CIL briefing note: Recent high court decision on social housing relief
Where social housing relief has been granted in respect of residential floorspace, the community infrastructure levy that would otherwise be payable in respect of that floorspace is reduced to zero. The levy continues to be payable in respect of floorspace that does not comprise affordable housing within a development. This feature of CIL improves the viability of providing affordable housing.
Since the introduction of the Community Infrastructure Levy Regulations 2010 there has been a general consensus amongst planning lawyers and professionals that in order to be eligible for social housing relief it is not a pre-requisite for the dwellings in question to be bound as affordable housing units pursuant to a S106 Agreement. However, at least some local planning authorities have taken a different view and have refused to grant social housing relief unless the applicant enters into a S106 agreement in respect of all units that are to be the subject of the social housing relief claim. Those local planning authorities refuse to grant social housing relief on the basis that unless a S106 agreement binds the dwellings there is no guarantee that the dwellings will be provided as affordable housing.
Developers and registered providers are usually unwilling to enter S106 affordable housing obligations to secure "additional" affordable housing (i.e. over and above the planning policy requirement) because it impacts the value of the units in question. Grant funding is frequently utilised by developers and registered providers in order to enable "market housing units" (i.e. dwellings that are not bound by S106 affordable housing obligations) to be acquired by registered providers at full market value, whereby those market housing units are provided on affordable housing terms by the registered provider. Registered providers will typically fund the balance of the purchase price by raising finance against the grant funded units. If the dwellings are not valued as "open market units" it can affect the overall loan to value ratio and potentially make it unviable to convert market units to affordable housing units via the grant funding route.
The recent case of Stonewater vs Wealdon District Council  EWHC 2750 (Admin) considered whether a S106 agreement was a pre-requisite to the grant of social housing relief.
Stonewater intended to deliver 169 new homes as affordable housing and applied for mandatory social housing relief from CIL, on the basis that all 169 homes would be 'qualifying dwellings' for the purposes of regulation 49 of the CIL regulations. A S106 agreement associated with the planning permission required that 35% of the 169 dwellings be provided on affordable terms.
The Council refused CIL social housing relief on the basis that it did not consider that it had been demonstrated that all of the dwellings would be “qualifying dwellings” because there was no legally binding requirement for such provision. The Council indicated that it would consider an offer from Stonewater to vary the s106 to secure all 169 dwellings as affordable housing, however Stonewater did not take up this option. The effect of the Council's decision is that Stonewater were denied over £3m in CIL relief.
Stonewater challenged the Council's decision in the High Court arguing that the Council:
- incorrectly considered a section 106 agreement as a prerequisite to the grant of social housing relief.
- wrongly concluded that the s106 limited the amount of affordable housing which could be provided to 35%; and
- took into account an immaterial consideration by having regard to the extent to which the refusal of social housing relief would permit it to collect more CIL.
The Court upheld the Council's decision. On applications for CIL social housing relief the Court said:
- What evidence is sufficient to demonstrate that the applicant will bring forward a development which will qualify for the relief "is a matter for the decision maker, having regard to the specific facts and circumstances of the case".
- The CIL Regulations do not clarify what evidence required to satisfy Regulation 51(3)(d)(ii). There is no express requirement under the CIL Regulations that dwellings must be secured by way of a section 106 agreement in order to constitute "qualifying dwellings".
- A S106 agreement can form part of the evidence used to support an application for relief as it would evidentially demonstrate that the dwellings are required to be provided on affordable housing terms. The absence of a s106 agreement may also be a material matter depending on "the facts and circumstances of a case"; and
- Social housing relief is mandatory not discretionary and subject to the satisfaction of the relevant conditions and procedural requirements under the CIL Regulations the relief should be granted. There is nothing in the CIL Regulations which enables a decision maker to consider the effect of granting relief including, for example, the impact of granting relief on CIL receipts.
The Court also held that as a matter of proper interpretation the S106 agreement in question limited the quantum of affordable housing that may be provided pursuant to the planning permission to 35%. The Court held that based on the drafting of the S106 agreement it would be unlawful for the developer to provide more than 35% affordable housing. The Court's interpretation of the S106 agreement is surprising, because where a S106 agreement requires a certain percentage of dwellings to be provided as affordable housing (in this case 35%) one would not usually consider that as placing a restriction on the tenure of the market housing units.
Implications for social housing relief claims
The Stonewater decision does not mean that Council's must seek a S106 agreement in order to grant social housing relief. However, it does give Council's a clear basis upon which they can require such an agreement if they so choose, and it is likely to be difficult for developers and registered providers to challenge such a stance in light of the Stonewater decision.
Sufficient evidence must be provided that the dwellings being brought forward will be qualifying dwellings. When applying for relief we would recommend early dialogue with the local authority to discuss CIL relief and the evidence to be provided. Authorities who wish to support social housing relief claims for non-S106 units are likely to require tenure plans, accommodation schedules and potentially supporting statements from the registered providers.
Authorities who wish to oppose social housing relief claims for non-S106 units are likely to require a S106 agreement to be entered into. It may be possible to bind these "additional" affordable housing units on terms that are less onerous than standard S106 affordable housing provisions. For example, the obligations could require first occupation to be on affordable housing terms but provide that the affordable housing obligations cease to apply where a "disqualifying event" occurs pursuant to the CIL regulations.
Implications for S106 drafting
The Stonewater case could potentially bring into question whether it is permissible to provide market housing units as affordable housing. This could be particularly important for grant funded schemes. We consider the Court's interpretation of the S106 agreement in the Stonewater case to be highly surprising.
Whilst under the terms of the Stonewater S106 an affordable housing scheme that provided for more than 35% affordable housing would have been a scheme that failed to adhere to the requirements of the S106 agreement, it is difficult to agree with the Court's suggestion that it would be unlawful for Stonewater to voluntarily provide the market housing units on affordable terms. Could the Council really take action against Stonewater for letting market dwellings at a sub-market rent or disposing of them at a discount to market value? It is highly doubtful notwithstanding the Stonewater case. We anticipate this matter being the subject of further clarification if the matter goes to the Court of Appeal.
Nonetheless it is advisable to define affordable housing by reference to a floor (e.g. "at least" or "no less than") rather than by referring to a fixed quantum, and to ensure there is no ceiling on the number of affordable housing units that may be provided voluntarily. Given how surprising the Court's reasoning was in the Stonewater case, it is advisable to include "for the avoidance of doubt" wording in S106 agreements to make it clear that nothing in the S106 agreement shall prohibit the terms upon which the market housing units may be let or sold.