London planning news, May 2018

In a long-running saga regarding residential redevelopment proposals for the former Territorial Army Centre site in Parkhurst Road, Islington, London, Holgate J has dismissed a High Court challenge relating to viability issues, following a June 2017 decision dismissing the appeal. There had also been a dismissed appeal for the site in 2015, which although it had been dismissed on other grounds, LB Islington at the time had been very concerned about the approach taken by the Inspector to viability assessment in order to determine whether the maximum reasonable amount of affordable housing was being provided. The Council had contemplated making an application for judicial review; pre-action protocol correspondence was exchanged but proceedings were not commenced.

In the 2017 appeal, the main issues had related to the amount of affordable housing and ‘suitable planning obligations’. The Inspector had concluded:

‘The proposed residential development would accord with a number of development plan policies and objectives, particularly those that promote the delivery of housing. However, the appeal proposal would not provide the maximum reasonable level of affordable housing and the submitted planning obligation does not provide a suitable means for a viability review.’

Widely differing approaches had been taken by the parties to viability at the 2017 inquiry; LB Islington had submitted that the site was ‘exactly the type of site that should be making a substantial contribution towards affordable housing’ - the existing use was redundant therefore the existing use value (EUV) was ‘negligible’. There was no alternative form of development which could generate a higher value for an alternative use (AUV) than the development proposed by Parkhurst Road Ltd. (PRL), and there were no abnormal constraints or costs; therefore there was ‘considerable headroom in the valuation of such a site enabling it to provide a substantial amount of affordable housing in accordance with policy requirements’. Their view was that the achievement of that objective was however being frustrated by PRL's use of ‘a greatly inflated’ benchmark land value (BLV) for the site, which failed properly to reflect those requirements; PRL had used a figure updated from the purchase price it had paid for the site as an input into its viability analysis, representing ‘a fixed acquisition cost’ (Paragraph 8).
Three grounds of challenge were considered in the High Court, all of which necessitated detailed analysis of the 2017 inquiry proceedings, and particularly the methods of valuation that had been employed each party and how these had led the Inspector to take the view that PRL's approach ‘had failed to give adequate effect to policy requirements for affordable housing’ (Paragraph 24). Tellingly, the Inspector had concluded:

‘I do not accept the appellant's position that the level of affordable housing provision is not relevant to determining land value, as any notional willing land owner is required to have regard to the requirements of planning policy and obligations in their expectations of land value.’ 

Because the two appeal decisions had since ‘generated a good deal of interest amongst planning professionals’ – they had been used by different parties ever since, as if they provided guidance of more general application on the approach to be followed where development viability and affordable housing contributions were in issue – Holgate J underlined how this was inappropriate (in Paragraph 27):

‘The Inspector's task is to resolve the issues which have been raised on the evidence produced in that appeal. The Inspector is not giving guidance on what course should generally be followed, even in cases raising the same type of issue. First, the application of policy often involves a good deal of judgment and second, the circumstances of an appeal (and the evidence produced) may differ quite considerably from one case to another […] There is a risk of attaching too much importance to the decisions of individual Inspectors, particularly where their conclusions were heavily dependent upon the circumstances of the cases before them and the nature of the evidence and submissions they received, with all their attendant strengths and weaknesses specific to that appeal.’

Following a detailed analysis of how the parties’ rival valuation contentions were addressed at the 2017 inquiry - particularly by LB Islington in relation to national policy and guidance, the Mayor’s and LB Islington’s planning policies and supplementary planning documents/ guidance, and the ‘RICS Professional Guidance: Financial Viability in Planning’ - the judge rejected all of PRL’s grounds of challenge, first on the basis that the Inspector had correctly understood the way in which LB Islington had used the EUV Plus valuation method in accordance with the RICS Guidance Note, leading to his endorsement of it (he had in parallel criticised PRL’s ‘purely market based approach’). Secondly, although the 2017 decision letter did contain a legal error relating to LB Islington’s valuation case made (their witness’s approach did not overcome the problem of comparison between land prices affected by differences in the levels of affordable housing provided, or by assumptions and circumstances affecting other sites which were inapplicable to the appeal site), Holgate J concluded that the decision letter was untainted by the legal error he had identified. The Inspector's decision to reject the adequacy of the proportion of affordable housing proposed would ‘inevitably have been the same if he had not made that error’ (Paragraph 121). He also found that the Inspector had given adequate reasons for his decision.

As an important postscript to his ruling, Holgate J categorically pronounced on the ongoing issues arising from uncertainty as to how viability assessment should properly be carried out. He stated the following, concluding too that he ‘hoped that the court is not asked in future to look at detailed valuation material as happened in these proceedings’:

‘One of the key objectives in our planning system is efficiency in decision-making, in order to avoid delay in bringing about necessary or beneficial development. In this context the present case strikingly illustrates the importance of seeking to overcome uncertainty on how viability assessment should properly be carried out. Similar schemes on the same site have been approached by two different Inspectors in very different ways. That is not in itself unlawful, but from a practical perspective it does make it more difficult for practitioners and participants in the planning process to predict the likely outcome and to plan accordingly. It also leads to a proliferation of litigation […] Appeal decisions which are said to support rival positions are seized upon as part of an increasingly adversarial process. Decisions of the High Court are also subjected to intense scrutiny and added to the forensic palette, whilst overlooking the point that the court's role is limited to review on public law principles, and not to determine whether a decision was right or wrong on its merits.

[…]

According to the basic principles set out in the NPPF and the NPPG, it is understandable why a decision-maker may, as a matter of judgment, attach little or no weight to a developer's analysis which claims to show a "market norm" for BLV by doing little more than averaging land values obtained from a large number of transactions within a district. If those values are inflated by, for example, a misjudgement about a site's development capacity and/or by a failure to factor in appropriate planning requirements, such an exercise does not establish a relevant "norm" for the purposes of paragraph 023 of the PPG. Such data should be adjusted (subject to any issues about reliability and cross-checking). A failure to obtain adequate information about comparables relied upon (including the planning context and circumstances influencing bids and the transacted price) would not be acceptable where development appraisal or viability is dealt with in the Lands Chamber or in an arbitration, and it is difficult to see why the position should be different where the same type of issue arises in the present type of case.
On the other hand, it is understandable why developers and landowners may argue against local policy statements that BLV should simply conform to an "EUV plus a percentage" basis of valuation, especially where the document has not been subjected to independent statutory examination prior to adoption.

[…]

It might be thought that an opportune moment has arrived for the RICS to consider revisiting the 2012 Guidance Note, perhaps in conjunction with MHCLG and the RTPI, in order to address any misunderstandings about market valuation concepts and techniques, the "circularity" issue [this being developers recovering the excess paid for a site through a reduced level of affordable housing provision] and any other problems encountered in practice over the last 6 years, so as to help avoid protracted disputes of the kind we have seen in the present case and achieve more efficient decision-making. The High Court is not the appropriate forum for resolving issues of the kind which the Inspectors dealing with the Parkhurst Road site had to consider.’ (Paragraphs 142 to 147)