Viability – Speed of Delivery Matters

Last year, the High Court in R (McCarthy and Stone Retirement Lifestyles Ltd) v Greater London Authority [2018] EWHC 1202 (Admin) found the Mayor of London’s 2017 Affordable Housing and Viability SPG unlawful in one respect: the SPG sought to require all planning applications that do not provide at least 35% affordable housing to be subject to early and late stage viability reviews (the ‘Viability Tested Route’). 

This, the Court found, is inconsistent with current London Plan Policy 3.12 which only requires further reviews on developments that are ‘likely to take many years to implement‘.  It was therefore not something that the SPG could, as guidance, properly cover.

So what?

Policy H6 of the Draft New London Plan now seeks to convert the SPG’s approach to viability into policy.  The Mayor has therefore been unruffled by the judgment. Although the Draft London Plan is not yet adopted, he has given full weight to the emerging policy. 

The McCarthy and Stone judgment was more circumspect about weight (paragraph 57), noting that only once representations had been considered and the DNLP amended would it have equal weight to guidance.  It would, it was held, be normal at that point for it to have “some” weight. 

London Plan Weightlessness

The Millharbour appeal decision in December bears out the limited weight that the draft policies deserve. The Inspector found that a late stage review was not necessary to make a proposal, offering 16% affordable housing, acceptable in planning terms.

This was a single-phase, mixed-use scheme including two tall buildings and 319 residential units in Tower Hamlets.

The Council agreed with the developer that only 16% affordable housing could be provided, but nonetheless sought to justify a late stage review on two grounds:

  • first, the appellant’s earlier viability assessments suggested 35% and 40% affordable housing could be provided;
  • second, the Draft London Plan applies the Viability Tested Route where the relevant affordable housing threshold is not met.

Rejecting that, the Inspector had ‘no reason to quibble with the [agreed] 16% level‘ and found that:

  • the previous affordable housing offers carried no weight in justifying a late stage review. The Draft London Plan carried only ‘limited weight’;
  •  a late stage review would only be needed (citing McCarthy and Stone) where a scheme ‘took ‘many years’ to implement or build out‘. It was ‘very unlikely this scheme would be left unfinished for any length of time or that it would take many years to complete’. Hence, no late stage review was required.

This appeal decision shows that decision-takers may, at least in the short term, find it harder to rely on policy alone to justify further viability reviews for schemes offering sub-threshold levels of affordable housing. Where policy is being relied on, it is likely to focus minds on the ‘likely to take years to implement’ criterion, imprecise and evidentially problematic though it is.

The decision also suggests that a) speedy delivery (i.e. of smaller, more straightforward schemes) as a matter of policy has the potential to compromise affordable housing, and b) conversely, slower and longer/phased schemes may be subject to higher affordable housing requirements. The Mayor will be concerned that this does not create perverse incentives. In any event, all sides will be keenly watching the examination of Draft Policy H6.

A legitimate expectation to what, exactly?

The Court of Appeal has considered whether the Secretary of State is required to give reasons for deciding not to ‘call in’ a planning application. In R (on the application of Save Britain’s Heritage) v Secretary of State for Communities and Local Government [2018], Save Britain’s Heritage (Save) challenged the lawfulness of the Secretary of State’s (SoS’s) decision under s77 of the Town and Country Planning Act 1990 not to call in an application relating to the ‘Paddington Cube’ development. We consider the court’s findings and its implications.

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This article was first published in Property Law Journal (December 2018/January 2019) and is also available at www.lawjournals.co.uk.

Legislation not the ‘agent of change’

Supporters of the Planning (Agent of Change) Bill 2018-19 had been looking forward to its second reading in the House of Commons on 26 October 2018. On 10 September, however, the Bill was withdrawn.

Parliamentary bale out

Music/ cultural venues and pubs in particular will be disappointed. There will be no legal planning protection for existing such uses, which are often threatened by nearby noise-sensitive (i.e. residential) development.

It is not clear why the Bill was withdrawn. The Bill itself was not published (or, if it was, it was withdrawn shortly afterwards), so we do not know what we are missing.

Planning policies fill the gap?

The agent of change principle is, however, included in Paragraph 182 of the new NPPF, which provides:

Where the operation of an existing business or community facility could have a significant adverse effect on new development (including changes of use) in its vicinity, the applicant (or ‘agent of change’) should be required to provide suitable mitigation before the development has been completed.

The Paragraph 182 provision that the new use ‘should be required’ to mitigate is in itself strong, but it is subject to there being a ‘significant adverse effect’ – a high threshold. It does not necessarily preclude complaints to councils or, worse, nuisance claims.

The NPPF is highly material but will need to be applied flexibly. In practice, the effectiveness of the principle is likely to depend on development plan policies, planning officers and council members upholding it. This in turn depends in some cases on communities demonstrating the importance of music venues and pubs in their area. It also requires decision-takers to recognise the wider nuisance-sensitive uses that should benefit from protection against parachuting in, for example retail operations. The Draft London Plan Policy D12 helpfully unpacks some of these elements but is also artificially narrow, protecting ‘venues’ rather than the wider range of uses that make up diverse and, increasingly, intensified, city spaces.

However, regardless of any planning policy mitigation measures, there will always be a risk of a statutory nuisance claim. Legislation will be needed to deal with that problem, ideally providing a partial immunity to both existing and new cultural and entertainment facilities.

Capital Gains

Dentons, together with URBED and Gerald Eve, were instructed by the Greater London Authority to look at international land assembly practices, to feed into recommendations on those conditions that would best support land assembly for house-building in London.  On 14 May the Deputy Mayor, James Murray, published ‘Capital Gains: A Better Land Assembly Model for London’ which brings together the research evidence and sets out 10 recommendations to support a shift in land assembly practice.

In London, the assembly of land is often seen as one of the main challenges to increasing build-out rates. The report identifies several barriers to land assembly in London, ranging from factors inherent in the sites, such as contamination, to factors associated with ownership, such as the extent of fragmentation and compensation expectations. The research evidence focussed on three European case studies – ZAC Claude Bernard in Paris, Freiburg in Germany and Amersfoort in The Netherlands – and a North American case study focussing on Toronto, Canada and Oregon, USA. The research identified policies, strategies and procedures that have been applied positively to facilitate land assembly and accelerate the pace of delivery. Those measures that we consider are the ‘best fit’ for London form the basis of the 10 recommendations.

A core recommendation is the introduction of a new planning designation termed ‘Land Assembly Zones’ (recommendation 1). These are strategic sites or areas where land assembly will be supported, through interventionist measures if required. The aim is to provide a focus and to encourage land owners to self-assemble, with a designation as a LAZ being accompanied by an ‘in principle’ resolution to exercise compulsory acquisition powers (recommendation 2). This would be a clear signal to landowners, and also an invitation to developers to bring forward proposals in the area.  The measures recognise that limited resources are available for public intervention and we expect the zones will be focused on those areas where housing density can be significantly increased if land is assembled into larger development parcels, where fragmented ownership is a real development constraint and, initially at least, in areas with good transport connections.  We recommend that land values are frozen for CPO compensation purposes on the date of designation, to crystallise the ‘hope element’ of the CPO compensation (recommendation 8).

The second core recommendation is the introduction of statutory land pooling. We recommend that the GLA prepare template documents to support the voluntary bringing together of land, drawing on the Dutch Building Rights model of sharing value uplift. In the longer term we recommend that this voluntary approach be underpinned by a new statutory mechanism (recommendation 7). We see that mechanism covering two scenarios: a private sector model, driven by landowners and a public-sector model led by the GLA or local authority.  In both scenarios the compensation paid to landowners would include part of the marriage value of the assembled site. Although not a formal recommendation in the body of the report we explore the possibility of “density bonuses” where land is masterplanned and assembled, potentially also delivering additional value and an incentive to self assemble.  We see this type of land pooling having application on all scales of site. We suggest the creation of a multi-disciplinary team to support boroughs and developers in tackling strategic and difficult sites, with the devolution of additional finance to support this (recommendation 10).

The report makes further recommendations regarding the acquisition of land, including allowing the confirmation of CPOs in the interests of ‘good planning’ ahead of planning consent being granted. Developers of large strategic sites need certainty at the start of a project that the entirety of the land will be available, even though it may not be built out for several years. Against that backdrop it is unrealistic to expect there to be a fully worked up scheme. We suggest that weight be given to the LAZ designation (which itself will be the subject of scrutiny) when considering whether the confirmation of the CPO is in the public interest (recommendation 4). In order to facilitate this we believe the power to confirm borough CPOs should be delegated to the GLA (recommendation 5).  This would assist in embedding ‘innovative’ approaches to the exercise of CPO powers. For example the introduction of a ‘use it or lose it’ approach to CPO land. If development on land which has been acquired compulsorily does not proceed the GLA or local authority should step in to hold that land, and any other land owned by the proposed developer, to ensure it is brought forward for development.

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/.

Care needed in applying local green belt policies

In R (Lensbury Ltd) v Richmond-Upon-Thames London Borough Council [2016] EWCA Civ 814 the Court of Appeal disagreed with the High Court and agreed to quash permission for a hydro-power installation at a weir on Metropolitan Open Land (MOL). The appellant hotel owner succeeded on the grounds that the authority had, in applying its own policies on MOL development, failed to apply the stricter London Plan policies.

London Green Belt

The London Plan gives MOL equivalent status to green belt (applying NPPF policies – i.e. inappropriate development should not be allowed unless there are ‘very special circumstances’ (VSC)). The local plan policies allowed the development to be classified as ‘appropriate development’ in a way that the London Plan policy did not. The authority considered only the local policies.

Failing to refer to the specific (London Plan) policy in the committee report which provided the rationale for the decision was not fatal when considering the extent of compliance with the development as a whole (under Section 38(6) Planning & Compulsory Purchase Act 2004). The analysis did, however, have to make clear that “a particular policy has been brought into account“.

VSC need to be clear

By failing to identify the development as inappropriate in the context of London Plan MOL policy, the authority had failed to ask whether VSC existed which justified the exceptional grant of planning permission. The S.38(6) duty – to determine in accordance with the development plan as a whole, or identify reasons for a different approach – had therefore not been discharged.

The judgment is a reminder that the Courts are pragmatic on the application of S.38(6). The duty does not require a mechanistic treatment of each policy (City of Edinburgh Council v Secretary of State for Scotland [1977] 1 WLR 1447).  An overall finding of “compliance or conflict” with the development plan as a whole is sufficient, whether express or implicit.

The judgment notes that the dilution of the London Plan approach by the local plan policy appeared to have been overlooked. One oddity of the case is that agreement between the parties that the two policies did not take precedence over each other does not appear to reflect S.38(4), which provides that where there is conflict the most recently adopted policy trumps the older one.

Assets of Community Value: chickens and eggs

Some recent cases have considered Assets of Community Value (ACVs) where the owner is both appealing a refusal of planning permission, and is also appealing the decision to list the property as an asset of community value.  These cases helpfully demonstrate how the interrelated appeals are considered from both a planning application and listing challenge perspective.

The Alexandra Public House in Haringey closed in 2012, and was listed as an ACV in 2015. The owner bought the pub in a semi-derelict state, and made a planning application to change the building into two dwellings, as well as appealing the listing of the pub as an ACV.

The local authority refused planning permission, but the Secretary of State granted permission on appeal.  The Inspector noted “the primary purpose of ACV listing is to afford the community an opportunity to purchase the property, not to prevent otherwise acceptable development“, and while some weight was afforded to ACV listing, the Inspector found it not to be determinative.  Weight was given to the additional dwelling which would be provided, the improvement in the quality of the existing flat above the pub, the reduction in noise and anti-social behaviour for the neighbours due to the change of use, and the provision of a viable use for a run down the building.

In considering the listing appeal after planning permission had been granted, the Judge referred to the decision in the Tumbledown Dick appeal, which stated that the grant of planning permission for an alternative use should not be ignored in the context of a listing appeal.

The Tumbledown Dick case considered a historic pub, which McDonald’s agreed to purchase before the Localism Act came into force.  Shortly before the First Tier Tribunal considered the listing appeal, McDonald’s obtained planning permission for a change of use to restaurant/takeaway.  The Judge considered that the grant of planning permission, along with the sale of the freehold, substantial expenditure being required to bring the building back into use and that it had been vacant for five years made a future community use unrealistic.

The Judge noted that where permission is refused, it might make it more likely that the building would be sold at a price which could support a community use, or allow the continuation of the current community use. In this case, as planning permission for residential use had been obtained, it was much less likely that the Alexandra would be sold at a price low enough to allow a pub use.  On this basis, the Judge allowed the appeal to remove the property from the list of ACVs.

The Ship in South Norwood closed as a pub in 2014, and was listed as an ACV in 2016. The Ship was converted to residential.  The Local Authority issued an enforcement notice for the conversion of the public house into seven flats and office space, along with physical works, which the owner appealed.

In considering the enforcement appeal, the Inspector noted that the ACV listing was being challenged on the basis the decision was made outside the specified time limit, and that if the ACV status was not confirmed, the building could be used as shops, financial and professional services or restaurants or cafes under permitted development rights. While a material consideration, ACV listing did not outweigh the benefits of providing additional housing and a viable use for the building, and the appeal was allowed and permission granted for the change of use.  The Ship remains on Croydon’s list of ACVs.

These cases are helpful in showing the Secretary of State’s approach to ACV status. While it is a material consideration, in neither case did it result in planning permission being refused for a change of use which will effectively end the community use.  This is a clear departure from the view expressed by the Upper Tribunal in Banner Homes, that any permission for a change of use was likely to be refused while the asset was ACV listed, as we discussed in a previous blog.  While owners of ACVs may be reassured that planning permission has been granted as part of an assessment of fairly ordinary planning considerations, nominating groups may be dismayed that ACV status did not afford these community assets greater protection against a change of use.

Short term rentals – a potential planning issue?

The recent decision in Iveta Nemcova v Fairflied Rents Limited [2016] UKUT 303 underlined the importance of reviewing lease terms (in particular, the user covenant) prior to letting residential property on a short term basis, as set out in our alert.  It therefore seems timely to reflect upon the potential planning issues raised by short term rentals, particularly given the rising popularity of websites such as Airbnb and onefinestay.

airWhat’s the use?

From a planning perspective, permanent use of residential property for temporary sleeping accommodation constitutes a material change of use for which planning permission is required.

Short-term lettings in Greater London are also subject to a further planning restriction in the form of Section 25 Greater London Council (General Powers) Act 1973. This makes the use of residential premises as temporary sleeping accommodation for less than 90 consecutive nights a material change of use requiring planning permission.  The purpose behind the provision is to protect London’s permanent housing supply.

The Government introduced an exception to this restriction in the Deregulation Act 2015.  As a result, short term lettings in the capital are no longer deemed a material change of use if:

  1. the cumulative number of nights use as temporary accommodation does not exceed 90 nights in any one go (or any calendar year); and
  2. the person providing the accommodation is liable to pay council tax.

Such use may, nonetheless, be classed as a material change of use under Building Regulations. Consequently, upgrade works may still be required to comply with relevant standards.

The new rules also grant the Secretary of State power to create further exceptions by way of regulations, albeit subject to approval by both Houses of Parliament.

Motivating factors

The Government’s rationale for relaxing the rules was set out in ‘Promoting the sharing economy in London – Policy on short-term use of residential property in London’, which came out of a wider review of property conditions in the private rented sector.  In short, the changes were intended to give Londoners the opportunity to earn extra income renting out their property and expand the pool of competitively priced accommodation in the capital, while removing uncertainty caused by inconsistent enforcement of section 25 across London Boroughs.

Safeguards

The new 90 day cap was imposed to prevent permanent temporary sleeping accommodation use. As a further safeguard, local authorities can direct that the new rules do not apply to: (i) a particular residential premise (for example, where there has already been enforcement action against a statutory nuisance); or (ii) a particular area.  However, local authorities can only use this power with the consent of the Secretary of State where it is “necessary to protect the amenity of the locality”.  Time will tell whether these safeguards prove to be effective.

Policy conflicts?

The reforms are consistent with the Government’s broader objectives of relaxing planning laws and reducing the burden of unnecessary change of use applications. However, they would appear to be at odds with the Government’s drive to increase the supply of homes.  It is therefore doubtful that the Secretary of State will make further exceptions to section 25 in the near future.

CPO – gentrification or regeneration?

The recent refusal by the Secretary of State to confirm Southwark Council’s CPO for the next phase of the Aylesbury Estate development demonstrates a meticulous adherence to  parts of the CPO Guidance which have largely been paid lip-service to in many previous CPO decisions.

The mantra that a compulsory purchase order should only be made in the “public interest” is often justified by the inevitable regenerative benefits of development projects.

And that should be good enough, should it not?  – when not a day goes by that the news is reminding us of our housing crisis, that our town centres are failing, of the social divides which exist within our local communities and, as we wait with bated breath, to see what long-term impacts Brexit will have on construction, funding and development, once that axe is finally swung.

Indeed, both the Secretary of State and Inspector agreed that the redevelopment of the Aylesbury Estate would provide social and economic benefits to the area.  However, it was concluded that these benefits were not so significant to justify the lawful interference with the Human Rights of those objecting to the Order.  This was largely based on the conclusion that existing leaseholders, without investing significant savings or taking out new mortgages, would not be able to afford to relocate into new properties provided by the redevelopment and therefore forced to move away from their local community.  He also reached the conclusion that not enough effort had been made to acquire the outstanding interests by agreement.

gentThe decision raises some real issues for the CPO industry.  It paints an uncomfortable picture of CPO being a tool of gentrification, driving residents and small businesses out of their communities on account of rising land values and rents; the polar opposite of what a CPO is intended to achieve, which should be to improve and restore vitality to a local area.

It also creates a real tension with the current reforms to CPO compensation, which essentially seeks to ensure that those subject to compulsory acquisition should not gain any benefit from any enhanced value created by the regeneration scheme underlying a CPO.

It raises the question of whether Council’s should wrestle back control from developers when seeking to engage with those affected by CPO.  Most CPOs are developer-led and their surveyors will be at the fore of seeking to negotiate acquisition of land by agreement, albeit with a duty of care to the Council.  This possibly creates the wrong perception that there is a lack of engagement by the Council.  Greater visibility of the Council promoting the CPO and a genuine strategy to engage will be important.

Whilst the decision is, in some respects, a breath of fresh air that reminds us the impact CPO and redevelopment can have on individuals and local communities must be given more careful consideration together with a thorough review of solutions which can be put in place to maintain the identity of the local community.  One does have to question how genuinely balanced the decision was when the majority of existing residents had raised no objection, the scheme was set to deliver over 800 new residential units and other benefits; yet the CPO failed on the back of only 8 outstanding objections.

Southwark Council has announced they will be judicially reviewing the decision; a sensible move given its ramifications.

Homes for London

London is falling lamentably short of delivering the number of homes that the city needs.  The mayoral election campaign was dominated by the housing crisis – and rightly so.  The chronic under-supply is a crippling social issue and a threat to London’s economic competitiveness.  London must double its rate of house building if it is to adequately house a growing population and maintain the city’s global competitiveness.  There is no silver bullet – increasing supply requires action on multiple fronts.

Homes-for-Londoners-212x300During the campaign the new Mayor, Sadiq Khan, made it clear that he wanted to see more homes built, particularly affordable homes.  The Mayor proposed the setting up of “Homes for Londoners” to bring together the Mayor’s housing, planning, funding and land powers.  Working together, London First and Dentons today launched “Homes for Londoners – A blueprint for how the Mayor can deliver the homes London needs”.  The report sets out the first steps that we believe the Mayor should take to deliver on his manifesto promise and to deliver much-needed housing in London.

We support the creation of Homes for Londoners – a body with the simple objective of ensuring that all of London government plays an effective part in increasing housing in London to 50,000 homes a year.

We believe that the initial focus of Homes for Londoners should be to bring public land forward for development.  The main pipeline of land under the Mayor’s control is owned by Transport for London (TfL).  Homes for Londoners should help to advise the Mayor in establishing a strategy to identify and release TfL sites for development from the perspective of maximising housing supply.  As part of the wider agenda of securing an effective pipeline of public land, Homes for Londoners should support the work of the London Land Commission by putting in place a strategy to ensure the disposal of land on the brownfield register.  A key focus should be on assembling sites around core public land-holdings by acquiring adjacent privately owned land.  Those sites should be released to the market with clearly prescribed density, quantum and mix (including affordable housing) requirements.

The recommendations in the report are predicated on the GLA evolving from being an organisation that sets policies and distributes funds, into an organisation that pushes, and where necessary, directly intervenes to support the delivery of more homes.  As part of this, we suggest a bolder approach to the use of compulsory acquisition powers is needed.  This should be supported by a loan fund for acquisition and compensation costs to de-risk the process for boroughs and other public bodies.

Delivering the steps set out in the report will need energy, conviction and muscle on the part of the Mayor.  This can be done.  It should be done and we ask the Mayor to step up and ensure that it is done.