In a recent High Court case Justice Thornton has stated that "whilst affordable housing is generally desirable in policy terms, it does not follow that more affordable housing is always desirable without limit".
In this case the Claimant, Stonewater (one of Britain's leading social housing providers), intended, in line with common market practice, to deliver an entirely affordable housing scheme, despite the section 106 agreement and permission for the site only requiring 35% of the 169 homes to be affordable housing.
Stonewater applied for CIL relief (amounting to just over £3 million pounds) for all 169 units, and were required by Regulation 51(3)(d)(ii) of the CIL Regulations 2010, to provide with the application evidence that the chargeable development qualified for social housing relief by reference to Regulation 49.
The Council refused the application, concluding that Stonewater had not provided sufficient evidence in accordance with Regulations 49 and 51. The Council argued that it had seen no evidence (other than an assertion that the units would all be provided as affordable housing, in apparent non-compliance with the section 106 agreement) that all the units would be secured for affordable housing use.
The Court concluded that whether the evidence was sufficient was a matter for the decision maker, subject to usual public law principles including Wednesbury reasonableness and, although a section 106 agreement securing the units as affordable was not a requirement for the CIL relief to be granted, it was a material consideration. The Court therefore saw no reason to overturn the Council's decision and Stonewater's claim failed.
The above in itself is nothing new. However, it is a useful reminder that evidence provided with affordable housing CIL relief applications needs to be robust; being an established registered provider is now unlikely to be enough.
The case is significant and creates a concern for clients and practitioners working on transactions, due to the Court's interpretation of section 106 agreements and the circumstance in which they may be breached.
Let's look at the judgment in a little more detail. It states "the language of the document [section 106 agreement] points to an interpretation that the agreement controls the amount of affordable housing that can come forward by fixing a specific requirement of 59 dwellings or 35% affordable housing” and that "a scheme which provides less, or more units, of affordable housing would not comply with the section 106 requirement to provide 59 units and hence would be contrary to its terms and to that extent unlawful, albeit the Council would have a discretion to vary the Section 106 agreement or enter into a new agreement."
However, in practice the market (until now) has operated on the understanding that, absent any specific wording to the contrary, section 106 agreements that impose a requirement to provide a specific percentage or number of affordable housing units, do not also provide, implicitly, a cap on the number of affordable housing units that may actually be provided if an owner/operator wishes to voluntarily use units which are defined as private or market in the section 106 agreement, as additional affordable housing units.
The consequence Justice Thornton's judgment is that Councils could take action against registered providers for voluntarily providing private units as additional affordable units. This seems somewhat counter intuitive in the context of a well-documented housing crisis and the need for more affordable homes.
It seems unlikely that Council's would take legal action to prevent homes being provided as affordable or requiring them to be provided as market homes; to do so would be go stretch to new limits the scope of development control. A more likely consequence of the Court's decision, is that other Councils will follow Wealden's example and refuse CIL relief applications unless section 106 agreements are amended so that they require what would have been voluntary affordable housing units to be affordable.
Wealden has already stated that "Going forward, any developer who wishes to provide more than the policy requirement affordable housing must declare this in order that planning applications are considered transparently."
This approach has the potential to cause difficulty for registered providers who need both grant funding (for units provided over and above the levels secured in section 106 agreements) and CIL relief to make their schemes viable. Funding applications, CIL relief applications, and section 106 variations will need to be considered carefully, to avoid inadvertently denying access to funding or CIL relief.
However, Councils will need to proceed with caution, as the Court has made it clear that a section 106 agreement is not a requirement for CIL relief to be granted, and Councils would only be justified in denying CIL relief, if the applicant cannot provide sufficient evidence that the relevant units will be used as affordable housing units.
This case has added a further layer of complexity to CIL relief for affordable housing, and has wider implications for those who want to voluntarily provide additional affordable housing without the risk of an argument, that in doing so, they are breaching an existing section 106 agreement. The solution suggested by this case is to agree a section 106 variation with the Council. Easy enough, unless of course this impacts on your grant funding and/or the Council consider that the receipt of CIL payments and a mixed development site is preferred!
So what's the solution? There won't be a one size fits all approach to mitigate the risks which arise from this case. However, early engagement with funders and the Council to confirm an agreed approach would be sensible, along with, where possible, the inclusion of specific wording in section 106 agreements to clarify that the affordable housing provisions are not intended to restrict any private/market units from being used as affordable housing.
If you have any questions, do get in touch with the Planning & Infrastructure Consenting team.