Levelling-up and Regeneration Act 2023, and its potential limitations and ambiguities versus section 73. It’s an important part of DLUHC’s current consultation as to an accelerated planning system which I said I would come back to in my 9 March 2024 post that covered the rest of the proposals.

But first, an interesting appeal decision letter from last week. You may remember that for a temporary period (2013 to 2016) there was a specific statutory procedure, section 106BA, which allowed developers to apply to modify or discharge planning obligations in a section 106 agreement on the basis that they made the development unviable.

Since the repeal of section 106BA the question often arises as to how we might still achieve the same ends. After all, an application under section 106A to amend a section 106 agreement can only be made if the agreement is at least five years’ old. Otherwise, in proposing a deed of variation to the existing agreement, you are in the local planning authority’s hands with no right of appeal.

The alternative options would be to make an entirely fresh application for planning permission (an onerous process) or, conceivably, to make an application under section 73 for removal or variation of a condition attached to the previous planning permission and to use the application as a vehicle for proposing an amended form of planning obligation. The section 73 route was accepted by an inspector in a decision letter dated 25 March 2024 in relation to a proposed development in Thornton Heath, Croydon. There is an existing planning permission for 57 new dwellings , with a section 106 agreement requiring 35% of the homes to be delivered as affordable housing. A Section 73 application was made to amend condition 2 attached to the permission which set out a list of the approved drawings, proposing amended drawings increasing the proportion of three bedroom homes and external alterations to fenestration and elevations. A section 106 unilateral undertaking was put forward proposing no affordable housing, on the basis of a viability appraisal, which had been reviewed and accepted by the local planning authority. The application was not determined within the statutory period and the developer appealed. The authority resisted the appeal on the basis that a section 73 application was not the appropriate means to reduce the level of affordable housing previously secured.

Having reviewed the relevant case law in relation to section 73, the inspector allowed the appeal:

“In this instance, a change in policy has not made it appropriate or essential to amend the obligation. However, there has been a significant change in circumstances relating to the viability of the scheme. It seems to me that it is a matter of planning judgment whether the change in circumstances makes it appropriate, essential or desirable to enter into a planning obligation in different terms to the original. Given the case law outlined above, the terms of a new obligation may be connected to or intertwined with the amendments sought to the drawings, but there is nothing of substance to suggest they must. Consequently, it would be going too far to suggest an amended obligation must be a consequence of, or directly related to, changes flowing from the proposed alterations detailed on the new drawings.

There is no dispute between the Council and appellant that since the original permission was approved, and the evidence underpinning it prepared, construction costs have rapidly risen whilst house prices have remained static. This has had a significant impact on the viability of the scheme. As mentioned above, the situation is so altered that the Council and appellant agree the scheme can no longer provide affordable housing and remain viable. Moreover, there is also common ground that the provision of affordable housing is not a benefit, alone or taken with other factors, which is required to outweigh any harmful impacts emulating from the scheme. Indeed, the Council has only identified limited harm in respect of the housing mix, which is outweighed by other considerations in any event. In these circumstances, altering the level of affordable housing would not be a fundamental change to the proposal.

Therefore, the current circumstances are such that there is a need for a planning obligation in different terms to the original to facilitate delivery. The altered terms of the planning obligation would be consistent with the development plan taken as a whole. The consequence being that the change would not have a bearing on whether the scheme would be acceptable. Thus, the amended planning obligation is necessary, reasonable, supported by development plan policy and proportionate in the context of the prevailing circumstances. Therefore, it is desirable, essential and appropriate to consider a planning obligation in different terms to the original, namely the provision of 0% affordable housing with a review mechanism as required by the LP. In conclusion, the s73 application is an appropriate means in this instance to reduce the level of affordable housing relative to that previously secured.”

The case is another example of the potential flexibility of the existing section 73 procedure, notwithstanding the constraints imposed by the courts – particularly by way of Finney (the inability to use section 73 where the desired changes would be inconsistent with the description of development on the face of the existing permission (leading to a workaround in practice, with a willing authority, by way of use of section 96A in conjunction with section 73 – see my previous blog post here for more information).

Section 73B

So will the new section 73B procedure be the solution. Over to my colleague Susie Herbert for the detail…

On Budget Day, 6 March 2024, DLUHC launched a consultation on accelerating the planning system which closes on 1 May 2024. As well as proposals relating to the application process, this includes a consultation on the implementation of section 73B to vary planning permissions and on the treatment of overlapping permissions. This post concentrates on the proposals concerning variations to planning permissions via the new section 73B and the proposals for overlapping permissions.

Section 73B was introduced by the Levelling-up and Regeneration Act 2023 (“LURA”). The provision is headed “Applications for permission not substantially different from existing permission”. It is not yet in force and secondary legislation is required to specify the application procedure including consultation arrangements, information requirements and the application fee as well as amendments to the CIL regulations. The government proposes to implement section 73B following the consultation “as soon as parliamentary time allows”.

The consultation asks questions on:

The scope of the proposed Planning Practice Guidance relating to section 73B;
Procedural arrangements for a section 73B application;
Application fees for section 73B applications;
CIL and section 73B applications.

As background, the introduction to this section of the consultation notes “The ability to vary planning permissions in a proportionate, transparent and timely manner is an important feature of the development management system. It is common for developments, particularly if they are large, to require variations to the planning permission in response to further detailed design work, new regulatory requirements, and changing market circumstances. Without this flexibility, development risks being delayed or abandoned as the only option would be the submission of a brand new application for the development which would create uncertainty, delay and further costs.”

The consultation notes that the current legislative routes to varying planning permissions are section 73 and section 96A. In 2009, guidance was introduced on “Greater Flexibility for Planning Permission”. It was at this point that section 96A was introduced into the legislation to allow for “non-material” amendments to existing planning permissions. The guidance envisaged that section 73 could be used for “minor-material” amendments by varying a condition that listed the approved plans by substituting new plans that showed the varied scheme.

However, in 2020, the Courts confirmed that section 73 cannot be used to amend the description of development (Finney). Therefore, the scope to use section 73 to make “minor material amendments” by varying a condition which lists the approved plans is limited.

Although not expressly explained in the consultation document, the reason that the inability to use section 73 to amend the description of development causes such difficulties in practice is because the case law has established that a permission granted under section 73 cannot introduce a condition which creates a conflict or is inconsistent with the description of development. It has therefore become standard practice to minimise the level of detail provided in the description of development and thereby reduce the potential for future scheme amendments to conflict with the description. In some cases an original description of development can be amended via s96A to remove detail from the description of development into a condition and thereafter amend this condition via section 73.

Section 73B is intended to deal with this issue by allowing both the description of development and the conditions to be varied in a single process. The restriction on the use of section 73B is that the amended development cannot be “substantially different” from the existing development.

“Subtantially different”

A key point in the consultation is that the Government does not propose to provide prescriptive guidance on is what is meant by “substantially different”. The consultation notes that section 73B does not provide a definition of the test and that it will depend on the scale of the changes required in the context of the existing permission. Factors that could be relevant are location and the scope of the existing permissions and the proposed changes.

It is not clear where “substantially different” will sit on the scale of potential changes. We note that this term was used in the 2009 guidance on flexible planning permissions in respect of what was meant by a “minor material amendment” which stated:

“We agree with the definition proposed by WYG: “A minor material amendment is one whose scale and nature results in a development which is not substantially different from the one which has been approved.” This is not a statutory definition.”

This suggests that the intention may have been that section 73B was intended to align with the minor material amendments that the guidance envisaged to be made under section 73 with the additional ability to amend the description of development (to make “non-substantial” changes).

However, since this drafting was introduced into the Levelling Up and Regeneration Bill, the Armstrong and Fiske cases have confirmed that section 73 is not restricted to minor material amendments. It is helpful that at footnote 4, the document expressly states that “the department acknowledges that section 73 is not limited in scope to minor material amendments” following the recent cases of Armstrong and Fiske. The judge in Fiske held that there is a restriction on the scope of section 73 which is whether the alteration is fundamental (while in Armstrong the judge had considered that even this restriction did not apply and the only restriction is consistency with the description of development).

Therefore, if the scope of changes allowed by section 73B is intended to be similar to “minor material amendments”, there is the possibility that section 73 would actually allow more flexibility as it extends to “not fundamental” amendments (provided always that it is possible to remain within the description of development).

While it is understandable that the Government does not propose to provide prescriptive guidance on the meaning of “substantially different” because it will be a matter of judgement dependent on the context (as for section 96A), it is clear that the application and interpretation of this provision by each LPA is going to be a key to how useful this provision is in practice.

The consultation states that the government’s proposed objective is for the section 73B route to replace the use of section 73 to deal with proposals for general material variations while the use section 73 would return to focus on the variation of specific conditions and that it proposes to introduce guidance to this effect.

It would therefore be helpful if the scope of changes allowed under section 73B was not less that the scope of changes that could be made via a section 73/ section 96A approach: otherwise the end result of the changes would be more complexity but less flexibility. It does not seem that it would be overly prescriptive for the Government to provide guidance to this effect. It would also be consistent with the general proposed approach of treating a section 73B application in a similar way to a section 73 application in terms of procedure (as detailed below).

Features of section 73B

The consultation summarises the key legal features of section 73B as follows:

a section 73B application must identify the existing permission (which cannot be a section 73, section 73A or other section 73B permission, or permission granted by development order), and can propose conditions for the new permission;

as an application for planning permission to a local planning authority, the determination of a section 73B application is subject to section 70 and other decision making duties. But the local planning authority cannot grant permission for a section 73B application if the effect of the section 73B permission would be substantially different from the existing permission, and when determining the application, they must limit their consideration to the variation between the application and the existing permission; and

like a section 73 permission, a section 73B permission is a separate permission to the existing permission (and any other section 73 or 73B permissions related to the existing permission) so the granting of a section 73B permission does not affect the validity of the existing permission (or other section 73 or 73B permissions).

The provision also applies to applications for permission in principle.

Proposed general approach

As noted above, the Government’s proposed objective is for the section 73B route to replace the use of section 73 to deal with proposals for general material variations while the use section 73 would return to focus on the variation of specific conditions. The consultation notes that because section 73 cannot be used to amend the description of development, it has become common practice to submit generic descriptions of development which do not specify key feature such as the number of dwellings with those details set out in conditions to allow them to be varied via section 73. The consultation identifies that a benefit of using section 73B would be to allow a return to clear and more specific descriptions which would help improve the transparency of development proposals for local communities.

The Government therefore proposes to use Planning Practice Guidance to encourage the use of clearer, more transparent descriptors of development and the use of section 73B to deal with general material changes to development granted planning permission. The consultation asks “do you agree that guidance should encourage clearer descriptors of development for planning permissions and section 73B to become the route to make general variations to planning permissions (rather than section 73)? (Question 26)” and “also for any further comments on the scope of the guidance (Question 27)”. This includes the question of whether the guidance should discourage the use of the, now standard, condition which lists approved plans which was introduced to facilitate minor-material amendments via section 73. The consultation states that they are not minded to discourage the use of this condition and that it is beneficial to help support effective planning enforcement, particularly in relation to design.

Procedural arrangements

The aim is for the procedural requirements set out in regulations for a section 73B application to be “proportionate reflecting the position that the development proposed in the application is a material variation to an existing permission while still ensuring there is transparency about the proposed variation” and that “Local communities should be aware of proposed variations so they can make representations: the section 73B route is not a mechanism to undermine scrutiny.”

The proposal is:

information requirements will be generally the same as other applications for planning permission but certain requirements (such as a design and access statement) will not be required.
publicity requirements will be the same as other applications for the type of development (i.e. if it is a variation to major development, the major development publicity requirements would apply).
Consultation with statutory consultees would follow the approach of section 73 applications where there is a duty on the local planning authority to consult a statutory consultee if they consider appropriate (reflecting the position that a proposed variation may only engage specific issues which of an interest to only some statutory consultees and so it would be disproportionate to require those statutory consultees without an interest to respond) although the footnote states that applications would automatically be in scope of the consultation duty between counties and district LPAs, the consultation arrangements for parishes and neighbourhood forums and the arrangements for applications of potential strategic importance under section 2A TCPA 1990 for the Mayor of London and those combined authorities which have section 2A powers.

EIA and HRA requirements would apply as for section 73 permissions and a similar approach would be taken to Biodiversity Net Gain.

The consultation asks whether consultees agree with this proposed approach to procedural requirements.

Fees

The proposal is to align the fee for a section 73B application with the fee for a section 73 application. The alternative approach of setting a higher fee for a section 73B application was considered on the basis that the section 73B route could be the default route for general material variations while section 73 focuses on the variation of a specific condition. However, the higher fee could encourage applicants to continue to use section 73, undermining the purpose of the reform.

However, it is proposed to change the current flat fee approach for a section 73 application (£293) so that there would be three separate fee bands for householder, non-major development and major development.

The householder fee would be reduced to £86 (double the fee for discharge of condition and removing the anomaly that an original householder application fee is lower than the section 73 fee). The non-major development fee would remain at £293.

For major development, there would be a higher fee which would be less than the fee for the original application and proportionate to the work necessary to consider the proposed variation (without exceeding full cost recovery). The consultation asks for views about where this fee should be set, including evidence from local planning authorities for the typical work which is involved dealing with an average section 73 application for a major development.

CIL

It is proposed that CIL would apply to section 73B in the same way that it applies to section 73 permissions. This would mean that “if the section 73B permission does not change the CIL liability, the chargeable amount is that shown in the most recent liability notice issued in relation to the previous permission. But if the section 73B permission does change the CIL liability, the most recently commenced or re-commenced scheme is liable for the levy.”

Overlapping permissions and section 73B

The consultation refers to the recent Hillside and Dennis cases on overlapping permissions [see previous simonicity blog posts respectively here and here] and how these judgments have questioned the ability to use ‘drop in’ permissions where a subsequent permission is granted for an alternative development on a section of a larger development previously granted permission and still being implemented.

It summarises Hillside as confirming existing caselaw that “full planning permissions are not usually severable. That is to say, parts of the permission cannot be selectively implemented and that, if a new permission which overlaps with an existing permission in a material way commences, should the carrying out of the new permission make it physically impossible to carry out the rest of the existing permission, it would be unlawful to continue further development under the existing permission. The Court then went on to say, if someone wanted to change part of the development, they should seek to amend the entire existing permission.” And notes that Dennis considered the implications for outline planning permissions and the question of severability further.

It notes that “drop in permissions have often been used during the implementation of outline planning permissions for large scale phased residential and commercial developments where a new development is proposed through a separate application for a phase outside the scope of the outline planning permission while the rest of the phases continue to be implemented under the outline permission. This approach has provided a flexible way of enabling changes to a specific phase to be managed through planning without having to seek a new planning permission for the entire development, particularly when the scale of change is outside the scope of a section 73 application.”

In terms of section 73B, “The government believes that the new section 73B route provides a new way of dealing with such changes to a specific phase of a large scale development granted through outline planning permission in many cases. While the use of section 73B is constrained by the substantively different test, these changes often continue to fit within the existing masterplan which underpins the outline permission and do not necessarily fundamentally change this permission – for instance, changing a phase of commercial development (use class E) to a cinema (use class – sui genesis) where the outline permission only allows class E uses. In this case, the section 73B application would provide details of the proposed variation to the outline planning permission and the consideration by the local planning authority would focus on the merits of this variation.”

However it is recognised that “there could be circumstances where the section 73B route may not be appropriate – for instance, if the change could be considered to be substantially different or there are wider financial and legal relationships between the master developer, land owners and investors which makes the preparation of a section 73B application difficult.”

The consultation asks for views about the extent to which the section 73B route could be used to grant permission for changes for outline planning permission in practice and what the constraints are.

It is clearly helpful that the consultation acknowledges that a new use could be introduced via section 73B which gives more potential flexibility and simplicity than a section 73 approach. However, as noted, changes may well be considered “substantially different” even if they allow the remainder of a masterplan to be developed without amendment. There are also undoubtably complications in obtaining a new planning permission (even a section 73B) for an entire site where development has started and different plots are being developed by different developers, particularly if a section 106 agreement is required to be varied.

The final section of the consultation is a proposal to create a framework through a new general development order to deal with circumstances that cannot be addressed via section 73B. This general development order would deal with overlapping permissions in certain prescribed circumstances. It notes that the Secretary of State has broad powers under section 59 of the Town and Country Planning Act to provide for the granting of planning permission through an order, including classes of development. This may be for a specific development or for a class of development.

The consultation asks for views on whether the focus of such an approach should be on outline permissions for largescale phased development or whether there are any other categories of development which could benefit from an alternative approach.

The consultation questions are:

Question 33. Can you provide evidence about the use of the ‘drop in’ permissions and the extent the Hillside judgment has affected development?

Question 34. To what extent could the use of section 73B provide an alternative to the use of drop in permissions?

Question 35. If section 73B cannot address all circumstances, do you have views about the use of a general development order to deal with overlapping permissions related to large scale development granted through outline planning permission?

It is not clear what the general development order proposal would entail but it is clear that an alternative approach for circumstances where section 73B cannot be used would be valuable and it is encouraging that the government is exploring further options to address the Hillside issue.

Thanks Susie for the above. Given ongoing concerns that I suspect many of us have both as to the need for a proportionate procedure for amending permissions but also more specifically to find a solution to the unnecessary complexities we all face by way of Hillside and Dennis, this is going to be an important consultation process.

The uncertainties as to whether “minor material” “substantially different” and “fundamental alteration” also bring to mind the consideration given recently by the Planning Court to whether, in the NPPF, “substantial” has a different meaning to “significant“, in Ward v Secretary of State (Lang J, 25 March 2024) (answer, after lengthy and unnecessary confusion which could have been prevented by accurate language used at the outset: nope).

Simon Ricketts, 1 April 2024

Personal views, et cetera

Edwin Booth as William Shakespeare’s Hamlet, circa 1870, courtesy Wikipedia

Drop The Pilot: Community Land Auctions

Hey let’s get Joan Armatrading on the Walkman. We’re going back – way back…

The Levelling-up and Regeneration Bill had its first reading in the House of Commons over a year ago on 11 May 2022. It’s not just intervening political chaos which has caused this slow-moving caravan of disparate policy notions to lurch from side to side with occasional abrupt halts Along the way additional bright notions have been loaded onto it, impeding progress still further.

One of those notions is the old chestnut of community land auctions. Clauses 127 to 137 were added to the Bill in November 2022 without prior consultation, once Michael Gove became Secretary of State, so as to allow community land auctions to be piloted for ten years.

Many of you will remember economist Tim Leunig promoting the idea back in the early days of the Coalition Government. See for instance Tim Leunig’s blog post Housing is expensive in Britain. This is because we have built too few houses for the number of new households – land auctions will help give us the homes we need (LSE, 23 March 2011). In fact some of you may even have been at an event I hosted back then where we had a discussion around a swanky breakfast table at the firm I was then at, with property and planning people quizzing him as to how it would actually work. Leunig is now Gove’s senior policy advisor at DLUHC.

CLAs are of course catnip to many political types and economists, for instance supported by Policy Exchange (see eg Alex Morton’s 2013 paper A Right To Build) and the YIMBY Alliance, as part of the wider thinking on land value capture (see eg my 20 May 2017 blog post Money For Nothing? CPO Compensation Reform, Land Value Capture). My conclusion remains that the introduction of community land auctions would inevitably be harmful to the principled operation of the planning system – it’s just too darned complicated – and to the delivery of development in the right places – for instance it introduces a huge conflict of interest for the local planning authority as between whether to plan for the best places or the best returns. In my view primary legislation to allow for a pilot is premature. If there are excess unearned gains for the state (in addition to what is already extracted via the planning system), why not just openly tax them rather than embark on this three cup trick?

The current concept is set out in pages 125 to 133 of the Explanatory Notes to the Bill.

Clause 127 (3) of the Bill:

“A “community land auction arrangement” means an arrangement provided for in CLA regulations under which—

(a) a local planning authority is to invite anyone who has a freehold or leasehold interest in land in the authority’s area to offer to grant a CLA option over the land, with a view to the land being allocated for development in the next local plan for the authority’s area,

(b) any CLA option granted under the arrangement ceases to have effect if the land subject to the option is not so allocated when that plan is adopted or approved (unless the option has already been exercised or been withdrawn or otherwise ceased to have effect), and

(c) the local planning authority may—

(i) exercise the CLA option and dispose of the interest in the land to a person who proposes to develop the land,

(ii) exercise the CLA option with a view to developing the land itself, or

(iii) dispose of the CLA option to a person who proposes to exercise it and then develop the land.”

Clause 128: “Power to permit community land auction arrangements

(1) This section applies where—

(a) the Secretary of State directs that a local planning authority which is to prepare a local plan may put in place a community land auction arrangement in relation to that plan,

(b) the local planning authority resolves to do so (and that resolution has not been rescinded), and

(c) the community land auction arrangement has not come to an end.

(2) The local plan may only allocate land in the authority’s area for development—

(a) if the land is subject to a CLA option or a CLA option has already been exercised in relation to it, or

(b) in circumstances which are prescribed by CLA regulations.

(3) Any financial benefit that the local planning authority has derived, or will or could derive, from a CLA option may be taken into account—

(a) in deciding whether to allocate land which is subject to the option, or in relation to which the option has been exercised, for development in the local plan;

(b) in deciding whether the local plan is sound in an examination under Part 2 of PCPA 2004.

(4) CLA regulations may make provision about how, or to what extent, any financial benefit may be taken into account under subsection (3) (including provision about how any financial benefit is to be weighed against any other considerations which may be relevant to whether the land should be allocated for development in the local plan or to whether the plan is sound).”

Receipts are to be used to support development in an area by funding infrastructure and paying for the administration of the community land auctions process.

The provisions were debated in House of Lords Committee on 18 May 2023 (the relevant part of the debate starts from amendment 364B) and it might put some flesh on the bones to see how a Government minister, Earl Howe, explains how it is all intended to work:

“Community land auctions are an innovative process of identifying land for allocation for development in a local planning authority’s area in a way that seeks to optimise land value capture. Their aim is to introduce transparency and certainty by allowing local planning authorities to know the exact price at which a landowner is willing to sell their land. The crux of our approach is to encourage landowners to compete against each other to secure allocation of their land for development in the local plan by granting a legally binding option over their land to the local planning authority.

The competitive nature of community land auction arrangements incentivises landowners to reveal the true price at which they would willingly part with their land. If the land is allocated in the local plan upon its adoption, the local planning authority can sell the CLA option, keeping the amount that the successful bidder has paid and capturing the value that has accrued to the land as a result of the allocation. The successful bidder must then pay the price set out by the original landowner in the option agreement to purchase the land. The detailed design of community land auction arrangements will be set out in regulations that will be subject to the affirmative procedure.”

“…sustainable development remains at the heart of our approach. Piloting authorities will decide which land to allocate in their emerging local plans by considering a range of factors, which the Government will set out in guidance. Unlike conventional local plans, when allocating sites, local planning authorities will be able to consider the financial benefits that they are likely to accrue from each site. How, and the extent to which, financial benefits may be taken into account will be determined in regulations. Importantly, the existing requirement to prepare local plans, with the objective of contributing to the achievement of sustainable development under Section 39 of the Planning and Compulsory Purchase Act 2004, will remain.

We are not altering the existing local plan consultation and examination process. Piloting authorities will still be required to consult on the proposed land allocations in their draft local plans, before they are submitted and independently examined in public in accordance with the local plan preparation procedures, as modified by Schedule 7 to the Bill.

… the Secretary of State is required to lay a report before each House of Parliament on the effectiveness of the pilot within the timeframe set out in Clause 134(2). There is a requirement to publish this report, which means that it will be publicly accessible and available to any combined authority that was involved in the pilot.

The noble Baroness, Lady Taylor, asked about whether there had been prior consultations. We will consult on community land auctions shortly, and taking part in the pilot will be voluntary for local authorities. We need the powers in the Bill to enable the pilot to happen.

I appreciate the thought behind my noble friend’s Amendment 366. However, as community land auctions are a new and innovative process for identifying land for allocation for development, our view is that it is right that the Bill makes provision for them to be piloted on a strictly time-limited basis.

If community land auction arrangements are deemed successful, and if there is ambition to extend the approach, further primary legislation would be required to implement them on a permanent basis. As we do not have the evidence about their effectiveness yet, we think it right that the Bill does not include provisions that could make CLAs a permanent fixture. Instead, the Government will take a decision at the relevant point in the future, based on the evidence.”

“The simplest way I can describe this is that community land auctions will be a process of price discovery. In the current system, local planning authorities have to make assumptions about the premium required by a reasonable landowner to release their land for development. For Section 106 agreements, this manifests itself through viability negotiations between the local planning authority and a developer. As these can be negotiated, there is a higher risk that, in effect, higher land prices lead to reduced developer contributions, rather than contributions being fully priced by developers into the amount that they pay for land.

For the community infrastructure levy and the proposed infrastructure levy, a levy rate is set for all development within certain parameters. When setting rates, the local planning authority has to calculate how much value uplift will occur on average, and has to make assumptions about landowner premiums and set a levy rate on that basis. The actual premium required by individual landowners will not be available to local planning authorities and will vary depending on individual circumstances. If the local planning authority makes an inaccurate assumption about landowner premiums, they may either make a lot of sites unviable by setting too high a levy rate, or else they will collect much less than they might have done otherwise by setting too low a levy rate.

Under the CLA process, landowners bid to have their land selected for allocation in an emerging local plan, as I have described, by stating the price at which they would willingly sell their land to the LPA for development. The offer from the landowner, once an option agreement is in place with the LPA, becomes legally binding. The LPA can either exercise it themselves, thereby purchasing the land, or auction it to developers. The competitive nature of CLAs incentivises landowners to reveal the true price at which they would willingly part with their land. If they choose to offer a higher price, they risk another piece of land being allocated for development, in which case they will not secure any value uplift at all.”

But if you’re regularly involved in local plan making and/or the promotion of land for development, obvious points arise, none of which are addressed in the above – or anywhere as far as I can see:

the nature, terms and timing of these “options”. They would need to be investment-grade binding commitments on the owner (or owners – many potential allocations are a patchwork of interests knotted together by land promoters) and the owner’s successors in title, with all those with relevant interests (eg mortgagees, tenants) having consented, legally binding for a very long period of time, until drawdown which would be way past local plan adoption, with no get out if any owner changes its plans.
The above means heavy-duty conveyancing input on the part of the owner but also on the part of the local authority, all within the necessary local plan preparation window. Given the number of sites proposed in any local authority’s “call for sites” this is a truly massive amount of work to be resourced by the authority, even with terms as standardised as possible.
The proposed option price by the land owner is going to be influenced by whether best values are to be achieved (1) blind via this route, (2) by in some way bringing forward a scheme outside the process (if this is ruled out the system is utter nationalisation and state control of development – if that’s what you voted for, fine, but I suspect it’s not) or (3), as has happened with other forms of development land tax, by just waiting it out for a less restrictive regime.
Say two pieces of land are put forward as alternative locations for the expansion of a town, one less sustainable than the other (eg it may be greenfield rather than brownfield, remote from public transport connections). The owner of the less sustainable site may offer to make its land available for a lower price. To what extent can or should the authority take into account the additional monies to be extracted from on-sale of the less sustainable site in deciding which to allocate? My early years as a planning lawyer were in the out of town supermarket wars, where the common situation was the local authority seeking to promote a supermarket on its own, worse, site in opposition to better proposals by others, for obvious reasons that at the time of course had to remain unspoken because having regard to the authority’s potential financial returns was obviously verboten. Just think how this would play out under what is proposed – and with much of the decision making inevitably taking place behind closed doors due to inevitable commercial confidentiality.
How is commercial and mixed used development to be approached and dealt with in valuation terms? Is this how we are going to allocate land for major logistics or industry? It’s a cookie cutter approach as presented: housing, housing, housing.
The local authority is envisaged to be the ring master and banker of the whole processes. Whilst this may be welcome in some ways, capacity building would be required on a huge scale.
In any event, the current system already minimises land values, and will increasingly do that if relatively recent changes to the viability process are allowed to bed down. Every time development comes forward with less affordable housing than required by policy, that is because the authority, or inspector on appeal, has been satisfied, on the basis of valuation advice, that no more affordable housing could be extracted and the scheme still proceed, based on an appraisal that doesn’t feed in the price the developer may actually have paid for the land but, usually, just existing use value with a premium set at the minimum that the valuers agree would have been necessary to persuade the owner to sell. I would like to see an explanation of why the option price offered by a land owner would be likely to be lower than EUV+.
Oh and there’s nothing “community” about it.

That’s just the outcome 15 minutes’ thought at the kitchen table on a Saturday morning with Joan Armatrading on in the background.

Some people seem to think that the planning system can be used as a sandbox for trying out these over-complicated, theoretical constructs. I set out my brief thoughts on the infrastructure levy last week and see also the “no hope value” thinking. We’re barking up the wrong tree folks. Drop the pilot. We don’t have the time. Get the existing system to work, now, with more resources and less complexity, better guidance and – perish the thought – some political consistency. Use the local plans system for planning and the tax system for taxation rather than creating something which sounds more like a complicated board game. In my humble opinion.

Simon Ricketts, 19 May 2023

Personal views, et cetera

The phrase to “drop the pilot” means to abandon a trustworthy adviser. This 1890 Punch cartoon depicts the dismissal of Otto von Bismarck from the Chancellorship of the German Empire by Wilhelm II.

New Draft London Guidance On Affordable Housing/Viability

The GLA has released consultation drafts of its new London Plan Guidance (LPG) on Affordable Housing and on Development Viability (4 May 2023). The consultation closes on 24^th July 2023.

There is a huge amount of detail to take in.

I am very grateful indeed to my Town Legal colleague Susie Herbert for what follows:

Summary

The updated LPG documents will replace the GLA’s 2017 SPG on Affordable Housing and Viability. The new LPG comprises two documents with one covering Affordable Housing and the other covering Development Viability. The Affordable Housing document covers the threshold approach, tenure, grant funding and build to rent while the Development Viability document covers the viability assessment process, principles for undertaking viability assessments, viability assessment information, inputs and sense checking, the review mechanisms and the formulas.

While much of the draft is similar the 2017 SPG with updates to reflect the 2021 London Plan and and to incorporate other guidance that has been released in the interim (such as the 2018 Practice Note on Public Land), some of the proposed changes are of more substance.

These include much more detailed guidance on the process for and the inputs to viability reviews covering a wider range of inputs which suggests a more prescriptive and standardised approach, including more emphasis on optimising the viability of the development including exploring different testing alternative uses; a suggestion that financing costs should be treated differently for different types of developer, and an exclusion of risk items of development costs such as Rights of Light costs or asbestos removal. It is also made clear throughout the guidance that any public subsidy should be included in the development value but that the target return should not be applied to any public subsidy.

There is also more prescriptive guidance on section 106 agreements and to monitoring requirements for both applicants and LPAs with information to be reported to the Planning London Datahub.

There is a more prescriptive approach to mid-term reviews which are now expected for schemes over 500 dwellings as well as those expected to have a build programme of more than 5 years or for estate regeneration schemes. Any surplus return identified in a mid-stage review is expected to be used to deliver affordable housing.

In respect of early stage reviews, the draft guidance effectively rules out force majeure clauses so that the early stage review will apply whatever the reason for delay.

Turning to eligibility criteria, there is a greater emphasis on provision for key workers and the consultation also states that the GLA is considering raising the £60,000 threshold to £67,000 and comments are invited on this.

While the threshold approach remains in place, there is a change in respect of scheme changes which will allow schemes which were originally subject to viability review to follow the fast track route in respect of additional dwellings if there additional dwellings include enough affordable provision to meet the relevant threshold.

While co-living will generally be subject to viability review, there is the potential for it to be assessed under the fast track route if it provides affordable housing meeting the internal space standards and the requirements of policies H5 and H6.

The consultation questions generally ask for comments on and suggestions for improvement for the various sections although there are some specific questions in particular in respect of income caps for intermediate housing.

Affordable Housing Document

Threshold approach

The “threshold approach” first set out in the 2017 SPG remains. This means that the Fast Track Route (FTR) is available for schemes with the minimum of 35% or 50% for public-sector land and industrial sites where there would be a net loss of industrial capacity although the 35% no longer states that it has to be achieved without public subsidy.

There is a change compared to the 2017 SPG in respect of scheme changes for developments that did not qualify for the FTR. Previously any changes would also be subject to viability review but the draft LPG now suggests that if the proposed change is to increase the number of dwellings and that increase would include enough affordable housing meet the relevant threshold, then the FTR is available for the application to make the change to the scheme (paragraph 2.8.3).

The list of applications for which the FTR is specifically expressed not to be available and which must be subject to the Viability Tested Route (VTR) has also been expanded compared to the 2017 version to include co-living (large-scale, purpose-built, shared-living accommodation (LSPBSL) (in accordance with Policy H16) and also applications “where other relevant policy requirements are not met to the satisfaction of the LPA or the Mayor” which reflects Policy H5 C 3). There is further guidance on this at Appendix 2 of the draft LPG which does allow for the possibility of the FTR for co-living if it provides sufficient affordable housing.

Tenure

The draft LPG states that the Mayor’s preferred affordable housing tenure for low-cost rented homes is Social Rent and not London Affordable Rent as only Social Rent homes are eligible for grant funding under the London Affordable Homes Programme (AHP) 2921-26. This is slightly different from the London Plan 2021 which lists both Social Rent and London Affordable Rent as preferred affordable housing tenures (para 4.6.3).

Eligibility for intermediate housing

In terms of eligibility for intermediate housing which is currently subject to a maximum income cap of £60,000, the consultation survey states that the GLA is considering raising the income cap to £67,000 in line with changes to median incomes in London since 2017. Consultees are asked whether they agree with this and to provide comments.

The London Plan requires that intermediate housing is provided for a range of household incomes below the maximum caps for the first three months of marketing. The survey states that the GLA is considering setting out income levels below the maximum level which would apply where the relevant local planning authority has not published local income levels and the survey asks for views on whether this would be a helpful addition to the guidance.

LLR

The section on London Living Rent (LLR) states that rents should not be increased above the rate of the CPI including housing costs within tenancies and that on re-let the rent should revert to the LLR (or lower). It also states that if no tenant has purchased their current home within 10 years, the RP may sell the home to another eligible purchaser on a shared ownership basis.

Key workers

The draft LPG also “strongly encourages” local authorities and housing providers to prioritise key workers when setting eligibility and prioritisation criteria.

Affordability

The guidance covers the new model for shared ownership (SO) homes introduced by the Government in 2021 (which allows for the initial share to be a minimum of 10% rather than 25%) and confirms that only the new SO model homes will be funded by the AHP 2021-26 so the Mayor will expect SO homes to be provided on that basis.

Service Charges

The draft LPG contains a section on service charges which states that Applicants, LPAs and affordable housing providers should ensure that service charges are affordable for residents, and that they do not exceed the cost of the services provided. It also states that applicants should consult with affordable housing providers at an early stage to minimise service charges as part of design and management strategies.

The LPG also states that residents of affordable housing should be given the same rights of access to amenities and facilities within the scheme as occupiers of market housing at no additional charge other than service charges. If an LPA agrees that access to a facility would make service charges unaffordable for residents of affordable housing, this should be excluded from standard service charges and they should be given full optional rights of access at a fair and reasonable charge.

Key features document

A key features document should be provided to potential tenants and purchasers at the start of the marketing period. This should include detailed information on the tenure of a property and the length of any lease, as well as the full range of potential costs, including any expected service charges, permission fees and any other charges (including those relating to resales).

Grant

The draft LPG describes how the Mayor’s grant funding powers work alongside the threshold approach and describes the AHP 2016-23 and 2021-26. In terms of maximising delivery, the FTR is available where an applicant commits unconditionally to provide at least 40 per cent affordable housing with grant (or 50% on public or industrial land). However, if the s106 will allow for a lower level of affordable housing than the relevant threshold if grant is not available, the scheme must follow the VTR.

If grant is not available at the application stage but grant funding subsequently becomes available, the S106 should require that the level of affordable housing proposed in the grant application is provided.

Build to Rent

The BtR section has been updated and reflects the London Plan 2021 Policy H11.

Securing delivery

There is a new section on securing delivery which sets out what a section 106 agreement should include such as restrictions on occupation and ensuring that affordable housing is not concentrated in final phases. It states that the affordable housing should be sold to an RP on a freehold or long (990 years) leasehold basis. The section 106 agreement should secure obligation in line with the LPG and the Mayor’s standard section 106 clauses such as eligibility, affordability and review mechanisms. The section 106 should also provide for the recycling of subsidy in the event that a home is no longer provided as affordable housing.

Monitoring and implementation

There is also a section setting out the applicant’s and the LPA’s responsibilities in respect of monitoring and implementation. The applicant should submit information on the affordable housing to be provided and the outcome of any viability review in a standardised format specified by the GLA.

The section also expands on the requirement under London Plan Policy H7 for boroughs to have clear monitoring processes with annual publication of monitoring information. It is strongly recommended that this monitoring is undertaken by specialist officers or teams wherever possible and the costs of this should be met by applicants.

Development viability

Principles for undertaking viability assessments

The guidance in Section 3 on the principles for undertaking viability assessments is significantly more detailed than the equivalent sections in the 2017 SPG.

There are also additional sections on:

(a) how viability assessments should be objective and realistic with requirements for assessors;

(b) modelling sensitivity testing of assumptions and inputs and value growth and cost inflation;

(c) optimising the viability of development with detail of how applicants should demonstrate that the proposed scheme optimises site capacity through a design-led approach which may include testing different residential typologies such as BtR and build for sale; and

(d) sense-checking.

The consultation survey asks whether the approaches set out in these sections are practical and will help to ensure that viability assessments are robust.

Viability assessment information, inputs and sense-checking

Again there is further additional detail on the inputs for the viability review compared with the 2017 SPG including on affordable housing values. This section also includes new detailed guidance on sales values, investment values, commercial property, grant and public subsidy, development programme, finance costs and other development costs. There is also a further section on sense checking.

Review mechanisms

Early Stage Reviews

In respect of Early Stage Reviews, there is a new paragraph on substantial implementation which makes it clear that provisions that seek to delay the trigger date for an Early Stage Review should not be included in the section 106 agreement. The reasoning is that the review is intended to secure additional affordable housing where viability allows, regardless of the reason development may have been delayed. This means that force majeure clauses which had sometimes been agreed to in light of the disruption caused by the pandemic will no longer be accepted.

There may be more flexibility on the definition of substantial implementation as the paragraph now makes clear that the description of works is an example of substantial implementation rather than a definition of it.

Where a payment in lieu of on-site affordable housing is made following an ESR, the guidance states that this can be included as a cost in subsequent reviews.

Mid-Term Reviews

The 2017 SPG stated that LPAs should consider mid-term reviews for larger developments that will be built out over a number of phases. This is expanded in the draft LPG. The draft guidance states that Mid-Term Reviews should be provided for larger phased schemes including those that propose 500 or more residential units (or for mixed-use schemes, the equivalent amount of development in floorspace) and that there may be other circumstances where Mid-Term Reviews are required for example where the construction programme is five years or longer or for estate regeneration schemes.

The timing for Mid-Term Reviews is to be agreed with the LPA or the Mayor as applicable. For outline or hybrid schemes it may be appropriate for reviews to take place as part of reserved matters applications to enable affordable housing to be included within the design of the relevant phase or future phases.

Mid-Term Reviews should assess the scheme as a whole, taking into account actual values and costs for earlier phases, and estimated figures for subsequent phases. They will not be conditional on reaching a specific level of progress by a trigger date.

Terms of viability review mechanisms

This section sets out more detail on the terms of VRMs to be included in s106 agreements. This includes that any public subsidy is included in the development value figures but that the target return should not be applied to any public subsidy.

For Mid-Term Reviews, the guidance states that it is most appropriate that they follow Early Stage Reviews in that any surplus return should be applied to the delivery of affordable housing. For Late Stage Reviews it may be acceptable for an element of surplus return to be retained by the applicant but not exceeding 40%.

There is also an additional requirement to ensure reporting of information to the Planning London Datahub on the number and tenure of affordable housing by unit and habitable room secured in the application and the outcome of reviews including additional affordable housing, changes in tenure and any financial contributions.

The Formulas

Formula 1a – this is unchanged except for a note which states that the review GDV and build-costs figures should include the commercial component where relevant.

Formula 1b – the note now clarifies that the application and review stage GDV figures should include any public subsidy that is available at the time of the assessment but this should be excluded when calculating developer return.

Formula 3 on late stage reviews contains additional guidance on how the assessment should be adjusted for BtR if they were originally assessed as build for sale.

There is a new Formula 5 for Mid-Term Reviews based on Formula 2 but using actual values and costs for completed parts of the development at the time of the review and estimated figures for the rest of the scheme.

There is also a new Formula 6 for converting affordable housing to a more affordable tenure.

The specific BtR formulas from the 2017 SPG (Formulas 5 and 6) are not included.

In terms of viability deficits, the draft guidance states that deficits should not normally be accounted for in review mechanisms and should only be allowed exceptionally where agreed by the LPA (and the GLA). Deficits should not be included in reviews for schemes that have followed the FTR. The extent of any deficit should be determined by the LPA and the Mayor. A breakeven appraisal can be undertaken at application stage to assess the level of GDV and build costs at which the RLV equates to the BLV. The breakeven GDV and Build Costs should replace the application-stage GDV and build cost figures in the formulas.

Thank goodness we have a long weekend to take all this in! I’ll be testing you on Tuesday.

Simon Ricketts (with thanks again to honorary guest blogger Susie Herbert), 6 May 2023

Personal views, et cetera

CPO No

The political soap opera this weekend, plus another fabulous sunny Autumn morning – versus writing a blog post about compulsory purchase? Time to use that thinking face emoji.

The inspector’s decision dated 4 October 2022 to decline to confirm the London Borough of Barking and Dagenham Council (Vicarage Field and surrounding land) Compulsory Purchase Order 2021 certainly brings with it some lessons, or at least reminders, for those promoting compulsory purchase orders in association with public/private sector regeneration projects.

Here are the inspector’s conclusions in full:

“368. The scheme underpinning the CPO is wholly in accordance with the development plan and has the benefit of outline planning permission. There is an extremely compelling case in the public interest for the development, in meeting economic, environmental and social needs. This would considerably outweigh the heritage harm and loss of existing jobs.

369. The shopping centre and town centre overall needs redevelopment, it is the lowest ranking Borough in London for poverty, and this scheme is the catalyst that would spark further regeneration. There are also no realistic alternative proposals that would achieve the purpose for which the AA is proposing to acquire the land.

370. I am completely aware that failure to confirm the CPO would have an adverse consequence of losing the opportunity to comprehensively redevelop the site at this time. The Council has staked its reputation on the delivery of the scheme and its delivery is critical to achieve its ambitions.

371. I fully recognise much of the potential financial viability of the scheme is reliant upon the scheme itself and it is a complete ‘catch 22’ situation. The developer is confident the Scheme will be delivered. The funding intentions are clear, and I have no doubt that the developer has access to funds.

372. Nevertheless, there is fundamental lack of tangible and substantive evidence on viability. Given the gravity of the 2016 appraisal, and the lack of an updated appraisal, I cannot be certain that the scheme is financially viable despite all assurances from the AA. Other methods to present the evidence confidentially could have been explored and, if the scheme was viable, I do not understand why this evidence was not presented. Whilst the AA claims viability evidence from objectors has not been presented, it is for the AA to demonstrate substantive information as to the financially viability of the scheme. It has not done so in a way that convinces me.

373. Consequently, because I cannot conclude that the scheme is financially viable, I cannot be confident that there is a reasonable prospect that the scheme will proceed at this time, or that the necessary resources are likely to be made available within a reasonable time scale. This is because there is an expectation of return, and no developer or investor would pursue a scheme that is not economically viable or feasible. This is even if it has access to funds, sees a long term vision, or pools funds so that one scheme may perform better than another. The legal agreements also provide me with little comfort of delivery, despite the depreciating value of the lease.

374. This makes it difficult to show conclusively that the compulsory acquisition of the land included in the order is justified in the public interest at this time, as detailed by CPO Guidance.

375. Added to this are my concerns that inadequate negotiations have taken place, when considering the CPO Guidance. It could not be said that delays have been keep to a minimum. The lag from Cabinet approving the making of the CPO to making the CPO was 3 years. There has been a significant delay in the submission of reserved matters applications, and the outline permission expires in April 2023.

376. The efforts to acquire the CPO lands by private treaty have also been largely ineffective. Claims are made by objectors that the financial offers have not been market value, and it is the shopping centre that has failed, not the surrounding businesses on Ripple Road and Station Parade. There have also been limited efforts to relocate those affected by the CPO to date. A ‘not before’ date has been absent and this has resulted in those subjected to the CPO unable to fulfil business plans, living in limbo for a long period of time. Full information was also not provided at the outset and there was no clearly specified case manager.

377. Consequently, whilst I acknowledge the pressing need for redevelopment and the extremely compelling case for the CPO, for the above reasons, I cannot confirm that the compulsory acquisition of the land included in this Order is proportionate or justified in the public interest.

378. Thus, the London Borough of Barking and Dagenham Council (Vicarage Field and surrounding land Compulsory Purchase Order) 2021 is not confirmed.”

I recommend that you read my partner Raj Gupta’s 10 October 2022 blog post The Vicarage Field CPO and viability and that you subscribe to his forthcoming posts which will cover:

the Inspector’s criticisms of the promoter’s engagement with occupiers and the deficiencies of its relocation strategy.

other points made by the Inspector including in relation to planning, publicity and timing matters with some bonus musings on whether the CPO reforms proposed by LURB (e.g. conditional confirmation) would have made any difference to the outcome.

The decision is no doubt frustrating to all those who worked so hard, with the best of objectives – whilst no doubt equivalently a huge relief for those organisations, businesses and individuals whose land interests, activities and livelihoods were at stake.

Michael Walton posted these words on LinkedIn:

“The proposed regeneration of Vicarage Field shopping centre in Barking adds enormous value to the transformative vision for the borough.

As Head of Regeneration Strategy at Be First I advised on initiatives which helped accelerate growth in Barking & Dagenham. Oversight of Vicarage Field was led by another division, and I moved on from Be First prior to the public inquiry into the CPO being held this year.

The decision made recently by the Inspector to not confirm the CPO is disappointing. Prior to it being made, I highlighted similar issues around deliverability. However, the Inspector also placed a high bar on negotiations with affected parties when reaching her decision.

Nonetheless, this should not deter local authorities from seeking CPO powers as part of their regeneration plans – it merely reinforces the need to de-risk projects and put forward a compelling case.”

Agreed. In fact, I suspect that the decision will prove helpful to promoters of future CPOs, in underlining for them what has to be in place, however difficult it may be in current uncertain circumstances, in order for a CPO to be confirmed.

Now to check whether the sun is still shining – and whether we still have a Prime Minister.

Simon Ricketts, 15 October 2022

Personal views , et cetera

Moving Into First Homes: 3 Key Deadlines

The Government’s First Homes announcements this week mean that we all need to understand the practicalities as to how this new form of discounted market sale housing will work and to plan around three key implementation dates.

On 24 May 2021 we had the formal ministerial statement together with the publication of MHCLG guidance providing “further detail on First Homes and their implementation”. For prospective purchasers there is also the Government’s Own Your Own Home website.

The three key dates are as follows:

28 June 2021

From the guidance: “ Local plans and neighbourhood plans submitted for examination before 28 June 2021, or that have reached publication stage by 28 June 2021 and subsequently submitted for examination by 28 December 2021, will not be required to reflect the First Homes policy requirement”

(However: “Planning Inspectors should consider through the examination whether a requirement for an early update of the local plan might be appropriate.”)

28 December 2021

From the guidance: “The new First Homes policy requirement does not apply for the following:

• sites with full or outline planning permissions already in place or determined (or where a right to appeal against non-determination has arisen) before 28 December 2021”

28 March 2022

It also does not apply to “applications for full or outline planning permission where there has been significant pre-application engagement which are determined before 28 March 2022”.

So if you wish to avoid the new requirement and you are not in an area where a plan has been adopted under the transitional arrangements, you need to have submitted your application so that it will be determined (or so that that the statutory right to appeal on the basis of non-determination has arisen) by 28 December 2021 and if there is any doubt as to whether you will meet that deadline it would be prudent to have engaged in “significant pre-application engagement” such that the deadline for achieving permission is 28 March 2022.

“If an applicant wishes to amend a planning application to include First Homes which is already submitted and likely to be granted before these dates, the local planning authority should be flexible in accepting First Homes as an alternative type of tenure.

Local authorities should have flexibility to accept alternative tenure mixes for planning applications that are determined within the timescales identified above, although they should consider whether First Homes could be easily substituted for another tenure, either at 25% or a lower proportion.”

From the guidance:

“What is a First Home?

First Homes are a specific kind of discounted market sale housing and should be considered to meet the definition of ‘affordable housing’ for planning purposes. Specifically, First Homes are discounted market sale units which:

a) must be discounted by a minimum of 30% against the market value;

b) are sold to a person or persons meeting the First Homes eligibility criteria […];

c) on their first sale, will have a restriction registered on the title at HM Land Registry to ensure this discount (as a percentage of current market value) and certain other restrictions are passed on at each subsequent title transfer; and,

d) after the discount has been applied, the first sale must be at a price no higher than £250,000 (or £420,000 in Greater London).

First Homes are the government’s preferred discounted market tenure and should account for at least 25% of all affordable housing units delivered by developers through planning obligations.”

….

“Who is eligible to purchase a First Home?

A purchaser (or, if a joint purchase, all the purchasers) of a First Home should be a first-time buyer as defined in paragraph 6 of schedule 6ZA of the Finance Act 2003 for the purposes of Stamp Duty Relief for first-time buyers.

Purchasers of First Homes, whether individuals, couples or group purchasers, should have a combined annual household income not exceeding £80,000 (or £90,000 in Greater London) in the tax year immediately preceding the year of purchase.

A purchaser of a First Home should have a mortgage or home purchase plan (if required to comply with Islamic law) to fund a minimum of 50% of the discounted purchase price.

These national standard criteria should also apply at all future sales of a First Home.”

…..

“How should the remaining 75% of affordable housing be secured through developer contributions?

Once a minimum of 25% of First Homes has been accounted for, social rent should be delivered in the same percentage as set out in the local plan. The remainder of the affordable housing tenures should be delivered in line with the proportions set out in the local plan policy.

For example, if a local plan policy requires an affordable housing mix of 20% shared ownership units, 40% affordable rent units and 40% social rent units, a planning application compliant with national policy would deliver an affordable housing tenure mix of 25% First Homes and 40% social rent. The remainder (35%) would be split in line with the ratio set out in the local plan policy, which is 40% affordable rent to 20% shared ownership, or 2:1. 35% split in this way results in 12% shared ownership; and 23% affordable rent.

In another example, if a local plan policy requires 80% of units to be shared ownership and 20% to be social rent, a policy compliant application would deliver 25% First Homes units, 20% social rent and 55% shared ownership.

If a local authority has an up-to-date policy on cash contributions in lieu of onsite contributions, then a planning application compliant with national policy will align with this approach.”

The requirement will be secured by our trusty friend, the section 106 agreement (or unilateral undertaking). The guidance states: “The government will publish template planning obligations for this purpose, which the local planning authority can use as a basis for agreements prepared locally.” A workable template (stress the word “workable”) would be very useful indeed.

How will this policy mechanism work across very different housing market areas across the country and what might be the unintended consequences? I recommend an excellent Lichfields blog post, First Homes: dicing with the discount (Rachel Clements and Bethan Haynes, 27 May 2021).

They ask where can First Homes potentially have the biggest impact?

“First Homes have the potential to have the greatest impact in areas where first-time buyers are currently priced out of the open market (at the entry-level) but where First Homes would be within reach, when the minimum 30% discount is applied. We estimate this represents around one in five authorities in England – around 63 in total.”

Will it avoid the problems that caused the previous Starter Homes concept to fail (e.g see my 29 February 2020 blog post Starter Homes Were A Non Starter – What Future For First Homes?)? What do we make of this continuing political decision to intervene in the market in the interests of encouraging home ownership at the expense (where viability is impacted) of affordable housing for rent, for those on a lower rung of the housing ladder?

There is plenty more to say on the subject, for instance the new opportunity arising to bring forward First Homes exception sites on allocated land outside the green belt or designated rural areas. But for now, I suspect that developers and local planning authorities alike will be wanting to do some basic number-crunching and to bear those three deadlines in mind.

Simon Ricketts, 28 May 2021

Personal views, et cetera

This Tuesday evening’s Planning Law, Unplanned Clubhouse session (6pm, 1 June) takes on a more general subject: “Has work taken over your life? Life hacks, work hacks”. Do come along and share your views, or just listen to the chat. An invitation to the app is here.

CIL To Be Replaced By…CIL

When I saw a limelon for the first time yesterday (some recently marketed lime/melon hybrid since you ask, and tangy and refreshing it is indeed), I naturally thought of the proposed combined infrastructure levy: what on earth is it?

Planning For The Future is of course work in progress and it may be churlish for us to expect it to have all the answers. After all, it is up to us to provide cogent responses to the current consultation process.

But the sections in the document on infrastructure contributions are very light indeed, given the central role that section 106 and the community infrastructure levy play in the current system and the obvious complexity of arriving at a system for a combined infrastructure levy that on the one hand does not choke off various forms of development in some areas by making it unviable and that on the other hand both (1) raises sufficient monies to secure the delivery of necessary social (e.g. affordable housing) and physical infrastructure and also (2) ensures for the benefit of both communities and developers that the infrastructure will actually be provided in the right place, at the right time.

The lightness is in contrast to the detailed analysis of the existing position in relation to contributions by way of CIL and section 106 planning obligations that is the subject of a detailed study (143 pages) by respected academics (all those listed on the front page of the document), The Incidence, Value and Delivery of Planning Obligations and Community Infrastructure Levy in England in 2018-19, published alongside the white paper.

The objectives of the study were to

•Update the evidence on the current value and incidence of planning obligations

• Investigate the relationship between CIL and S106

• Understand negotiation processes and delays to the planning process

• Explore the monitoring and transparency of developer contributions

• Understand the early effects and expectations for the changes to developer contributions brought in by the revisions to the NPPF

Chapter 3 (The value of Planning Obligations and the Community Infrastructure Levy) sets out some interesting findings:

“• The estimated value of planning obligations agreed and CIL levied in 2018/19 was £7.0 billion. This 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 contributions in real terms is £500 million higher than in 2016/17, £300 million higher than in 2007/08.

• 67% of the value of agreed developer contributions was for the provision of affordable housing, at £4.7 billion; this is the same proportion as in 2016/17 and is the joint-highest to date.

• 44,000 affordable housing dwellings were agreed in planning obligations in 2018/19. This is a reduction since 2016/17, but the value of this housing has increased over the same period due to an increase in house prices in many areas with higher developer contributions.

• The value of CIL levied by LPAs was £830 million in 2018/19, with a further £200 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, South West and London regions account for 61% of the total value. However, the value of developer contributions exacted in London has fallen since 2016/17 – down from 38% to 28% of the total aggregate value.”

There is nothing in the white paper that explicitly draws from the findings of that report in order to arrive at the wholly new mechanism that is proposed.

Some people seem to have picked up the message that the white paper means the end of the community infrastructure levy – a cause for celebration in some parts. But the white paper’s proposal for a combined infrastructure levy to my mind is CIL writ large, potentially just as complex, with a whole new set of rate setting, liability, payment and spending mechanisms and with the express objective of raising more monies than the current system. It warrants its own focus at this point, away from the noise of the other proposals in the white paper.

How to begin to unpick what is proposed in relation to CIL and section 106 planning obligations (and what the proposals in relation to section 106 mean for the delivery of affordable housing in particular)? I wrote down for myself five basic questions:

1. How will planning obligations work under the new system?

2. What will happen to CIL?

3. How will the new Combined Infrastructure Levy be set?

4. What requirements will there be on local authorities as to how they apply combined infrastructure levy receipts?

5. Under the new system, how can local planning authorities set requirements for affordable housing and seek to ensure that they are delivered?

In order to try to answer them (in a way which would have to work in relation to all of the proposed consenting routes: DCO, outline planning permission in plan, PiP (if different from outline permission in plan, not sure!), traditional planning permission, PD), then I cut and pasted the relevant passages from the white paper in their entirety (only leaving out the detail of some of the “alternative options” floated and leaving out the questions raised in the consultation). It is easy to read summaries and think “well there must be more detail in the document itself”. It is worth reading these passages to see the totality of the proposals.

After these passages I then see how far we can get in answering my questions.

“The process for negotiating developer contributions to affordable housing and infrastructure is complex, protracted and unclear: as a result, the outcomes can be uncertain, which further diminishes trust in the system and reduces the ability of local planning authorities to plan for and deliver necessary infrastructure. Over 80 per cent of planning authorities agree that planning obligations cause delay. It also further increases planning risk for developers and landowners, thus discouraging development and new entrants.”

“1.19. Fourth, we will improve infrastructure delivery in all parts of the country and ensure developers play their part, through reform of developer contributions. We propose:

• The Community Infrastructure Levy and the current system of planning obligations will be reformed as a nationally-set value-based flat rate charge (‘the Infrastructure Levy’). A single rate or varied rates could be set. We will aim for the new Levy to raise more revenue than under the current system of developer contributions, and deliver at least as much – if not more – on-site affordable housing as at present. This reform will enable us to sweep away months of negotiation of Section 106 agreements and the need to consider site viability. We will deliver more of the infrastructure existing and new communities require by capturing a greater share of the ulpift [sic] in land value that comes with development.

• We will be more ambitious for affordable housing provided through planning gain, and we will ensure that the new Infrastructure Levy allows local planning authorities to secure more on-site housing provision.

• We will give local authorities greater powers to determine how developer contributions are used, including by expanding the scope of the Levy to cover affordable housing provision to allow local planning authorities to drive up the provision of affordable homes. We will ensure that affordable housing provision supported through developer contributions is kept at least at current levels, and that it is still delivered on-site to ensure that new development continues to support mixed communities. Local authorities will have the flexibility to use this funding to support both existing communities as well as new communities.

• We will also look to extend the scope of the consolidated Infrastructure Levy and remove exemptions from it to capture changes of use through permitted development rights, so that additional homes delivered through this route bring with them support for new infrastructure.

“4.5. Securing necessary infrastructure and affordable housing alongside new development is central to our vision for the planning system. We want to bring forward reforms to make sure that developer contributions are:

• responsive to local needs, to ensure a fairer contribution from developers for local communities so that the right infrastructure and affordable housing is delivered;

• transparent, so it is clear to existing and new residents what new infrastructure will accompany development;

• consistent and simplified, to remove unnecessary delay and support competition in the housebuilding industry;

• buoyant, so that when prices go up the benefits are shared fairly between developers and the local community, and when prices go down there is no need to re-negotiate agreements.

4.6. The Government could also seek to use developer contributions to capture a greater proportion of the land value uplift that occurs through the grant of planning permission, and use this to enhance infrastructure delivery. There are a range of estimates for the amount of land value uplift currently captured, from 25 to 50 per cent. The value captured will depend on a range of factors including the development value, the existing use value of the land, and the relevant tax structure – for instance, whether capital gains tax applies to the land sale. Increasing value capture could be an important source of infrastructure funding but would need to be balanced against risks to development viability.”

“4.7. We propose that the existing parallel regimes for securing developer contributions are replaced with a new, consolidated ‘Infrastructure Levy’.

Proposal 19: The Community Infrastructure Levy should be reformed to be charged as a fixed proportion of the development value above a threshold, with a mandatory nationally-set rate or rates and the current system of planning obligations abolished.”

“4.8. We believe that the current system of planning obligations under Section 106 should be consolidated under a reformed, extended ‘Infrastructure Levy’.

4.9. This would be based upon a flat-rate, valued-based charge, set nationally, at either a single rate, or at area-specific rates. This would address issues in the current system as it would:

be charged on the final value of a development (or to an assessment of the sales value where the development is not sold, e.g. for homes built for the rental market), based on the applicable rate at the point planning permission is granted;

• be levied at point of occupation, with prevention of occupation being a potential sanction for non-payment;

• include a value-based minimum threshold below which the levy is not charged, to prevent low viability development becoming unviable, reflecting average build costs per square metre, with a small, fixed allowance for land costs. Where the value of development is below the threshold, no Levy would be charged. Where the value of development is above the threshold, the Levy would only be charged on the proportion of the value that exceeded the threshold ; and

• provide greater certainty for communities and developers about what the level of developer contributions are expected alongside new development.

4.10. The single rate, or area-specific rates, would be set nationally. It would aim to increase revenue levels nationally when compared to the current system. Revenues would continue to be collected and spent locally.

4.11. As a value-based charge across all use classes, we believe it would be both more effective at capturing increases in value and would be more sensitive to economic downturns. It would reduce risk for developers, and would reduce cashflow difficulties, particularly for SME developers.

4.12. In areas where land value uplift is insufficient to support significant levels of land value capture, some or all of the value generated by the development would be below the threshold, and so not subject to the levy. In higher value areas, a much greater proportion of the development value would be above the exempt amount, and subject to the levy.

4.13. To better support the timely delivery of infrastructure, we would also allow local authorities to borrow against Infrastructure Levy revenues so that they could forward fund infrastructure. Enabling borrowing combined with a shift to levying developer contributions on completion, would incentivise local authorities to deliver enabling infrastructure, in turn helping to ensure development can be completed faster. As with all volatile borrowing streams, local authorities should assure themselves that this borrowing is affordable and suitable.

4.14. Under this approach the London Mayoral Community Infrastructure Levy, and similar strategic Community Infrastructure Levies in combined authorities, could be retained as part of the Infrastructure Levy to support the funding of strategic infrastructure.

4.15. In bringing forward the reformed Infrastructure Levy, we will need to consider its scope. We will also consider the impact of this change on areas with lower land values.”

Alternative options proposed: “The Infrastructure Levy could remain optional and would be set by individual local authorities”. “Alternatively, the national rate approach could be taken, but with the aim of capturing more land value than currently, to better support the delivery of infrastructure”

“Proposal 21: The reformed Infrastructure Levy should deliver affordable housing provision

4.20. Developer contributions currently deliver around half of all affordable housing, most of which is delivered on-site. It is important that the reformed approach will continue to deliver on-site affordable housing at least at present levels.

4.21. Affordable housing provision is currently secured by local authorities via Section 106, but the Community Infrastructure Levy cannot be spent on it. With Section 106 planning obligations removed, we propose that under the Infrastructure Levy, authorities would be able to use funds raised through the levy to secure affordable housing.

4.22. This could be secured through in-kind delivery on-site, which could be made mandatory where an authority has a requirement, capability and wishes to do so. Local authorities would have a means to specify the forms and tenures of the onsite provision, working with a nominated affordable housing provider. Under this approach, a provider of affordable housing could purchase the dwelling at a discount from market rate, as now. However, rather than the discount being secured through Section 106 planning obligations, it would instead be considered as in-kind delivery of the Infrastructure Levy. In effect, the difference between the price at which the unit was sold to the provider and the market price would be offset from the final cash liability to the Levy. This would create an incentive for the developer to build on-site affordable housing where appropriate. [Footnote: As above, a Section 106 planning obligation could still be used to secure a covenant on the land, where necessary. However, the value would be captured through the Infrastructure Levy, rather than Section 106. ] First Homes, which are sold by the developer direct to the customer at a discount to market price, would offset the discount against the cash liability.

4.23. Under this approach we recognise that some risk is transferring to the local planning authority, and that we would need to mitigate that risk in order to maintain existing levels of on-site affordable housing delivery. We believe that this risk can be fully addressed through policy design. In particular, in the event of a market fall, we could allow local planning authorities to ‘flip’ a proportion of units back to market units which the developer can sell, if Levy liabilities are insufficient to cover the value secured through in-kind contributions. Alternatively, we could require that if the value secured through in-kind units is greater than the final levy liability, then the developer has no right to reclaim overpayments. Government could provide standardised agreements, to codify how risk sharing would work in this way.

4.24. We would also need to ensure the developer was incentivised to deliver high build and design quality for their in-kind affordable homes. Currently, if Section 106 homes are not of sufficient quality, developers may be unable to sell it to a provider, or have to reduce the price. To ensure developers are not rewarded for low standard homes under the Levy, local authorities could have an option to revert back to cash contributions if no provider was willing to buy the homes due to their poor quality. It is important that any approach taken maintains the quality of affordable housing provision as well as overarching volumes, and incentivises early engagement between providers of affordable housing and developers. Local authorities could also accept Infrastructure Levy payments in the form of land within or adjacent to a site. Through borrowing against further Infrastructure Levy receipts, other sources of funding, or in partnership with affordable housing providers, they could then build affordable homes, enabling delivery at pace.

4.25. Alternative option: We could seek to introduce further requirements around the delivery of affordable housing. To do this we would create a ‘first refusal’ right for local authorities or any affordable housing provider acting on their behalf to buy up to a set proportion of on-site units (on a square metre basis) at a discounted price, broadly equivalent to build costs. The proportion would be set nationally, and the developer would have discretion over which units were sold in this way. A threshold would be set for smaller sites, below which on-site delivery was not required, and cash payment could be made in lieu. Where on-site units were purchased, these could be used for affordable housing, or sold on (or back to the developer) to raise money to purchase affordable housing elsewhere. The local authority could use Infrastructure Levy funds, or other funds, in order to purchase units.”

“Proposal 22: More freedom could be given to local authorities over how they spend the Infrastructure Levy

4.26. It is important that there is a strong link between where development occurs and where funding is spent. Currently, the Neighbourhood Share of the Community Infrastructure Levy ensures that up to 25 per cent of the levy is spent on priorities in the area that development occurred, with funding transferred to parish councils in parished areas. There are fewer restrictions on how this funding is spent, and we believe it provides an important incentive to local communities to allow development in their area. We therefore propose that under this approach the Neighbourhood Share would be kept, and we would be interested in ways to enhance community engagement around how these funds are used, with scope for digital innovation to promote engagement.

4.27. There is scope for even more flexibility around spending. We could also increase local authority flexibility, allowing them to spend receipts on their policy priorities, once core infrastructure obligations have been met. In addition to the provision of local infrastructure, including parks, open spaces, street trees and delivery or enhancement of community facilities, this could include improving services or reducing council tax. The balance of affordable housing and infrastructure may vary depending on a local authority’s circumstances, but under this approach it may be necessary to consider ring-fencing a certain amount of Levy funding for affordable housing to ensure that affordable housing continues to be delivered on-site at current levels (or higher). There would also be opportunities to enhance digital engagement with communities as part of decision making around spending priorities. Alternatively, the permitted uses of the Levy could remain focused on infrastructure and affordable housing, as they are broadly are at present. Local authorities would continue to identify the right balance between these to meet local needs, as they do at present.”

“ 5.19. If a new approach to development contributions is implemented, a small proportion of the income should be earmarked to local planning authorities to cover their overall planning costs, including the preparation and review of Local Plans and design codes and enforcement activities.”

Back to my questions:

1. How will planning obligations work under the new system?

It is said in the paper that the “current system of planning obligations under Section 106 should be consolidated under a reformed, extended ‘Infrastructure Levy’.” There will no longer be “months of negotiation of Section 106 agreements”. “Section 106 planning obligations [will be] removed”.

The proposals seem to assume that section 106 is simply a mechanism for securing provision of affordable housing and other “developer contributions”. Whilst that is its main role at present, it is a mechanism for a wide range of commitments – see this table from the accompanying study:

The joy of section 106 is its flexibility to circumstances and policy, enabling the applicant commit to commit, in a way that binds successors in title, to all necessary mitigation measures that cannot be secured by way of planning condition and which are necessary to overcome what would otherwise be reasons not to allow the proposed development to proceed. On more complex developments it is the only tried and tested way in which appropriate mechanisms can be arrived at to make sure that, for instance, necessary infrastructure comes forward at the right time and by way of a sensible process, bespoke to the circumstances of the development, agreed between the parties. There is no proposal in the paper (although it has previously been floated by some) that the role of planning conditions could be expanded.

Where financial contributions are paid to a local planning authority under a section 106 agreement they can only be used for the specified purposes, whereas the proposals in relation to the consolidated infrastructure levy appear to be more loose: “We could also increase local authority flexibility, allowing them to spend receipts on their policy priorities, once core infrastructure obligations have been met.”What is meant by “core infrastructure obligations”? The core infrastructure obligations necessary to make a particular development acceptable? If so, then a document will need to be drawn up which surely will be as complex as a section 106 agreement – when will the school come forward, using the developer’s infrastructure levy contribution, how, where and when? Local employment and training measures, provision and maintenance of open space and play areas, carbon reduction commitments, commitments to specified transport improvements and the formulation and implementation of transport plans – are all these to be swept away? If so, the document needs to explain either why this is acceptable and desirable or how these matters will otherwise be addressed.

Additional confusion arises when these bold statements as to the removal of section 106 obligations are then contrasted with the footnote to paragraph 4.22: “As above, a Section 106 planning obligation could still be used to secure a covenant on the land, where necessary. However, the value would be captured through the Infrastructure Levy, rather than Section 106”. What does that mean? What would the “covenant on the land” and if the only point is to make sure that the infrastructure levy binds successors in title, why not leave that for the legislation itself?

Is anyone out there clearer at this stage ?

2. What will happen to CIL?

The community infrastructure levy will be replaced by the consolidated infrastructure levy, which will work in various significantly different ways to the current system. For instance:

• It will be a “nationally-set value-based flat rate charge”. I try to unpick this in my answer to question 3 below.

• It will be “levied at point of occupation”.

• “Revenues would continue to be collected and spent locally.”

• “we would also allow local authorities to borrow against Infrastructure Levy revenues so that they could forward fund infrastructure. Enabling borrowing combined with a shift to levying developer contributions on completion, would incentivise local authorities to deliver enabling infrastructure, in turn helping to ensure development can be completed faster.” [If a developer needs specific infrastructure to be delivered in order to enable development to proceed, how will this be documented? What if, as is usually the case, the developer would prefer to deliver the infrastructure, e.g. build the school?]

• The “London Mayoral Community Infrastructure Levy, and similar strategic Community Infrastructure Levies in combined authorities, could be retained as part of the Infrastructure Levy to support the funding of strategic infrastructure” [Is this retained as in retained under the current CIL system so that in London CIL would continue to operate alongside the new levy, or is this retained as in “rolled into”?]

• “We will also look to extend the scope of the consolidated Infrastructure Levy and remove exemptions from it to capture changes of use through permitted development rights” [This is odd – development pursuant to PD rights is not exempt from CIL at the moment. Is this flagging more widely that exemptions will be removed? That would have been a sensible, simplifying, approach were CIL levels to be reduced, but here we are faced with an increased Infrastructure Levy…]

3. How will the new Combined Infrastructure Levy be set?

• It will be a “nationally-set value-based flat rate charge, set nationally, at either a single rate, or at area-specific rates”. [Clearly this can’t in any circumstances mean a nationally-set flat rate charge of x per square metres but must mean a nationally-set proportion of (I assume) gross development value.]

• There will be “a value-based minimum threshold below which the levy is not charged, to prevent low viability development becoming unviable, reflecting average build costs per square metre, with a small, fixed allowance for land costs. Where the value of development is below the threshold, no Levy would be charged. Where the value of development is above the threshold, the Levy would only be charged on the proportion of the value that exceeded the threshold”. [When would the developer have certainty that the threshold was not exceeded, or indeed as to what the value (and therefore charge) is considered to be, through what procedure and with what rights to appeal against the valuation? Is the valuation a notional one, applying a formula, or an actual valuation?]

• “buoyant, so that when prices go up the benefits are shared fairly between developers and the local community, and when prices go down there is no need to re-negotiate agreements.” [the timing of the valuation date will be critical, as will how to deal with phased and revised schemes and so on].

• “It would aim to increase revenue levels nationally when compared to the current system” [so more than £7bn, on the basis of the findings in that study – in a way which will need not to disincentivise owners and developers from carrying out development].

That’s all I can glean from the document. It seems to me that local planning authorities will lose much flexibility, for instance in the setting of differential rates for different types of floorspace (the document does focus to a significant extent on residential development – what rate would be set for, say, offices, logistics or retail, particularly given the weaker relationship between non-residential uses and the delivery of affordable housing, and what about not for profit development – will we need to reintroduce a number of the current CIL exemptions?

4. What requirements will there be on local authorities as to how they apply combined infrastructure levy receipts?

• “With Section 106 planning obligations removed, we propose that under the Infrastructure Levy, authorities would be able to use funds raised through the levy to secure affordable housing”. I try to unpick this in my answer to question 5 below.

• “We could also increase local authority flexibility, allowing them to spend receipts on their policy priorities, once core infrastructure obligations have been met. In addition to the provision of local infrastructure, including parks, open spaces, street trees and delivery or enhancement of community facilities, this could include improving services or reducing council tax.” [So, infrastructure levy surplus receipts (after delivery of “core infrastructure”) become unhypothecated tax receipts – the less the authority spends on infrastructure, the lower it can keep its council tax, hmm…]?

• “If a new approach to development contributions is implemented, a small proportion of the income should be earmarked to local planning authorities to cover their overall planning costs, including the preparation and review of Local Plans and design codes and enforcement activities.”

5. Under the new system, how can local planning authorities set requirements for affordable housing and seek to ensure that they are delivered?

• “We will be more ambitious for affordable housing provided through planning gain, and we will ensure that the new Infrastructure Levy allows local planning authorities to secure more on-site housing provision”.

• “This could be secured through in-kind delivery on-site, which could be made mandatory where an authority has a requirement, capability and wishes to do so. Local authorities would have a means to specify the forms and tenures of the onsite provision, working with a nominated affordable housing provider. Under this approach, a provider of affordable housing could purchase the dwelling at a discount from market rate, as now. However, rather than the discount being secured through Section 106 planning obligations, it would instead be considered as in-kind delivery of the Infrastructure Levy. In effect, the difference between the price at which the unit was sold to the provider and the market price would be offset from the final cash liability to the Levy. This would create an incentive for the developer to build on-site affordable housing where appropriate. First Homes, which are sold by the developer direct to the customer at a discount to market price, would offset the discount against the cash liability.” [So presumably the developer could net-off the costs of on-site delivery from its infrastructure levy liability. How is this to be documented? Who adjudicates on the obvious valuation issues arising?]

• “Under this approach we recognise that some risk is transferring to the local planning authority, and that we would need to mitigate that risk in order to maintain existing levels of on-site affordable housing delivery. We believe that this risk can be fully addressed through policy design. In particular, in the event of a market fall, we could allow local planning authorities to ‘flip’ a proportion of units back to market units which the developer can sell, if Levy liabilities are insufficient to cover the value secured through in-kind contributions. Alternatively, we could require that if the value secured through in-kind units is greater than the final levy liability, then the developer has no right to reclaim overpayments. Government could provide standardised agreements, to codify how risk sharing would work in this way” [How to safeguard against misuse?]

• “To ensure developers are not rewarded for low standard homes under the Levy, local authorities could have an option to revert back to cash contributions if no provider was willing to buy the homes due to their poor quality.”

• “Local authorities could also accept Infrastructure Levy payments in the form of land within or adjacent to a site.” [Back to ensuring a robust valuation process].

Again, maybe it’s just me but I’m left scratching my head. This is a wholly different approach to extracting contributions for affordable housing and for ensuring that they are delivered. Basic questions:

• How will the requirements (quantum, tenure mix, size] be set at policy stage and determined at application stage (in advance of valuations) such that there can be confidence that development will not be stalled through lack of viability?

• Are we moving to a system where all affordable housing is delivered by a local authority nominated housing provider, with less ability for the developer to seek to improve viability?

• How can there be any confidence that this mechanism will result in more on-site affordable housing than at present?

I also recommend George Venning’s LinkedIn piece on the issues arising: Planning Reforms Contain a Poison Pill.

Again, thoughts welcome – it’s not that the proposals can’t be made to work, it’s just that much more input is required and, in my view, a cautious approach needs to be taken so as to guard against the inevitable unintended consequences.

The deadline for consultation responses is 29 October. We are likely to be collating a Town response, if only on specific issues such as this. If you would be interested in feeding in your thoughts, then please let me know, although, health warning, we are not in the business of designing fruit by committee!

Simon Ricketts, 22 August 2020

Personal views, et cetera

Double Exposure – Holborn Studios Win Again: Viability, Transparency

The next time you hear someone reprise Dominic Cummings’ February 2020 riff on the need for “urgent action on the farce that judicial review has become”, it’s worth thinking back to cases like R (Holborn Studios) v London Borough of Hackney (No 2) (Dove J, 11 June 2020). Sometimes it’s only the pesky lawyers (here Richard Harwood QC and solicitor Susan Ring, as well of course as a switched on judge) who, via judicial review, are finally able to cut through the sheer fudge and obfuscation of the planning application process.

This was the second time around for Holborn Studios, described in the judgment as “the leaseholder of 49-50 Eagle Wharf Road where they run one of the largest photographic studio complexes in Europe”. The studios have long campaigned against the proposed redevelopment of their building (for instance see What will become of Holborn Studios? (Londonist, 25 August 2017)).

The first planning permission which the London Borough of Hackney had purported to grant, in November 2016, was quashed by the High Court in R (Holborn Studios) v London Borough of Hackney (No 1) (Deputy Judge John Howell QC, 10 November 2017). The judge found that there had been an unlawful failure to consult the claimants and others on amendments made to the planning application and that the council had unfairly failed to disclose unredacted two letters on which officers had relied to support their view that proposed studio spaces in the basement were workable and that their layout was acceptable.

By the time of that first judgment a second application for planning permission had already been made. It was granted on 9 August 2019. Richard Harwood QC had indeed spoken at the planning committee meeting on behalf of Holborn Studios, seemingly to no avail. Again judicial review. The campaign against redevelopment continued (for instance see Battle to save Holborn Studios continues as celebrities and photographers line up in support (Hackney Citizen, 18 November 2019)).

When the case was heard in front of Dove J on 17 March 2020 there were three grounds of challenge but it is worth focusing on the first two, namely:

“Ground one is a sequence of legal contentions related to the information provided in respect of the viability assessment for the proposed development which informed the contributions which were sought from the interested party, in particular in relation to affordable housing. It is said by the claimant that the defendant’s approach to this issue failed to comply with national planning policy in relation to the provision of information in respect of viability assessments; that the defendant’s approach was in breach of a legitimate expectation in respect of the disclosure of viability information and, finally, that as a matter of law the viability information provided was in breach of the defendant’s duties in relation to the publication of background papers to the committee report. Ground two is the allegation that the defendant’s guidance for the members of its planning committee were unlawful in so far as they precluded members from reading lobbying material submitted to them by consultees and required that instead this material was passed to officers unread.”

For a very good summary of the relevant facts, and the conclusions reached by the judge, I will now pause for two minutes whilst you read this: Access to viability assessments: Holborn Studios 2 (Richard Harwood QC, 11 June 2020).

Or even better if you have ten minutes, read the judgment itself. Summaries sometimes do not bring across the starkness of the judge’s description of events and analysis.

Some choice passages from the judgment:

On viability

A concern was raised by Mr Harwood at the planning committee meeting that “that the material on viability in the public domain appeared to demonstrate that the interested party’s consultants had undertaken the exercise on the basis of a residualised value, rather than taking an existing use value plus approach which was what was required by policy” and the point was also taken up by a councillor. Dove J chooses to relate the following, including a verbatim quotation of the meaningless response that councillors received:

“Mr Robert Carney, who had been one of the defendant’s officers and who had been involved with the consideration and negotiation of the viability of the development (albeit that by the time he attended the committee meeting he was working for a consultancy) was called upon to address these concerns, and in particular whether or not a residualised value approach had been taken to the viability exercise. His observations in respect of this issue, as recorded on the transcript contained within the court’s papers, were as follows:

“Perhaps I’ll deal with the specifics of the, the values of where- of where they have been reported and Stuart will want to talk about, uh, the transparency of the information in the public domain. So I just want to clarify, we’ve used an existing use value plus approach in accordance with all guidance and the- what that approach- that approach forms was known as benchmark land value, that’s referred to in the table at 5.3.62. Uh, you have the applicant’s proposed benchmark land value and then the independent assessor’s benchmark land value. And what you do is you, uh, look at the residual land value and the appraisal, basically, given them the residual land value, show them the appraisal equals or is more than the benchmark- benchmark land value, the scheme is viable. Because what that means is that a hypothetical, uh, developer can purchase the site at a figure above the benchmark land value. And we see in appraisal it’s just shy of that benchmark land value. But basically, um, through our negotiations we accepted that the scheme had maximised, uh, it’s viability with the, um, agreed contributions.”

On the failure to make all of the viability appraisal information as background papers to the committee report;

“The first point raised is whether or not the defendant complied with its obligations under the 1972 Act in relation to the provision and listing of background papers. In short, I have no doubt that the defendant failed to comply with its obligations under section 100 D of the 1972 Act, not simply in relation to listing background papers but also in failing to provide them for inspection. It is clear from the evidence which has been set out above, including in particular the evidence of Mr Carney, that there was a significant quantity of documentation bearing upon the viability issues generated both before and especially after those documents that were published in relation to viability on the defendant’s website. It appears clear from Mr Carney’s evidence that, after the material from September 2018 which the defendant published, there was a significant volume of further technical work addressing ground rents and their impact on existing use value, the derivation of figures for the planning obligations and CIL and also the identification of a benchmark land value. Whilst not all of this material needed to be produced and listed it is simply inconceivable that none of this material would have qualified under section 100 D (5) of the 1972 Act. Clearly the contents of the committee report dealing with the viability exercise and its ultimate conclusions as to the affordable housing contribution which could legitimately be required, depended upon the contents of this material. There was, therefore, information which should have been listed and of which copies should have been provided for inspection.”

On the approach that should be taken to viability appraisal:

“In my view there are some clear principles set out in the Framework and the PPG to which it refers. Firstly, in accordance with the Framework viability assessments (where they are justified) should reflect the approach set out in PPG, and be made publicly available. Secondly, and in following the approach recommended in the Framework and the PPG, standardised inputs should be used including, for the purpose of land value, a benchmark land value based upon existing use value plus as described in the PPG. Thirdly, as set out in the PPG, the inputs and findings of a viability assessment should be set out “in a way that aids clear interpretation and interrogation by decision-makers” and be made publicly available save in exceptional circumstances. As the PPG makes clear, the preparation of a viability assessment “is not usually specific to that developer and thereby need not contain commercially sensitive data”. Even if some elements of the assessment are commercially sensitive, as the PPG points out, they can be aggregated in a published viability assessment so as to avoid disclosure of sensitive material.”

On whether elements of viability information should be treated as exempt from disclosure:

“As Mr Harwood pointed out in his submissions, there is an exception to the definition of exempt information contained in paragraph 10 of Schedule 12 to the 1972 Act where “the public interest in maintaining the exemption outweighs the public interest in disclosing the information.” In my judgment the existence of the policy contained in the Framework and the guidance contained in the PPG have an important bearing on the consideration of whether or not there is a public interest in disclosing the information contained in a viability assessment (even if it is properly to be characterised as commercially sensitive, bearing in mind the observations in the PPG about the extent to which information in such an assessment would be specific to a particular developer). It is clear from the material in the Framework and the PPG that save in exceptional circumstances the anticipation is that viability assessments, including their standardised inputs, will be placed in the public domain in order to ensure transparency, accountability and access to decision-taking for communities affected by development. The interests which placing viability assessments into the public domain serve are clearly public interests, which in my view support the contention that such assessments are not exempt information unless the exceptional circumstances spoken to by the PPG arise and solely an executive summary should be put in the public domain. It is unclear to me based on the material before the court how, if ever, the defendant ever considered the question of the public interest in relation to this exemption in the context of the relevant national planning policy. I am, therefore, unable to accept the submission advanced on behalf of the defendant that their failure to comply with section 100 D of the 1972 Act was a matter justified by the contention that the material withheld was exempt information. “

As to whether the viability information publicly available was comprehensive and coherent:

“In my view there are critical elements of the material in the public domain in relation to viability, set out in the documentation published on the defendant’s website and in the committee report, which are opaque and unexplained.”

If you deal regularly with viability appraisal you then need to read in full paragraphs 67 to 70 for an account by the judge of some of the deficiencies.

Drawing the threads together:

““Drawing the threads together, the material contained in the public domain at the time when the decision was taken by the planning committee to resolve to grant planning permission was inconsistent and opaque. It contained figures which differed in relation to, for instance, benchmark land value and the differences between the figures were not explained. No explanation was provided as to how the benchmark land value had been arrived at in terms of establishing an existing use value and identify a landowner’s premium as was asserted to have been case. Read against the background of the policy and guidance contained in the Framework and the PPG it was not possible to identify from the material in the public domain standardised inputs of the existing use value and landowner’s premium, and the purpose of the policy to secure transparency and accountability in the production of viability assessment was not served. In particular, it was plain from the material available at the time of the decision (in particular in terms of the material inconsistencies in the material produced in September 2018 and the differences from the material in the committee report) that there was substantial additional background material on which the committee report was based which was neither listed nor available for inspection in accordance with the requirements of the 1972 Act. In my view the principles identified in the case of Joicey by Cranston J at paragraph 47 are clearly on point, since the purpose of having a legal obligation to confer a right to know in relation to material underpinning a democratic decision-taking process is to enable members of the public to make well-informed observations on the substance of the decision. The failure to provide the background material underpinning the viability assessment in the present case, in circumstances where such material as was in the public domain was opaque and incoherent, was a clear and material legal error in the decision-taking process. In reality, in my judgment, the material with which the public was provided failed Mr Fraser-Urquhart’s own test of being adequate to enable the member of the public to make a sensible response to the consultation on the application.”

On the council’s attempt to prevent the direct lobbying of councillors

“… bearing in mind the importance of the decisions which the members of the planning committee are making, and the fact that they are acting in the context of a democratically representative role, the need for the communication of views and opinions between councillors and the public whom they represent must be afforded significant weight. In my view, it would be extremely difficult to justify as proportionate the discouragement, prohibition or prevention of communication between public and the councillors representing them which was otherwise in accordance with the law.”

“Receiving communications from objectors to an application for planning permission is an important feature of freedom of expression in connection with democratic decision-taking and in undertaking this aspect of local authority business. Whilst it may make perfect sense after the communication has been read for the member to pass it on to officers (so that for instance its existence can be logged in the file relating to the application, and any issues which need to be addressed in advice to members can be taken up in a committee report), the preclusion or prevention of members reading such material could not be justified as proportionate since it would serve no proper purpose in the decision-taking process. Any concern that members might receive misleading or illegitimate material will be resolved by the passing of that correspondence to officers, so that any such problem of that kind would be rectified. In my view there is an additional issue of fairness which arises if members of the planning committee are prevented from reading lobbying material from objectors and required to pass that information unread to their officers. The position that would leave members in would be that they would be reliant only on material from the applicant placed on the public record as part of the application or the information and opinions summarised and edited in the committee report. It is an important feature of the opportunity of an objector to a planning application to be able to present that objection and the points which they wish to make in the manner which they believe will make them most cogent and persuasive. Of course, it is a matter for the individual councillor in the discharge of his responsibilities to choose what evidence and opinion it is that he or she wishes to study in discharging the responsibility of determining a planning application, but the issue in the present case is having the access to all the material bearing upon the application in order to make that choice. If the choice is curtailed by an instruction not to read any lobbying material from members of the public that has a significant impact on the ability of a member of the public to make a case in relation to a proposed development making the points that they wish to make in the way in which they would wish to make them.”

“The standard correspondence clearly advised against members of the public writing directly to members of the committee; there was no warrant for that advice or discouragement and it impeded the freedom of expression of a member of the public who was entitled to write to a member of the planning committee setting out in his or her own terms the points they wish to be considered in respect of an application and expect that the member would have the opportunity to read it. It appears that Councillor Stops was under the impression that he was to resist being lobbied by either an applicant or member of the public, and Councillor Snell had apparently taken legal advice to the effect that he should refrain from reading any lobbying letter and forward it on to officers. Neither of these approaches reflects the defendant’s Code, nor does it reflect the entitlement to freedom of expression in accordance with the legal principles set out above.”

Concluding remarks

The case is a really helpful reminder to all of us of a few lessons:

Don’t get blinded by bad science. Good science is clear. Yes, viability appraisal includes some maths and you need to make sure that you understand the structure of the policy as to how viability appraisals should be conducted for the purposes in relation to the determination of planning applications. Subject to those points, if you don’t understand what is being said, you need to probe. A good viability appraisal does make sense and does tie in with policy and indeed common sense. And the process of arriving at an agreed viability appraisal should not be a behind the scenes negotiation. Memories of the R (Rainbird) v London Borough of Tower Hamlets (Deputy Judge John Howell QC, 28 March 2018) line of cases on daylight and sunlight – if the specialist input is not clear, and carried out in accordance with the relevant technical guidance such that the decision maker is not significantly misled, or if the detail that is needed for anyone to make sense of the position is held back, there is a plain risk of the resultant planning permission being struck down.

The approach to be taken to viability, both in terms of methodology and openness, has changed as a result of Government policy, and that is recognised by the courts.

Recognise that the value of having decisions taken at planning committee by elected councillors rests both in their being properly briefed by officers and also in their role as democratic representatives, not shielded from appropriate lobbying as if they were some jury.

However upsetting it may be for those whose decisions are overturned (and I recognise that there can be unwelcome consequences), without judicial review decision makers would pretty much be free to operate with impunity, to hell with the evidence (see also Westferry Printworks). That would be a farce.

Simon Ricketts, 13 June 2020

Personal views, et cetera

We Need Some Flex On CIL

Miles Gibson rightly spotted, in his good CBRE piece Community Infrastructure Levy – ten years old, but COVID-19 is its biggest test (7 April 2020), that the Community Infrastructure Levy Regulations came into force just over ten years ago, on 6 April 2010. (And who better to point it out, given that until 2011 Miles led on CIL at the Department of Communities and Local Government?).

Of course, after the regulations were brought into force, there was then a pause caused by the 6 May 2010 general election. Would the incoming coalition government scrap, or at least amend and rebadge, the system? In the end the system survived and, according to wikipedia at least, the London Borough of Redbridge was the first to adopt a CIL charging schedule, on 1 January 2012.

So CIL didn’t live through the global financial crisis, or previous recessions, as we have done. I have written before about the inherent inflexibility of the mechanism but, as Miles acknowledges in his piece, the current economic conditions are going to prove the big test for the levy.

He says “CIL’s inflexibility could prove its downfall if the forthcoming downturn is anything other than a short sharp shock. COVID-19 has created the biggest test which CIL has yet faced. If the downturn is lengthy, local authorities may need to hurriedly cut CIL rates to help return development to viability. Or, press the pause button on introducing CIL altogether.”

This may all be so, but there are also other, more nuanced steps which charging authorities could also be taking, with the encouragement of MHCLG, one would hope. For instance:

⁃ The switching on, within charging authorities, of the ability to apply for exceptional circumstances relief – and if there isn’t sufficient movement on this I would argue for its automatic national application by way of a change to the regulations. Whilst ECR is a cumbersome process, and there are state aid considerations to be borne in mind, if these aren’t “exceptional circumstances” what are? And I suspect that the application of ECR will be more palatable than the reintroduction of section 106BA, which enabled developers to reduce or remove section 106 affordable housing obligations on the grounds of viability.

⁃ The introduction of instalment schemes for payment (currently discretionary) and the review of existing instalment schemes to push back timescales.

I was interested to see, via an update by Ashfords (Covid-19: Mitigating the impact of Community Infrastructure Levy (“CIL”) on stalled developments, 7 April 2020) East Suffolk Council’s pragmatic response to current developer cashflow problems, basically stepping outside the procedural tramlines of the Regulations. In its statement, Coronavirus: Actions for CIL, it sets out a series of commitments, including these:

“Where development has already commenced, CIL demand notices will shortly be re-issued to allow for a 3 month extension to the next instalment due date and to subsequent outstanding instalments. This position will be reviewed towards the end of June and any further extension to instalment payment periods will be communicated. It will take time for notices to be prepared and issued, but this work will be prioritised.

An individual, case by case review of late payment interest and surcharges will be made and a pragmatic approach adopted to support customers in these circumstances.

CIL debt recovery will largely be paused for 3 months and will be reviewed towards the end of June 2020 with a view to extending this position if required.”

Are there any examples of other charging authorities taking an equivalent stance? Clearly there are risks in such an approach and I would be cautious as to the extent that, for example, a funder with millions of pounds at stake, could rely on such a commitment. It is unfortunate that the Regulations are so inflexible as to lead to such sticking-plaster solutions.

Stepping back, unless authorities are now going to move very quickly to propose reduced charging rates and take positive steps in relation to instalment policies and ECR, wouldn’t a solution in current circumstances be for the Government to legislate so as to allow authorities, both in relation to existing permissions and permissions which have not yet been issued, either to (1) defer payment of CIL for a defined period or (2) allow an emergency discount of say 50% to be applied, conditional upon development being commenced within a defined period of time and then completed within a defined period (the period to be agreed with the authority having regard to its projected build programme and if the deadline is missed there would be clawback)? To reduce the extent that the authority is as a consequence unable to deliver essential infrastructure, the Government would need to make additional funding available, because after all the economic and social benefits of ensuring that development gets started again will be immense.

I don’t have the answers – I would welcome your much better ones (except “abolish CIL” – let’s be practical). However, I do know that (1) CIL is a massive, inflexible, cash drain for any development early in its implementation and (2) some additional flexibility would surely reduce the risk that many development projects will remain on hold even once normal life starts to return around us all.

Simon Ricketts, 10 April 2020

Personal views, et cetera

Jenrick Allows Two Further Large London Appeals, With Costs

Exactly a week after the Westferry Printworks decision letter (see my previous blog post) on 22 January 2020 the Secretary of State allowed two further appeals in relation to significant London residential development projects, this time both decisions following his inspectors’ recommendations, and with costs awards in favour of the appellants, again as recommended by his inspectors.

Given that an award of costs can basically only be made on the basis of unreasonable behaviour by a party to the appeal (see the detailed advice in the Government’s Planning Practice Guidance), lessons plainly need to be learned – in fact what happened in both cases was pretty shocking.

North London Business Park site, Barnet

This was an appeal by Comer Homes Group against Barnet Council’s refusal of a hybrid application for planning permission for the phased comprehensive redevelopment of the North London Business Park to deliver a residential led mixed-use development:

• detailed element comprising 376 residential units in five blocks reaching eight storeys, the provision of a 5 Form Entry Secondary School, a gymnasium, a multi- use sports pitch and associated changing facilities, and improvements to open space and transport infrastructure, including improvements to the access from Brunswick Park Road, and

• outline element comprising up to 824 additional residential units in buildings ranging from two to eleven storeys, up to 5,177m2 of non-residential floorspace (Use Classes A1-A4, B1 and D1) and 2.9 hectares of public open space, associated site preparation/enabling works, transport infrastructure and junction works, landscaping and car parking.

This is the Secretary of State’s decision letter and inspector’s report in relation to the appeal and this is the Secretary of State’s decision to make a full costs award against the council, following the inspector’s recommendations.

Members had refused the application against officers’s recommendations.

The council’s failing is set out starkly in the inspector’s costs report: no proper evidence was adduced to support its decision:

“Mr Griffiths, Principal Planning Officer at the Council of the London Borough of Barnet, was the Council’s only witness at the Inquiry. He stated, in his proof of evidence, that “It is not the intention for this document to represent my professional opinion and the evidence presented represents the views of elected members of the London Borough of Barnet Planning Committee”.

The proof of evidence focusses on a particular view contained within a TVIA submitted by the Applicant and states that “Within View 11, the 8-storey height of Blocks 1E and 1F stands in harmful juxtaposition with the two-storey height of the properties on Howard Close”. But the proof acknowledges “…that buildings of up to 7 storeys in height could be acceptable in this location therefore it is pertinent to outline the additional harm that would arise from the 8 and 9 storey buildings proposed within the development and why these heights are unacceptable”.

The written evidence fails to substantiate why the extra storey on Blocks 1E and 1F would cause harm and fails to consider the effect of buildings over seven storeys in height elsewhere in the development. The proof simply repeats the assertion made in the sole reason for refusal of the application that “The proposed development, by virtue of its excessive height, scale and massing would represent an over development of the site resulting in a discordant and visually obtrusive form of development that would fail to respect its local context…to such an extent that it would be detrimental to the character and appearance of the area”.

Under cross examination Mr Griffiths refused to answer some questions put to him and to give his professional view on the effect of the proposed development on the character and appearance of the area. The Appellant was not thus afforded the opportunity, at the Inquiry, to explore the unsubstantiated assertions made in the proof of evidence and did not learn anything more about members concerns. Crucially, no member of the Planning Committee appeared at the Inquiry to substantiate their views that was unsubstantiated in the proof of evidence.

The Council has failed to produce either written or verbal evidence to substantiate the reason for refusal of the application, and has provided only vague and generalised assertions, unsupported by an objective analysis, about the proposed development’s impact. The Council has behaved unreasonably and the Appellant has incurred unnecessary expense in the appeal process. A full of award of costs against the Council is justified.”

It was hardly surprising that the Secretary of State decided to allow the appeal:

“32. The development plan restricts tall buildings to identified locations, and the proposal would include them on a site not identified as suitable for them. This conflict carries significant weight against the proposal.

33. The proposal has been designed to respect the existing character of the local area, while maximising the potential for delivering homes. It would deliver a replacement secondary school alongside new open space, sports facilities and community space. The local authority is unable to demonstrate a five-year supply of housing land without taking account of this site, and the proposal would provide 1350 new homes. The provision of the housing and the ancillary facilities both carry significant weight in favour of the proposal.

34. The Secretary of State considers that there are material considerations which indicate that the proposal should be determined other than in accordance with the development plan, and therefore concludes that the appeal should be allowed and planning permission granted.”

The inquiry sat for four days in October and November 2018 (why the inordinate delay since then?), with the appellant team comprising Christopher Katkowski QC and Robert Walton (now QC), calling four expert witnesses. The costs award will amount to a sum that would be ruinous for many private sector bodies, well into six figures – because council members took a decision without evidence and without considering whether proper evidence, or a different approach, might be required in the face of an appeal. And a scheme for well over a thousand homes and a school (first applied for in December 2015!) has been delayed for absolutely no reason.

Conington Road, Lewisham

This was an appeal by MB Lewisham Limited against Lewisham Council’s decision to refuse its application for planning permission for the construction of three buildings, measuring 8, 14 and 34 storeys in height, to provide 365 residential dwellings (use class C3) and 554 square metres (sqm) gross of commercial/ community/ office/ leisure space (Use Class A1/A2/A3/B1/D1/D2) with associated access, servicing, energy centre, car and cycle parking, landscaping and public realm works.

This is the Secretary of State’s decision letter and inspector’s report and this is the Secretary of State’s decision to make a partial award of costs against the Mayor of London, and inspector’s report.

The procedural position here was a little more complicated. After Lewisham had refused this application, the applicant had submitted a further application for planning permission which sought to address the reasons for refusal. The scheme would secure 20.19% affordable housing by habitable room, which the council accepted, on the basis of viability appraisal, was more than the maximum reasonable provision. The Council resolved to approve the application but the Mayor directed refusal, not satisfied that the viability work justified that level of affordable housing.

By that time the first application had been refused and the appellant revised the scheme to reflect the changes introduced into the second application. Accordingly, whilst the appeal was technically against Lewisham’s initial decision on the first application, in reality the only live issues were those raised by the Mayor on affordable housing and viability, including whether a late stage review mechanism was necessary in line with its policy requirement.

I suspect that you needed to be at the inquiry to appreciate the full horror as events unfolded (I wasn’t) but it appears that the viability case against the appellant’s position completely collapsed at the inquiry following exchange of evidence and cross-examination by Russell Harris QC. But that wasn’t the only problem. Presumably to save costs, the council and the Mayor both engaged the same advocate at the inquiry and, once it understood the real position on viability, the council wished to concede various issues but the Mayor was not willing so to do, meaning that the advocate immediately had a conflict of interest and, mid-inquiry, had to recuse herself from acting for the Mayor! The Mayor’s team continued to participate in the inquiry but without challenging the evidence provided by the appellant.

This is from the inspector’s report on the appellant’s costs application:

“On day 2 of the Inquiry, following cross-examination of the Council’s construction costs witness Mr Powling, the advocate representing the Council and the Greater London Authority (GLA) advised that due to a conflict of interest, the GLA would no longer be represented. The GLA however wished to continue with their objections as an unrepresented principal party. Later in the afternoon, following cross-examination by the appellant of Ms Seymour for the GLA, the Council formally withdrew its objections to the proposal on viability grounds. The Council took no further part in the Inquiry.”

“Where the operation of a direction to refuse is issued, the GLA is to be treated as a principal party. Without the GLA direction, the London Borough of Lewisham (LBL) would have granted a planning permission for a now identical scheme. This appeal only arises thus as a result of the change of the resolution to grant to reflect the terms of the GLA’s direction.

6. In its letter to the Inspectorate indicating its intention to attend, the GLA made it clear that was prosecuting its direction in terms and was expecting LBL to do the same. Therefore for all practical legal and policy purposes, the GLA must be treated as a main party prosecuting the terms of its direction at this appeal. Without that direction LBL would not have opposed this scheme and this inquiry would not have been necessary.

7. Their conduct therefore falls to be considered in accordance with the provisions for principal parties.

8. Its conduct was unreasonable in substantive terms in relation to its directed main reason for refusal. Its conduct during the inquiry was also unreasonable. Both levels of unreasonableness resulted in the inquiry and the appellant having to incur significant unnecessary expense in relation to the affordable housing issue.

9. In substantive terms, the GLA produced no evidence which met or came close to the requirements of the PPG on the issue of construction costs to support its reason for refusal.

10. Its ‘evidence” failed to meet the threshold properly to be called “evidence” It failed to engage with the agreed evidence of others that the construction costs were fair and reasonable and during the proceedings failed to read understand or engage with evidence which clearly established that its evidence was incorrect and unreasonable.

11. In terms of the double count issue, the GLA persisted with its case irrespective of evidence suggesting that it was wrong and in an unreasonable fashion after the only other relevant party advised by Leading Counsel had accepted that the point was simply not properly arguable. It chose not to read and understand the clear evidence, notwithstanding it had insisted on the reason for refusal and that it be a party at the inquiry.”

“The Greater London Authority shall pay to MB Homes Lewisham Ltd its partial costs of the inquiry proceedings, limited solely to the unnecessary or wasted expense incurred in respect of the costs of the appeal proceedings related to dealing with the issue of affordable housing after the Council decided not to represent the Greater London Authority, such costs to be taxed in default of agreement as to the amount thereof.”

Oof!

The Secretary’s conclusions on viability were as follows:

“17. The Secretary of State agrees with the Inspector that the essential differences on viability between the parties lies in a variation of around £11m in construction costs (including fees and profit); and private residential values (IR127).

Construction costs

18. The Secretary of State notes that CDM (for the GLA) consider build costs to be overstated (IR129). However, the Secretary of State also notes that independent costs estimates produced by 3 firms of costs consultants were within 2 percentage points of each other. He agrees with the Inspector that no evidence has been produced in any later analyses to show that those build costs, or any element of them considered for viability purposes, are unreasonable (IR128-131).

Fees

19. The Secretary of State notes that the level of fees remained a point of difference at the beginning of the Inquiry. The Secretary of State also notes that while detailed analysis of this issue did identify an overstatement of fees of less than £1m, this is far below the overstatement claimed by the Council and GLA. He further notes that, at the Inquiry no evidence was forthcoming from the GLA’s costs witness, CDM, to support their contention that preliminaries are set too high or that the level of professional fees of around 10% would be excessive for a project of this nature. In addition, the Council’s costs witness accepted that if a reasonable preliminaries figure of 17% or so was adopted then the whole argument in support of the £5.5m fees deduction from the overall level of costs fell away (IR132-133).

Profits

20. For the reasons given in IR134-135, the Secretary of State agrees with the Inspector that the proposed profit levels are reasonable for this scheme.

21. For the reasons given in IR136 the Secretary of State agrees with the Inspector that no evidence was offered by the Council or the GLA to counter the appellant’s build costs analysis or the level of fees or profit.

Private residential values

22. The Secretary of State has carefully considered the Inspector’s analysis in IR137-146 and agrees that the GLA’s suggested values would be unlikely to be achievable in the market (IR144).

23. The Secretary of State also notes that the GLA accepted at the Inquiry that if the £11m alleged surplus on fees and construction costs did not exist, then the claimed remaining £900,000 (IR132) would not have led to a direction to refuse from the Mayor’s office (IR146). For the reasons in IR147, the Secretary of State agrees with the Inspector that the 20.2% affordable housing proposed by the appellant is the maximum, if not somewhat more, than what can be reasonably provided, and he accordingly attaches very considerable weight to this benefit of the proposal. He finds no conflict with the requirements of LonP policy 3.12; the Mayor’s Affordable Housing and Viability SPG, Lewisham CS policy 1 and DMLP policy DM7.

Late stage review

24. For the reasons given in IR148-149, the Secretary of State agrees with the Inspector that there is no pressing case for a late stage review for a scheme such as this, where development is proposed to be completed in a single phase. He finds no conflict with the requirements of LP policy 3.12, the Mayor’s Affordable Housing and Viability SPG, Lewisham CS policy 1 and DMLP policy DM7.”

“In favour, the Secretary of State affords very considerable weight to the provision of market and affordable housing. He also affords moderate weight to the positive contribution to the character and appearance of the emerging Lewisham Town centre.”

And no late stage review!

In amongst the horror show for both the council and the Mayor seems to have been some simple lack of communication as between their witnesses. Quoting from the inspector’s summary of Lewisham’s case:

“When the appellant’s viability proof was received and reviewed it did not appear that the short reference in paragraph 7.2 to the Gardiner & Theobald review report raised any pertinent issue. This was particularly so as the proof suggested that the appellant’s basis for assessment of costs was unaltered.

As a consequence the Council’s viability witness did not send its costs witness the appellant’s viability proof (which dealt with numerous other issues not relevant to costs estimates). On review at the Inquiry, the Council’s build cost estimate was revised from £107,179,737 to £111,809,368 representing a difference of £4,629,631. The consequence of this was that it changed appraisal A – 2018 Residential Pricing to negative £1,155,982 and Appraisal B – 2017 residential pricing (less HPI) reduced to £ 3,111,251. This still represents a £20m disparity approximately with the appellant’s viability conclusions. It nonetheless reduced the margin of surplus on the Council’s assessment to fall within an acceptable margin of error“.

Oof.

Where would we be without the ability properly to test evidence at inquiry?

Simon Ricketts, 25 January 2020

Personal views, et cetera

PS not to be too London-centric, I should add that on the same day the Secretary of State also allowed an appeal for 850 homes near Tewkesbury.

The appeal stats for 2020 are already going to look more healthy than those for the last two years, which become apparent if you interrogate our Town Legal 2014-2019 housing inquiry appeals data visualisation tool.

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

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