Planning gain all round?

My article at Journal, February 2017, 24, featured the Scottish Government’s consultation on the future of the planning system in Scotland, which covers a wide range of regulatory and policy measures intended to improve the system. The Government intends to introduce a Planning Bill in late 2017 to give effect
to these reforms.

This article focuses on one of the more controversial proposals, a significant shakeup to the arrangements for securing developer contributions, with a possible new community infrastructure levy (CIL) to replace in part the existing system of development contributions (known colloquially as “planning gain”). This is probably one of the largest issues for the planning system. New development can frequently be frustrated unless necessary
or improved infrastructure is provided. The issue is who pays for that and who should build it.

Planning gain pros and cons

It is generally accepted that the developer should pay, on the basis that those responsible for new development should make a reasonable contribution to offset the impacts. This was not always the case, but has become the norm in the last 20 years with that burden being increasingly placed on the developer and ultimately the landowner. There is an added issue that, even if the developer agrees to pay such contributions (often by stage payments to local authorities), delivery relies on the authority completing the infrastructure often before it has received all the necessary contributions. This may cause difficulties and issues of unacceptable risk for authorities, who may not wish to incur expenditure without a guarantee of payment.

Property solicitors will be aware of the increasing use of s 75 agreements (under the Town and Country Planning (Scotland) Act 1997) as the mechanism for delivering planning gain, particularly for but not limited to new housing developments, in terms of contributions sought by local authorities from landowners towards the costs of schools, transport, community facilities and also the delivery of affordable housing as part of housing development. Planning permission will not be issued unless a s 75 agreement is entered into, registered on the title in order to guarantee delivery. Planning gain should not be a betterment tax, or used as an opportunity for the community to share in the increase in value created by development.

Concerns have been raised at the impact of these costs on development viability, and also the delays encountered in negotiating and completing s 75 agreements. On that particular matter it is worth pointing out that the Law Society of Scotland is currently pioneering a common style of s 75 agreement with the aim of minimising time taken in the negotiation and completion.

Where local authorities are seeking to pool planning gain to offset the impact of developments and to fund strategic infrastructure, there can be difficulties in meeting the national Circular 3/2012 tests of necessity; serving planning purpose; relating to the development; proportionality; and reasonableness. These difficulties are illustrated in Elsick Development Co Ltd [2016] CSIH 28, which resulted in the quashing of a mechanism for collecting pooled infrastructure payments. (This judgment has been appealed to the Supreme Court.)

Example to follow?

CIL may become the Scottish Government’s preferred means of collecting planning gain towards infrastructure investment needed to support the development of an area. CIL has already been introduced in England & Wales with mixed success. It is a fixed charge per square metre on the development of new floor space, and in England & Wales individual local authorities can vary the charge levels. These are set out in a charging schedule that can only be adopted by the authority once it has been through statutory consultation and after consideration by an independent examiner.

It is important to observe that CIL has not removed the need for s 106 agreements (their equivalent of s 75 agreements), particularly for the delivery of affordable housing and site specific planning gain. Should CIL be introduced in Scotland, s 75 agreements would still be used for these items, at least to some extent negating any advantage of CIL in making the consent process quicker. The UK Government commissioned a study of the efficacy of CIL, which was published late last year. It would be important for the Scottish Government to examine this, as it found that CIL has not achieved its original objectives of a faster, fairer and more transparent method for collecting contributions towards necessary infrastructure. Concern has been expressed at the sheer complexity of the regime, which is unwieldy and draws considerable resources to operate it. CIL was originally introduced in 2010 and whilst there is almost complete coverage in London, implementation in the north, Midlands and Wales is patchy.

The CIL system was considered by many to be inflexible when compared to discretes 106 agreements on planning gain, and ledto some nostalgia amongst developers forthe pre-CIL world that currently exists in Scotland. The operation of exemptions from CIL and viability issues mean that the funds recovered are likely to be materially less than anticipated.

The report recommends a new approach to planning gain, proposing a low-level tariff combined with s 106 agreements for larger sites. This would enable contributions to be optimised from smaller sites which might not otherwise contribute under a s 106 agreement, and ensure that more substantial infrastructure needs of larger sites are met in timely fashion. In this way all development (with virtually no exceptions) would make some contribution to the wider cumulative infrastructure need. This new CIL is called a local infrastructure tariff (LIT). These proposals do not solve the difficulty of providing upfront funding for infrastructure, but are considered to offer greater certainty of payment and ease of collection for local authorities and perhaps a greater encouragement to front-fund infrastructure. LIT might encourage a local authority to borrow on the strength of recovery. The report also recommends a strategic infrastructure tariff, a low level tariff which could be deployed across combined local authority areas.

We await the Scottish Government’s legislative proposals for CIL, and anticipate that it will take account of the experience in England & Wales.