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First road test for special measures

Less than a year after the introduction of the government’s ‘special measures’ regime for poorly performing local planning authorities, the secretary of state has determined the first planning application submitted directly to him.  Section 62A of the Town and Country Planning Act 1990 (amended by the Growth and Infrastructure Act 2013), which came into force on 1 October 2013, enables applicants to apply directly to the secretary of state to determine applications for major development where the local planning authority for the area has been designated as being in ‘special measures’.

In the first case, Gladman Developments applied to the Secretary of State to determine its outline application for 220 new homes, a school drop-off and pick-up zone and associated infrastructure in Blaby in Leicestershire. This application had been refused on five separate grounds, including conflict with the local authority’s planning policies seeking to promote sustainable development within or adjacent to Leicestershire’s principal urban area. The inspector took the view that the proposal would result in unsustainable out-commuting patterns and so conflict with the principle of promoting a reduction in travel.  He considered that the development would fail to preserve or enhance the character or appearance of local heritage assets and not reflect the distinctive character of the area, and result in the loss of high-quality agricultural land.

The new procedure demonstrates that an application for major development can be determined on a quicker timescale – within three months in the Blaby case – than a scheme of this size might usually be considered locally.  So far, this is the only application to go through the section 62A procedure. But does this route provide developers with a genuine alternative to working with local authorities in ensuring that development is acceptable at the local level, whilst waiving their right to appeal?

This is a shortened version of the article that appeared in Planning magazine, 29 August 2014 – click here for the full version, and here for a copy of the decision.

Back to basics: a reminder on viability appeals

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.

noIn 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 [2011] – 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.

Reducing contributions

Another developer has successfully appealed under Section 106BC of the Town and Country Planning Act 1990 to reduce its affordable housing contribution on viability grounds.

The appeal by Tamewater Developments Limited followed the refusal of Oldham Borough Council to discharge three outstanding affordable housing contributions totalling £283,525 for a development consisting of 19 flats and 25 dwelling houses (£383,525 being the total sum secured as an off-site affordable housing contribution under the original S106 Agreement).

o-HOUSE-PRICES-POUNDS-facebookThe Inspector accepted the viability evidence presented by the Developer and allowed the appeal, reducing the overall affordable housing contribution to £100,000 for a period of 3 years from the date of the decision.

Interrogating viability information supplied by developers does appear to present a challenge for Councils in an appeal situation.  In a market where housing values are rising (albeit perhaps not as quickly in Oldham), Councils determining applications under S106BA should be pressing for a greater use of viability review mechanisms as a form of modification to the original affordable housing provisions, rather than simply refuting the viability evidence presented by the developers, particularly where there is not the expertise to robustly defend this position on appeal.  At the very least, the provision of some affordable housing may be secured by a more solution based approach.

Residential conversions: merger risk

Creation of substantial high end residential properties in Central London by the reconversion of previously subdivided houses, the amalgamation of purpose built flats or adjoining houses and sideways amalgamation of units is a strong trend.  Buyers should consider whether supersized homes need planning permission (and the Community Infrastructure Levy (CIL) liability arising) amidst changing approaches by planning authorities.

Change of use

The Town and Country Planning Act 1990 makes clear that the conversion of a single pcihome into several is a material change of use (requiring permission).  The amalgamation of units into one may also be a material change. The effects in planning/ amenity terms will almost always be non-material though – fewer people, car movements and less noise.  However, Richmond upon Thames v SSETR & Richmond upon Thames Churches Housing Trust [2000] confirms that it is a question of fact and degree to be considered in each case.  The Richmond case also suggested that planning policies and evidence of needs are relevant.  Where these change, there is a risk that permission may be required.

This is important since as well as facing a risk of refusal and planning obligations it can have a significant CIL consequence.  Where permission is required, CIL liability will apply (because change of use to residential is chargeable development, notwithstanding the absence of any new floor area).

Change of plan

Westminster City Council adopted a plan policy in January 2011 resisting the loss of residential units, to preserve housing supply. There have been three appeal decisions since late 2012 in which Inspectors have applied the Richmond approach and, having regard to the new policy objective, refused to issue a Certificate of Proposed Lawful Use for amalgamations without permission.  This casts a shadow over Certificates secured before the change in the policy, because the certainty they provide can fall away if there is a “material change… in any of the matters relevant to determining such lawfulness” before the use begins.  Westminster’s previous policy (UDP Policy H1) was less strict than C14 and it was common for the kind of Certificates that were sought in the three appeals to be issued by the Council.  The new Policy CS14 has effectively (although not explicitly) been treated as a change in circumstances in the appeal decisions. A Certificate granted before the 2011 policy came into force, but never ‘banked’ by bringing an amalgamated unit into use would therefore arguably have little benefit now unless the use began before 2011.

Change of mind?

Kensington and Chelsea are considering a similar move.  Its current Housing Diversity policy (CH2) seeks to prevent the loss of HMOs or more than 5 residential units.  It also requires any amalgamation scheme to be subject to a Section 106 obligation preventing further amalgamations in future.  Leaving aside the practicalities of how that is intended to work, applying the approach in the Westminster appeals, the policy and supporting text makes clear that any amalgamation of HMOs or more than 6 units is considered material (and therefore requires a planning application).  The status of house reconversions and sideways mergers are less clear.  The Council’s emerging policy is potentially more restrictive – prohibiting any residential amalgamation unless it is either within a property originally built as a single dwelling or the unit created is not “very large”. It also requires all “new residential developments, including conversions, amalgamations and changes of use” to be designed to achieve minimum space and other standards.  Whether this means that any amalgamation is development requiring permission, or just that developments which do not comply with these requirements require permission, is unclear.  It is significant in that sense that the draft planning policies relating to housing were not submitted for examination to the Planning Inspectorate at the end of September 2013 as originally intended.  The Council is continuing to review the evidence base and draft policies.

Bear in mind

There are three key things for buyers and developers to watch out for where amalgamation is planned:

  • Be aware of changing policies — Richmond suggests they will have a real effect on how some changes of use are approached.
  • Be careful about relying on dated certificates of lawfulness– use it or potentially lose it.
  • The Richmond decision would benefit from scrutiny in the higher courts in terms of whether a change in policy can, properly, make something a change of use which was not a change of use before.

Build to let case still needs to be made

prsAttending the launch of the Urban Land Institute’s Best Practice Design Guide for Build To Rent, it is clear there is now the level of engagement between the operator, investor and construction/ design professions needed to drive institutional Private Rented Sector development forward.

A more persuasive approach to development viability and planning is still needed, though.  Build to Let (B2L) developers need to provide a more persuasive model than cheap public land and affordable housing waivers.

Scaling Up

We have previously highlighted the role that planning needs to take to help use the PRS as envisaged by the Montague Review.  Taking a real chunk out of the million homes UK plc needs over the next decade is the goal. As Nick Jopling – UK ULI Residential Council Chair – made clear, B2L it is a real proposition for institutions where it can be delivered at the right scale.

Institutional PRS can, and should, have a key role to play in reinventing and densifying Garden Suburbs around London.  Without it, the 49,000 homes needed are unlikely to arrive. In the longer term, it should also have a real role in the institutional structure of new towns.  To achieve that, equity participation in long-term residential investment in new settlements should be rewarded. We should learn from aspects of the US multi-family tax regime and explore how the planning system can create investor certainty.

Powers and persuasion

The PRS sector has much to do to persuade planning authorities that the viability constraints of B2L are worth paying attention to, both in terms of more flexible application of policies which impose cost burdens and the use of planning powers to assemble land at the right values.

As we have noted before, the PRS viability debate is currently one-dimensional. The onus is squarely on the emerging B2L sector to explain:

  • the demographic need for rental accommodation (and its relationship to housing need and affordability);
  • the benefits of certain types of PRS in different Housing Market Areas;
  • how those benefits can be secured and over what timeframe they should be locked in.

Time is on

Timing is crucial – the opportunity for embedding PRS in this way is linked to the evidence base for Local Plans, in particular the Strategic Housing Market Assessments which often fail to fully recognise the demand for new rented stock.

The sector is doing what is can to drive down build and operational costs.  Persuading authorities that PRS goes beyond super prime apartment blocks and that meeting the needs of Generation Rent is a worthwhile cause is the next step in the viability process for B2L.

Family Hold Back

Dentons and London First hold an annual lunch at MIPIM for leading politicians, developers, investors, public officials and property professionals. The Mayor’s right hand man, Sir Edward Lister, was the guest of honour this year.  The lunch gives an opportunity to explore issues important to London.

The success of London is critical to the future of the country. With this power comes responsibility. At the lunch we noted three particular challenges.

Firstly, rebalancing infrastructure investment – London has gobbled up the vast majority of recent public infrastructure investment in the UK. Any standard cost/benefit analysis suggests that future infrastructure investment should also be concentrated in London and the South East – that is where it will deliver most immediate economic benefit. And London needs more capital investment to continue to compete globally. However, it also needs other cities in the UK to succeed. The UK economy is too imbalanced, and would be more successful, sustainable, and less cyclical, if the cities outside London were stronger. The strength of those cities is dependant, in part at least, on capital investment, and now is perhaps the time for London to hold back and allow more national infrastructure monies to be spent elsewhere.

Secondly, funding London and local government generally – London can and should bear more of the cost of investment it needs. The Olympic supplements, the Crossrail rates supplement and Community Infrastructure Levy show what London can do. The London Finance Commission has proposed changes to ways in which SDLT and business rates should be retained for London. As a long term goal the retention of part of those funds may well be sensible. But changes cannot be introduced while there is such a disparity between the property tax revenues of London and the other cities. At the moment Camden and Westminster raise more in business rates than all the other core cities combined. Any change that uses the present property tax base will limit the possibility of future change.  It will ossify an already outdated system. Instead, London should be aiming for greater and broader fiscal devolution, with local authorities, including London, looking at non-property taxes – local sales taxes, local income taxes, local hotel/bed taxes, etc. London should lead the argument for change, using any new freedoms to fund necessary infrastructure.  This would then provide a fairer nationwide basis for funding local government. Critically, however, London should hold back on asking for changes that would just embed the present arrangements for funding local government.

Thirdly, addressing housing demand – London needs new homes. The Further Alterations to the London Plan propose 49,000 new homes a year, roughly double the number of homes that are presently being provided, and probably 20,000 homes less each year than is needed. The scale of change provides an opportunity for experimentation. It should be like a fast breeder reactor. We should all be working to identify and encourage new investors and developers, to promote different landownership/tenure arrangements, playing with new planning tools, and thinking about different ways of providing infrastructure. That may cause discomfort for existing house builders. It should be a concern for landowners where they are not, without good reason, developing. (The last great monopoly of land ownership needs to be weakened.) It may mean changes to the green belt, new towns built and suburbs being rebuilt. We should embrace these challenges, working both within London and with the boroughs outside. In one sense London might hold back.  In a changing economy, maybe more effort should be made to build on the success of Oxford, Cambridge, Brighton, Reading and look to replicate that elsewhere in a way which reduces housing demand in London.  In the absence of a regional plan for the south east, leadership and co-operation are critical.

London is the leading city. It should show leadership. A required leadership quality is adventurous self restraint and encouraging others to grow.

MIPIM 2014: London Calling for more homes

IMG-20140312-00029This year’s MIPIM is upbeat and dominated by an industry intent on making the most of intense demand for homes and increasing demand for commercial space in London.

Sir Edward Lister, the Mayor’s Chief of Staff and Deputy Mayor (Policy and Planning), emphasised that the Mayor will leave no sites out in order to deliver the 49,000 new homes confirmed as needed in the recent London Plan Further Alterations.

Speaking at the annual Dentons – London First Lunch, Sir Lister called for the development sector to ‘double up’ its current housing production. He also stressed that the Mayor is willing to explore all options to bring forward stagnant sites and new communities, including through the use of compulsory purchase powers.

Sir Lister highlighted the role of transport investment, infrastructure tariffs and TIF-style forward funding to bring forward new opportunity areas such as Old Oak Common.

The Nine Elms Battersea Vauxhall Opportunity Area would be the model, he said. He agreed with our suggestion that flexible plan policies and a board of owners and key investors would be key to making other areas as successful as the VNEB. Dentons has been recognised as a “stand out winner” among the law firms advising in the VNEB Opportunity Area. We have helped secure consents for the 4 of the largest 25 VNEB schemes approved since 2007 – Vauxhall Sky Gardens (Frasers), Vauxhall Square (CLS/ Vauxhall Square Limited), Sainsbury’s Wandsworth Road (Northern Line Extension Works Act Order) and Hampton House.  We are also working on the £2bn New Covent Garden Market regeneration scheme.  Together, these account for around 30% of the 16,000 homes envisaged within the VNEB area.

With institutional investors now seriously interested in residential and infrastructure there is a real prospect of achieving these goals.

A long hard look will be needed to ensure that the CIL regime is up to the job, since it will largely replace the S106 tariffs that have worked well at Nine Elms.  Even after recent reforms, it is a dysfunctional system not fit for purpose in relation to large scale and complex development.

Stephen Ashworth also stressed the need to look wider than London at new settlement opportunities that can both provide for London’s needs and begin to balance growth. Realism is needed on the green belt, he said.

We continue to be involved in the most complex new settlements – at Harlow North, Alconbury Weald and New Covent Garden Market – and are working with the TCPA on their New Towns Act proposals.

New Towns Act 2015?

Dentons sponsored the TCPA to produce a new version of the New Towns Act, updated to make it fit to deliver the cities that we need today.  Why is it relevant?  Because we have all talked about increasing the delivery of housing and found it difficult to achieve in the present planning system.  And because the legislation is already available to deliver several new towns like Milton Keynes if there is the courage to do so.  This could be done quickly, and we would all benefit.

One benefit of a new Act would be to force the present cross-party rhetorical commitment to new homes into legislative form.  It would allow the law to be modernised.  It can bring in duties in relation to good design, sustainable development and dealing with climate change.  Importantly, it could also start to bring back to life the real vision that lay behind the original 1946 Act – of creating better places for people to live and work.  We should seize the opportunity to do so.

Market restrictions

housing-bubbleForeign investment is being blamed for contributing towards a “housing bubble” in London.  I was asked, while speaking at a conference last week, whether the planning system could be used to dampen the ardour of foreign buyers inflating the value of London’s property market by restricting the sale of new market units to UK residents.

Aside from the fact that we have laws which seek to police and prevent discrimination  (of which such a restriction would normally fall foul), this is not an inherent UK “problem” but rather a London-centric one.  How well does this sit with the active promotion of the UK by the Government for foreign investment?

If local authorities are intent on introducing a restriction, there will need to be justifiable and evidenced planning reasons for doing so, ideally enshrined in a local policy.  The policy will have to be justified, for example, on the basis that the local housing market is not meeting the needs of local residents.  Possible means of addressing this may be to require new development to be marketed locally for a prescribed period, or, more restrictively, require a certain percentage of units to only be made available (both of first sale and re-sale) to local residents but with cascade provisions allowing others with local connections to buy units if there is not enough local interest.  However, I question how easy such a restriction would be to monitor and control.

The fact is that foreign investment in residential property, even if largely within London for the time being, provides wider regenerative benefits for the UK as a whole in contributing to economic growth via the creation of new jobs, new homes and infrastructure. Is this not what good planning should achieve?  Whilst the UK is still coping with the effects of austerity, any investment, whether national or international, should be welcomed unless there is a very clear harm which can be “planned away”.

As Lord Rogers recently noted there is a separate issue about houses being bought but not occupied.  Care is needed not to confuse the two points.

Ministry of relief

Lawyers generally hate unique solutions. No-one wants to be at the bleeding edge.

But there are some planning issues that now demand legal innovation. Cities are evolving at a great pace. More people are moving into areas that were traditionally business and leisure locations. And this is creating tensions between neighbours.

Eileen_HousePlanning has always taken a pretty laissez faire attitude to these potential battles. It is taken as a self evident truth that there is no right to a view. It gives little weight to the disruption caused by building projects. It rarely refuses consent because of the existing noise environment, despite the risk that new residents might complain.  This then jeopardises the businesses who create noise and activity. As new residents move in they complain. Even though the noise levels were acceptable for planning purposes they can still be a nuisance and lead to existing businesses being shut down.

In any sensible regime the grant of planning consent would set a higher threshold before granting consent and the grant of consent would then provide protection for existing uses — after all, new residents have moved to the problem. Unhappily in the real world this does not happen; hence the need for a unique solution.

MoSlogoThe Ministry of Sound nightclub at the Elephant & Castle is the type of use that provides character in an area. When faced with a new residential development opposite the club, Ministry was understandably concerned that the development would lead to future complaints that would inhibit their operations. Acting for the developer we agreed to grant an easement to Ministry to allow them the legal right for noise to pass through the development site.  Anyone moving into the new scheme will be aware that they have accepted certain noise levels. If they still make complaints then the local authority will be aware that the resident has already “given up” their rights and that should then influence their response to the complaint.

This is the first occasion that we know of that the mechanism has been used. Hopefully that will give others the confidence to offer the same protection and help to preserve the variety and vibrancy that makes our urban areas attractive places to live.