Hobsons Park, Trumpington, Cambridge

The challenges of Planning Obligation provision

I have written this piece following Cambridge City Councillor Sam Davies recent excellent blog post about Section 106 agreements. The original article can be found here: https://sam4qe.com/assets-and-deficits/

I write from a Developers point of view, having led and been involved in the negotiation and agreement of several Section 106 Planning Obligation agreements over the years for a variety of different scales and sizes of development projects.

Firstly Section 106 Planning Obligation agreements are designed to secure vital community infrastructure that helps support not only existing developments but also existing communities as a result of the impact of new developments.

As identified in regulation 122 of the Community Infrastructure Regulations various ‘limitations’ are statutorily placed on the requirement for Planning Obligations, these include obligations being:

• Necessary to make the development acceptable in planning terms
• Directly related to the development
• Fairly and reasonably related in scale and kind to the development

The statutory requirements mean it’s important that Local Authorities and other public bodies requesting planning obligations must have a clearly defined context or policy background for anything that may be sought otherwise it could be considered ‘unlawful’ and therefore subject to challenge. The difficulty local authorities have is that their democratically made decisions can be subject to a variety of different challenges including Planning Appeals and in the worst cases Judicial Review.

When preparing a business plan for a potential development most Developers and their consultants will undertake work to research what they believe an appropriate level of Planning Obligation contribution is likely to be and this is factored into their business plan. This assessment can include the likely level of affordable housing, mix and tenures along with potential heads of financial contribution that meet the Planning Obligations tests. Sometimes this is based on publicly adopted policies and other times it is based on experience with the particularly local authority. This is where dialogue and transparency around needs between public and private sectors is key.

The developer will proceed on the basis of this outline business case and will in good faith spend significant amounts of money on preparing and submitting a planning application. Depending on the size of the site this will typically include assessments of headline issues such as transport, travel and Biodiversity. Significantly large projects will also include assessments of utility and drainage infrastructure, education facilities, healthcare facilities and employment opportunities among things.

The assessments usually set out a baseline position and then the baseline plus the calculated implications of the development and its intended population on that baseline. For some large sites a cumulative assessment of all relevant local planned developments is also included. This gives a relatively scientific idea of the development’s impact.

Once the Planning Application is submitted and validated by the planning department, the various public and statutory consultees have in theory a statutory 21 day period to review and comment on the application (The period depends on the type of application submitted). This is where problems begin.

Most public comments on developments are broadly based around the look, feel and perceived impact of development on the local community and individuals own concerns and fears, whereas Statutory Consultee responses are more focussed on Technical aspects of development proposals.

These Statutory Consultees are wide ranging and include multiple council departments outside of the planning department (such as waste and recycling, open spaces, drainage, countryside, public art, housing, cycling and walking and so on) plus bodies such as the various emergency services — Police, Fire, and the NHS. Infrastructure organisations such as National Highways and Network Rail. Statutory utility companies covering water, sewerage, telecoms and electricity plus Government Agencies such as the Environment Agency, Historic England, Natural England and others along with resident groups, community interest groups and in the case where County Councils and other quasi elected bodies exist those bodies too.

Despite the statutory 8, 13 or 16 week targets set for local authority planning departments to determine applications, many Statutory Consultees submit comments much later than the statutory 21 day consultation period. This makes it difficult for Planning Case Officers to prepare their relevant member briefings and reports to committee in time to meet their target deadlines. It also frustrates the Developer as there is little opportunity to review what these responses outline and in the case of statutory consultees, such responses often stretch to multiple pages along with an estimate of what planning conditions and planning obligation funding they would like to secure in connection with a development in order to meet their own individual requirements.

In some cases requests for planning obligation funding are policy backed and will have been factored into the developers own calculations therefore no real discussion or debate is needed. However where requests are not policy backed, generally from other Statutory consultees these create issues and the opportunity for challenge. By way of example:

• I remember a former colleague having to deal with a 96 page letter from one of Englands Police Constabularies for a 336 unit development which culminated in a request for an entirely new police station, the cost of which was far in excess of the scale of development proposed and needless to say the request wasn’t delivered when the scheme was granted consent by the Local Authority.
• A well known private utility company claiming that the only way of securing high speed broadband for a development was via their network and that the Developer should pay for this expansion. This was despite the utility company being able to generate a significant income stream from the completed development to fund their service provision and it not being the only people who could supply high speed broadband to the development.
• Various public bodies claiming that development will cause an impact on infrastructure they manage despite their not being any evidence of such an impact. The best example I can recall was a public body claiming funding for open space management on the other side of a sizeable town on the basis that people living at the planned development may occasionally choose to walk their dogs there. (This is despite much closer facilities being much more easily accessible to the site in question).
• A Healthcare provider sending out non specific boilerplate letter requests for funding for various services with no plan or detail in relation how they planned to deliver those services or whether there may actually be demand arising from the proposed development.
• Another public body requesting money for a new speed camera network on a major A road in connection with a temporary construction access into a development site in order to deal with repeated instances of excessive speed on that road. As a result the access proposals were scrapped by the Developer even though they were only temporary and would have taken heavy construction traffic away from an existing community.

The situation is far more complicated for some ‘essential’ services such as Transport or Education for example:

• Education needs modelling across all sectors of education is somewhat of a ‘dark art’ with various non standard modelling tools being used. Some Local Authorities don’t make such models available for review and interrogation but are quite happy to request sizeable sums including land for new education facilities, only to find that in time the demand shifts and neither the contribution nor need for a new school is necessary.
• Public Transport modelling usual sets out demands based on headline service costs neglecting the impact of the potential fare income that paying passengers make while using services or the potential travel patterns that arise.
• Highways improvements can often open to different case officers having different objectives. For example the development may indicate no offsite crossings are required but due to existing issues in the local network the local highways authority wants somebody to pay for one rather than use its own resources to fund the required facility.

Some Local Authorities will also try and use Planning Obligation Agreements as a way of securing future maintenance costs for new infrastructure through ‘commuted sum’ requests. This is where the Local Authority will set out that it needs a sum of money in connection with 2, 5 or 10 years maintenance of certain new public facilities, usually for elements such as new public open spaces and play equipment. I have seen it requested where non standard highway materials and solutions are being proposed. This is despite the additional annual income the Local Authority will receive from the new development in the form of Council Tax or Business Rates.

The amount of money being requested by the different consultees can soon add up and can significantly affect the viability of the developments original business plan which is where the discussions and negotiations start.

I will come back to affordable housing later on as this is another key ‘Planning Obligation’ and one that is directly influenced by the above.

Where I have dealt with agreements we have worked to agree the broad heads of terms rather than the legal minutiae as this allows parties not to be distracted by wording and allows officers to take a recommendation for planning approval ‘subject to’ to a planning committee in order to give all parties some certainty that they are not about to embark on a significantly time consuming and costly potentially abortive activity. Such committee decisions aren’t an actual approval but a ‘minded to grant’ approval subject to the condition being met and the legal agreement being completed.

Unfortunately most negotiations can be painfully protracted for everybody and by this stage multiple parties are involved and the costs (which are usually met by the developer) become significant, particularly once legal teams are involved:

• On the Developers side are its various advisors and specialists, the landowner (as the agreement is tied to the land), the mortgagee, possibly its funders and a variety of legal teams advising each individual party.
• On the Local Authority side are the various different parties requesting planning obligations, their legal advisors and the council’s legal advisors. Some local authorities where there are County Council functions may require a further separate planning obligation agreement specific to that body. Others will be content to allow the Planning Authority to collect monies and to then pay it over at a relevant time. In almost all cases it is the Planning Case Officer who acts as the intermediary between the various parties.

Discussions can be wide, varied, time-consuming and can often expose where there isn’t a meaningful plan in place for the provision of a Community benefit, particularly where some of the Statutory stakeholders are involved. Discussions usually relate to five key areas:

• Nature of the obligation — What is being sought and is it appropriate given the statutory tests — ‘Necessity, relationship, fair and reasonableness’
• Amount sought for the obligation — How much is appropriate in relation to the obligation given the statutory tests. In some cases, the developer may be able to undertake works faster and cheaper than the relevant authority and therefore works in lieu of a financial payment may be more appropriate. The type and nature of indexation is also considered as part of these discussions. If there are works involved then costs are usually indexed by BCIS indices or where it’s a contribution towards a service RPI/CPI indices are used given the delay between approval and collection of the payments.
• Trigger for payment of the obligation — When is the payment actually needed. Triggers for payment are usually Pre Commencement, Upon Commencement, Prior to Occupation or Upon Occupation.
• Timescale for Payment — when is the developer to pay the money, how does this affect its available cash and when is that money likely to be needed. Bear in mind that by this stage the developer will normally have expended significant money at risk and doesn’t see any income until such point as it either sells land or it builds, completes and sells individual properties and that there is a ‘cost’ associated with such money.
• Delivery period — When is the community benefit actually going to be delivered, in what time frame and by who and what happens if the benefit isn’t delivered within the required timeframe. For many agreements this can see the refunding of collected money to Developers. There is a Government expectation that Local Authorities will use all of the money collected for the purposes it has been collected for.
• Legal Wording securing the obligation — how the above is secured in legally acceptable terms which are acceptable to all parties.

If agreements become overly protracted then the Developer is able to lodge an appeal to the Planning Inspectorate in order to seek a suitable determination of the application. Where this happens the parties may set out a statement of common ground and/or enter into a unilateral undertaking which seeks to formalise any agreements that may have been reached. A unilateral undertaking is a legally binding document that sets out what the developer is prepared to contribute in relation to Community facilities. The Government Planning Inspector will then act as an arbitrator between parties considering the evidence presented by each including any other interested parties before they provide a formal written determination. In some cases the Secretary of State may choose to ‘call in’ schemes for further review and consideration prior to formal planing decisions being issued.

The frustrating thing for most Developers (and I suspect most planning departments) is that a poorly considered, non transparent or non policy backed requests for Planning Obligation contributions can take months and sometimes years to resolve therefore delaying development and the delivery of new housing supply and putting increased pressure on the need for suitable sites to come forwards.

Form of agreements

Once the above is agreed then the final legal agreements can be produced. Planning Obligation agreements generally include:

• Text setting out the agreed position of the parties in relation to the above elements
• Drawings and plans setting out the extent and area of land the agreement covers and its ownership plus the extent and nature of any specific works proposals that are related to the proposed development.

In the case of some specific mitigation proposals which have not been fully considered in detail by the parties the wording is sufficient to ensure payment. Care is needed around this wording given the need to develop and agree relevant business plans and proposals in sufficient detail and to secure approval, procure and implement these measures.

Agreements are usually executed as a deed with each party being a signatory to the agreement. It is important to remember that the agreement is specific to the planning consent and the land.

As the agreement is an ‘agreement’ between parties it is also possible for variations to be agreed at some point in the future. Such variations may be necessary if economic or other circumstances change significantly.

Monitoring of agreements

Almost all Local Authorities have a Section 106 monitoring officer who is responsible for ‘monitoring’ whether the obligations set out within an agreement are being met by the developer. The cost of the monitoring role is generally contributed to by the Developer through the agreement. This is a difficult job given the number, volume and structure of Agreements — there is usually no simple tracker by site and agreements can be structured in a variety of different ways with different indexation mechanisms applied to different payments. They can also be in place for a considerable number of years, particularly on larger sites and payments made may not be accurately recorded or accounted for.

There are however difficulties with this:

• For both parties the payment mechanism is almost never adequately described in the Agreement- will the Local Authority issue an Invoice once the trigger is met or will the Developer write a cheque based on its own calculations? Is a receipt for payment likely to be required? How do you go about agreeing that the indexation basis is correct? Should money be paid and held by Legal teams on account while such matters are agreed?
• For the Local Authority there is generally a degree of trust that the Developer is, subject to the above, making the payments at the relevant time in the development process. Of course the Local Authority can seek to verify some of the triggers through Annual Monitoring Records, Council Tax demands, Building Control notifications and Planning condition submissions. Some Local Authorities try to simplify this by requiring legally binding notices of certain activities to be served by the Developer as part of the Planning Obligation Agreement.
• For the Developer there is always the consideration around carefully managing the cashflow associated with the development, particularly if works are delayed and income is likely to be some way off. Working Capital is expensive, particularly if it takes a developer outside of its pre agreed funding arrangements. There has always been some suspicion about whether funding provided will actually be spent on the relevant mitigation measures or whether it will be held on account for expenditure at some point in the future or never. Unfortunately there is little transparency or reporting from Local Authorities on how they and other statutory consultees are progressing with the delivery of Community Infrastructure or what the money collected has actually been spent on.

This lack of transparency for communities over the delivery of Community Infrastructure materially affects all parties. Communities begin to mistrust the Developer and the Local Authority along with elected representatives who may make representations that they have secured certain community benefits in relation to new developments only for them never to appear. Communities may also notice increased demands on existing local services as developments become occupied questioning why it might take longer to see a Healthcare professional or why they can’t get their child into their preferred school. The implications of this makes communities more suspicious of the planning process, the parties involved and hesitant of accepting future development in their area.

Affordable Housing and Infrastructure payments.

One of the biggest financial contributions that is made by most developments is towards the provision of Affordable Housing. Such housing comes in a variety of different tenures and types and is often the subject of a great deal of discussion between the parties involved due to the significant variances that exist in affordable housing revenues. Discussions are usually based upon the most recent Housing Needs report that a Local Authority has produced along with data on demands from housing waiting lists along with any Supplementary Planning Guidance (SPG) that may have been produced such as Cambridge City’s 2014 Draft Affordable Housing SPG.

Planning policies generally identify a headline requirement but due to the duration of the associated plan don’t set out specifics leaving that instead to supplementary guidance. For example the 2018 Cambridge Local Plan (which supersedes the above SPG) sets out that:

• Sites of 11–14 dwellings — Minimum 25% affordable housing provision.
• Sites of 15 or more dwellings — Minimum 40% affordable housing provision.

Affordable Housing is loosely defined as:

• Social Rented Housing — which is where rents are determined through the National Rent Regime
• Affordable Rented Housing — which is where rents can be no more than 80% of the local market rent including service charges
• Intermediate Housing — could be a variety of affordable ‘ownership’ tenures including Shared Ownership and low cost homeownership schemes including the ‘First Homes’ initative.

In arriving at a policy percentage the Local Authority usually assesses a variety of different ‘theoretical’ types of site within its administrative area against potential Gross Development Values, Development Costs and Land Values and assumptions around housing mix, potential future policy costs eg Biodiversity, Carbon Reduction measures. These are informed through research and the use of existing indices such as BCIS and predictions of future economic movements. The most recent report for Greater Cambridge can be found here: https://consultations.greatercambridgeplanning.org/sites/gcp/files/2021-09/First%20Proposals%20Viability%20Report.pdf

Within this draft assessment the level of Section 106 contribution is identified as £1,000 and noted that it is to cover Green Belt Mitigation but notes further sums will be added in due course. Within the consultation a separate heading of Infrastructure Costs is included but it is unclear around what it is included although the supporting commentary suggests this is directly site specific eg roads, utilities, drainage etc rather than Community Infrastructure such as healthcare, policing, education and so on. Under these test scenarios it finds that all types of site are viable with a 40% Affordable Housing provision and that a varying level of surplus is likely to be generated which could be spent on other items such as Community Infrastructure. Given the approach such Community Infrastructure becomes relegated to an afterthought rather than an essential priority.

There are however a number of issues with such assessments:

• Available relevant data is always extremely limited, whether it is on costs, revenues or existing use land values.
• Without detailed knowledge of each individual reference site it is impossible to know what cost impacts may be or how they may be applied or how they have influenced any benchmark data that is being used.
• The residential unit mix along with differing values associated with differing Affordable tenures isn’t always tested.
• Input assumptions are usually not ‘stress’ tested — ie what happens if build costs increase by 10% and sales values fall or increase by 10% over the plan period.
• The assumptions around levels of S106 contribution for Community Infrastructure are almost never realistic. The Local Authority through its monitoring officers has better and more relevant data available on what its typical levels of payment per unit area.

The net result is that when added together, exceptional Planning Obligation contributions plus policy compliant affordable housing will more often than not break the viability of a development site to the point that something has to give. This is when Viability assessments are then needed.

Viability assessments are by their nature a a complex battleground between parties. The Developer says the developer can be built for X and sold for Y so can therefore only afford a lower percentage of Affordable Housing. Conversely the Local Authority and its advisors say that the scheme can be built for A and sold for B so therefore can afford to provide the required level of affordable housing. From my experience it’s usually the level of Planning Obligation contribution that is being sought which is where the issues arise as the input into the original Policy assessment wasn’t ever correct to begin with.

By way of example, I once worked on a development where the Local Authority had set the affordable housing policy requirement at 40% of unit numbers with a Community Infrastructure Financial Contribution of £11,000 per home. When all of the required contributions were added up they came to over £24,000 per home which meant the development on an allocated site was no longer viable without a Viability Assessment being undertake and something changing. As it was a medium sized site the Affordable Housing provision ended up being agreed between the parties at a little over 20% albeit with a heavy weighting towards Social Rented family Housing. The trade was that there would be enough money between two contributing sites for a new Primary school to meet expected demand and Planning Permission was subsequently granted

Looking back and thinking about why there was such a large jump in the level of contribution required I believe the following occurred:

• The education planning and forecasting identified population growth and changes to school requirements but plans were not put in place early enough for a new school in the town. Instead the historic approach taken was to keep existing schools as full as possible including adding demountable classrooms if demand required it.
• The assumption of expanding existing schools was originally a cost effective approach. It was cheaper to add a classroom or using existing surplus capacity then build and staff a whole new school. For reference a 2 form entry primary school typically costs around £7-£8m to construct from scratch plus associated land cost. A 750 place secondary school is in the region of £20–22million plus associated land costs. While some Central Government funding is available the Local Authority was reluctant to apply for funding therefore putting the whole cost onto the two contributing schemes. At least one developer involved put forward a proposal to expand another existing school in the town from a single form to two forms of entry helping to make that school in an already established community more sustainable.
• As the cheaper’ option had been historically adopted it meant that contributions were under collected from other developments in the town. When it got to the final allocated development sites in the Local Plan, the Local Authority realised it had a significant and unsolvable problem unless it could find a suitable site and build more space.
• Modelling had perhaps failed to predict a reversal in the decline in birth rates that occurred in the late 2000’s and which has since fallen back again. This short term change when added to the proposed development plans for the area meant that there was extremely limited capacity in the local schools to deal with any natural non development fluctuations in demand.
• The impact of demand arising from migration from other areas given the type and nature of existing homes and the local demographic profile hadn’t been taken into account. By virtue of normal life cycles communities move from younger families into older couples before returning back to a younger family emphasis.
• The distribution of schools was such that it was weighted towards existing residential areas that were within walking distance of most of the town’s population. Previous developments had grown the town in a different direction and planning approaches hadn’t considered how this should have been dealt with.

I suspect that what will happen in time is that given demographic changes and the time that has now elapsed since those consents were granted is one of two things:

• The new school promised at the time to the local community by the Local Authorities will never be constructed and the site will be sold for residential development.
• That the new school will be built and that the existing single form entry school located in an established community will be ‘transferred’ into the new school with the old school site being sold for development.

Of course assuming the wording of the Planning Obligation agreement permits it, it’s likely that the contributing Developers will see some refund of the money contributed for the provision due to its non expenditure. Off course in all cases the situation is to the detriment of affordable housing provision in the area with the monies generated from any land sale likely to be used within the wider Local Authority area rather than be reinvested in the local community. Such an approach is inevitably likely to cause concern with the occupiers of the existing and new communities within the town and further raise suspicion around objectives and intents of all parties involved.

The Future

The above note predominately covers Planning Obligations secured by way of Section 106 Agreements. In some areas Section 106 has been substantially replaced by a flat rate per unit Community Infrastructure levy (CIL) charged generally on a net new floorspace basis with the level of charge published and the charge set against defined community infrastructure investment programmes. CIL is a double edged sword for developers in that while it offers a clearer payment structure it can put a greater demand on a developments capital requirement. CIL does however suffer from a lack of transparency around how much is collected and how and when it is allocated and spent.

For all development sites there are going to be significant viability challenges around upcoming and emerging policies that identify costs Developments are expected to bear including offsite Biodiversity Net Gain, Water Neutrality, Carbon Reduction/Net Zero measures among others. This will no doubt put more pressure on the provision of Affordable Housing and will mean that some sites that are readily capable of development become indefinitely delayed, further adding pressure on Local Authorities to additional new housing sites and restricting the supply of new housing where it is best situated and needed.

The Government is currently undertaking consultation upon changing S106 Planning Obligations and CIL into a proposed Infrastructure levy, with the consultation closing in June 2023. https://www.gov.uk/government/consultations/technical-consultation-on-the-infrastructure-levy