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William Nassau-Lake
William Nassau-Lake,
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Removal of exemption for affordable housing and tariff based S106 infrastructure obligations for small developments
25 August 2015

Government planning guidance exempting certain developments from social housing levies and tariff based S106 contributions stopped by High Court.

The High Court has ruled in the case of R (on the application of West Berkshire District Council and Reading Borough Council) v Secretary of State for Communities and Local Government [2015] EWHC 2222 (Admin) that the National Planning Practice Guidance (“NPPG”), as amended in November 2014, is unlawful.  The relevant paragraphs have been removed with immediate effect.

The NPPG

A National Planning Policy Framework (“Framework”) came into force in 2012. This set out government planning policies for England and provided guidance on how they are to be applied locally. The Framework contained a presumption in favour of sustainable development.

A new policy designed to reduce the financial burden placed on smaller developments was introduced in November 2014 by way of written ministerial statement.

This sought to amend the Framework by excluding developments of ten units or less ((five units in rural locations) and which had a combined gross floorspace of no more than 1,000 square metres) from affordable housing obligations and tariff based S106 contributions.

Alongside the new thresholds a Vacant Building Credit was introduced allowed local authorities to provide a ‘credit’ to set against affordable housing contributions for developments of vacant buildings.

The Facts

The claimant councils sought to challenge the amended Framework set out in the written ministerial statement. The arguments put forward in support of the challenge included:

  • The negative implication that the policy had on local councils discharging their responsibilities under the planning system to provide affordable housing. The council’s argued that exempting small developments from affordable housing obligations would reduce the number of affordable housing
  • That the new policy was in contravention of equality laws. It was argued that the government had failed to properly implement its consultation process prior to issuing the written ministerial statement

The High Court found in favour of the councils and determined that the exemption for small developments and the Vacant Building Credit was unlawful.

As a result of the decision, the Department for Communities and Local Government (DCLG) has removed the small development exemption policy from the NPPG. The result is a landmark judgment that has implications for councils and those developing small sites or vacant buildings.

Comment

Any developer receiving planning approval prior to 1 August 2015 will have benefitted from the policy where the council concerned had adopted the November 2014 policy. Developers of small sites and vacant buildings that have yet to receive planning consent will no longer benefit from the exclusions and potentially render the sites unviable/less profitable without reducing the land values and other costs accordingly. Developers may have irrevocably committed to transactions having made calculations of viability based on the policy which has now expired. Where developers have options over sites the opportunity to re-assess viability still exists and such option agreements may now be the subject of re-negotiations to reflect the expected additional liability.

Councils are still required to have regard to viability in assessing the scale of affordable housing provision/S106 infrastructure contributions but this decision now requires developers to demonstrate that viability is prejudiced if the full local affordable housing and S106 infrastructure requirements are imposed, something that they thought was no longer needed for smaller sites.

The government has publicly supported the role smaller developments play in helping to reduce the housing deficit. As a result it may well attempt to reintroduce these supportive measures by way of formal amendment to the NPPG or introduce other measures to encourage small developments.

A response from DCLG is due but it is clear it is looking to appeal against the decision. This means that until the process is concluded both owners and developers of small sites and councils face continuing uncertainty. 

Where councils have deferred decisions on planning applications pending the outcome of this case, those councils may now feel emboldened to resolve to grant consent and require compliance with the established affordable housing/S106 policies. This will leave developers to choose between accepting these burdens and appealing against refusal or non-determination. The decision to appeal may depend on an assessment of whether the now withdrawn policy will be reinstated. Some developers may choose to take the planning permission as granted with the additional burdens and simply wait in hope for a change in policy which will then allow a fresh application to be made. Much will depend on whether the terms of their contracts or options for the land acquisition permit a delay.

Whichever approach is adopted, the continuing uncertainty is likely to result in implementation of small scale developments being delayed and so delivery of new housing units against local targets being slowed down.

For landowners selling to developers there will be pressure to accept price reductions to reflect the expected burden of affordable housing/S106 contribution/provision. They will need to consider what the chances are of the small scheme exemptions being reinstated, as a simple price reduction will allow developers to enjoy the full financial benefit of any future reinstatement of the policy without any corresponding increase in price for the land.

For more information about this High Court ruling or to find out more about how the development land and housebuilding team can help you please email William Nassau-Lake on [email protected] or Derek Ching on [email protected] or 0118 952 7246.

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

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