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Two become one

An examination of the current planning position on amalgamation of units. In recent years there has been a strong trend in the central London residential market for the creation of substantial residential properties through the reconversion of previously subdivided houses, the amalgamation of purpose-built flats or adjoining houses, and lateral amalgamation of units. As a consequence, there has been increased focus on decisions regarding amalgamation.

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This article was first published in Property Law Journal (July/August 2017) and is also available at http://www.lawjournals.co.uk/.

Amalgamation of units still at risk

As we have noted previously, the Town and Country Planning Act 1990 (“TCPA”) is clear that the conversion of a single unit into several units requires planning permission. Although the legislation is silent on amalgamation, it may too be a material change of use requiring planning permission (see our 13 May 2014 blog).

In the recent Cheyne Gardens appeal an Inspector dismissed an appeal against Royal Borough of Kensington and Chelsea (“RBKC”)’s decision not to grant a certificate of lawfulness for works to amalgamate two flats into a single dwelling. Planning permission had been refused and the applicant argued that a Certificate should be granted on the grounds that there was no material change of use requiring planning permission.  The analysis centred on two questions:

1          Is the change of use ‘development’?  ap

The appellant argued that the proposals should not be treated as development on the basis of Section 55(2)(f) TCPA and Article 3(1) of The Town and Country Planning (Use Classes) Order 1987. Both provide that where a building is used for a purpose of any class specified in the schedule to that Order, the use of that building for any other purpose within the same class shall not be taken to involve development of land. In Richmond upon Thames v SSETR & Richmond upon Thames Churches Housing Trust [2000] this was confirmed as engaged where the combined units were already in a single occupation.

The Inspector refused to apply Section 55(2)(f) and Article 3(1) on the basis that the two flats in this case were in use as two separate dwellinghouses, each occupied by a single household or person. The revised position would be one unit occupied by a single household or person.  Whilst the new arrangement, by virtue of the amalgamation, would be used for one of the uses within Class C3, it would not be the self-same building in the before and after scenarios.  The amalgamation was therefore development capable of amounting to a material change of use.

2          Is the change of use material in planning terms?

Richmond established that the extent to which a particular use fulfils a legitimate or recognised planning purpose (in terms of a purpose relating to the character of the land) is relevant in deciding whether a change from that use is a material change of use.   In particular, the loss of a particular type of residential accommodation where that loss was resisted by specific policies.

RBKC put forward evidence that de-conversions and amalgamations were anticipated to result in the loss of 400 homes over a five year period. Set against that, London Plan Policy 3.3 imposes a minimum 10 year housing building target of 7,330 dwellings for RBKC, with an annual monitoring target of 733 homes.  The Inspector considered that the loss of one unit should be considered against the annual target.  Despite accepting that this would be an “almost infinitesimal change” (and the loss of the single unit was under the 5 unit threshold set in the RBKC policy) he nonetheless decided that it would “as a matter of fact and degree have a significant impact in planning terms” concluding that circumstances had “changed significantly” since the adoption of that policy.

So what?

The focus of recent amalgamation appeals has been on the materiality of the change, rather than the question of whether there has been a change of use. The decision reflects the approach applied by the High Court in June, quashing CLEUD and Section 78 appeals on the basis that the Inspector should have taken account of generalised housing need arguments despite the lack of a specific policy threshold.

Although there is real scope to achieve permission on the basis that the loss of supply is clearly de minimis, the Cheyne Gardens decision confirms that decision makers will continue to treat general housing supply policies as a basis for regarding small amalgamations as material even though more specific policies on such changes do not necessarily warrant it.  The difficulties of doing so in the absence of such policies are illustrated by the 77 Drayton Gardens decision, in which the Inspector refused to grant a CLEUD (on the basis that a material change had occurred by virtue of amalgamation of two units, treating the existence of restrictive policies as weighing on the ‘threshold’ question of whether a change of use had occurred). He nonetheless quashed the related enforcement notice and granted permission on the basis that evidence of housing need (including for larger units) and actual supply outweighed the conflict with the development plan.

‘Especial speed’ in judicial review

The Court of Appeal’s recent judgment in R(Gerber) v (1) Wiltshire Council and (2) Terraform Power Inc and Norrington Solar Farm Ltd is a blunt reminder on the importance of promptly filing judicial review applications.

Background

skThe claim concerned the grant of permission for a 22 hectare solar farm installation in Broughton Gifford. It was filed almost a year outside the relevant period.  The Council had complied with the statutory publicity requirements.  The High Court judge nonetheless granted an extension of time for bringing the claim.  The claimant owned the Grade II* Gifford Hall near the site. The developer advertised and held two public exhibitions before submitting the application.  The Council then publicised the application by posting newspaper, online and site notices (including at the end of the lane leading to Gifford Hall).

The claimant remained unaware of the application and so did not object. He only realised the site was being developed once works began and wrote to the Council to object to the impact on the setting of his property.  His complaint was rejected and he waited five months to file a claim for judicial review (by which time the developers had spent about £10.5 million installing the solar farm).

High Court decision

Despite the exceptional delay in bringing the claim, the High Court granted an extension of time and quashed the grant of planning permission. Dove J held that:

  • assurances given in the Council’s Statement of Community Involvement (SCI) had created a legitimate expectation that Mr Gerber would be personally notified of the planning application, which the Council breached.  The fact that he needed time to assimilate all the issues and the supposedly incomplete advice received from his first legal advisors was treated as a reasonable explanation for the delay in bringing the claim; and
  • he was required to quash the permission, given failures to consult English Heritage (as was), to properly deal with heritage impacts and to properly screen the application for EIA purposes.

Appeal decision 

The first instance decision led to concern that a planning permission was not “safe” even when the challenge window had passed. The Court of Appeal unanimously rejected this approach and the judgment makes clear that once planning permission is granted a developer is entitled to rely upon it.  There was no reasonable explanation for either the lengthy delay between the grant of permission and the claimant’s objection to the Council or his delay in bringing legal proceedings.

Gerber is nonetheless a blunt reminder that:

  • Compliance with statutory notice procedures is essential, but the Courts will rarely impose more onerous requirements based on legitimate expectation.  Care is needed to ensure that commitments in Statements of Community Involvement have been honoured though.
  • Prompt legal action to challenge the grant of planning permission is required in all cases, unless very special reasons can be shown.  Objectors who have been involved in the planning process throughout should act with “especial speed”.
  • Extending time for bringing a legal challenge should not be allowed simply because an objector did not realise what has happening, where statutory notice requirements are met.
  • Failure to deal properly with EIA and heritage issues can be fatal, where claims are brought in time. Even where there are acknowledged breaches of EIA and heritage duties, though, the effects of exercising the discretion to quash must be weighed up.
  • Quashing of a permission is a discretionary remedy.  The Court of Appeal did not need to decide whether the permission should have been quashed, but made clear that it would not have done so given: the significant delay in bringing the claim without good reason; the prejudice to the solar farm operator (including £1.5m to dismantle the development, plus the £10.5m invested in construction); the lack of real damage to the claimant’s own interests; and the need for good administration.  In a difficult political climate, investors may also take some comfort from the importance given to renewable energy development and investor certainty.
  • The longer the delay after the grant of planning permission the greater the risk and extent of hardship and prejudice to developers if the consent is subsequently set aside. Being able to substantiate the financial costs of development is essential to be able to rely on this prejudice.

Affordable housing contribution reduced on appeal

We have previously reported on successful appeals by developers to reduce affordable housing contributions under the Section 106BC appeal mechanism.  Shortly before Christmas a further developer, Bloor Homes Limited (“Bloor”), succeeded in its appeal to reduce its affordable housing contribution on a scheme in Shepshed on viability grounds.

Bloor entered into a planning obligation in November 2012 which required the provision of 30% affordable housing with 70% in the form of rented units and 30% being intermediate housing.  Charnwood Borough Council subsequently refused Bloor’s application to modify the affordable housing contribution.

With the appeal documentation Bloor submitted appraisals for the provision of 30% and 14% affordable housing on the appeal site.  Bloor  also carried out a Market Research Report which identified values achieved on a residential site under construction on Anson Road in another area of Shepshed. 

In reaching his decision the Inspector, Stephen Roscoe, drew heavily on the values achieved from sales at Anson Road. Based on these figures the Inspector concluded that there was an additional £211,000 to add to the 14% appraisal value.  He accepted that the affordable housing obligation of 30% made the scheme unviable in current market conditions.  However, when looking at the 14% appraisal scheme he concluded that, based on an affordable unit price of £110,000, the value increase justified two additional affordable units.  The Inspector decided that the required number of affordable units should be increased to 12, equivalent to 17.1% with 66.6% being rented units and 33.3% being affordable units.

hsgThis appeal highlights three issues.  First, the significance of meaningful benchmarks.  Good local evidence will be persuasive.  Second,  the Section 106BC appeal process offers some real flexibility.  Whilst Bloor did not succeed in securing the 14% affordable housing provision they wanted, they did secure a 13% reduction on the original contribution requirement.  Bloor did not carry out any viability appraisal prior to entering into section 106 agreement.  The process from submission of the Section 106BC application to the Inspector’s decision took only 6 months.  That is less than it may have taken had such work been carried out at the application stage.  The relative speed of the process is likely to pose a risk for local planning authorities where section 106 agreements do not have any in-built viability review.  Thirdly and finally, the Council suggested a market review mechanism so that, if sales values increased, further affordable housing would be provided.  The Inspector noted that since a Section 106BC modification only lasts three years, this was not practicable for a large scheme likely to take longer than that to deliver.  This is a more contentious point since it potentially limits the options open to both developers and to local planning authorities.  It is more a reflection of a lack of imagination about the potential modifications than an issue of principle.  A sensible review clause could be developed and should have been considered.

DCO regime faces a real test

Better known as the super-sewer, the Thames Tideway Tunnel (“TTT”) Development Consent Order, granted on 12 September 2014, was a super-sized DCO application.  The scheme covers 25km from Acton to Abbey Mills and with 43 hearing sessions and 1246 representations is by far the largest application to go through the Planning Act 2008 process to date.  Based on recent news reports, it is also now set to be the most contentious DCO so far, with two judicial review challenges lodged.

The first challenger is, unsurprisingly, the London Borough of Southwark.  Thames Water may have been expecting a claim after the Leader of Southwark publicly branded the decision “ludicrous and evil“.

tunnelNothing has emerged yet on the grounds of their challenge but it is a safe assumption that it will focus on the use of Chambers Wharf as a site to drive the main tunnel to the Abbey Mills pumping station, and the impact of the drive site on residential amenity.  The Examining Authority concluded that the use of Chambers Wharf was not justified and weighed against the making of the Order.  The Examining Authority considered that if the option of driving from Abbey Mills (i.e. a reversal of the drive direction) were fully explored there was a good prospect that it would be found to be preferable in terms of overall environmental and community impacts.  While the Secretaries of State noted that the intensity and duration of impact on nearby residential occupiers during the 6 year construction period (including 33 months of night time working) weighed against the making of the Order, they considered that the mitigation package would substantially mitigate those adverse impacts and the selection of Chambers Wharf as a drive site was justified.

The crux of Southwark’s challenge is likely to be the extent to which the Secretaries of State are required to consider alternatives to the applicant’s proposals in the course of their decision making.  This is a fundamental question given that the National Policy Statement for Waste Water (NPS) approves the principle of a tunnel but leaves the specific route, design, layout and construction programme of that tunnel to be determined as part of the DCO application.  The answer will influence the future approach of applicants and objectors.

The second challenger is the Blue-Green Independent Expert Group (“BGIEG”) – an interest group formed by a broad coalition of independent experts.  News reports indicate that their challenge relates to the failure to comply with the public participation requirements of the EIA Directive and EIA Regulations.  BGIEG’s challenge is likely to focus on the precautionary principle (Article 191 of the Treaty on the Functioning on the European Union), obligations arising under the UN Aarhus Convention and the EU Public Participation Directive and criticisms of the robustness and adequacy of the Environmental Statement.

Whether BGIEG continues its argument that the case for progressing the scheme by way of a tunnel has not been proven remains to be seen. During the course of the examination, BGIEG argued that the NPS decision in principle to use a tunnel was made without proper testing of alternatives, including blue-green infrastructure solutions.  The starting point of the inquiry was that contained in the NPS, namely the Examining Authority and the decision maker in undertaking any assessment of the TTT application should do so on the basis that the national need had been demonstrated.  The NPS states that in reaching that conclusion the strategic alternatives have been considered and strategic alternatives did not need to be assessed by the Examining Authority or the decision maker.  If a court were to hear a challenge, let alone allow a challenge, on this ground it would deal a heavy blow to the sanctity of NPSs.

Despite being a long-standing objector, Hammersmith & Fulham has notably not challenged the decision.  They may be sitting back to watch the Southwark showdown first.

Success for Sainsbury’s at city centre store

The High Court has upheld the decision of the Secretary of State to grant planning permission for a foodstore in Westminster.  Dentons successfully acted for Sainsbury’s Supermarkets Ltd at a five day inquiry in 2013 following the refusal of two planning applications by the City of Westminster.  In allowing Sainsbury’s appeal the Planning Inspector found the moderate level and limited duration of the adverse impact caused by food retailing at the premises was acceptable in light of its location in a noisy city-centre location where noise levels already exceed guidelines of the World Health Organisation.  Dentons advised Sainsbury’s on the subsequent statutory challenge initiated by the City of Westminster to that decision. Dismissing part of Westminster’s claim as “entirely unmerited”, the High Court held that the Planning Inspector had reached a decision he was entitled to make in the exercise of his planning judgment on the material before him and gave sufficient reasons to enable those concerned to understand why he reached that decision.  The Court upheld the grant of the two planning permissions.

The Dentons team comprised Stephen Ashworth and Katie Scuoler.

Unspent 106 monies

Freedom of information requests made by the BBC suggest that local authorities in England are holding £1.5bn of unspent section 106 contributions, with £421m of those funds not allocated to any future schemes.  The BBC’s investigations indicate that over the past 5 years £9.8m of unspent section 106 contributions had been returned to developers, a relatively modest amount given the extent of the section 106 funds sitting in council’s accounts.  In response to these findings Nick Boles issued a statement saying many people would be surprised that Councils are “hoarding millions of pounds” and that councils “should not be pocketing the cash”.  He added that in many cases councils “could also risk losing the money and be forced to pay it back if unspent within a set time frame”.   Is Mr Boles right?  Can councils be forced to pay back unspent section 106 contributions?

Potentially yes would be the answer.  In the case of Hampshire County Council v Beazer Homes Ltd [2010] EWHC 3095  a section 106 agreement in connection with a major mixed use development project required the developer, Beazer Homes, to make financial contributions towards the cost of various highway works, including traffic management measures and the construction of the Fleet Inner Relief Road. At the time the section 106 agreement was negotiated the parties were alive to the potential that the Council might decide not to build the Fleet Inner Relief Road.  The agreement provided for this by way of a refund of any monies which were unexpended after the completion of the Relief Road or any schemes undertaken as an alternative.  Beazer Homes argued that a similar term should be implied into the agreement obliging the Council was to account for the cost of the proposed traffic management works and refund any excess contribution. 

Beazer Homes succeeded on this argument.  The judge held that a term can only be implied into a section 106 agreement in very limited circumstances where the parties had plainly intended it to form part of the contract. The court was willing to imply a term in relation to the traffic management contribution similar to that in relation to the Relief Road.  As the contribution could only be applied for the purpose of the traffic management works the judge held there needed to be some provision as to how any surplus would be dealt with.   

Whilst much turns on the wording in the agreement of the use to which a contribution is to be put, the absence of a clawback provision in a section 106 agreement is not necessarily fatal to obtaining a refund of an unexpended or partly unexpended contribution.  This might come as unwelcome news to local authorities.  However, they can take some comfort that the CIL regime does not provide for any such return of levy payments.  In the meantime developers may wish to dust off their old section 106 agreements and review the contribution wording.