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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.

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.

Regulation change to allow LPAs to sell land with benefit of planning permission granted to themselves

From 23 February 2018, an LPA will be able to grant itself planning permission and sell the relevant land with the benefit of that planning permission. This small statutory change has the potential to significantly bolster LPAs’ role in facilitating development and ensuring that it is comprehensively planned.

The Town and Country Planning General (Amendment) (England) 2018 (the Amending Regulations) will remove Regulation 9  from Town and Country Planning General Regulations 1992 (the 1992 Regulations), with the effect that planning permissions granted by LPAs to themselves  will now run with the land.

Currently, Regulation 9 provides that a planning permission (where applied for by an LPA on its own land) will be personal to the LPA and where applied for jointly, only for the benefit of LPA and the named applicant. This has severely impeded the ability of an LPA, having secured planning permission to then sell the land on with the benefit of that planning permission. This has had cost implications requiring more complex land structures to be put in place before applications for development proposals could be made.

Oddly, the Regulations do not apply to any planning permissions granted before 23 February 2018. Given that future consents will run with the land it is strange that past consents have not been similarly “liberated”.

The removal of Regulation 9 was proposed in last year’s Housing White Paper on the basis that it will save time that developers would otherwise spend securing planning permission in relation to land which they purchase from LPAs.

It should achieve this. Now the Government needs to make sure that the best consideration requirements are changed so that land can be sold on for the best use for the area rather than just for the best price.

Who GOVErns Planning?

Michael Gove has published a 25 year plan to improve the environment. It is wide-ranging, comprehensive and aspirational. If delivered, and the lack of a real delivery programme is problematic, the plan aims for us to leave the environment a better place than we found it.

The plan contains three themes that might lead to a profound change in planning. The first is a principle that development should have a net environmental gain. On a project by project basis this could mean a development having a natural capital account setting off the environmental costs against a compensating balance for either on-site or off-site benefits. If so there will need to be a proliferation of environmental land banks and habitat improvement schemes that development can use to ensure a net gain.

The second theme involves looking at how to improve the environment. Much of the plan focuses on managing, maintaining and enhancing the natural environment.  It is clear that we should be seeking opportunities to remedy past mistakes.  It might be worth thinking about how this could change attitudes to, for example, brownfield sites. It might lead to a move away from the lazy assumption that brownfield sites in the countryside can simply be replaced by less ugly development.  It might, instead, just mean saying “no” to the replacement of development that would never be permitted nowadays and a focus on sites that, although green, can make a better contribution to sustainable growth if carefully planned, designed and developed.

The final theme relates to the Green Belt. The language of the plan talks about making these areas more accessible, almost envisioning them as country parks. That has never been a Green Belt purpose.  With changes due to the NPPF it might, however, become a future factor when changing Green Belt boundaries or when designating new Green Belts.  Tying back to the first theme it might lead on to a scheme where, in exchange for planning permission, new development has to secure rights of access to Green Belt land as part of the environmental benefit offer.  And where that increase in accessibility is itself part of the balance to be struck in release of other Green Belt land.

If the plan follows through on these themes it could reshape the foundations of the planning system.

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.

Read the full article

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

Planning and the General Election: keys to long term success

With the General Election drawing ever closer, planning forms the battleground for a several controversial issues close to voters’ hearts, such as fracking and safeguarding the greenbelt. In particular, persistent difficulties in delivering new housing and infrastructure unite the parties in a common cause. More homes are needed, quickly, together with greater certainty around delivery of supporting infrastructure.

The extent to which the next Government succeeds in solving these problems will be determined by its appetite to grapple with a host of underlying difficulties. These include devising an effective model for land value capture, making the CPO process fit for purpose and addressing the chronic shortfall in local authority resourcing.

Despite obvious distractions elsewhere during this campaign, housing delivery still sits atop the planning agenda, with the manifestos all setting targets and the broad route needed to reach them. The Conservatives will point to steps already taken along this long and winding road – most recently through the Neighbourhood Planning Act 2017 and its predecessor the Housing and Planning Act 2016. Similarly, the Housing White Paper affords us the rare luxury of a detailed annex to the aspirations commonly found in (deliberately) loosely drafted manifesto commitments. Whilst less “radical” than badged, it establishes a framework of policy changes aimed at speeding up housing delivery, through measures such as diversifying the market, getting local plans in place and holding the public and private sectors to account for delivery.

Housing delivery at scale is recognised as being paramount. This requires a commitment to supporting the growth of new towns and garden communities – where the worlds of housing and infrastructure collide most spectacularly. The Liberal Democrats propose at least 10 new garden communities whilst Labour also underline the need to start on a “new generation” of new towns. The current system already supports that drive with the introduction of a potentially significant power in the Neighbourhood Planning Act 2017 allowing Regulations to facilitate the designation of areas as new towns and for development corporations to be established.

Whichever party emerges victorious on 8th June, there is a sense that the keys to long-term success are not entirely in their hands. We are witnessing a shift in emphasis towards the increased role of the public sector as an enabler of development. The extent to which they are willing and able to embrace that role will go a long way towards determining whether the same issues – and proposed fixes – will remain on the planning agenda in 2022.

More planning protection for pubs

In 2015, the Government removed permitted development rights from pubs listed as Assets of Community Value (ACVs).  As previously reported, pubs which are listed as ACVs, or have been nominated to become ACVs, require planning permission for changes of use or demolition, which otherwise could be carried out under permitted development rights.

Noting the importance of pubs to local communities, some local authorities have made Article 4 Directions to remove permitted development rights from pubs. The London Borough of Wandsworth made an Article 4 Direction in August 2016 removing specified permitted development rights for changes of use, demolition and alteration for 120 identified pubs and bars.

Following Wandsworth’s lead, the London Borough of Southwark introduced an Article 4 Direction removing permitted development rights from all 188 pubs in Southwark in March 2017.  The Article 4 Direction means that planning permission will need to be obtained for specified changes of use, demolition, demolition or construction of gates, fences and walls, and exterior painting.

After discussions in Parliament in connection with the then Neighbourhood Planning Bill, the protection afforded has been further extended by the Government to cover all pubs rather than just those listed as ACVs. Section 15 of the Neighbourhood Planning Act obliges the Secretary of State to as soon as reasonably practicable make an order to remove permitted development rights for changes of use and demolition of pubs, and to grant permission for pubs to change to pub and café/restaurant use.  This requirement has been met by the making of the Town and Country Planning (General Permitted Development) (England) (Amendment) (No 2) Order 2017, which comes into force on 23 May 2017.

The order removes permitted development rights so in most cases pubs will instead have to apply for planning permission to:

  • change to a shop;
  • change to a restaurant or café;
  • change to a state funded school;
  • change to a temporary flexible use; or
  • to be demolished.

The order includes a new permitted development right, to allow pubs to change use to “drinking establishments with expanded food provision” and vice versa without planning permission.

The order demonstrates the importance of pubs to the Government, by requiring a planning application for a change of use other than to a pub restaurant.  While this change negates the need for communities to list their local as an ACV to prevent changes of use without planning permission, listing could still be pursued.  A local planning authority can consider ACV status as a material consideration on a planning application, and so ACV listing could be an extra factor the local planning authority has to take into account when considering an application to change the use of a pub.  This then offers an extra layer of protection for communities wanting to keep venues operating as pubs.

The new New Towns Agenda

The third reading of any Bill in the House of Lords is normally fantastically dull. That was not true of what is now the Neighbourhood Planning Act 2017. Lord Mathew Taylor introduced a new and apparently innocuous clause that allows a completely new and parallel way of bringing new towns forward. It authorises the rewriting of the existing new town legislation, by regulation, to allow local authorities, or groups of local authorities, to ask the Secretary of State to designate an area as a new town and for a development corporation to be set up.

If agreed by the Secretary of State, then the local authorities will, effectively, step into the role that the Secretary of State occupied in the old new towns. They will control the way in which their new town development corporation is governed, operates and delivers new communities.  They will be accountable for successes.  They will be responsible for failures. Some powers will, inevitably, be retained by the Secretary of State, at least in the short term – the power to confirm CPOs and to authorise Local Development Orders. In time, with true devolution, even these powers could be left to the parent authority.

What will this mean? Many authorities are already exploring the possibility of new towns and particularly garden communities. One of the real difficulties is educating landowners that the cost of developing the necessary community and social infrastructure up front is significant, and that the legacy costs of stewardship will eat into land values, as much as if not more than the traditional enabling costs. This means that the normal landowner model of a minimum land value + a share of net proceeds or overage does not really work.  There is also a need to ensure that all land is bound into the same broad vision and programme. If that is not the case then the allocation of costs can be unfair.  The first phases will have to bear significant infrastructure costs that then increase the value of the land in later phases. If the later phases choose to develop independently then it may be problematic making sure that they bear their fair share of the initial place-making investment. A development corporation model helps to solve this. It allows early and extensive acquisition. It also ensures that the underlying “scheme”, the new town, is more completely disregarded for valuation purposes.

In practice, development corporations should rarely be necessary. Local authorities already hold most of the appropriate powers. However, the use of, or the threat of the use of, a development corporation may well be a helpful bargaining tool. It should allow local authorities to reach agreements with reluctant landowners. It should ensure that all parties contribute and benefit equally. It should be a weapon of last resort.

The pendulum swings: case comment on David Wylde and Other v Waverley Borough Council (9 March 2017)

A new judicial review case concerning the interface of development agreements, judicial review and public procurement has recently been decided by the High Court.

The case concerned changes made to a historic development agreement (awarded in 2002) relating to the East Street area of Farnham.  Under the original agreement with Waverley Borough Council, the developer needed to pay at least £8.76m for the Council’s land.  The changes to the agreement appear to allow the developer to proceed with a far lower minimum land valuation of £3.19m (as well as other changes relating to the developer’s profit element).

The changes met with resistance in the form of five claimants, two of whom were parish councillors of Farnham, with the other claimants being members of local civic societies.

On its face, the case has some startling similarities with the Gottlieb v Winchester City Council case, where Cllr Gottlieb challenged his own Council’s proposals to unlawfully amend a historic development agreement (the changes also had the objective of making the scheme viable for the developer).  Cllr Gottlieb was successful and the development proposal came to a juddering halt after 12 years.

So in view of the similarities, was the same result reached here?  No.

Mr Justice Dove decided that the claimants did not have “legal standing” to bring judicial review proceedings, because they do not have a sufficient interest in the outcome of the competition (in contrast to the position of Cllr Gottlieb in his case).  So none of the arguments concerning public procurement were explored.  No doubt this is a bitter blow to those towns folk who are struggling to understand why a developer should be allowed to re-write the terms of a deal in their favour (resulting in the viability of a development scheme they vehemently oppose).

Standing in judicial review cases

There have been a number of cases on standing in judicial review, and Dove J’s reasoning is largely consistent with those rulings.  Some have resulted in permission being granted.  Others not.  This is a case where the pendulum has swung back in favour of the defendant public authority.

It cannot be disputed that the vagaries of the case law means that merely being a council tax payer is probably not enough (alone) to get standing to bring judicial review proceedings.

That said, Mr Justice Dove is critical of the Gottlieb decision.  We think that this criticism is misplaced.  Unlike a parish councillor complaining about a decision of the borough of which his/her parish forms part, Cllr Gottlieb was (and is) an elected member of the authority of who had taken the unlawful decision.  In our view this would have given him standing anyway, given his special ability to enforce the general public law obligations and fiduciary duties of the council – but this point was never properly addressed in the Gottlieb case.  The proper approach would have been for Dove J to distinguish the circumstances in Gottlieb from those of Wylde.

The judgment will no doubt be a relief to developers facing significant local opposition to their schemes, but, to make a broader point, we believe that it is in some ways regrettable that council tax payers are written out of the picture when it comes to judicial review in public procurement cases. The public procurement rules ensure fair play between bidders, encourage competition which is not only about price (or receipts for land disposal) but quality.  The inability to enforce those rules robs the public of an opportunity to influence place, something in which they certainly have a legitimate interest.

(Dentons acted for Cllr Gottlieb in his successful challenge against Winchester City Council.)