Why court ruling may only postpone small site viability reviews

Developers of small schemes in London lacking a policy-compliant level of affordable housing may have won only a temporary reprieve from a controversial viability review requirement, observers predict.

London's Royal Courts of Justice
London's Royal Courts of Justice

In a court order handed down this week, a High Court judge held that a key section of the mayor of London’s August 2017 supplementary planning guidance (SPG) on affordable housing and viability is unlawful. The declaration, which followed a court judgment issued last month, strikes down the SPG’s demand for late-stage viability reassessments of all schemes that do not meet the mayor’s 35 per cent affordable housing threshold. The requirement, the SPG explains, seeks to "ensure that affordable housing contributions are increased if viability improves over time".

The case was brought by a consortium of four retirement home developers concerned that the SPG requirement further raises the already high financial risk profile for their schemes, which are typically built out in single phases over periods of 12 to 18 months. The viability review requirement, they maintained, would make it "economically impossible" to build retirement developments in the capital. Supporting their claim, Mr Justice Ouseley held that the disputed passage in the SPG is "inconsistent" with the current London Plan. He noted that, under the plan, late-stage reappraisals are only permitted on "schemes which are likely to take many years to implement".

Following the ruling, London’s deputy mayor for planning, Jules Pipe, pointed out that the new draft London Plan, issued for consultation last winter, includes the same late-stage review requirement for shorter-term development as the SPG. "This judgment supports the mayor’s threshold for affordable housing and will have no impact on the mayor’s plans to increase significantly both the number of genuinely affordable homes delivered in London and the number of retirement properties," Pipe insisted.

But Andrew Burgess, group land and planning director at Churchill Retirement Living, who presented the consortium’s case in the High Court, said the firms have made representations against this policy in their responses to the new London Plan and will reiterate their concerns at its examination, expected this winter. "We have won on the point of law; we will now pursue the point of policy," said Burgess.

"The immediate effect of the decision is narrow," said Clare Fielding, a partner at law firm Town Legal. "It means that, for a while, the mayor will not lawfully be able to rely on the SPG to impose late-stage viability review mechanisms in section 106 agreements for single-phase developments. The battleground now moves to the emerging London Plan process. If late-stage viability reviews cannot be kicked into touch in the plan-making process, which seems rather doubtful, then they will be here to stay."

Kathryn Hampton, senior knowledge lawyer at law firm Hogan Lovells, said the ruling would be good news for most retirement home builders, "although the situation might be different on large-scale retirement villages". But she pointed out that the SPG is not the only material consideration dictating how London boroughs should determine applications. "There may be other material considerations, such as where developers have really damped down their estimates of potential future profit."

Roy Pinnock, a partner at law firm Dentons, agreed that planning authorities could legitimately point to the possibility that sales values could improve over the time period during which development is implemented as a material consideration in deciding development proposals. "If developers have good grounds for not producing a late-stage review, it shouldn’t be imposed. But it is incumbent on those resisting the review requirements to explain their position," he said.

Pascal Levine, a partner at development consultancy DS2, said there is "no doubt" that late-stage reviews on short-term schemes are onerous and cause funding difficulties for developers. "Any schemes that will be delivered within two or three years from the date of consent are unlikely to change fundamentally in terms of economics and the higher rate of delivery would outweigh any loss of additional obligations," said Levine. He added: "It’s not clear what approach the London Plan examiners will take, so the requirement could be reinstated in the new London Plan."

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