Ring in the new? – planning update

In Planning for Housing, published in Real Estate. Reconsidered last month, we took a look at ongoing Government initiatives designed to tackle the housing crisis, and also the problems faced by high streets and town centres. Throughout we noted that whether and how various initiatives would be progressed depended on the result of the General Election. Now that we have a Conservative majority in Parliament, and understand the new Government’s priorities through their election manifesto (see our blog post of 27 November 2019) and the Queen’s Speech of 19 December 2019 (and the accompanying Background Briefing Notes), we have a clearer idea of what to expect in planning over the coming months. On the whole, it seems to be a case of progressing with initiatives already announced (although not necessarily widely publicised) with continued focus on housing, the environment and thriving centres. Here is a brief overview:

Planning reform

The Government has confirmed its continued intention to publish a Planning Green Paper, with the aim of making the planning process “clearer, more accessible and more certain for all users … also address[ing] resourcing and performance in Planning Departments”. Arguably a familiar objective for successive administrations, achieving these goals has proved difficult. There is relatively little more information on the detail of what the Green Paper will contain, although it may include CPO reform. We expect publication in the next few months.

Environment Bill

In our blog post of 11 November 2019 we reported on the Environment Bill 2019-2020, abandoned following the dissolution of Parliament prior to the General Election. The Government has confirmed that the Bill will be reintroduced largely in similar terms, including provisions on mandatory biodiversity net gain (see Mandatory Biodiversity Net Gain in Real Estate. Reconsidered), tightened air quality controls and the establishment of the Office for Environmental Protection (OEP). With environmental protection a high priority for the Government, this should be expected soon.

Housing

Housing need, affordable housing, Starter Homes and “First Homes”

Continuing the drive of previous governments towards increasing housing supply, the Government is committed to building at least a million new homes this Parliament with hundreds of thousands of new homes promised through renewal of the Affordable Homes Programme.

The previous Government promised that regulations to implement the statutory framework for Starter Homes introduced by the Housing and Planning Act 2016 would be introduced in 2019, and that regulations to exempt Starter Homes from the Community Infrastructure Levy (CIL) would be laid before Parliament. Recent announcements have been silent on whether the Government plans to continue with this, although we can expect that they will. However, the Government has announced another affordable homes initiative, “First Homes”, on which they will consult shortly. First Homes is intended to “provide homes for local people and key workers at a discount of at least 30 per cent”, funded by developers and secured through a covenant with the discount secured for perpetuity. The Government also intends to introduce “a new, reformed Shared Ownership model” to help shared owners buy more, and eventually all, of their property.

Also worth mentioning is that the Housing Delivery Test for November 2019 is still awaited, as is a promised review of the standard method for calculating housing need. These were due before the end of last year, so should be expected soon.

Permitted development and Future Homes Standard

Towards the end of 2019, the previous Government confirmed that it intended to introduce permitted development (PD) rights enabling upwards extensions of certain buildings in existing commercial and residential use to deliver new homes, and to allow the demolition of commercial buildings for rebuilding as residential units. There seems to be no reason not to expect secondary legislation implementing this to be published for consultation soon, in which case the promised review of residential PD rights “in respect of the quality standard of homes delivered”, announced in March 2019 in response to valid concerns regarding the design and quality of housing delivered pursuant to PD rights, may also be delivered.

To deal with concerns over PD rights the previous Government also intended to “develop a ‘Future Homes Standard’ for all new homes with a view, subject to consultation, to introducing the standard by 2025”. We wait to see whether this will be delivered.

Diversification guidance

Alongside the 2019 Spring Statement the previous Government promised additional planning guidance to encourage the diversification of large sites to encourage quicker build out rates, in response to findings of the Independent Review of Build Out Rates led by Oliver Letwin. It is not yet clear whether the current Government intends to pursue this.

Design

The final report of the Building Better, Building Beautiful Commission (BBBBC) was due to be published last month (see our blog post of 12 July 2019 on the BBBBC interim report). The previous Government committed to consult on a new “National Model Design Code” which would take the final report into account. We can probably still expect this consultation once the report is published.

Infrastructure

The Government has announced a £10bn Single Housing Infrastructure Fund to provide the infrastructure necessary to support residential development, building on previous infrastructure funding. Bearing in mind the Government’s manifesto commitment that infrastructure must be delivered ahead of new housing developments being occupied, which could impact viability, it will be interesting to see more detail on how this will be implemented.

Also, in its election manifesto the Conservative Party promised a £100 billion investment into infrastructure such as roads and rail, Northern Powerhouse Rail and the restoration of many of the Beeching lines. The Government has confirmed that it will publish the National Infrastructure Strategy (NIS) alongside the Spring Budget on 11 March 2020, together with its long overdue response to the National Infrastructure Commission’s National Infrastructure Assessment (due by July 2019), and that legislation to implement the NIS will be introduced “in due course”.

Devolution

The Conservative election manifesto proposed an English Devolution White Paper in 2020. Interestingly, this was not mentioned in the Queen’s Speech or the Background Briefing Notes. However, in a speech to the Local Government Association on 7 January 2020, Local Government Minister Luke Hall confirmed that the Government will “publish an ‘English devolution white paper’, aiming for full devolution, so that every part of the country has the power to shape its own future”. We wait to see when this will be brought forward and what “full devolution” will mean in practice. How the combination of devolution and infrastructure investment may impact development on a regional basis is worthy of further consideration.

Conclusion

All in all, rather than ringing in change the new Government seems to be on track to continue progress with the aims and initiatives of preceding administrations, with the exception perhaps of English devolution which has the potential to see a significant shift of influence from central to local government. It will be interesting to see how the various initiatives play out, and whether they bring the desired results.

For further information please contact:

Fiona Sawyer
Fiona Sawyer
Professional support lawyer, planning, London
+44 20 7466 2674
Matthew White
Matthew White
Partner and Head of UK planning, London
+44 20 7466 2461

Construction Contract & Claims Management Podcast Series – EP2: Pitfalls of Suspending or Terminating a Construction Contract

The suspension or termination of construction contracts can have significant commercial implications for developers. No doubt, developers will already be aware that the right to suspend and, in particular, terminate, a construction contract should be used sparingly. But what are the potential pitfalls to be mindful of if it becomes necessary to suspend or terminate a construction contract, or if one is on the receiving end of a suspension or termination notice?

We are pleased to share with you a podcast hosted by Herbert Smith Freehills’ Construction & Infrastructure Group which explores the legal and practical issues arising from the suspension or termination of construction contracts.

The episode can be found on iTunes, Spotify and SoundCloud.

This episode is also accompanied by a checklist which sets out some of the key matters to be considered when terminating or suspending a construction contract. The checklist can be viewed and downloaded here.

This is the latest episode in Herbert Smith Freehills’ ‘Construction Contract & Claims Management’ podcast series. In the next episode in this series, we will be discussing how to assess the legal merits of construction claims, with a particular focus on claims brought by contractors against employers.

For further information please contact:

Jake Reynolds
Jake Reynolds
Associate (Australia), construction and infrastructure, London
+44 20 7466 2370
Noe Minamikata
Noe Minamikata
Professional support lawyer, construction and infrastructure, London
+44 20 7466 2838

Agreements with Registered Providers: 5 Top Tips

For developers bringing forward any residential development, the affordable housing package will be one of the most important elements of ensuring a scheme actually gets consent – particularly in the current political and policy environment. But while it is easy to focus only on those crucial headlines – number of units, tenure, and size – it is important to keep an eye on what comes after planning permission. Most of the time, this will mean doing a deal with a registered provider, which will have its own preferences as to how the deal should be structured and how the units will be managed. Here are our top 5 points for developers to be aware of.

1. Think carefully about section 106 restrictions …

One of the top priorities of the local planning authority will be to ensure that the affordable housing package is adequately secured in a section 106 agreement. While every agreement is different, they all generally contain two key things.

First, a requirement to build the affordable housing units and sell the freehold or a lease (usually at least 125 years) to a registered provider. This will typically be drafted in the form of what is known as a “Grampian” restriction: a requirement to do something (ie build and sell affordable housing units) before you do something else (ie occupy your valuable market housing).

Second, there will be a restriction stating that the units to be provided as affordable housing cannot be occupied for anything other than the tenure set out in the agreement.

How these provisions are drafted is hugely important. An improperly drafted Grampian restriction, or one which doesn’t take into account the circumstances and programme of the scheme, could unreasonably prevent or delay the most valuable parts of the development from being occupied – therefore impacting on sales, funding and, ultimately, viability.

2. … and then make sure you pass them down

If the section 106 agreement obliges you as the developer to do something in relation to affordable housing – eg to maintain the housing in a particular tenure, or to keep the service charge low – you will want to pass this obligation down to the registered provider. The transaction documents should therefore be back to back with the section 106 so nothing falls through the gaps.

This will involve an analysis of whether it is appropriate for you as developer or the registered provider, or both parties, to fulfil the relevant obligations taking account of the respective land interests and rights.

You will need to pay particular attention to what could go wrong to prevent any restriction being lifted on the market homes – like, what would happen if the registered provider you are selling to goes insolvent, or ceases to be recognised as a registered provider? All these issues will need to be thought about and catered for in the transaction documents.

3. Think carefully about where the affordable units sit within the estate management structure

The registered provider’s preference will typically be to take all of the affordable units in a single transfer or a single block lease. A developer may prefer to retain control over the common areas within the block. This will ensure the provision of services and recovery of service charge is consistent across the estate (but see point 4 below). If the registered provider accepts that approach, it may seek greater control over the management company responsible for the block (eg through shares in the management company and voting rights) but whether this is acceptable to a developer will depend on the number of units and their configuration within the block.

4. Test whether the estate service charge works for the affordable units

The registered provider will be very keen to ensure that the service charge for the affordable units is as low as possible – particularly given that some tenures involve rent caps that are inclusive of service charge (there may also be specific covenants regarding service charge within the section 106 agreement). In the service charge provisions in the lease, the registered provider will seek to reduce the developer’s discretion as to which services are provided and will want wide consultation rights. Depending on the nature of the development, the registered provider may want certain non-essential service charge items excluded (for example the costs of concierge services or an on-site gym), but please note that this may cause reputational issues for the developer as highlighted in recent news articles where affordable tenants have not been able to utilise all of the amenities provided at new development sites.

5. Think about utility supplies to affordable units

It is likely that a registered provider will require that its tenants enter into direct supply agreements with the utilities providers rather than have utilities charged through the service charge (which would put the credit risk on the registered provider as the direct tenant of the developer). Again, you will need to think through carefully how utility services are procured and managed for the affordable units and how this ties in with utility arrangements for the wider estate.

In summary there are lots of issues to be thought through when dealing with a registered provider and reaching agreement with a registered provider on the disposal of the affordable units will require careful consideration. As such, we recommend that solicitors are instructed at an early stage to ensure that the transaction documents deal with the requirements of the section 106 agreement and are consistent with the developer’s plans for the remainder of the estate.

For further information please contact:

David Evans
David Evans
Senior Associate, Real Estate, London
+44 20 7466 7480
Annika Holden
Annika Holden
Associate (Australia), Planning, London
+44 20 7466 2882
Julian Pollock
Julian Pollock
Partner, Real Estate, London
+44 20 7466 2682
Matthew White
Matthew White
Partner and Head of UK planning practice, London
+44 20 7466 2461

 

Changes confirmed to permitted development rights and use classes

In our blog post of 10 December 2018 (see here), we discussed the potential impact on developers and landlords of changes to permitted development (PD) rights and Use Class A which were being consulted on by the government. Despite widespread criticism, and counter to some calls for a greater role for local authorities in securing the futures of their town centres through holistic town planning, in a Written Statement on 13 March 2019 James Brokenshire announced that the government is implementing the majority of the proposals. Some of the changes to PD rights are to be made later this spring; other changes, such as upward extensions for residential use, will be dealt with in further regulations in the autumn. We were also told that we can expect an Accelerated Planning Green Paper later this year. Whilst the changes are intended to “[simplify and speed up] the planning system, to support the high street, make effective use of land and deliver more homes”, whether this can be achieved by these changes remains to be seen. This post discusses what the changes are, and what their impact could be within the context of wider change. Continue reading

MCIL2 update – in force 1 April 2019

Last week, we published a post (see here) noting that the Mayoral Community Infrastructure Levy 2 (‘MCIL2’) was due to come into force on 1 April 2019, setting out details of the new charges, which developments would be affected and the implications for developers. By a letter dated 28 February 2019, the Greater London Authority (‘GLA’) has now confirmed that the Mayor of London has formally adopted the MCIL2 Charging Schedule and that it will indeed be brought into effect on 1 April. Two modifications have been made to the final version of the Charging Schedule, the most important of which is that the Elephant and Castle Opportunity Area is not part of the Central London Charging Area for office, retail and hotel development; the second modification clarifies the definitions of hotel, office and retail uses. The GLA has also confirmed that MCIL2 will be used to fund both Crossrail 1 (the Elizabeth Line) and Crossrail 2, and that the MCIL2 Charging Schedule will supersede both the 2012 Mayoral CIL Charging Schedule (‘MCIL1’) and the 2016 Section 106 Crossrail Funding from Planning Obligations Supplementary Planning Guidance (referred to in our previous post as the ‘s106 Crossrail Charge’). Continue reading

In force soon – Mayoral Community Infrastructure Levy 2 (MCIL2)

The Mayoral Community Infrastructure Levy 2, or ‘MCIL2’, is a new charging schedule for the Mayor’s Community Infrastructure Levy (CIL) charge. It sets new (higher) rates for Mayoral CIL and is due to take effect on 1 April 2019. (It is technically possible that the Mayor may change his mind about MCIL2 before 1 April 2019, but it should be assumed that he will not.)

This post explains what MCIL2 is, what it means for developments in London and what action developers may wish to take before MCIL2 comes into force.

Continue reading

Landlords’ motives for redevelopment – good, bad or irrelevant?

Today the Supreme Court will hear the case of S. Franses Ltd v The Cavendish Hotel (London) Limited, a case which property litigators have been following closely since last year. The case concerns a landlord’s ability to oppose a lease renewal under the Landlord and Tenant Act 1954 (the “Act”) using ground (f) (redevelopment). If the tenant is successful in today’s hearing, the evidential burden on landlords contemplating redevelopment could increase dramatically. Continue reading

Affordability, viability and clarity – the impact of valuation on supply of affordable housing

Viability is at the heart of the extent to which private developers can be expected to bridge the gap between demand for and supply of affordable housing. In April this year, in a postscript to his judgment in the case of Parkhurst Road Ltd v Secretary of State for Communities and Local Government and another [2018] EWHC 991 (Admin), Mr Justice Holgate said that “uncertainty on how viability assessment should properly be carried out” is leading to “a proliferation of litigation” and called on the Royal Institution of Chartered Surveyors (RICS) to revisit its 2012 Financial Viability in Planning Guidance. Since then, the revised National Planning Policy Framework (NPPF) has been published together with revised Planning Practice Guidance (PPG) on viability, but a review of the RICS guidance is still ongoing. On 5 October, the Deputy Mayor of London and the Executive Member for Housing & Development at Islington Council wrote a joint open letter to the President of the RICS regarding affordable housing and the 2012 RICS Financial Viability in Planning Guidance. Their letter asks RICS to revisit its guidance, as called for by Holgate J. Continue reading

The importance of assignments: If you are purchasing a site for development, would you rely on a report your seller obtains in its favour then gives to you, stating that you can rely on it; the seller accepting no liability for its contents?

This blog post explores why purchasers should take an assignment or insist on other protection before relying on reports provided to them by others.

If your answer to the question posed is ‘yes’, read on as this is exactly what happened in the case of BDW Trading Ltd (the “developer”) v Integral Geotechnique (Wales) Ltd (the “consultant”). In this case, the developer was left without a legal remedy when he suffered loss having relied on a negligently prepared report. Continue reading

Affordable Housing Back to Basics: What do the new NPPF and Draft London Plan modifications mean for affordable housing?

This blog post explores how the meaning of affordable housing has evolved following the publication of the revised National Planning Policy Framework (“NPPF”) on 24 July 2018 and the Draft New London Plan showing Minor Suggested Changes on 13 August 2018. This is part of our ‘back to basics’ affordable housing series and is intended to supersede entry 1 in the series. Continue reading