Legal Report - Viability comes to fore in site acquisition decisions

Planning, 19 September 2008

In the leading case, Chesterfield Properties v Secretary of State for the Environment [1993], the High Court refused to accept arguments that the secretary of state had acted unlawfully in confirming a CPO in the face of evidence that the scheme would be unviable or that he needed to be satisfied that the development would "probably" take place.

Circular 06/2004 advises that schemes should either be viable or the acquiring authority should provide some idea of how any potential shortfalls are to be met. "A general indication of funding intentions and any commitments from third parties will usually suffice to reassure the secretary of state that there is a reasonable prospect that the scheme will proceed. The greater the uncertainty about the financial viability, however, the more compelling the other grounds for compulsory purchase will need to be," it explains.

Developments under scrutiny

Notwithstanding the Chesterfield ruling and the circular's perhaps beguiling reference to a "general indication", three ministerial decisions in the past 15 months suggest that acquiring authorities can now expect closer scrutiny of viability issues, especially when faced with committed and well-represented objectors.

Last month, the secretary of state rejected the London Borough of Croydon's Croydon Gateway CPO (Planning, 15 August, p7). She agreed with the inspector that while Arrowcroft's proposal had policy backing and could bring environmental, economic and social gains, there was considerable uncertainty as to whether the scheme, with its centrepiece 12,500-seat arena, would be viable.

The combined inquiry into the CPO and competing proposals from Arrowcroft and Croydon Gateway Limited Partnership (CGLP) lasted 27 days. The inspector considered the business plan and funding options in detail. Differences between the parties included a dispute as to the value of CGLP's interests, assessed at £80 million by the partnership but just £25 million by the council.

While the inspector regarded herself as insufficiently qualified to go into detailed compensation assumptions that would ultimately be a matter for the Lands Tribunal, she considered the council's figure "questionable", regarded projected residential and office returns as over-optimistic and noted that there was no committed back funding or public finance. Amid such uncertainties, she was unable to conclude that the project was economically sound.

In January, the secretary of state rejected a CPO for a mixed-use scheme in Brighouse, West Yorkshire. After a 36-day inquiry, the inspector concluded that the project would be likely to make a substantial loss and no public funds were available to support it. The principal objector, Younger Homes, was represented by leading counsel who called eight valuation and other witnesses.

Finally, last June, the secretary of state rejected a CPO for a shopping centre in Plymouth. The inspector observed that the developer had no experience of large mixed-use projects, found it significant that the scheme had no committed anchor store or expressions of interest from retailers and agreed that an objector's financial appraisal cast credible doubts over its viability. Again, a detailed case was mounted against the scheme on valuation and other grounds over six days.

Dealing with case uncertainty

These examples illustrate the uncertainties of the inquiry process when it comes to contested CPOs for town centre schemes and the pitfalls that await acquiring authorities and their developer partners where viability is called into question. Furthermore, successful objectors are usually entitled to their costs from the acquiring authority. Given the years of preparation, a negative outcome from a CPO inquiry can be devastating to an authority's political, regeneration and economic aspirations.

Realism is needed in talks with developers and in formulating the case for compulsory purchase. How can the inevitable uncertainties as to whether the development will proceed if the CPO is confirmed be minimised and how can issues be tackled persuasively but simply in evidence without breaching commercial confidentiality? In today's climate, such questions are central to the planning and regeneration process.

- Simon Ricketts is head of planning and environment at SJ Berwin LLP.