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

Development obligations – squaring triangles?

This article was first published on 11 December 2019 in Real Estate. Reconsidered.

In real estate development everything comes down to managing an (un)holy trinity of risks; namely cost, time, and quality.

Take a building contract between a developer and a contractor: if the developer wants a high quality building delivered quickly, it will pay the contractor a higher price. If, say, a longer programme is permitted, the sides of the triangle adjust again. And so on.

Unsurprisingly, these risks are also important to tenants, purchasers and funders taking an interest in development projects. When will the building be completed and to what standard? If it’s late, what is the remedy? If I’m funding project costs, how much are these?

Sometimes developer and third party interests closely align. Both a developer and its funder will have a keen eye on cost certainty. But often there is genuine tension. A tenant taking a lease of (say) an office for its headquarters will focus on timely delivery and quality. So will the developer, but the emphasis may be more on triggering lease grant and commencing rent payments.

What should a developer consider when balancing development risk? Read our thoughts here.

For further information please contact:

Nick Turner
Nick Turner
Partner, real estate, London
+44 20 7466 2640
Iain Suttie
Iain Suttie
Senior associate, construction, London
+44 20 7466 2292

Real Estate. Reconsidered

Yesterday the HSF Real Estate team launched Real Estate. Reconsidered, a collection of our thoughts on some of the key issues that are impacting the real estate sector and our opinions on what the future may hold for the real estate market and its legal landscape.

To read Real Estate. Reconsidered click here. Please contact us if you would like further information.

Jeremy Walden
Jeremy Walden
Partner and Head of UK Real Estate, London
+44 20 7466 2198

 

Planning for the future of energy storage

The emergence of renewable energy such as wind and solar has brought about the need to store the electricity that is generated when it is not needed. Technological advancements mean that it is becoming increasingly feasible to store large quantities of energy in small-scale facilities. Electricity storage therefore provides vital flexibility to the UK’s energy system, supporting the growth of low carbon technologies. The government’s objectives of ensuring security of energy supply, keeping bills as low as possible for consumers and decarbonising cost-effectively will be further supported by recognising that in the not too distant future storage will become an integral part of many large-scale, energy-intensive developments, such as universities, hospitals, hotels, restaurants and retail outlets. Batteries can store energy when prices are low and then release it when they are high, thereby potentially becoming a source of income (or at least cost-saving) for these types of developments. The planning system should be keeping pace with technological advancements in this sector so as to avoid distorting the growth potential of this important asset class.

This post considers the current regimes governing electricity storage, their effect, and the potential impact of proposals recently consulted on by the government.

What are the current regimes governing electricity storage?

Electricity storage projects are subject to the same planning regimes as electricity generation projects: projects with a capacity of up to and including 50 Megawatts (MW) must be consented via the Town and Country Planning Act 1990 (“TCPA”) (planning permission) route; whereas projects with a capacity of more than 50MW fall under the Nationally Significant Infrastructure Planning (“NSIP”) regime, requiring a Development Consent Order (“DCO”).


What has been the effect of this?

Since the NSIP regime was introduced, developers have had to consider whether it is better to design a sub-50MW scheme that will benefit from a quicker and cheaper route through the planning system, or a larger and potentially more valuable scheme that has to navigate a more expensive and time-consuming consenting process. This is against a background of technological advancements and reduced cost-based barriers to market, as the relative cost of lithium-ion batteries is falling rapidly due to the expansion of electric vehicles and consumer electronics markets. Whilst storage is currently a relatively small asset class in the UK generation market, it is expected to grow significantly in the years to come, as set out in the Government’s Clean Growth Strategy. The regulatory environment, therefore, needs to respond to market changes and not act as a barrier to developers’ investment and sizing decisions.

Consultation proposals

Earlier this year, BEIS consulted on the threshold for electricity storage projects. BEIS sought views on its proposals to:

  • retain the 50MW capacity threshold that relates to standalone storage projects; and
  • to establish a new capacity threshold for composite projects whereby if the capacity of the storage and non-storage elements individually is less than 50MW then the relevant route for obtaining consent would be the TCPA, not the NSIP, regime.

Potential impact and analysis

Clearly there are difficulties with setting thresholds that apply to a wide range of generation assets, but planning applications should be determined at the appropriate level depending on the proposed project’s size, environmental impacts and national significance. The key question for BEIS, therefore, should be whether the planning system is continuing to ensure that the route to securing consent is proportionate to the anticipated effects of the project.

On this, it is worth noting that BEIS’s analysis, which underpins its current position on retaining the 50MW threshold for standalone projects, did not factor in the possibility that the existing system may be incentivising developers to submit separate rather than joint planning applications in order to avoid triggering the NSIP threshold. This is somewhat surprising, and it will be interesting to see if consultees produce examples of subdivision of projects or developers designing projects sub-optimally to avoid triggering the threshold. If there is clear evidence of this type of market distortion, then BEIS will have to consider whether the 50MW threshold, which is relevant to both proposals, remains fit for purpose.

The BEIS consultation (and this blog) focuses on the planning system in England, but the devolved government in Wales has (as of 1 April 2019) removed electricity storage projects from their definition of “generating station” meaning that all such projects with a generating capacity of up to 350MW will now be decided by local planning authorities as opposed to the Welsh Government under its Developments of National Significance regime. Perhaps the Welsh Government’s move will act as a sign to BEIS that the 50MW DCO threshold is too low and that greater flexibility in the planning system should be afforded to energy generation projects of this size.

It seems as though the planning system will have to adapt as technology advances and we place greater reliance on storage to facilitate and support renewable energy. Looking further into the future, the planning system should also not dissuade developers of large-scale schemes from considering how storage might be integrated into their developments. As such, whatever the outcome of the recent consultation, we expect this debate to be revisited in the years to come and for there to be a wider range of stakeholders involved.

Author: Alistair Paul, Associate, Planning, Real Estate, London

For further information please contact:

Catherine Howard
Catherine Howard
Partner, Planning, Real Estate, London
+44 20 7466 2858
Alistair Paul
Alistair Paul
Associate, Planning, Real Estate, London
+44 20 7466 2252

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

 

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

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