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Setting the Tone

There is a general consensus that land should be “right priced”. Where it is viable the costs of providing both hard and social infrastructure needed to support development should be established and thoroughly tested so that they can be reflected in land values. The local plan and CIL examination and inquiry processes are an essential, if not perfect, basis for setting a viability benchmark.

Right pricing land will, however, often lead to values below landowners’ existing aspirations. Necessarily, it removes some hope value and reduces market value. It has been pointed out that this loss of expected value will lead to some landowners to hold back on their land, potentially starving the development market of a staple need. They will continue to ask for unadjusted values and that will cause problems since developers will not be able to pay those prices and still deliver policy compliant schemes.

One answer to this is that the CPO process can be used to buy land, at a price that reflects adopted planning policy and any CIL and realigns land value expectations. Quite rightly critics have observed that it is impossible to compulsorily acquire all the land required for 300,000 homes a year. There is no capacity within local authorities (or within housebuilders to be fair) to support such an effort. While that is true CPO powers do not need to be used to acquire all development land, just enough to make it clear that inflated expectations of site value should not stand in the way of housing delivery.

If the local plan and CIL processes work properly, and are held to account by those affected, there should still be a healthy margin, or incentive, for landowners to sell their land. The initial landowners affected would be rather like the unfortunate Admiral Byng, being subject to the judicious use of CPO powers “pour encourager les autres”.

Magic Bullets? Why Value Capture Should Be Kept Simple

The House of Commons Housing Communities & Local Government Select Committee Land Value Capture Inquiry report is great, but dangerous. It is a welcome reminder that the planning system can, and should, do more to capture the cost of the infrastructure required to support development. It is also problematic because it suggests a range of new “toys”, including a review of CPO compensation provisions, that is politically unworkable, a distraction and unnecessary.

Right Price

The report is clear that landowners, and developers on their behalf, already make significant contributions towards infrastructure and affordable housing. The combination of planning obligations and CIL can work effectively. With more local authority resource, greater transparency and a stronger emphasis on the local plan, even more can be achieved. As the report indicates, proper planning requirements should be viability tested and reflected in planning policy and a reformed and simplified CIL. Those needs will then, perhaps slowly, be “hardwired” into land prices. Land will be “right priced”.

No end to hope

A number of witnesses, and the evidence, emphasise that using planning policy is not a panacea. It will not fund all infrastructure requirements.  It will not solve the housing market problem.  Markets in different parts of the country are very different. The planning system can be used to secure a full contribution to infrastructure in parts of the South East, in a way that is simply impossible in parts of the North West.  Local planning processes can reflect those differences better than any sweeping national change.  Similarly, right pricing also requires some market sensitivity and testing. The aim should be to maximise the contribution that landowners make to infrastructure, whilst still allowing the land market to function. That means developing policies in a way that still leaves a sensible market value.

In urban areas that market value will, often, reflect the existing use value plus a sensible margin and an incentive to bring land to the market. For greenfield sites, the market value will need to reflect an amount needed for landowners, or promoters, to bring forward development and recycle value themselves into infrastructure delivery and place-making. However, landowners need to recognise that any existing “hope value” is not a permanent or fixed part of market value. As the market, planning policy and CIL levels change hope value necessarily also has to adjust. Any balancing exercise should diminish, but not dash, hope.

Thin Ice

Perhaps the more important Select Committee issue is the suggestion that the 1961 Land Compensation Act should be changed. In broad terms, the Committee recommend that land being compulsorily acquired should be acquired at existing use value instead of market value. That would be resisted. It would create a two-tier land market – with different values applying to adjacent plots depending on whether it is being sold on the open market or being publicly acquired. How would that work? Would that meet one of the tests that the Committee set for itself – fairness?

It is also unnecessary. The Committee attributes the success of the first generation of new towns to there being a different CPO compensation code, and suggests that the same result would not be achieved today. That is just wrong.  If a site for a new town is compulsorily acquired, the valuation will disregard the “scheme”.  In most cases, that will mean the land is acquired at something close to the existing use value – most sites would not be developed in the absence of the new town proposal. Even if, in the absence of the new town proposal, there would a development value to the site then a properly constructed planning policy framework will require any new development to fund the necessary infrastructure and the cost of doing so will be reflected in the land value.

Keep it simple

Why is there a need to change legislation to do something that can, largely, already be achieved without burdening the system with more complexity and change? It should be a fundamental principle of CPO compensation that landowners receive a proper market value for their land. The Parkhurst Road case has made it clear, quite rightly, that market values should reflect planning policy. If that happens, then the hope value component of market value will, properly, be adjusted by the proper attribution of infrastructure costs.   If, after the proper deduction of those costs there is still a margin and a residual hope value, what is the justification really, for amending the compensation code to take that?  If there is a justification for taking that capital gain then the tax system should be used to do so rather than playing games with compulsory purchase compensation which are ultimately likely to slow down development and unhinge investment.

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.

Time to fix CIL

The November 2017 Budget announcement on developer contributions, promised in the Housing White Paper, decided not to ditch the Community Infrastructure Levy but to tweak it instead.

Last January we suggested 6 reforms to make CIL more transparent and ensure it complements, rather than confuses, the development process. Here are the top 5 for 2018.

Reform #1 – deal with the small stuff, quickly

The recent amendment Regulations are welcome.  The Government should look to implement another set of amendment regulations by the summer, to deal with identified problems on indexation and give effect to the simplification on pooling restrictions promised in the Budget. It should reconsider the current proposal to use house price indices to inflate CIL.  Although transparent, there is no relationship between the change in values and the cost of delivering infrastructure.

There are better alternatives and consideration should be given to capping indexation rises where they exceed modelling assumptions at the CIL setting stage, giving a discount to the rate equivalent to any excess. That would encourage regular charging schedule reviews and ensure the charge remains within bounds of the original viability work.

Reform #2 – Free up strategic sites

The Budget committed to allowing a partial review of charging schedules. Among other things, that will allow charging authorities to look again at genuinely strategic sites and fix some of the problems that CIL-setting has created where errors were made or assumptions were not held to account in the examination process. The reform will allow zones to be set for these sites, with rates that reflect an agreed viability position including factoring in affordable housing delivery.

This can and should be implemented by the summer.

Reform #3– Free up strategic sites, again

For all the benefits of CIL recognised by both the CIL Review and the Budget, it is horribly complex for large, phased development.  The Review will need to grapple with how much flexibility can be created for genuinely ‘Strategic Sites’. CIL agreements should be allowed for these sites, which preserve the overall value of the infrastructure contribution (so that CIL is still a tool of value capture rather than mitigation management) but escape the complexity of the Regulations in terms of triggers, offsets and reliefs.  That will require careful thought on procurement issues, in terms of the point at which liability arises, and a more sensible approach to works in kind than the Regulations currently allow.

This can and should be implemented this year.

Reform #4 – Exemptions, distractions and diversions

There should be a proper debate about the sense in the reliefs, exemptions and offsets that plague CIL. If we want the system to be simpler, simplify it by removing these. As long as the charging regime ensures the charges adjust to reflect that, it will be neutral in many cases but far less complex.

Reform #5 – Spend It

One of the main gripes on CIL is the lack of certainty about its use (and the delay this is said to cause). In truth, many S106 contributions are subject to long clawback periods. In truth, too, CIL is only a drop in the ocean for infrastructure funding – it is unreal to expect it to be spent before match funding has been assembled or for it to deliver big bang projects on its own.

That said, two things need to be fixed:

  • CIL is meant to support the Local Plan. That is not always clear and the Government needs to consider tilting the balance from discretionary use of CIL, where it can be drained away from investment in new infrastructure to support Local Plans, to a slightly more prescriptive framework for some of the really big ticket items used to justify CIL setting in the first place.
  • Allowing CIL to be spent on maintenance of existing infrastructure is a mistake and undermines the benefit and legitimacy of the value capture it was designed to achieve. The changes made by the Localism Act 2011 to allow this were regressive and going back to the 2010 position – that CIL should fund new or upgraded infrastructure – would help concentrate spending and minds.

CIL fix is good news, more please …

After an absence, the tradition of new year Community Infrastructure Levy Amendment Regulations is back in the form of the draft Community Infrastructure Levy (Amendment) Regulations 2018, published on 14 December 2017.

The amendments are another sticking plaster ahead of a full overhaul of the CIL Regulations, this time to deal with difficulties that some authorities had got into on the application of indexation to CIL charges for S73 permissions.

Section 73 so simple

If a S73 permission is granted where no CIL charging schedule was in place at the time of the original permission, the CIL Regulations are intended to only charge the ‘top up’ change in CIL. That is entirely clear from Ministerial statements in the run up to the implementation of the Community Infrastructure Levy (Amendment) Regulations 2012 which introduced the regulation 128A regime (and various other changes) for such transitional cases.

A quirk of the drafting meant that – taken in an inappropriately literal way – the difference between indexation values for the original and the S73 consents would result a charge based on the application of the indexation change across the whole of the consented floorspace. So, for example, a S73 permission that in floorspace terms should have either zero, negative or minimal change in CIL chargeable value was being treated as having a charge relating solely to indexation change.

The Valuation Office rejected that approach on an appeal against the resulting chargeable amount in March 2017, which remains subject to stayed judicial review claim by the collecting authority.

No change

The amendment regulations now address this point by clarifying that the same indexation base value should be used for working out the chargeable value of each consent.

Although they will only come into effect later this winter, the Explanatory Memorandum states that they are clarificatory.

What lies beneath

That is important, because the ‘fix’ is partial and does not address all the mischief in the Regulations for S73 applications. By making it clear that the changes are ‘clarificatory’ we now know the Government agrees with the common sense interpretation of the Regulations the Valuation Office Agency has taken on appeal.

The Government should be commended for having listened and acted wisely. They should now make a habit of that on CIL – our next blog will include our New Year’s wish list for simplifying CIL.

In the meantime real care is still needed when dealing with S73 applications, indexation and abatement applications.

CIL – false starts can be punishing

Community Infrastructure Levy liability is determined by the point at which development is notified or deemed to have commenced. The point at which that actually occurs is not crystal clear and a recent Planning Inspectorate decision suggests that care is needed by collecting authorities and developers.  At the moment there is a risk that a planning permission that has not been implemented for planning purposes (and which could, indeed, lapse for a failure to start in time) has been implemented for CIL purposes creating a CIL liability.

CIL Triggers

CIL liability is not triggered by a material start: it is triggered by the date given in a commencement notice (unless the notice is withdrawn in advance) or, in the absence of advance notice, the deeming of a commencement date by the collecting authority.

A material start without serving a commencement notice means that CIL liability is accelerated (losing instalment and other deferral benefits) and inflated (losing some reliefs).

What constitutes a material start for CIL purposes can therefore be a million dollar question.

False Starts

The CIL Regulations require the chargeable development to have been commenced:

  • that means (under reg.7(2)) the date “any material operation begins to be carried out
  • material operation has the same meaning as under Section 56(4) TCPA 1990. Care is needed, because the Courts have confirmed that the list in Section 56(4) is not exclusive – other operations could therefore trigger CIL where material
  • reg.7 does not refer to Section 56(2), which is clear that for the purposes of meeting time limit conditions, material operations have to be “comprised in the development”. Nonetheless, the Regulations are clear elsewhere that it is the chargeable development that must be commenced.

For time-limit purposes, the law is clear that operations done without discharging genuine pre-commencement conditions are not referable to the relevant planning permission (FG Whitley & Sons v SoS Wales(1992) 64 P & CR 296: “if the operations […] contravene the conditions, that cannot be properly described as commencing the development authorised by the permission“). The operations are unlawful and at risk of enforcement, unless recognised exceptions apply.

Logic suggests that the same legal authority – and outcome – should apply to early starts for CIL purposes. CIL should not be triggered but there may be enforcement consequences and CIL consequences associated with any use of retrospective permission under Section 73A TCPA 1990.

Inspectorate disagree

CIL practice and logic have been bad bedfellows. In a recent CIL appeal decision, the Planning Inspectorate was asked to determine the correct deemed commencement date where development began without complying with a pre-commencement (noise protection) condition.  The appellant claimed that the development was not referable to the planning permission and so not chargeable. The authority contended – probably rightly – that the condition was not a genuine pre-commencement condition for Whitley purposes. The Inspector took a more purposive approach, finding that:

  • The CIL regime is not concerned with whether or not a development is lawful, it is only concerned with whether it has commenced.
  • The date of commencement of development is a separate matter from the date upon which development could be said to be authorised.

It is not the first decision to adopt this approach (also applied on appeal in 2014). Then again, two wrongs do not make a right.

Common Sense?

Care is needed by developers and reliance on the Whitley principle is risky, not least because at one level the relevant law is about the extent to which enforcement would be perverse.  The other side of the coin is that some of the findings noted above are arguably perverse: the CIL regime is (explicitly) concerned with the question of whether the chargeable development has been commenced. If the Courts would not recognise commencement for planning purposes in reliance on the chargeable permission – and would instead uphold enforcement – it follows that the ‘date for commencement of development’ is not a separate matter from the point at which that commencement could properly be said to be lawful.

The two appeal decisions do not, in that sense, recognise that:

  • the Regulations require a different approach: although reg.7(2) does not require the commencement to be referable to the chargeable permission, every other part of the Regulations that relies on reg.7(2) does so clearly.
  • this avoids otherwise perverse outcomes: for example:
    (1) service of CIL stop notice (for development taking place under the chargeable permission) where an enforcement notice could be served against development being treated as unauthorised by that permission;
    (2) CIL payment being required despite the Courts determining that the permission itself has not been implemented and so has lapsed.

In the application of Planning law, common sense tends to rise to the top, eventually. There is no reason why the CIL regime should be interpreted in any less sensible way but until there is clarity through further reform or guidance on this point, care is needed.

Community Infrastructure Levy (CIL): is the self-build exemption achievable?

The CIL regime ushered in by the Community Infrastructure Levy Regulations 2010 has brought more development within the scope of developer contributions. ‘Self-builders’ – who directly organise the design and construction of their new home – now generate around 10% of new private sector housebuilding (Self Build Housing Market Report – UK 2016-2020 Analysis). Their experience of CIL was meant to be straightforward, but regulatory complexity and attitudes to charging have meant that it is anything but.  We discuss the CIL regulations’ exemption and highlights its deficiencies.

Read the full article

This article was first published in Property Law Journal (September 2017) and is also available at www.lawjournals.co.uk

Developer contributions – which way next?

We look at the government’s CIL review, and put forward alternative ideas for fixing a broken system.

The Housing White Paper promises a new approach to developer contributions, to be announced in the Autumn Budget. But the government’s parallel review of the community infrastructure levy (CIL), published in February 2017, is illustrative of a confused regime. The future for developer contributions deserves a clearer path, so planning can focus on place-making, not value capture.

Read full article

This article was first published in Estates Gazette (February 2017) and is also available at https://www.egi.co.uk/legal/developer-contributions-which-way-next/

Autumn Statement: mood music?

In the absence of the Housing White Paper, the industry is still left needing to mind the gap.  We have simplified budgets – abolishing the Autumn Statement – but no hint of simplified planning for growth.

The overall commitment to housing is welcome mood music, but the lack of detail on powers and fiscal incentives to support locally-led Garden Towns to deliver at the scale needed leaves a hole.  Expanding grant funding for affordable tenures is great news but at £25,000 per unit is not going to be life changing.

hamThe £2.3bn Housing Infrastructure Fund could be a game changer if it is used to reward areas for proactively planning for growth. Making an up to date housing land supply a condition for at least some of the funding would dangle the right carrot for authorities that currently only have the stick. The lack of fiscal measures for new settlements – incentivising forward funding of major infrastructure that can unlock delivery at real scale – is disappointing though.

Affordable Housing is heading towards life support – delivery in 2015-16 was 52% lower than last year.  The announcement in the Autumn Statement of a funding injection to deliver 40,000 affordable homes is welcome. It is a clear recognition that addressing the housing shortage is not simply about building more homes.  Yes, we need more but they must meet a variety of needs. There are further signals of a softening of the Government’s stance on Starter Homes – tenure flexibility replacing David Cameron’s commitment to a single tenure.

Without the Housing White Paper, there is also still a wait to see how the NPPF is going to be reshaped and in particular how housing land supply and Local Plan duties will be re-set following expert advice on accelerating delivery. If the Community Infrastructure Levy is to be replaced by a simplified flat national charge, the effect on infrastructure funding and the transitional arrangements need to be understood now, so that schemes in the pipeline do not get put into suspended animation.

The statement gives some clues about the Government’s direction of travel but, funding commitments aside, offers little substance.  We still await the detail in the Housing White Paper which we are told will be published “soon”.  Reasons for the delay are unclear. Have responses to leaks on more radical measures, such as penalising developers for slow delivery, prompted a re-think?

Brexit: A week later

flagWhat are the likely effects of the Referendum decision on planning? The real answer is that nobody knows but here is a guess:

  • There will be more devolution to city regions. There is clearly a distrust of Westminster and “experts”. Expect to see devolution being set in more of a sub-regional framework.
  • Although there will be delays, the further drop in interest rates and the need for investment will mean more emphasis on new infrastructure. Now is the time for city regions to refine their infrastructure plans, making sure that they fit comfortably within the National Infrastructure Commission ambitions.
  • More of the investment will be outside London. London has succeeded in part because of the staggering levels of infrastructure investment that have been made. Other regions deserve their turn.
  • The planning system will not change.  There is no “European” element that can be stripped out. Much that is blamed on Europe is, in fact, common sense and best practice around the world. For example, does anyone seriously anticipate that we will not environmentally assess plans for large scale development proposals?  Similarly, we already have international and national commitments on climate change. Expect no change.
  • There will be some siren calls to put the brakes on housing delivery. It will be argued that, with lower levels of immigration, objectively assessed needs will fall. In reality, immigration is unlikely to fall significantly or soon. In fact DCLG figures already assume a material reduction. And, if successful in reducing immigration, the likelihood is that there will be a need to accommodate some of the Brits presently living in Europe.  Expect no change.

Perhaps the greatest effect will be that Parliamentary time will focus on managing the crisis and broader constitutional issues. Hopefully, that means that there will be less time for planning reform and we can all move calmly to a proper plan-led system of the type envisaged by the Local Plan Expert Group.  This should be supported by a slightly simplified CIL regime after the Review with a less febrile property market and one better balanced around the country.