Planning obligations and CIL. Nathalie Lieven QC

Transcription

1 Planning obligations and CIL Nathalie Lieven QC 1. Planning obligations are almost always used in some way or another to making housing developments acceptable in planning terms. As a result, the obligations imposed (particularly in respect of affordable housing) are often key drivers for the viability of the scheme. This paper will consider the role of planning obligations in housing development in the following ways: a. The current framework for deciding upon and giving effect to planning obligations; b. The future framework, namely the role of the Community Infrastructure Levy (CIL); c. The circumstances in which planning obligations can be revisited after planning permission has been granted. The current framework for planning obligations 2. At the risk of being trite, it is worth remembering the terms of s 106 Town and Country Planning Act 1990: 106. Planning obligations. (1) Any person interested in land in the area of a local planning authority may, by agreement or otherwise, enter into an obligation (referred to in this section and sections 106A and 106B as a planning obligation ), enforceable to the extent mentioned in subsection (3)

2 (a) restricting the development or use of the land in any specified way; (b) requiring specified operations or activities to be carried out in, on, under or over the land; (c) requiring the land to be used in any specified way; or (d) requiring a sum or sums to be paid to the authority The remainder of s 106 provides for the formalities for and enforceability of planning obligations. It is worth noting that s 106 itself does not provide any requirement that the obligation be related to a grant of planning permission. The provision effectively gives rise to a statutory means for the enforcement and transmissibility of a contractual relationship between landowner and planning authority. However, for a s 106 agreement to be relevant to the decision to grant planning permission, it must bear some relationship to the planning merits of the scheme: Tesco Stores Ltd v Secretary of State for the Environment [1995] 1 WLR Further statutory regulation of planning obligations is now found in regulation 122 of the Community Infrastructure Levy Regulations 2010/948 ( the CIL Regulations ), which provides as follows: 122. Limitation on use of planning obligations (1) This regulation applies where a relevant determination is made which results in planning permission being granted for development. (2) A planning obligation may only constitute a reason for granting planning permission for the development if the obligation is (a) necessary to make the development acceptable in planning terms; (b) directly related to the development; and (c) fairly and reasonably related in scale and kind to the development. (3) In this regulation planning obligation means a planning obligation under section 106 of TCPA 1990 and includes a proposed planning obligation; and

3 relevant determination means a determination made on or after 6th April 2010 (a) under section 70, 73, 76A or 77 of TCPA 1990 of an application for planning permission; or (b) under section 79 of TCPA of an appeal. 5. Accordingly, for a s 106 agreement to be taken into account in the determination (and, necessarily, for it to be reasonable for a local planning authority to require it prior to granting planning permission), it must be shown that obligations are (a) necessary to make the development acceptable in planning terms (b) directly related to the development and (c) fairly and reasonably related in scale and kind to the development. 6. Regulation 122 effectively places what were previously the tests imposed by ODPM Circular 05/2005 onto a statutory footing. Although part of that Circular has now been elevated to a legal requirement by virtue of the CIL Regulations, the advice remains the current statement of government policy. In particular: a. Planning obligations are intended to make acceptable development which would otherwise be unacceptable in planning terms (paragraph B3). The examples given in that paragraph are obligations which prescribe the nature of the development, compensate for loss and damage caused by the development or mitigate a development s impact. The outcome of these uses of obligations should be that the proposed development is made to accord with the development plan; b. In terms of assessing whether an obligation is necessary and directly related to the development, the Circular provides (B8): Development plan policies are therefore a crucial pre-determinant in justifying the seeking of any planning obligations since they set out the

4 matters which, following consultation with potential developers, the public and other bodies, are agreed to be essential in order for development to proceed. Obligations must also be so directly related to proposed developments that the development ought not to be permitted without them for example, there should be a functional or geographical link between the development and the item being provided as part of the developer's contribution. c. As to whether an obligation is fairly and reasonably related in scale and kind to the development and reasonable in other respects, the Circular provides (B9):...developers may reasonably be expected to pay for or contribute to the cost of all, or that part of, additional infrastructure provision which would not have been necessary but for their development. The effect of the infrastructure investment may be to confer some wider benefit on the community but payments should be directly related in scale to the impact which the proposed development will make. Planning obligations should not be used solely to resolve existing deficiencies in infrastructure provision or to secure contributions to the achievement of wider planning objectives that are not necessary to allow consent to be given for a particular development. 7. The fact that the tests in Circular 05/05 are now on a statutory footing in regulation 122 means in practice that there is more room for developers to interrogate the demands of local planning authorities in respect of s 106 contributions. Further, as those who deal with planning appeals will know, Inspectors now seek firm evidence that the regulation 122 tests are met in respect of proposed obligations. This is an incentive for those promoting schemes when drafting s 106 obligations prior to an appeal to ensure that an appropriate form of wording is used such that any obligation which is found by an Inspector not to meet the regulation 122 tests does not bind them. This point will be considered below in relation to the case of R (Millgate Developments Ltd) v Woking BC [2011] EWCA Civ The further policy framework for planning obligations is to be found in the development plan for the area, and in supplementary planning documents. However, it is worth remembering that guidance in supplementary planning documents cannot trump the regulation 122 tests. Accordingly it is not enough for a

5 local planning authority to say that an obligation is being required because the local policy framework requires it: it must be shown that the tests are met in respect of each and every contribution. This point is of particular significance where contributions are sought on the basis of a formula. Whilst such an approach is not necessarily inconsistent with regulation 122, the local planning authority will need to justify the overall size of the pot, how it will be spent, and how the particular contribution demanded relates to the particular development. 9. One particular issue which is addressed in national and many local planning policies is viability. Whilst a particular planning obligation in particular a requirement to provide affordable housing may be required, developers will often seek to demonstrate that the contribution would adversely affect the viability of the scheme such that the development would not come forward at all. In those circumstances, should a local planning authority simply refuse permission, or should it recognise that the benefits of the scheme coming forward even without a particular contribution outweigh the need to secure that contribution? 10. It is clear from national policy, numerous appeal decisions, and the Courts, that viability is an important question in this context: a. PPS 3 recognises that housing targets (including affordable housing targets) should reflect an assessment of the likely economic viability of land for housing within an area, taking account of risks to delivery and drawing an informed assessment of the likely level of finance available for affordable, including public subsidy and the level of developer contribution that can reasonably be secured (paragraph 29); b. The Court of Appeal s decision in Blyth Valley BC v Persimmon Homes 2008 EWCA Civ 861 emphasises the need for a robust viability evidence base for the adoption of affordable housing policy; c. Paragraph B10 of Circular 05/05 notes that in some circumstances it may not be feasible for the proposed development to meet all the requirements set out in... planning policy and still be economically viable. In such cases, and

6 where the development is needed to meet the aims of the development plan, it is for the local authority and other public sector agencies to decide what is to be the balance of contributions made by developers and made by public sector infrastructure providers... (paragraph B10); d. The Homes and Communities Agency s Good Practice Note on Investment and Planning Obligations: Responding to the downturn encourages the development of a supporting evidence base for policy, flexible working to unlock unviable and therefore undeliverable planning permissions and a transparent approach to modelling viabilities. The Note suggests that there may be a case for deferred contributions in order to assist cash flow and improve viability. However, this needs to be done on a transparent approach to viability with full disclosure. With phased development affordable housing could be deferred to later phases, or the percentage contribution could be lower in phase one and then subject to viability appraisal in respect of later phases. The possible difficulty with this approach is whether it would be contrary to Circular 05/2005 on not securing a share of the profits of the development. The HCA make clear that they think a planning obligation which allows phased contributions with further viability testing at later stages, is acceptable; e. Numerous appeal decisions have had to grapple with scheme viability in interrogating whether the benefits of early delivery of the scheme without particular planning obligations especially affordable housing outweighs the failure to fund those obligations. 11. The approach which seems to be emerging from the appeal decisions and the HCA note is as follows: a. It is essential to consider each case on its facts; b. If there are significant benefits from the development going ahead quickly, eg regeneration or infrastructure, then it may be appropriate to consider viability in respect of existing market conditions alone;

7 c. If the scheme is a large one, and particularly if it is phased, then it may be more appropriate to take a long term view on viability and re-appraise at fixed points during the life of the scheme; d. The Secretary of State has given clear support for the re-appraisal approach, despite concerns about betterment levy ; e. If the LPA is going to allow lower contributions then consider relating that to a short completion period. f. The scheme within the section 106 needs to be very carefully thought out and drafted, so that there are clear triggers, review dates and parameters for the levels of affordable housing. 12. Often the real issue is reaching a settled position on viability. In judging viability developers are usually in a far stronger position than LPAs they control the information and they have the expertise to carry out the appraisals. There is a useful table in the HCA Practice Note on understanding viability appraisals. 28. There are a few important pieces of advice for an LPA which his faced with a viability argument: a. If at all possible have SPD which deals with the approach to viability, it much strengthens your negotiating position. b. Do not simply take the developers figures at face value, in particular do not simply accept that the proper starting point is the price paid for the land; c. Instruct an expert to carry out an appraisal of the developer s viability calculations. That expert must have good commercial sense, public sector valuers do not always understand how commercial development transactions operate. d. Do so well in advance of any decision/inquiry; e. Residual valuations are always likely to be contentious and highly subject to variable inputs, ensure that each input is thoroughly tested;

8 f. Just because a development is not viable does not mean it will necessarily not be built, if the holding costs of the land are high then it may be in the developer s interests to proceed. g. Do not assume that the purchase price of the land is the right starting point, the fact that developer made a bad deal does not justify non-provision of affordable housing. The future framework: CIL 13. The Community Infrastructure Levy was one of the most talked about elements of the Planning Act However, its practical effects are still yet to be seen. Despite a Conservative manifesto commitment to scrap CIL, it seems from the Localism Bill and from recent consultation documents that CIL is here to stay. 14. CIL is a planning charge as established by the Community Infrastructure Levy Regulations 2010 (now amended by the Community Infrastructure Levy (Amendment) Regulations This paper does not attempt a complete analysis of the CIL Regulations, but a few key points will be considered. The basic approach is that local planning authorities will adopt a scheme for the imposition of a levy whenever planning permission is granted. The fruits of that levy will be put towards the provision of infrastructure, which has a wide meaning in the Planning Act 2008 although notably excludes affordable housing in the CIL Regulations. The purpose of the CIL is said to be to ensure a fairer, more certain and more transparent system of planning obligations which avoids the delay caused by lengthy negotiations. The system is intended to provide certainty to developers who will know up front how much money will be expected from them. 15. CIL is intended to fund new infrastructure and not to remedy pre-existing deficiencies, but can be used to increase capacity or repair existing infrastructure. Whilst s 216 Planning Act 2008 provides that CIL should be used to fund infrastructure, the current draft of the Localism Bill would change that to be using for supporting development by funding the provision, improvement, replacement, operation or maintenance of infrastructure. That may be a distinction without a

9 difference, but it demonstrates a slight shift in the policy approach. The Localism Bill would also add the words in a way that does not make development of the area economically unviable to the overall purpose of CIL as set out in s 215 of the 2008 Act. Whilst viability would clearly in any event be part of the assessment of the soundness of any CIL scheme, this again suggests a shift in emphasis by the present government. The CIL Regulations as they stand provide, in certain circumstances, for the granting of exceptional relief from paying the levy so long as other contributions are secured by a section 106 and the relief would not constitute a state aid. 16. CIL schemes do not spell the end of section 106 agreements. CIL is intended to provide infrastructure, and not to make individual planning applications acceptable in planning terms. Therefore section 106 agreements will still be required to deal with site specific mitigation. However, where a local planning authority intends to provide a piece of infrastructure (e.g. a new road) through CIL, it cannot seek a planning obligation to either provide or contribute towards that infrastructure. 17. When a local planning authority proposes to adopt a CIL scheme, there are provisions for public consultation and for examination in public. Developers who have schemes in the pipeline for particular areas will wish to be involved in these processes, particularly where viability issues may arise. As with all examinations of the local development documents, the Localism Bill if enacted in its current form would mean that an Inspector s report on the examination of the document will be non-binding. 18. There are three things on the horizon which will change the way in which CIL operates: a. On 6 April 2014, a transitional period for the CIL Regulations will end with the effect that the use of planning obligations for pooled contributions will be restricted. Pooled contributions may only be sought from five separate planning obligations (considered over the period from 6 April 2010). The reality is that local planning authorities who have been seeking pooled contributions up to 6 April 2014 will generally have obtained such contributions from at least five planning obligations by that date. Therefore

10 in practical terms, absent a CIL scheme, there will be little or no pooling of contributions from 6 April There are specific exceptions for affordable housing and for contributions to Crossrail. That is a clear incentive to local planning authorities to advance their CIL schemes; b. The Government is consulting on the creation of neighbourhood funds. The Localism Bill provides for local planning authorities to allocate CIL income to other people, and the consultation proposes that a fixed percentage should be allocated to neighbourhoods (e.g. Parish Councils). This may be a cash cow for Parish Councils, but might leave developers concerned as to whether the infrastructure they are paying for will actually be built; c. The consultation also includes the extension of CIL to include affordable housing contributions. As noted above, affordable housing can form infrastructure under the terms of the 2008 Act, but the CIL Regulations exclude affordable housing from the scheme. 19. The real test of CIL is whether it will actually improve delivery of (a) housing developments (by providing certainty as to the level of contribution required and (b) infrastructure. The localism agenda (and not least the removal of the check of the binding examination by a planning inspector of any CIL scheme) would tend to suggest that the results may vary across regions and across planning authorities. Revisiting existing obligations 20. A developer may wish to revisit an existing planning obligation where the site cannot be built out due the stringency of that obligation or where the scheme is under construction and the economics change. The following options might be available: a. If the permission has not been implemented, a further application for the same scheme but with different planning obligations could be made. This is particularly attractive where the local planning authority s planning obligation requirements have changed since the original grant of planning

11 permission, or viability evidence could clearly demonstrate a changed position; b. If the permission has been implemented, the s 106 obligation is likely to have already taken effect. In those circumstances the developer can seek the modification or discharge of the obligation under s 106A; c. The developer can seek to argue that the terms of the agreement mean that a change in circumstances modifies the substantive obligation. For the reasons set out below, in the absence of express words (which prudent developers, and LPAs, should seek to include), such arguments are fairly hopeless. 21. It might be thought that unlikely that a local planning authority would welcome such approaches with open arms. However, there will be some cases where the authority is willing to engage with such submissions, particularly where there is a particular need for the scheme to be delivered. 22. A developer is entitled to seek the modification or discharge of a planning obligation from the date five years after the obligation was entered into, and may appeal against a refusal to modify or discharge by the planning authority. Before the expiry of five years, the planning authority has a discretion to modify or discharge. An irrational refusal to modify or discharge may be challenged by way of judicial review: see e.g. R (Batchelor Enterprises Ltd) v North Dorset DC [2004] JPL The test for discharge is that the planning obligation no longer serves a useful purpose. The test for modification is that the useful purpose would be served equally well if the obligation was modified in the way proposed in the application: s 106A(6). 23. The question of whether the obligation serves a useful purpose does not require the planning merits or the tests in Circular 05/05 to be revisited: R (Millgate Developments Ltd) v Woking BC. In that case, planning permission was refused for (among other reasons) a failure to make infrastructure contributions. The Claimant submitted planning obligations to meet the LPA s demands prior to an appeal, but

12 the Inspector found the contributions were not necessary. The Claimant therefore asked Council to discharge the obligations, and the Council refused. 24. The Court of Appeal held that the inspector s findings did not undermine the lawfulness of the s 106 or mean that it was not entered into for a legitimate planning purpose. The Council was entitled to enforce the obligation without further planning analysis at that later stage. 25. Beyond the statutory provision for modification and discharge, the scope for arguing about the enforceability of obligation is limited. It is worth remembering that the enforceability of a s 106 agreement does not depend on its nexus to the development, but on the terms of the contract: Tesco Stores Limited v SSE [1995] 1 WLR 759 at 779 per Lord Hoffmann. For that reason, it is not open to the developer to seek to have the obligation construed by reference to the actual effects of the development, as opposed to those anticipated at the time of the grant of permission: see R (Renaissance Habitat Ltd) v West Berkshire DC [2011] EWHC 242 (Admin). 26. The cases referred to emphasise that if flexibility is needed in planning obligations, it should be written in to those obligations in the first place. For developers that includes linking a contribution to a specific infrastructure development such that if that infrastructure is not provided, there is a mechanism for the repayment of the contribution. For local planning authorities, it is worth noting that seeking more generalised contributions will reduce the risk of having to repay contributions, although make the regulation 122 tests more challenging. This seminar paper is made available for educational purposes only. The views expressed in it are those of the author. The contents of this paper do not constitute legal advice and should not be relied on as such advice. The author and Landmark Chambers accept no responsibility for the continuing accuracy of the contents.