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Need for up to date local development plans

We consider a recent appeal decision for 601 houses at Overtown which confirms that unless Local Authorities keep local development plans up to date and demonstrate effective housing supply they will lose planning appeals, even on green belt land.

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CIL – Look both ways on Highways Obligations

Developers are often told that the CIL Regulations prevent ‘double dipping’ – where Community Infrastructure Levy (CIL) is spent on infrastructure for which financial contributions are also secured via Section 106 agreements (or, put the other way around, where S106 obligations are used for things the charging authority has said it will fund via CIL).

Not quite. In Oates v. Wealden District Council & Anor [2018] EWCA CIV 1304 the Court of Appeal confirmed that decision-makers may refuse planning permission for CIL-bearing schemes where highways impacts are sufficiently serious, even if the authority has previously said it will use CIL receipts for related highways works.

In Oates, the authority was considering an application for 390 homes on an unallocated, CIL-liable site which would have significant impacts on several junctions.

R123 Restrictions

Regulation 123 of the Community Infrastructure Levy Regulations 2010 does impose ‘double-dipping’ restrictions:

  • planning obligations may not be a “reason for granting” permission where they secure funding or provision or infrastructure on a published list (including in most cases through “requiring a highway agreement”) – regulation 123(2)
  • planning conditions are prohibited where they would require a highway agreement to fund or provide such infrastructure (or restrict development until a highways agreement is complete) – regulation 123(2A) also prohibits.

Be Wary

Developers should be very wary of the limitations of those controls. The authority’s R123 list in Oates identified highways works to the worst affected junctions as projects and types of infrastructure on which CIL would be spent.  The highway authority (County Council) objected to the application because critical improvement works were required to these junctions before development.  The impacts would be severe without guaranteed implementation and timing of the CIL-funded works. The  applicant resisted this on the basis that the R123 list meant that the necessary upgrades could “only be provided through the payment of a CIL contribution” and were not within the developer’s control or any proper restriction.  The County Council withdrew its objection on the strength of advice agreeing with that position. The LPA’s officer then reported this to committee.

The Claimant claimed that the misdirection on the effect of the CIL Regulations – wrongly assuming that a Grampian-type restriction on development until the upgrades were complete – rendered the consent unlawful.

No-Nonsense

The judgment is clear that the highway authority had failed to understand the “true scope of Regulation 123” – which does not “compel[…] the Local Authority to grant permission for a proposed development if, for whatever reason, that development is unacceptable in planning terms, or if it cannot be made acceptable either by a planning obligation, or by the imposition of conditions”.

The officer had directly ruled out a Grampian restriction on occupation until the mitigation works were complete, which would have been lawful.  Instead she had simply said nothing about it but had advised members the impact would be unlikely to be “severe” taking into account both build out rates and time for delivery of the infrastructure improvements funded by both CIL and other sources.  As such, that a restriction would be unjustified.

Look Both Ways

The judgment therefore underlines the need to:

  • understand the general development cost imposed by CIL
  • understand what is, genuinely, ‘necessary’ to make a scheme acceptable (bearing in mind the high bar set for the ‘severe’ impact threshold, for example, in relation to highways impact)
  • review what assumptions the planning authority and the CIL charging authority have made when assessing the viability of combined planning burdens for a particular site.

If its CIL-stage or Local Plan stage assessments have assumed – in setting a high CIL rate or justifying planning burdens – that CIL will ‘replace’ some forms of scheme-specific mitigation costs then that will often create a legitimate starting point for avoiding the double dip.

If not, it is worth looking both ways on CIL.

Powers and partnership for regeneration

The case of Peters v London Borough of Haringey (Haringey) provides welcome clarity over the extent of the local authorities powers to form limited liability partnerships (LLPs) for the delivery of regeneration projects carried out in partnership with the private sector.

Partnership approach

LLPs offer benefits:

  • tax transparency (particularly for the private sector participant) in relation to corporation tax and VAT;
  • governance (often a key concern for the public sector): the fact that LLP members don’t generally owe a fiduciary duty to the LLP can alleviate concerns over conflicts and other issues.

Haringey Development Vehicle

The case concerned the high profile procurement, by Haringey, of a joint venture partner to participate in the Haringey Development Vehicle (HDV).  The HDV was to have responsibility for the delivery of specific projects as well as the general management and exploitation of Haringey estate.   The various reports identified some key benefits from participating in the project including: (a) an estimated 6,400 new homes; (b) development returns of £275m, plus S106 and CIL payments; (c) £8m HDV investment into a social and economic programme and £20m Lendlease investment in a Social Impact Vehicle.  The HDV was formed as a LLP, with 50/50 control between Haringey and Lendlease.

Opposition

However, the HDV project faced fierce political opposition, one manifestation of which was the challenge by a former senior local government official in Haringey in relation to the lawfulness of the project on a number of grounds, including (the exclusive focus of this blog) the use of an LLP as the legal entity to deliver the project.

Haringey had relied upon Section 1 of the Localism Act 2011, which provides a general power of competence to “do anything that individuals generally may do“.  Section 1 of the Act is however qualified by Section 4(2), which states that “where, in exercise of the general power, a local authority does things for a commercial purpose, the authority must do them through a company“, with “company” being defined specifically as a company under the Companies Act 2006 (and not a partnership).

The Claimant was therefore arguing that, by using a LLP as opposed to a limited company, Haringey was acting unlawfully – but this was dependent on whether Haringey was undertaking the HDV project “for a commercial purpose”.

Commercial purposes?

In determining whether there was a commercial purpose the judge, Ouseley J, held that Section 4(2) of the Act is not intended to narrow the scope of pre-existing powers.  He also made clear that Lendlease’s purposes (which were clearly profit driven) were not relevant to the analysis; neither were those of the LLP itself – what was important was Haringey’s purposes.

And on that question Ouseley J was clear that the purposes were not commercial, and the challenge therefore failed.  The objective of the HDV project was for the achievement of “housing, employment and growth or regeneration objectives”.  He said “achieving a return is neither purpose or the activity of itself”.  The fact that profit may be a consequence of achieving best consideration on land disposals and of acting prudently did not mean that the Council was acting for a commercial purpose.  To the extent it was doing so, it could be said to be doing so in order to further its primary non-commercial purposes.

Relevance

For local authorities and developers alike the case provides helpful clarity on the lawfulness of using LLPs to deliver regeneration projects.  Although each case will need to be considered on its facts (including some analysis of the intentions of the authority), the case provides a very helpful sign-post toward what local government powers allow for.

Post script…

While the challenge failed at law, but the future for the HDV project itself is uncertain.

Following the judgment, the Labour leader who had originally promoted the HDV scheme was replaced and the Labour party (under new leadership) fought the May 2018 elections on a platform which included scrapping the HDV – illustrating that very often at local government level political support for a project can be as important as being legally “correct”.

The case illustrates that a claim can “succeed” in the broader sense of creating a pause in which political opposition may overcome a unpopular (but lawful) decision.  That should influence the circumstances in which delivery vehicles are deemed to be the appropriate mechanism for regeneration – sometimes a lower risk strategy will be to opt for an easier to understand and less legally contentious approach will be the right option.

As of July 2018, the precise status of the HDV is unclear, but the “Stop HDV” group continues to campaign against any kind of reanimation of the scheme.

Comparables That Glitter Are Not All Gold

The approach to land value and the application of planning policy were brought into sharp focus by an Inspector’s decision to dismiss the developer’s appeal against refusal of permission on the grounds that the ‘maximum reasonable level’ of affordable housing had not been secured. The developer had proposed residential redevelopment of a surplus military site where it was the successful bidder. Holgate, J’s judgment – dismissing the challenge to that decision under Section 288 of the Town and Country Planning Act 1990 – in Parkhurst Road Ltd v Secretary of State for Communities And Local Government & Anor [2018] EWHC 991 (Admin) confirms the importance of understanding how land value should reflect planning policy requirements.

The developer relied on nearby sales data to justify its land cost as at the market value for the site, limiting its affordable provision at ten percent. The Inspector accepted the authority’s approach, starting with the site’s low established use value (EUV) and applying a substantial premium (EUV Plus), to reach an overall benchmark value at which 34% provision was feasible.

In the previous (2015) appeal, an Inspector’s finding that the developer’s benchmark land value was broadly reasonable in light of ‘market signals’ (competing bids and comparables) resulted in a threat of legal challenge by the authority and a letter from the Government acknowledging that the Planning Practice Guidance “unambiguous policy position” is “in all cases land or site value should reflect policy requirements and planning obligations…”.

The developer ran its new appeal case on the basis that using EUV Plus was inappropriate where the EUV was negligible. The Inspector rejected its evidence on market values, on the basis of the weakness of the comparables used (being unadjusted for variations in policy compliance and EUV). He refused to accept “a market valuation which does not, in my view, adequately demonstrate proper consideration of, or give adequate effect to, the guidance in PPG or the requirements of the development plan“. In line with the authority’s case, he adopted EUV Plus as a starting point, then having regard to the market as a relevant, not determining factor.  The decision letter included a statement that the authority was promoting an EUV Plus method of valuation.

The developer challenged the decision under Section 288 on various grounds, including that the Inspector’s misunderstanding of the authority’s was partly responsible for rejecting the developer’s position that a purely market value approach was “the only reasonable means by which to establish the land value” given the low EUV. It also claimed that the Inspector’s decision was vitiated by accepting a (flawed) technical ‘fix’ for comparing land values relied on by the authority’s expert.

Holgate, J dismissed these two grounds: firstly, the Inspector had understood the authority’s approach correctly (establishing a site value and then re-expressing it as EUV plus a premium to cross-check the reasonableness of the site value indicated by comparables); secondly, the Inspector had erred on the technical fix but his “wholesale and robust rejection” of the appellant’s valuation case and interpretation of development plan policy did not rely on – “had nothing to do with”  – that point.

The judgment clearly explains the meaning of the PPG and the upholds the way the Inspector applied it. There is no wider or new principle, but it is nonetheless helpfully clear that in the current PPG regime:

(1) the PPG addresses the problem of ‘circularity’ – where residual land valuation using land price is based on downgrading policy expectations erode policy – by requiring site value to respect policy expectation, competitive return to willing owners and evidenced market value at the same time;

(2) comparable evidence is one helpful way to calibrate reasonable land value expectation, but may often require adjustment to be fit for purpose (including, for example, to deal with high existing or alternative use values and policy non-compliance).  The more adjustment needed – and the harder to do – the less the weight that may be applied (40);

(3) reasonable behaviour matters – proper due diligence and analysis of actual demand are key elements of the reasonable owner (citing Trocette Property Co Ltd v Greater London Council (1974) 28 P & CR and Inland Revenue Commissioners v Gray [1994] STC 360);

(4) policy requirements (depending on how they are expressed) may put the onus of proof on the applicant. An Inspector may reject that party’s case as lacking sufficient cogency to satisfy the policy (paragraph 54, applying Vicarage Gate Limited v First Secretary of State [2007] EWHC 768 (Admin));

(5) planning by numbers is tempting but dangerous – “the NPPG recognises that it may not be proper” to “compromise policy requirements” even where there is a viability constraint;

(6) authorities need to be careful too: using EUV Plus as a rule rather than part of an analysis “disregards levels of market value arrived at quite properly in arm’s length transactions and consistent with the correct application of planning policies and sound valuation principles” (146).  “Local policy statements” may cross the line in this way “especially where the document has not been subjected to independent statutory examination prior to adoption“. This is rife in practice, with Supplementary Guidance masquerading as development plan policy;

(7) planning appeal decisions should be taken with a pinch of salt – they are fact specific, cannot establish or change policy, consume “a disproportionate amount of time and may distract parties” from actually getting their own evidence right.

Both the appeal decision and the judgment underline the need to avoid land value expectation becoming self-referential. The decision is a reminder of the need to critically examine evidence of comparable values to weed out those which failed to comply with policy in the first place (i.e. are not truly comparable) and of the risks when bidding for land with low existing value of being too led by future scheme, rather than underlying use, value.

The judgment also underlines the critical importance of properly testing the effect of policies at examination in public if they are to be legitimately treated as the irreducible starting point. Practitioners should take heed on both fronts and hope that the Government does not sweep away too much of the current Guidance, on which there is now judicial clarity.

(This article was originally published in Estates Gazette on 14 May 2018)

ECJ Ruling on Habitats Regulations Assessments is Straight Bananas

ECJ’s preliminary ruling in the People Over Wind/ Sweetman case means that ‘mitigation measures’ should not longer be taken into account when screening for ‘any significant effects’ on SAC/ SPA for plans and projects (for the purpose of deciding whether Appropriate Assessment is needed to establish if the effects would be likely to have an adverse effect on the integrity of the designated asset).

On the face of it, it means, for applications where significant effects on SAC/SPA are likely (i.e. applying the Waddenzee precautionary approach, the risk cannot be definitively ruled out) that Appropriate Assessment will be required so that mitigation measures are evaluated in more detail.

An End To Sense?

The People Over Wind ruling is that “it is not appropriate, at the screening stage, to take account of the measures intended to avoid or reduce the harmful effects of the plan or project on that site” (emphasis added).

This cuts across the domestic approach adopted in the Hart District Council case in 2008, which has provided a sensible basis for addressing effects on Natura 2k sites.  Having regard to mitigation measures in screening out Appropriate Assessment for planning applications and plans has been commonplace common sense, treating the Habitats Directive as a “aid to effective environmental decision making, not a legal obstacle course” (Sullivan, J as he was in Hart).

The reasoning in the ruling (paragraphs 35 and 36) does not withstand much scrutiny and is really Law Over Sense.  To make things worse, it is unclear about what “mitigating measures” are for these purposes. It simply refers to them as measures “intended to avoid or reduce the harmful effects of the envisaged project on the site concerned“.

Planning Inspectorate View

In-built mitigation by design is surely not within its ambit? The Planning Inspectorate’s Note 05/2018 takes a more hardline view: “Competent authorities cannot take account of any integrated or additional avoidance or reduction measures when considering at the HRA screening stage whether the plan or project is likely to have an adverse effect on a European Site.  The screening stage must be undertaken on a precautionary basis without regard to any proposed integrated or additional avoidance or reduction measures“.

This is gold plating – the ECJ ruling does not provide any express basis for the underlined element. The benefit of the environmental assessment process, noted in Hart, is to get thinking about reducing effects at the outset of scheme design.  Trying to split out anything that is ‘integrated’ into the scheme design, for example, is horribly artificial and a terrible waste of time.

The effects of this are being felt as LPAs suspend development management decisions and Local Plans are suspended.

Let’s Be Sensible

Outcomes: Where the finding based on mitigation would previously have been a negative screening (because of no likelihood of any significant effect at all, with that mitigation), the lesser threshold of no adverse effect on the integrity of the SPA at the full AA stage should be satisfied.  The additional process will probably yield more information about mitigation measures but no change of outcome (subject to the point noted below).

Government will need to provide leadership to ensure we do not simply end up with a deluge of AA reports concluding that there is no significant effect with mitigation. That would be a truly pointless exercise.

Steps: It would be sensible for PINS and Government to be clear, ASAP, that:

  • Things authorised by the development consent should be regarded as integral components of the scheme and so not mitigation for its effects for the purposes of the ECJ ruling.
  • Where AA is now unavoidable, a standardised toolkit will be available to allow very short AA reports to be prepared that allow, for example, the analysis of the effect of off-site SANG contributions to be fully standardised (using the AA analysis conducted when justifying the SANG contributions in the first place).  This is crucial to avoid the ruling becoming another source of time-soak, cost and distraction in the already bloated world of planning assessments.
  • The current block (in NPPF119) on applying the NPPF14 ’tilted balance’ is going to be revisited in the soon-to-be-revised NPPF to avoid an unintended outcome.  If AA concludes that there is no likely significant effect with mitigation (as distinct from concluding that there will be a significant effect short of adversely effecting the integrity of the SPA), the presumption in favour should apply.

The NPPF six years on

We consider the main proposed changes in the draft NPPF and whether these will be sufficient to deal with the housing crisis. On 5 March 2018 the Ministry of Housing, Communities and Local Government published a revised text of the National Planning Policy Framework (the draft NPPF) alongside a raft of other supporting documents, government responses and further  consultations, including the revised Planning Practice Guidance text. The government has said that it intends to publish the final version of the NPPF ‘before the summer’, indicating that few changes are expected to be made as a result of the consultation.

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This article was first published in Property Law Journal (May 2018) and is also available at www.lawjournals.co.uk

Capital Gains

Dentons, together with URBED and Gerald Eve, were instructed by the Greater London Authority to look at international land assembly practices, to feed into recommendations on those conditions that would best support land assembly for house-building in London.  On 14 May the Deputy Mayor, James Murray, published ‘Capital Gains: A Better Land Assembly Model for London’ which brings together the research evidence and sets out 10 recommendations to support a shift in land assembly practice.

In London, the assembly of land is often seen as one of the main challenges to increasing build-out rates. The report identifies several barriers to land assembly in London, ranging from factors inherent in the sites, such as contamination, to factors associated with ownership, such as the extent of fragmentation and compensation expectations. The research evidence focussed on three European case studies – ZAC Claude Bernard in Paris, Freiburg in Germany and Amersfoort in The Netherlands – and a North American case study focussing on Toronto, Canada and Oregon, USA. The research identified policies, strategies and procedures that have been applied positively to facilitate land assembly and accelerate the pace of delivery. Those measures that we consider are the ‘best fit’ for London form the basis of the 10 recommendations.

A core recommendation is the introduction of a new planning designation termed ‘Land Assembly Zones’ (recommendation 1). These are strategic sites or areas where land assembly will be supported, through interventionist measures if required. The aim is to provide a focus and to encourage land owners to self-assemble, with a designation as a LAZ being accompanied by an ‘in principle’ resolution to exercise compulsory acquisition powers (recommendation 2). This would be a clear signal to landowners, and also an invitation to developers to bring forward proposals in the area.  The measures recognise that limited resources are available for public intervention and we expect the zones will be focused on those areas where housing density can be significantly increased if land is assembled into larger development parcels, where fragmented ownership is a real development constraint and, initially at least, in areas with good transport connections.  We recommend that land values are frozen for CPO compensation purposes on the date of designation, to crystallise the ‘hope element’ of the CPO compensation (recommendation 8).

The second core recommendation is the introduction of statutory land pooling. We recommend that the GLA prepare template documents to support the voluntary bringing together of land, drawing on the Dutch Building Rights model of sharing value uplift. In the longer term we recommend that this voluntary approach be underpinned by a new statutory mechanism (recommendation 7). We see that mechanism covering two scenarios: a private sector model, driven by landowners and a public-sector model led by the GLA or local authority.  In both scenarios the compensation paid to landowners would include part of the marriage value of the assembled site. Although not a formal recommendation in the body of the report we explore the possibility of “density bonuses” where land is masterplanned and assembled, potentially also delivering additional value and an incentive to self assemble.  We see this type of land pooling having application on all scales of site. We suggest the creation of a multi-disciplinary team to support boroughs and developers in tackling strategic and difficult sites, with the devolution of additional finance to support this (recommendation 10).

The report makes further recommendations regarding the acquisition of land, including allowing the confirmation of CPOs in the interests of ‘good planning’ ahead of planning consent being granted. Developers of large strategic sites need certainty at the start of a project that the entirety of the land will be available, even though it may not be built out for several years. Against that backdrop it is unrealistic to expect there to be a fully worked up scheme. We suggest that weight be given to the LAZ designation (which itself will be the subject of scrutiny) when considering whether the confirmation of the CPO is in the public interest (recommendation 4). In order to facilitate this we believe the power to confirm borough CPOs should be delegated to the GLA (recommendation 5).  This would assist in embedding ‘innovative’ approaches to the exercise of CPO powers. For example the introduction of a ‘use it or lose it’ approach to CPO land. If development on land which has been acquired compulsorily does not proceed the GLA or local authority should step in to hold that land, and any other land owned by the proposed developer, to ensure it is brought forward for development.

Value Capture: Holding Fortunes to Hostage?

There is a confetti of paper being produced on value capture. Think tanks are embracing it as a panacea to the housing crisis, infrastructure delivery and reducing inequality. Two parliamentary committees are considering the issue. Ministers are making regular reference to the subject.

The abundance of comment suggests we need to be careful. Part of the reason so many are embracing it is that it means very different things to different people. At one end of the scale there are the flat-earthers – those who believe that any increase in the value of land belongs to the community unless it is a direct consequence of personal blood, sweat and tears. At the other end of the spectrum are the apostles of the night watchman state – who deny the right of anyone even to regulate the use of land in a way which diminishes value.

Three separate value components need to be treated differently:

  • If a development is asked to pay for the infrastructure needed to support it some people call that value capture. Land value increases and part of it is then “taken”.   This is not really value capture. It is simply development paying the full cost of development. In the same way that landowners pay for bricks when they build, payment should be made to cover the cost of any necessary infrastructure. Any proper residual calculation of the value of land should reflect these costs. The exercise is more “right pricing” land, rather than value capture.
  • Land increases in value as a function of many factors. If there is specific public investment that increases the value of land then that value can, potentially, be captured to pay for the cost of the infrastructure. This might be called a “repayment value capture“. Where land values increase, in total, by more than the cost of infrastructure there is a more interesting question about whether all of that value increase should be captured, a “pure value capture“.
  • Finally, there are increases in the value of land that are not attributable to any particular cause or investment. The value might rise because of third party investment in the area – an investment as simple as a coffee shop or restaurant opening up. It might reflect changes in working patterns or simply changing demography, with greater demand for the land or property in that location. This is the most difficult tranche of value increase to address. Some of the historic discussions have called this the “unearned increment“. It underpins a large part of the house price increases.  To date, that residential value increase has been left in the pockets of the lucky owners.  In any honest debate about value capture, the value captured by these owners would be under consideration using fairer and less disruptive tools than SDLT and moving on from the sole focus of capture on developers and the point of development.

In broad terms it seems unarguable that land should be “right priced” to reflect the cost of the infrastructure needed to support it. Similarly, it is difficult to argue against cost recovery (repayment) value capture. Indeed, equitably, it is hard to argue against a pure value capture if the land value increase can genuinely be attributed to public infrastructure investment. There is a bigger question about what should happen to the unearned increment.

The next blog will cover some of the ways in which land could better be right priced, and value captured, using the planning system without abusing it. It being a relatively pragmatic world, we will leave the “unearned increment” to the tax system.

The Planning Act: ten years on

We consider how the scope of the NSIP regime has evolved and examines the role that it could play in delivering large-scale developments.  In November 2018 the Planning Act 2008 will celebrate its tenth birthday. Through the Planning Act a new regime for the consenting of nationally significant transport, energy, water, waste water and waste infrastructure projects was born.

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This article was first published in Property Law Journal (April 2018) and is also available at http://www.lawjournals.co.uk/

A reasoned approach

We look at a local planning authority’s duty to give reasons, in light of recent case.  In September 2016, the Court of Appeal ruled that Dover District Council had failed to give legally adequate reasons for its decision, against the advice of its planning officers, to grant planning permission for a controversial development partly in an area of outstanding natural beauty (AONB) (R (on the application of Campaign to Protect Rural England) v Dover District Council [2016]). This was one of several recent cases which have dealt with, and have generated some uncertainty about, the duty to give reasons.

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This article was first published in Property Law Journal (March 2018) and is also available at http://www.lawjournals.co.uk/