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Viability and numbers go together

Two recent articles (by Roy Pinnock) discuss the Growth and Infrastructure Act 2013 (G&IA) amendments to section 106 of the 1990 Act which now allows developers to section 106 affordable housing obligations on viability grounds.

Planning By Numbers (Estates Gazette, 17 December 2013) reviews how the challenge process will work, including the opportunity for exploiting weaknesses in the scheme by developers and ways of reducing risks for authorities.

Please see http://www.dentons.com/en/insights/articles/2014/january/20/planning-by-numbers

The second article (Planning Magazine, 17 January 2014) reviews the first appeal to take advantage of the Section 106BC appeal route (APP/W1145/Q/13/2204429) which involved plans for 151 homes at the former Holsworthy Showground in Devon. Redrow Homes achieved a reduction from 40 per cent affordable housing proportion to 23%. The local authority had failed to determine Redrow’s section 106BA application within the 28 days allowed, and Redrow appealed under section 106BC. The article highlights some of the main features of the case, including whether it did what the new provisions required.

Please see http://www.dentons.com/en/insights/articles/2014/january/20/viability-reviewed-in-appeal-test-case

Limits to growth: pre-commencement conditions

Housebuilders are up in arms about the use of conditions requiring approvals before work can start holding back delivery of consented schemes.  The 2008 Killian Pretty report recognised the problem, but too few of its recommendations were taken up. A reality check is needed though – using common sense would help more than doing away with necessary controls.

Pre-Conditions to growth

George Osborne’s Autumn Statement 2013 committed to legislating to treat planning conditions as approved where a planning authority has failed to discharge them on time (and strengthening the requirement to justify such conditions).  The Government has now announced that it will introduce these changes in April – applications will be automatically approved if councils “fail to discharge a condition in time“.

Is it important?

The issue is significant because development in breach of pre-conditions will generally make the whole of the works unlawful applying the principle in FG Whitley & Sons Co Ltd v SoS Wales (1992). In the Greyfort Properties Limited v SoSCLG [2011] case, access road works had been carried out to bank a consent before it expired without submitting the finished floor levels (as required by a pre-commencement condition).  The Court of Appeal upheld the Inspector’s view (refusing a Certificate of Lawfulness) that Whitley applied – the permission had lapsed and the work done was unlawful. 

Given the potential consequences, it is frustrating when there are delays in dealing with an increasing stream of pre-commencement approvals.  However, authorities are sometimes justifiably concerned – detail that could have been provided at the (after all, detailed) application stage is submitted just before the permission is due to expire.  Add to that the painful shortage of planning staff and no-one is happy.

Reality Check

babySome of the troublesome conditions may be trivial and unnecessary, but their presence often reflects the way that applications are approved within the timescales expected of authorities despite details that are either missing, illustrative/ indicative or poor. If submitted details, Design and Access Statements and Design Codes are up to the job, the justification for many of the conditions falls away (see NPPF 59 and 60).  As Killian Pretty recognised, “part of the answer lies in improving the quality of applications submitted in the first place“.

If the system of conditional discharges is made tougher, authorities are likely to look for more (or more acceptable) detail at the application stage.  Developers must be prepared to embrace that where they are serious about quick delivery.  LPAs may also look to use Section 106 obligations, which are likely to escape the reforms.  A more effective and proportionate response than allowing development where genuinely inadequate or unacceptable detail is submitted would be to allow appeals against pre-commencement conditions that do not re-open the whole permission to scrutiny. The process and timescales for the new Section 106 viability challenge process is a good model in that sense and would help drain the bath water without harming the baby.

Shale gale keeps blowing

David Cameron has confirmed that the Government is ‘going all out for shale’, on a site visit in the Gainsborough Trough area of Lincolnshire, in which the BBC has announced that Total is investing around £12 million as the first oil major to commit to UK fracking.

Business Rates Boost

The Prime Minster has also confirmed that the Business Rates Retention scheme in force since April 2013 (which enables authorities to retain 50% of the uplift in business rates from development they authorise) will apply to shale projects at a full 100% rate.  The policy would implement one of the recommendations from the influential May 2013 Institute of Directors report on the economic benefits from shale development in the UK and barriers to delivering it.

shaleThe IoD report envisaged a potential £3.7bn investment in UK shale and the Government is now looking to use the Business Rates regime to channel some of this locally to overcome public resistance to fracking.

The benefits for a 12-well site could be worth up to £1.7 million to the local authority responsible for collecting rates – 140% of East Lindsey District Council’s  total Environment budget or 100% of its 2013-14 budget cuts

Critics will point to the reported cost of policing Cuadrilla’s Balcombe operations last summer and uncertainties about how (and when) rates valuations will take place.

Community Benefits Still in Doubt

The missing link in the community benefits remains the lack of a clear mechanism for getting these resources down to the level where they will deliver tangible benefits and persuade local people that development can bring worthwhile investment – see our blogs on Community Interest Companies (CICs). Business Rates Retention will not benefit the (County) Minerals Planning Authorities who will determine fracking applications.  The clouding of roles feared by some is therefore unlikely to arise in practice but the money will not be a ‘Local Finance Consideration‘ for planning approval purposes unless the local authority commits itself to spending the retained rates on something with a clear planning relationship to the fracking project.

Where decision-making is co-ordinated in this way, there are some real benefits to weigh in the planning balance. It would be possible for the Government to structure the Business Rates Retention amendments so that the extra 50% (or a part of it) must be passed to a CIC or Neighbourhood Planning body (i.e. a Parish Council or Neighbourhood Forum).

Community Funds

The UK Onshore Operators’ Group has now launched its proposals for securing community benefits, which will rely on the national charitable trust UK Community Foundations to deliver £100,000 for local benefits where planning consent is granted and exploratory drilling starts.  Local priorities will be set following consultation and a local panel will be appointed to decide how the funds are spent.  It is good to see the model for local benefits being worked up, but it remains to be seen how the 1% of profits promised by the UKOOG and Government will be calculated and paid and whether the use of a national charity structure will give the level of flexibility that CICs could offer, in using community benefits to go beyond mitigation projects to wider not-for-profit and social enterprise roles.

Unspent 106 monies

Freedom of information requests made by the BBC suggest that local authorities in England are holding £1.5bn of unspent section 106 contributions, with £421m of those funds not allocated to any future schemes.  The BBC’s investigations indicate that over the past 5 years £9.8m of unspent section 106 contributions had been returned to developers, a relatively modest amount given the extent of the section 106 funds sitting in council’s accounts.  In response to these findings Nick Boles issued a statement saying many people would be surprised that Councils are “hoarding millions of pounds” and that councils “should not be pocketing the cash”.  He added that in many cases councils “could also risk losing the money and be forced to pay it back if unspent within a set time frame”.   Is Mr Boles right?  Can councils be forced to pay back unspent section 106 contributions?

Potentially yes would be the answer.  In the case of Hampshire County Council v Beazer Homes Ltd [2010] EWHC 3095  a section 106 agreement in connection with a major mixed use development project required the developer, Beazer Homes, to make financial contributions towards the cost of various highway works, including traffic management measures and the construction of the Fleet Inner Relief Road. At the time the section 106 agreement was negotiated the parties were alive to the potential that the Council might decide not to build the Fleet Inner Relief Road.  The agreement provided for this by way of a refund of any monies which were unexpended after the completion of the Relief Road or any schemes undertaken as an alternative.  Beazer Homes argued that a similar term should be implied into the agreement obliging the Council was to account for the cost of the proposed traffic management works and refund any excess contribution. 

Beazer Homes succeeded on this argument.  The judge held that a term can only be implied into a section 106 agreement in very limited circumstances where the parties had plainly intended it to form part of the contract. The court was willing to imply a term in relation to the traffic management contribution similar to that in relation to the Relief Road.  As the contribution could only be applied for the purpose of the traffic management works the judge held there needed to be some provision as to how any surplus would be dealt with.   

Whilst much turns on the wording in the agreement of the use to which a contribution is to be put, the absence of a clawback provision in a section 106 agreement is not necessarily fatal to obtaining a refund of an unexpended or partly unexpended contribution.  This might come as unwelcome news to local authorities.  However, they can take some comfort that the CIL regime does not provide for any such return of levy payments.  In the meantime developers may wish to dust off their old section 106 agreements and review the contribution wording.

A stake in hearts and minds

Achieving local support for major projects is a challenge.  Financial commitments under Section 106 TCPA 1990 are little help in securing support – where they are a ‘reason for approval’, they cannot not go beyond what is necessary to make the scheme acceptable.  As such, they are rarely a benefit on their own.  Designing in benefits, then securing them by condition or S106, is an easier win. 

Community Benefits

But controversial schemes often need more to persuade local communities that they will share in  benefits as well as impacts.  The Government is committed to the idea that ‘host’ communities should share in the benefits of major development to capture their support and this is being applied in several sectors:

  • Nuclear: the Business Rate Retention (BRR) allows local authorities to retain some or all of the business rates arising from new development, with special arrangements for new nuclear power stations involving up to £1,000 per generated MW over 40 years.
  • Renewables: the renewableUK Community Benefit Protocol proposes £1,000 per MW of installed capacity, or equivalent benefits-in-kind, to be provided directly to host communities. 
  • Fracking: The UK Onshore Operators Group proposes £100,000 per fracked site and a 1% share of revenues if drilling succeeds.
  • Airports: it has been suggested that a community trust should be given part ownership of, and a share in the profits from, any third runway at Heathrow.

Finding the right vehicle

The easiest way to deal with these incentives would be a hypothecated tax collected locally and payable to eligible local bodies. For the time being, though, developers must structure their own deals. Finding representative bodies to receive funds and implement good works is often difficult. Dealing separately with numerous individuals is impracticable and unrepresentative. Existing groups may also be unsatisfactory proxies for the community as a whole (or their legal form may be such that they are not ideal recipients − even as trustees − of significant financial benefits) although this has worked successfully with regular payments being made by the operators of the London Eye being routed to the South Bank Employers Group.

We have addressed the scope for Community Interest Companies to do the job in our detailed e-bulletin.  CICs provide independent corporate governance, distinct both from individual residents and the authorities, and an “asset lock” and “community interest test” guaranteeing that resources are applied as intended.  By using a CIC in their operating arrangements, developers of contentious, revenue-generating infrastructure can make a credible argument outside the planning process about positive impacts.  They can also enhance their corporate social responsibility profile, whilst moving beyond debates with local authorities on benefits.  The use of CICs for wind farm projects  such as Fullabrook in Devon and Swinford in Leicestershire confirms their usefulness as an efficient and accountable channel for community benefit.  At Fullabrook, Devon Wind Power transferred £1 million to the CIC, and pays £100,000 each year that the wind farm generates power.

If the approach is developed on these major schemes then it may provide a better model for other development, moving the focus from addressing impacts at the start of the development process to finding ways to ensure that new development continues to contribute to the place in which it sits over the longer term.

2014: year of shale for planners

Shale gas exploration will be a defining part of the planning scene in 2014.  In 2013, the Government used new best practice planning guidance and other announcements to help shale prospecting get off the ground.  Centrica’s 25% stake in Cuadrilla’s Bowland Shale operations confirmed that oil and gas majors see sufficient regulatory tailwinds to get involved.  More reforms, investment deals, planning applications and protests will follow in 2014.

Information war

Last summer’s protests over Cuadrilla’s exploration at Balcombe highlighted public concern over the use of hydraulic fracturing – ‘fracking’ – techniques.  Cuadrilla’s unexpected withdrawal from two of its Lancashire sites also confirmed the technical constraints.  Investors feel they have been “getting smashed” in the information battle – culminating in protesters gluing themselves to PR advisors’ offices – due to underestimating the politics of securing planning consents.  More slow walking protests, ownership disputes and forensic criticism of planning materials and decisions lie ahead this year, but the planning regime itself is in surprisingly good shape.

Shale Reforms Keep On Rolling

frackingThe Government’s consultation on planning law changes needed to facilitate onshore shale exploration finished on 14 October 2013.  The 18 December Ministerial Statement confirmed that draft Regulations have been laid before Parliament to address two initial technical challenges arising from the fact that the horizontal drilling used for shale prospecting – ‘laterals’ – extend far beyond the surface operations area.  The Government recognises that the site ‘red edge’ area (within which development will be permitted) must be drawn widely to ensure that it is broad enough to cover laterals. Cuadrilla’s new Balcombe application recognises this, following criticism by Friends of the Earth.

 

Fees cheaper

Planning fees for oil and gas are based on site area.  A 40 hectare exploration consent application could have an above ground site of only 2 hectares.  Fees will be based on the surface operations area only, once draft changes come into effect.

Notices – ‘Not For Shale’

Secondly, notice requirements will be radically reduced from 13 January. Applicants will only need to notify owners affected by the surface operations area. As well as removing some admin hassle for applicants, there is a wider benefit – reducing the number of owners aware of proposed lateral drilling. That is significant because the Supreme Court confirmed in Star Energy v Bocardo that unlicensed deep drilling is trespass.  Greenpeace and some high profile landowners intend to resist shale exploration through denial of access rights – termed the ‘Not for Shale legal block’.  The existing regime for securing such rights through the courts, under Section 7 of the Petroleum Act 1998 and the basis for compensation following Bocardo, mean that the owners’ position is likely to be a speed bump, not a road block. It will be interesting to see how Celtique Energie’s recent exploration application in the South Downs National Park fares amidst all the clamour and change.  An update on the EU’s proposals for EIA reform and the Government’s SEA report for new exploration licences will follow in Part 2.

Muscular Action

The Bank of England is concerned that Britain is building half as many homes a year as Canada, despite having twice the population.  Planners are concerned about unplanned growth.  David Cameron’s support in early 2012 for a new Abercrombie Plan to protect the green belt and meet housing needs led to an RTPI/ Land Securities report.  But a Garden Cities Prospectus promised for high growth areas has not materialised.  Nick Boles’ confirmation in June this year that no resources would be allocated seemed to seal its fate.  But new towns are back on the agenda.  The Labour Party proposes to use five of them to double annual housing delivery until 2022 and the man they have appointed to come up with a blue print for 220,000 homes a year is calling for ‘muscular action’, including the compulsory acquisition of land subject to unimplemented consents.  The Policy Exchange, courtesy of Lord Wolfson, are also keeping the original commitment alive  – offering a £250,000 prize for a workable Garden City model. Now David Cameron’s key planning advisor has jumped ship to oversee it. Here is a short entry for the Prize.

Geographies

Where should new settlements go? In the absence of the RSS ‘Areas of Search’, LEPs should be empowered and incentivised to identify their own Garden Cities and Suburbs, where needs indicate they are required.  Business Rates, CIL and other fiscal tools can be used to make it worthwhile. An assumption that they will be built within range of London or on the line of HS2 needs care – the original Garden Cities were as much about where employment, not just houses, should go. ‘Muscular action’ is certainly needed, if only to make clear choices about the location and scale of major new settlements and their accompanying infrastructure.

Land powers and costs

‘Housing estate’ is a sullied phrase.  If there is going to be social licence to build, genuine placemaking is required.  Excellent masterplanning and design require land budgets and values that allow space for schools, parks and the like as a starting point, not an extra, ‘subject to viability’.  Compulsory purchase will be needed to achieve this, as the draft London Housing Strategy recognises.  The real question is how is it valued and who holds the land once assembled – LEPs, community trusts, Community Interest Companies or an arm of the Treasury?

Prime the pump

CPO valuation will reflect the public cost (or balance sheet risk) of forward funding significant new infrastructure. The TIF approach that has catalysed the Vauxhall Nine Elms Battersea Opportunity Area is a good starting point.  It needs a strategic body – such as the Mayor – to invest in infrastructure before planning payments, CIL and land receipts can catch up.  Labour envisage market borrowing backed by a UK plc guarantee.

City governance

garden city

Letchworth and Welwyn are characterised by communal ownerships and structures, which has allowed investment to be repaid and reused.   Milton Keynes had a different but effective model.  The lessons from these experiences – good and bad – need to be reflected in models of community ownership and reinvestment that provide an asset lock for crucial facilities and a base for social enterprises, releasing local authorities from management and revenue burdens associated with new infrastructure.  The Neighbourhood Share of CIL is a good model for endowing these vehicles.

The Prize winner should address these issues and more, not just design.

Another Repealing Prospect

Having suggested already that section 123 LGA 1972 (best consideration) and section 278 of the Highways Act 1980 (highways contributions) should be repealed, this week we aim higher.  Let’s repeal s106 TCPA 1990 entirely.  Imagine planning without planning agreements.

In CIL world off-site obligations should largely be covered by CIL, and everything else could easily be addressed in conditions.  The nay-sayers will argue that affordable housing has to be dealt with in an agreement.  Why?  Largely because planners try to exercise unnecessary management control over a sector that is already heavily regulated.  Planning should perhaps concentrate on the key issue of ensuring that mixed and balanced development is delivered.  That can easily be done with conditions.  Others will argue that financial contributions need to be covered by agreement.  In law that is not true and, in any event, there should be little future need for contributions.  Abolition of s106 agreements would make the planning process much quicker, and avoid endless wasted hours in negotiations that are largely sterile.  It would probably require a Council to seek comments on draft conditions, with a costs sanction following almost automatically if an unrealistic condition is imposed and needs to be appealed.

In reality, on large projects there would still be a need for infrastructure provision agreements with developers agreeing how CIL should be spent and on what, and settling programmes and specifications for the delivery of schools and community facilities.  Those would, however, become the exception rather than the norm and would not be constrained by idiocies that blight the s106 agreement process like the restrictions on land transfers, and prevention of payments to third parties, that affect planning agreements.

Why not?

Housing our needs

In almost all emerging local plans, there is a perceived problem meeting the need for private rented sector (PRS) housing.  Part of the issue is a lack of imagination about the tools that are available.  Although the following list is by no means complete, it may start a thinking process that, locally tailored, would help to deliver more homes of all types, while maintaining and securing mixed and balanced communities. 

Where there is a PRS need, and it is viable, local planning authorities should consider:

  • critically, as the NPPF suggests, allocating more market housing that can be used to support other housing requirements – never treating “need” figures as maximums;
  • identifying sites that could be used exclusively for PRS;
  • identifying suitable sites where a high proportion of any homes should be for PRS;
  • having a policy that requires all residential developments to have a percentage of PRS;
  • identifying sites that might not, in other circumstances, be developed for residential use (for example in another use or in the countryside) and allowing them to be developed provided that they are preserved for PRS over the long term;
  • since the need for new homes is intrinsically linked to economic development, requiring new employment development to contribute towards the provision of PRS;
  • if appropriate, and where robustly justified, having clear local plan criteria that allows PRS to be provided off site where this significantly increases the scale or quality of PRS being provided in a community;
  • having a local plan policy that, exceptionally, allows financial contributions to be made to a PRS housing fund;
  • using the PRS housing fund imaginatively to, for example, convert existing market homes to PRS use, particularly exploring the opportunities for new homes above and within our high streets and for the conversion of existing homes to create units that meet present PRS needs;
  • where sites have been allocated then using CPO powers to make them available for PRS development, at a compensation value that reflects the new designation.

Clearly the same tool kit could also be used for affordable housing.  Where there are sites with existing consents then perhaps the emergence of a new breed of local plan policies might give an incentive to build out, giving a softer transitional edge to some of the present “use it or lose it” rhetoric.   Given the publication of the Mayor’s Housing Strategy on Monday it is clear that far more needs to be done to help deliver housing.  Being a bit more adventurous with the planning tool kit would be a good start.

Promoting neighbourhood development

The first Neighbourhood Development Order is in progress.  Cockermouth Town Council has submitted an NDO to Allerdale Borough Council for consultation.  NDOs allow a neighbourhood forum to permit a particular type of development without planning permission. 

The proposals put forward in Cockermouth aim to conserve the town’s traditional character and boost the local economy.  The plan focuses on attracting people to the area around the market square by improving its appearance, encouraging bars and cafes and enabling additional housing.  If passed, the proposals will allow the following development without planning permission:

  • change the use of shops and offices to cafes, bars or restaurants and allow pavement tables and chairs within the Cockermouth Market Place;
  • convert the space above commercial premises on Main Street and Station Street into up to four flats;
  • replace shop fronts on Main Street and Station Street in compliance with a design guide; and
  • install sash windows and panelled wooden doors on several streets following a design guide.

Allerdale are consulting on the proposed orders until 23 December.  After the consultation period, the proposals will be considered by an Inspector, and if passed, will be voted on at a local referendum before coming into force.

These proposed permitted developments reflect measures encouraged by the Government to improve footfall in town centre areas.  While the aim of the NDO is good it raises the question of why planning permission should be required for these changes in the first place.