Report of the Assistant Director (Planning) to the meeting of Regulatory and Appeals Committee to be held on 7
thDecember 2009
Y
Subject:
Proposed approach to delivering the requirements of the Planning Obligations Supplementary Planning Document (SPD) during the economic downturn.
Summary statement:
The Planning Obligations SPD allows for reduced developer contributions in certain circumstances. In response to the current economic downturn the Council may wish to adopt a flexible approach when determining the level of developer contributions, based on developers’ financial appraisals.
Members are asked to consider the merits of a flexible approach and whether to support reduced or deferred payments to ensure that development schemes remain financially viable during this challenging economic period.
Julian Jackson
Assistant Director (Planning)
Portfolio:
Environment and Culture
Report Contact: Julian Jackson Assistant Director ( Planning) Phone: (01274) 432483
E-mail: julian.jackson@bradford.gov.uk
Improvement Committee areas:
Regeneration and Economy and Environment and Waste Management
1. Summary
1.1 The Planning Obligations Supplementary Planning Document (SPD) allows for reduced developer contributions in certain circumstances. In response to the current economic downturn the Council may wish to adopt a flexible approach when
determining the level of developer contributions, based on developers’ financial appraisals.
1.2 The report sets out for consideration the various options for adopting flexible approaches to requests received from developers for exempt, reduced or deferred payments on the grounds of the need to make development schemes financially viable during this challenging economic period.
1.3 Several other local authorities are in the process of preparing policies to respond to requests from developers to pay reduced contributions or deferred payments in the current economic climate.
2. Background
2.1 The Planning Obligations SPD was adopted by the Council in October 2007 and forms part of the Local Development Framework. It sets out the approach to be taken by the Council with regard to Policy UR6 of the Replacement Unitary Development Plan (RUDP) and provides guidance for developers about the key contributions they are required to make to support their development proposals.
The document clarifies that obligations will be sought where development results in an increased need for facilities, services or social infrastructure.
2.2 The Council’s procedure for negotiating new obligations recognises that there will be occasions when developers cannot meet all of the obligations relevant to the development, without having an effect upon viability. Paragraph 5.3 of the document states:
“In some cases developers may raise the issue that obligations cannot be met without compromising the viability of the development. In these circumstances the Council will require an independently verifiable full development appraisal on an
‘open book’ principle to provide evidence that obligations cannot be met. The onus falls to the developer to show that the development will not be viable if they enter into a planning obligation.”
2.3 Any proposed agreement to reduce the level of contributions below the Council’s normal requirements has to be fully justified through a financial appraisal to be submitted by the applicant and verified by, or on behalf of, the Council.
2.4 There have been occasions when developers have followed this course and the Council has agreed to a reduction in the overall contributions or, in some cases to an overage agreement when the developer agrees to pay a contribution or
contributions should the development achieve an agreed minimum profit margin. In all cases the developer has been required to submit a full financial appraisal, which the Council has been able to assess and either accept or reject. At present it is recognised that the Council is receiving a range of good and bad appraisals in terms of data provided and that a standard type is required. The Planning Service are currently working with colleagues in the economic development service to
develop an appraisal template for developers to ensure all relevant costs are included and taken into account. This would be a good opportunity to introduce a standard procedure for financial appraisals in relation to development where there are Section 106 requirements.
2.5 In the current economic climate it is likely that the Council will be faced with further requests from developers to reduce the level of contributions or to seek to defer the payments, to allow a development to proceed. In some cases the Council will wish to see the development go ahead despite the developer contributions not being met in full, in order to support the local economy and to support the regeneration of the district.
2.6 The types of developments that this approach may apply to would be major investment proposals. Such major investment proposals would primarily include schemes relating to previously developed land on key “gateway” sites, other major city centre sites or other strategically acknowledged sites in the district. These would be developments which would provide a clear and catalytic regeneration benefit either through the provision of significant employment creation/retention or where it would help to develop and diversify the economy of the district. These types of development include significant inward investment projects. In many cases the schemes would be of a mixed use nature and would be closely linked to either a council initiative such as a master plan to regenerate an area of the district or another important business investment project.
2.7 In all such cases it would be a requirement for the developer to set out how a scheme meets this criteria with supporting information.
2.8 Schemes associated with the re-use of listed buildings and key buildings /sites in conservation areas would also be considered as part of this more flexible approach on Section 106’s. It would also include schemes that seek to re-use important historic buildings, promote the enhancement of conservation areas and on which it can be clearly demonstrated that bears additional costs. Again in all such cases it will be a requirement for the developer to set out how a scheme meets these criteria with supporting information including full details of the additional or abnormal costs incurred.
2.9 The types of development where exceptions to the policy for securing Section 106 monies would not normally apply would be on the other major applications. These would include primarily housing schemes on either Greenfield locations or on previously developed land where there are no exceptional benefits or abnormal development costs identified.
2.10 In those cases where the Council decides it is important to promote a development proposal despite the developer contributions not being met in full, there are a number of ways in which this might be achieved:
(a). An agreement to accept reduced payments or contributions - This may either be on the basis of agreeing a proportionate reduction in all contributions normally payable or by prioritising which of the various headings of normal contribution should be payable on the basis of assessing the most pressing social infrastructure needs of the area or deciding which of the contributions would provide most added value to community. This approach can also be linked to a requirement that the development commences within a specified period. An obligation could also include
a provision to require the developer to submit a new financial appraisal should the development not be started within the specified timescale. The risk to the Council is that the development may start within the specified period but it may not be
completed for some years, when financial conditions are more favourable, and without the Council receiving any contribution towards improving local
infrastructure. The Agreement could however require substantial completion of the development within the specified period; with payment of the full contribution that would normally have been required by policy becoming due if this is not achieved.
(b). Deferred payment – where the Council’s requirements will be met but the obligation requires phased payment of the contributions. Payments could be deferred to some point in the future, when an agreed trigger point is reached. A variation would be to agree a long period of deferment but to require the developer to grant the Council a legal charge over the property or some other acceptable security for payment in default of it being received by the due date. This route provides clarity for the Council that at some point the obligations will be met. It also assists developer “cash flow” as it enables them to obtain substantial value from the development before any obligation to make contributions bites. Some
developers may not see this to be an attractive option in the current economic climate. However, this may be an appropriate option in some circumstances.
(c). An “overage” agreement - where a developer agrees to pay a contribution or contributions should the profits from the development exceed a minimum level. The minimum profit margin has to be agreed by the Council but would normally be of the order of 18% to 20%. The developer will be expected to agree to operate on an
“open book“arrangement with the level of profit being assessed at an agreed trigger point, prior to the full completion of the development. The risk for the Council is that it may not receive any contribution towards improving local infrastructure if the development does not realise a reasonable level of profit but it has to balance whether this risk is offset by the economic benefits that the development will bring on a case by case basis. There are also practical difficulties in enforcing such agreements requiring the need to analyse financial data supplied by the developer and for the Council to “go behind” the data supplied where there are doubts about its accuracy.
The Homes and Communities Agency (HCA) have recently produced their good practice note ‘Investment & Planning Obligations - Responding to the Downturn’.
They favour Section 106’s with specific clauses to reconsider viability and
affordable housing provision, in preference to overage clauses clawing back money in the future. The HCA’s preferred approach at this time therefore is the use of mechanisms to defer payment to later phases subject to viability testing. This approach is a variation of option (b) outlined above.
(d). A hybrid agreement - to require specified key contributions to be met early by the developer, where the development would not be acceptable in principle without those improvements being provided, with the remainder of the contributions being dealt with through an overage agreement or by way of deferred payment. Such an agreement may be suitable where, for example, off-site highway works are required to ensure that the development can operate safely but the Council may be willing to offset the other contributions to ensure the development can proceed and achieve the wider economic benefits the development will bring.
2.11 Consideration may also be needed as to what national indicators should be used to determine when it is recognised that the “economic downturn” is over, There may be merit therefore to introduce the flexible arrangements for a specified period with a view to reviewing the situation in consultation with the Council’s business
development section in due course.
3. Other considerations
3.1 The Council has from time to time been asked to vary existing obligations to assist developers, who have completed or substantially completed a development that is subject to a planning obligation, and who are having difficulty in meeting the terms of the agreement. The Council’s approach has been to require the terms of the agreement to be met and to seek to recover any monies owed to the Council. In a small number of cases the Council has been requested by a developer to extend the date by which monies need to be paid and the Council has agreed to do this in appropriate circumstances, to ensure that the debt is recovered without having to recourse to litigation.
3.2 The Council has on occasions also been asked to vary the terms of existing obligations where the development has not yet commenced. Circumstances vary from site to site and the Council has taken due regard of any special circumstances when considering whether it is appropriate to vary the terms of an existing
obligation. For example, there have been occasions where it has been agreed to vary the delivery mechanism for providing affordable housing from the payment of a financial contribution to the provision of completed dwellings direct to a registered social landlord (RSL); or vice versa.
3.3 Another consideration for the Council is the introduction of a monitoring fee for Section 106 agreements. A number of other Local Authorities have introduced such a charge in order to resource work required to monitor the terms and spending associated with the agreement. There are various approaches by different Local Authorities including a percentage of the total value of the obligations within the Section 106. It is considered that the preferred model for Bradford to adopt would be to charge a certain percentage of the overall planning fee. Liverpool have set a charge of 15% of the planning fees.
Consultation with Regeneration and Economy Improvement Committee 3.4 The proposals contained in this report were considered at the Regeneration and
Economy Improvement Committee on 20th October 2009. Comments from
members indicated a general resistance to a blanket policy reducing Section 106 contributions. There was recognition that Bradford needed regeneration and investment but members queried the appropriateness of subsidising commercial firms. There were comments in favour of flexibility within certain limits but financial appraisals need to justify any reductions. A question was raised on whether such a change in policy was necessary when indicators suggested that the country was coming out of recession. There was support for proposals to charge for monitoring of Section 106 agreements. The Committees resolution was as follows:
(1) That the Strategic Director Regeneration be asked to take into account the
Committees comments including its support for a robust variation of option (d) as outlined in paragraph 2.10 of the report and that the Strategic Director also gives
general consideration to the introduction of a monitoring fee for Section 106 agreements.
(2) That the Assistant Director, Planning explore the possibility of establishing a covenant scheme whereby a “first sale” covenant is placed on each dwelling to ensure the council receives the Section 106 payment when the property is sold and the results reported back to the committee.
4. Options
4.1 In relation to the completion of new obligations the Committee has the following options:
i) To continue to operate the provisions of paragraph 5.3 of the Planning Obligations SPD as adopted so that each request for reduced contributions id dealt with on a case by case basis and in the light of the developer being able to show very special circumstances.
ii) To agree to adopt a flexible approach during the current economic downturn and in appropriate circumstances* to resolve to approve planning permission for major development proposals subject to a Section 106 Agreement on the basis of one of the options identified in Paragraph 2.10 (a) – 2.10 (d) above, subject to the applicant demonstrating that the development would not be financially viable if the normal contributions were imposed, as set out in paragraph 5.3 of the Planning Obligations SPD.
* The Council needs to consider each case on its merits to ensure that the
economic benefits of bringing forward the development during the current economic climate outweigh the normal requirements to provide contributions, in accordance with Policy UR6 of the RUDP with applicants needing to demonstrate that the type of development meets the criteria outlined in Paragraphs 2.6 and 2.8 of this report.
5. Financial and resource appraisal
5.1 The Committee will be mindful that the options put forward in this report and any subsequent decisions of the local planning authority to adopt a flexible approach to the completion of planning obligations during the economic downturn may impact upon the provision of local community infrastructure (e. g. recreation facilities
provision, educational facilities, and social housing) or services to support proposed development.
6. Legal appraisal
6.1 The options and recommendations included within this report fall within the
Council’s powers as local planning authority. However, the authority is required to give reasons where it is decided equitable to depart from normal planning policies, including the SPD, in any particular case.
7. Other implications 7.1 Equal Rights
No specific issues raised by the proposal.
7.2 Sustainability implications
The report has no direct implications for sustainability but the Committee will be mindful that subsequent decisions of the local planning authority may impact upon the provision of local infrastructure or services to support proposed development.
7.3 Community safety implications
The report raises no direct community safety implications.
7.4 Human Rights Act
Articles 6 and 8 and Article 1 of the first protocol all apply (European Convention on Human Rights). When determining individual applications, the Council must strike a fair balance between the rights of individuals to make beneficial use of their property with any need to proportionately restrict such rights in the overall public interest.
7.5 Trade Union
The report raises no trade union implications.
8. Not for publication documents None.
9. Recommendations
9.1 In relation to the completion of new obligations that Committee resolves to endorse the approach set out in Paragraphs 2.10 (a) to 2.10 (d) of this report.
9.2 In relation to re-consideration of existing obligations that the Committee resolves to endorse the approach set out in Paragraphs 3.1 and 3.2 of this report.
9.3 In relation to monitoring of Section 106 Agreements the Committee supports the principle of introducing a monitoring fee as set out in Paragraph 3.3 of this report and authorises the Assistant Director Planning to implement detailed proposals in due course.
9.3 That a further report should be submitted to this Committee in 12 months in order to review the issues related to the “flexible approach” guidelines set out in this report, as suggested in paragraph 2.11, in order to consider whether the special
circumstances of the current economic downturn still persist.
10. Appendices None.
11. Background documents
11.1 Replacement Unitary Development Plan for Bradford District.
11.2 Planning Obligations Supplementary Planning Document.
11.3 The Homes and Communities Agency: ‘Investment & Planning obligations Responding to the Downturn’.
