We have previously noted the outcome of the viability appeals beginning to trickle through under the new Section 106BA/BC provisions as part of the Growth & Infrastructure Act 2013 regime for speeding up planning decisions and delivery. In a recent Inspectorate decision, at Manor Road South Norwood, the Inspector dealing with the Section 106BC appeal refused to accept that a commuted sum for affordable housing should be reduced. It is a reminder to get the basics right in an appeal on viability grounds and where the burden of proof lies.
The scheme was intended to be 100% affordable and it was agreed with the LPA that 50% had become the viable level of on-site provision and, furthermore, that it would be not be feasible (for non-financial reasons) to deliver the scheme as a 50/50 affordable/private sale development. The commuted sum in the Section 106 agreement therefore kicked in and the appeal was made in relation to the Council’s refusal to accept that the amount could not be afforded.
In addition to disputed construction costs, a key issue was the benchmark land value to be used as a development cost. Like the Holsworthy Showground appeal, the Manor Road decision confirms that price paid will not be accepted as a development cost where it represents an excessive bid against existing use value (EUV) (i.e. where it includes hope value associated with future redevelopment). The developer sought a 25% uplift in land value above EUV but this threshold was not accepted and the Council’s 20% value was adopted. As a result, the appraisals confirmed that a commuted sum was still achievable.
The decision confirms how the Inspectorate will deal with Section 106BC appeals until the ‘sunset clause’ bites in April 2016 and the opportunity disappears.
- Inspectors will be willing to use EUV, plus a reasonable uplift, rather than price paid – overbids and hope value will be stripped out where they exceed this.
In a hot London residential market, those bidding for land where there will be a significant element of affordable housing will need to bear this in mind.
- The onus is squarely on the developer to show that the scheme would not be viable in the current market when relying on Section 106BC. The Inspector in this case decided that it was ‘impossible to be definitive’ on the issue of uplift above EUV but as a matter of judgment accepted the Council’s lower starting point (20%). This is the reverse of the coin compared to Vannes KFC v Royal Borough of Kensington and Chelsea  – there, the Court of Appeal accepted that an Inspector could decide not to reach a view on the viability numbers because he considered them too unreliable, but could set the numbers to one side and give weight to the developer’s more qualitative contention that the scheme would not proceed.
In this case, the Inspector did not accept that the developer had made its case out thoroughly enough to overturn the starting point on both costs and profit margin put forward by the local planning authority.
- Small changes to cost assumptions can have significant impacts on outturn – assumptions must be robustly underpinned by evidence and good practice to ensure success. If cost assumptions are contested, the local planning authority’s assumptions will have to be shown to be flawed (rather than just conservative) to ensure success.
Appellants should therefore cast a critical eye over their case before they embark on the Section 106BC process.