CIL: Exemption: Affordable Housing: Need for Section 106 Agreement

Stonewater (2) Limited v Wealdon District Council and SSCHLG [2021] EWHC 2750 – https://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWHC/Admin/2021/2750.html&query=(stonewater)+AND+(wealden)

The claim was brought by Stonewater Limited (SL), a social housing company, against the decision by Wealdon District  Council to refuse its application, made under regulation 49 of the CIL Regulations 2010, for an exemption from paying the Council’s Community Infrastructure Levy (CIL)S.  SL purchased the  site with outline planning permission for 169 dwellings.  A section 106 agreement had been completed prior to the grant of the outline permission and included an obligation to provide 35% affordable housing overall and within each phase of the development via the submission, approval and implementation of an affordable housing scheme.

After  the purchase, SL applied for a CIL exemption based on the provision of 100% affordable housing, as social housing is  exempt from CIL charges.  They based their application  and subsequent debate with the Council on arguments that, as a social housing provider, their aim is to provide 100% affordable housing and any failure to do so would, according to the CIL regulations, oblige them to make additional CIL payments.  They refused to enter into discussions with the Council for a subsequent section 106 agreement or variation obliging them to provide 100% affordable housing. 

The Council refused the application on the basis that the planning permission and the section 106 agreement capped the affordable housing provision at 35% and that 100% affordable housing and the consequent lack of CIL funding would have adverse effects on the development of the area; although they did broach the topic of a variation section 106 agreement with SL.

The Claimant challenged the Council’s decision and argued that the Council was acting outside its powers to require a section 106 affordable housing obligation as a pre-requisite for applying the exemption.  

Mr Justice Thornton OBE agreed that the CIL regulations did not require a section 106 affordable housing obligation to for the exemption but concluded that it required evidence that the level of affordable housing claimed in the application was going to be provided.  The decision maker had a duty and power to assess any evidence provided and the decision as to whether the evidence was sufficient was a matter for the decision maker, subject to the usual public law rules including avoiding Wednesbury unreasonableness.

The judge also interpreted the section 106 agreement as capping the affordable housing provision at 35% so that any more affordable housing provision would be contrary to the agreement.  He  therefore decided that there was nothing which vitiated the Council’s decision to refuse SL’s application.     He ruled that the affordable housing exemption was mandatory and therefore once it was decided that the exemption applied, the Council had no further discretion, like considering the effect of the exemption to the infrastructure funding in their area,  in deciding whether to apply the exemption.

Case commentary:  a caes of reminder

My initial view, while reading the case, was that this and most section 106 agreements would not prevent a higher level of affordable housing in that affordable housing obligations are directed at the level of AH which  must be provided and not AH that should not be provided.  I thought that the judge’s conclusion would be that the Council could not have granted the application for the exemption at the time it was made because they had no guarantee or commitment that 100% affordable housing would be provided.  This is a reminder to read the terms, including those which relate to affordable housing, carefully and closely.  Other reminders in this case include: 

 

1.  As well as the section 106 agreement, the outline permission is described in the judgment as granting consent for housing and “35% affordable housing”, making me wonder if the  descriptor ‘affordable housing’ served any practical purpose in this case and others like it.  This kind of description is not unheard of especially in permissions granted to social landlords and similar entities and  signals to councillors, members of the public and other stakeholders the level of affordable housing  being provided.

However it would be necessary to include a condition or planning obligation to secure and enforce the provision of affordable housing.  As there is no planning use difference between ‘housing’ and ‘affordable’ housing, I am in some doubt as to whether development for market housing would constitute an enforceable breach of planning control in those circumstances.  In my view, it is much neater to grant a permission for residential development and then state the level of affordable housing required in a condition and/or planning obligation.  

2. The judge states that in paragraph 23 of the judgement:

“Section 106 obligations are frequently required by planning authorities as an important adjunct to the exercise of their development control functions. For example, in order to make a proposal for development acceptable, and thus to enable planning permission to be granted, an authority may require a financial contribution to be made. The authority may impose a requirement not only for the erection of affordable housing, but also its provision or transfer to a “registered provider”. Matters such as these are dealt with through s.106 obligations rather than conditions. However, by definition, a s.106 obligation is a freestanding legal instrument. It does not form part of the planning permission….”

This is a useful reminder that the section 106 agreement is not a part of the permission and the permission is not ‘subject to it’ as such.  Neither is the section 106 agreement automatically dependent on the permission.  If the section 106 agreement is intended to ‘rise and fall’ with the permission, certain clauses must be inserted into it.  It must be made clear that the section 106 agreement does not come into force until the permission has been implemented and that if the permission is quashed by judicial review, the agreement ceases to have effect.

Cases like R. (Millgate Development Ltd) v Wokingham District Council [2012] J.P.L. 258 demonstrate  that the fact that it is decided by an appeal inspector that section 106 obligations are not justified, in the sense of passing the test of being necessary for and relevant to the planning application and proportionate to it as required by regulation 122 of the CIL regulations, did not mean that the agreement necessarily ceased to have effect. 

3.  However the judge also differentiated section 106 agreements from purely private contracts, , stating in paragraph 54, in relation to the interpretation of the section 106 agreement:

“...In the case of a public document like the section 106 agreement, there is only limited scope for the use of extrinsic material or the factual background (such as the shared knowledge of the contracting parties) to the process of interpretation (Lambeth London Borough Council v SSHCLG [2019] 1 WLR 4317 §19; Trump International Golf Club Scotland Ltd v Scottish Ministers [2015] UKSC 74[2016] 1WLR 85; Norfolk Homes Limited v North Norfolk District Council [2021] PTSR 863 and Wood v. Capita Insurance Services Ltd [2017] A.C. 1172 §10 per Lord Hodge JSC)).”

and in paragraph 66:

A Court should ‘exercise great restraint’ in implying terms into public documents which have criminal sanctions. Breach of a section 106 obligation may give rise to injunctive relief and thereby to criminal sanctions for any contempt of court. Furthermore, a section 106 obligation runs with the land and may affect the interests of parties who were not originally involved many years later, as well as the general public and other public authorities and agencies “

Section 106 agreements are of course limited in scope by sub-section 106(1) of the Town and Country Planning Act which states that they may only do the following:

a)restrict the development or use of the land in any specified way;

(b)require specified operations or activities to be carried out in, on, under or over land;

(c)require land to be used in a specified way; or

(d)require a sum or sums to be paid to the authority 

Affordable housing restrictions frequently engage purposes (a) to (c) in many ways including positive obligations to provide affordable housing (specified operations and/or land used in a certain way) and negative obligation restricting construction or use of the market housing until the affordable housing has been provided or has been transferred to a social landlord (restricting development and use).  Positive obligations to transfer affordable housing land or units technically  fall outside the scope of section 106(1) and are usually worded as negative obligations and/or the agreement is made subject to additional statutory powers of the authority.

5.  Finally on a lighter note, as an avid consumer of Kevin Hart’s comedy, paragraph 39 of the judgement made me think (unjustifiably )of one of his iconic lines.  After a few rounds of correspondence between SL’s solicitor and the Council about whether or not the exemption would be made available and whether SL  would be willing vary the section 106 agreement and commit to 100% affordable housing , the head of the planning department wrote:

“”Thank you for your email. By return, would you please confirm if this is the extent of your reply to my email of the 22 January 2021? That being so, then we can proceed to determine the CIL claim.”

I heard (and I’m sure the head of planning didn’t mean it this way):

 

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