Evidence and bad bargains

December 4, 2014

Jonathan Darby analyses the provisions in the Growth and Infrastructure Act 2013 in relation to affordable housing, viability reviews and s.106 obligations.

Now that the dust has settled on the Growth and Infrastructure Act 2013 (“GIA”) and its amendments to the Town and Country Planning Act 1990 it seems a fitting moment to assess whether such provisions are fit for purpose.

As most involved with planning will know, sections 106BA and 106BC introduce an opportunity for developers to apply for viability reviews in relation to section 106 affordable housing obligations. According to section 106BA(2), a person against whom the affordable housing requirement is enforceable may apply to the appropriate authority:

(a) For the requirement to have effect subject to modifications;

(b) For the requirement to be replaced with a different affordable housing requirement;

(d) In a case where the planning obligation consists solely of one or more affordable housing requirements, for the planning obligation to be discharged.

There is no minimum period before an application can be made and the application must contain a revised affordable housing proposal based on prevailing viability and supported by relevant evidence. Landowners and developers should include as part of their application an affordable housing provision that delivers the maximum level consistent with both viability and also the optimum mix of provision. The DCLG states that the proposal may consider whether adjustments should be made to the affordable housing tenure and mix and, where relevant, phasing may be considered. The timing of provision and the level of off-site affordable housing contributions may also be considered, as may any other aspect of the affordable housing requirement.

If it is established that the affordable housing requirement on an extant section 106 agreement makes development of the site economically unviable, the authority must modify or remove it so as to make the site viable. The authority cannot modify the obligation to make it more onerous than the original obligation.

The section 106BA power was introduced following a DCLG consultation paper on the renegotiation of planning obligations that was issued in August 2012, and which explained that:

“The intent of this change is to assist in bringing forward stalled development.

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The Government is concerned about the high number of stalled schemes and the lost economic benefit they represent. Some planning obligations negotiated in different economic conditions now make sites economically unfeasible – resulting in no development, no regeneration or community benefits.”

At the Second Reading of the Bill in the House of Lords, the Minister stated that (emphasis added):

“Turning to clause 6, the need for housing – particularly, affordable housing – remains high. The Government are committed to unlocking stalled sites where previously negotiated affordable housing obligations are unviable because they are currently economically unrealistic. Clause 6 presents an opportunity to stimulate housing growth and will be a vital component in the drive to get more affordable housing built. Stalled sites mean that there is no local growth, community benefit, or new or affordable housing.

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It presents a real opportunity to ensure that consents are viable and realistic. Furthermore, it addresses the reluctance of some local authorities to renegotiate currently unrealistic affordable housing requirements, agreed in different market conditions...”

Whilst much of the discussion during the passage of the GIA related to “kick-starting development” and “getting developers building new homes”, at no stage was a definition of “stalled” provided. That begs the question: can completed developments be categorised as “stalled sites” if some units remain unsold? If so, what prevents developers from using section 106BA in order to escape less profitable outcomes should the market continue to improve?

In principle, “stalled” may encompass completed development where units remain unsold. Indeed, section 106BA simply introduces the relevant power in relation to the “economic viability” of developments. Further, “the development” is defined in subsection (13) as being “the development authorised by the planning permission to which the obligation relates”. Again, there is no mention of “stalled” development or any restriction that prevents section 106BA from applying to completed development.

The only Parliamentary discussion of the application of the power to development that has already commenced was made by reference to circumstances where such application could make it impossible to fulfil the obligation. Logically, such a limitation can only really be seen from the perspective having been intended to protect developers from local authorities subsequently seeking to increase affordable housing requirements rather than local authorities seeking to protect themselves from developers (it being highly unlikely that a renegotiation of affordable housing requirements resulting in a reduction of the requirement would render that obligation impossible to fulfil).

Whilst the intention may have been to deal with cases where local authorities are holding back the building of houses because of “an insistence on numbers in documents, targets and aspirations” [1], pragmatism dictates that the same flexibility should apply in relation to the holding back of the sale of houses because of the same insistence.

In light of the above, an objective interpretation of section 106BA permits renegotiation for many reasons or at any stage of the development process. The criteria for the section’s applicability are merely, first, the presence of an affordable housing requirement and, second, evidence of a change in economic viability.

Whilst this may prompt critics to suggest that less affordable housing will be built, or developers to attempt to increasingly merge the concept of viability into that of profitability, these are issues separate from the interpretation that the plain words of section 106BA permit. Indeed, of more immediate concern may be the potential lack of safeguards that enable local authorities to resist attempts from developers to chance their arm in seeking greater profit margins on recently completed development. Nevertheless, renegotiation remains essentially a matter for local discretion, depending on particular site circumstances.

Further to the above, the importance of site-specific evidence was emphasised in the Committee of the Whole House on the Bill for the Act in the House of Lords, when the Minister said as follows (emphasis added):

“It is important to understand that we are not proposing that developers can somehow avoid their obligations... We are simply allowing a review to be made to ensure a viable and deliverable scheme as agreed. Furthermore, we are not proposing that developers can ensure blanket removal of affordable housing requirements for their schemes. We are requiring an evidence-based approach that will adjust the affordable housing requirement by only the amount necessary to bring the scheme into viability. This would not be wholesale removal except in the most extreme cases.

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Evidence will be key to this process. Developers will have to submit revised evidence to the local authority to justify why their current planning obligation is not viable. The local authority will be free to respond to this proposal and be able to collect its own evidence if it wishes. Concerns are often expressed about the quality of viability evidence. However, robust evidence must be the best basis on which to make a judgment on the viability.”

The central point is, therefore, that section 106BA is not intended to affect those affordable housing contributions that are planned on viable sites: developers must clearly demonstrate through evidence why an existing scheme is no longer viable. While the new regime insulates developers from increased build costs or lower sales values, it will not do so where they overpay for sites. Where the figures add up, developers cannot come back and suggest that they contribute less affordable housing. Nor do the section 106BA application and appeal procedures replace existing powers to renegotiate section 106 agreements on a voluntary basis; the procedure will assess the viability of affordable housing requirements only, and will not re-open any other planning policy considerations or review the merits of permitted schemes.

Jonathan Darby is a barrister at 39 Essex Street. He can be contacted This email address is being protected from spambots. You need JavaScript enabled to view it..

[1] As most clearly stated by the Minister during the passage of the Bill when he commented that: “We want homes built. We want them built now, and if that means fewer of them can be affordable, because more of them have to be market, because market values have decreased and the potential for crosssubsidy has therefore declined, so be it. Let us get them built. We can always go back to those higher percentages and higher targets when values return in a few years’ time.”