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	England and Wales High Court (Administrative Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Administrative Court) Decisions >> Medway Council v Secretary of State for Communities and Local Government & Ors [2016] EWHC 644 (Admin) (23 March 2016) URL: http://www.bailii.org/ew/cases/EWHC/Admin/2016/644.html Cite as: [2016] EWHC 644 (Admin)

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IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
PLANNING COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		23rd March 2016

MR JUSTICE GILBART :

1. This matter relates to a planning obligation made under section 106 of the Town and Country Planning Act 1990 (as amended) ("TCPA 1990"). One of its requirements related to affordable housing, as I shall set out below. That Act was amended in 2013 to include provisions dealing with the discharge of requirements relating to affordable housing, now found in sections 106BA-C of the Act in its amended form. This litigation concerns an application by a developer under section 106BA to modify the requirement so that a payment for the provision of affordable housing is deleted, and its succeeding in an appeal to the Defendant Secretary of State under section 106BC of the Act.
2. As far as Counsel were aware, this is the first occasion upon which the Courts have had to consider these provisions, and consider the route by which decisions by the Secretary of State can be challenged in the High Court. It is fair to say that the meaning of some parts of the legislation are not easy to understand, and I am grateful to counsel for their contributions to my education on the point. That process revealed some potential lacunae in the statutory code, which I shall refer to in due course.
3. I shall deal with the matter as follows

A. Procedural issues

B. The central issues for determination

C. The statutory and policy context, including the powers of the Secretary of State

D. The application in issue and the factual background

E. Conduct of the Appeal

F. The decision letter under challenge

G. The case for the Claimant authority

H. The position of the Defendant Secretary of State

I. The case for the First Interested Party

J. Discussion

K. Conclusions.

A PROCEDURAL ISSUES

4. As noted above, this application concerns a decision letter of a Planning Inspector of the Defendant Secretary of State issued on 8^th September 2015, on an appeal brought by the First Interested Party under section 106BC of the TCPA 1990 against the failure by the Claimant Council to determine that a planning obligation should be modified.
5. Given the fact that the decision by the Secretary of State was made by decision letter, it is perhaps understandable that the Claimant Council made its challenge under section 288 of TCPA 1990. However, such appeals are not among those orders or actions listed in s 284(2) or (3) of the Act, and therefore do not fall within the purview of section 288, which only applies to the orders or actions so listed (see s 284(4)). By s 106BC (16) the Secretary of State's determination of an appeal under the section is final.
6. It follows that the only remedy for challenging such a decision is by way of judicial review, rather than the specialised route under s 288. That route contains more rigorous time limits for the making of applications for leave to make the application under s 288(4A) (the strict 6 week window), in contrast to the position in a judicial review challenge, where, while a 6 week time limit is specified in CPR 54.5, time can be extended. It is not clear whether the absence of s 106BC appeals from the list in s 284 (2) and (3) is a matter of choice by the legislature, or simply an omission. In reality in the vast majority of cases there will be little difference between the legal principles applying to the consideration of a decision letter in a Judicial Review context as opposed to a statutory review, save only for the different principles relating to the time for making applications. Even then, this Court would require much persuasion that a challenge to a decision letter could be made after a period of 6 weeks has elapsed.
7. The Claimant issued a claim under s 288 on 13^th October 2015, within 6 weeks of the date of the decision letter. The Claimant then came to appreciate that the appropriate route was by way of judicial review, and issued an application, with the consent of the Defendant, that the Part 8 application be treated as an application for judicial review. On 21^st December 2015 Lang J refused permission on the grounds that "the course of action proposed …..does not comply with the CPR or the statutory requirements." She did not specify the statutory requirements concerned, but indicated that if the Claimant wanted to apply for judicial review, it had to apply for it, including for an extension of time, and that it should be listed as a rolled up hearing with the s 288 application.
8. The Claimant applied for leave to appeal her Order. Before the decision of Lewison LJ to refuse leave (given in writing on 11^th February 2016) the Claimant had issued the current application to apply for Judicial Review, and for an extension of time, on 9^th February 2016.
9. Thus it is that the hearing on the 10^th March 2016 was a rolled up hearing, able to consider the judicial review application on the date originally fixed for the hearing of the s 288 application. It follows that the complexities of the procedural questions had produced not a single day's delay, and all parties had known of the Claimant's case since the 13^th October 2015. The Defendant had no objection to an extension of time, and after consideration at the hearing, the First Interested Party withdrew what had been an objection on this ground. This is thus an exceptional case where it is proper to extend the time for issuing the proceedings under CPR 54.4, and I do so.
10. It must not be thought that that amounts to a judicial view that applications to extend will be allowed as a matter of course. In future cases, if this judgement is reported, the absence of a statutory review route of challenge will be known to those considering the issuing of proceedings.

B THE CENTRAL ISSUES FOR DETERMINATION

11. The central issues for determination by this Court were

i) the meaning of the word "development" in s 106 BA(13) :

ii) whether an application could be made after the housing element of the development permitted had been completed;

iii) whether the Inspector properly addressed the Claimant's argument that the relevant completion related to the housing development, and its argument that the whole development had in fact been completed.

12. Another issue ventilated before me was whether an application had to be made while the development to which the planning obligation related was still under way.

C THE STATUTORY AND POLICY CONTEXT, INCLUDING THE POWERS OF THE SECRETARY OF STATE

13. I start with Section 106BA of the Act as amended. It contains the following provisions of relevance:

"(1)     This section applies in relation to an English planning obligation that contains an affordable housing requirement.

(2)     A person against whom the affordable housing requirement is enforceable may apply to the appropriate authority—

(a)     for the requirement to have effect subject to modifications,

(b)     for the requirement to be replaced with a different affordable housing requirement,

(c)     for the requirement to be removed from the planning obligation, or

(d)     in a case where the planning obligation consists solely of one or more affordable housing requirements, for the planning obligation to be discharged.

(3)     Where an application is made to an authority under subsection (2) and is the first such application in relation to the planning obligation—

(a)     if the affordable housing requirement means that the development is not economically viable, the authority must deal with the application in accordance with subsection (5) so that the development becomes economically viable, or

(b)     if paragraph (a) does not apply, the authority must determine that the affordable housing requirement is to continue to have effect without modification or replacement.

(4)     Where an application is made to an authority under subsection (2) and is the second or a subsequent such application in relation to the planning obligation………… (not relevant here)

(5)     The authority may—

(a)     determine that the requirement is to have effect subject to modifications,

(b)     determine that the requirement is to be replaced with a different affordable housing requirement,

(c)     determine that the planning obligation is to be modified to remove the requirement, or

(d)     where the planning obligation consists solely of one or more affordable housing requirements, determine that the planning obligation is to be discharged.

(6)     A determination under subsection (5) (a), (b) or (c)—

(a)     may provide for the planning obligation to be modified in accordance with the application or in some other way,

(b)     may not have the effect that the obligation as modified is more onerous in its application to the applicant than in its unmodified form, and

(c)     may not have the effect that an obligation is imposed on a person other than the applicant or that the obligation as modified is more onerous in its application to such a person than in its unmodified form.

(7)     …………………………………………………………………………..

(8)     In making a determination under this section the authority must have regard to—

(a)     guidance issued by the Secretary of State, and

(b)     …………………………………………………..

(9)     The authority must give notice of their determination to the applicant—

(a)     within such period as may be prescribed by the Secretary of State, or

(b)     if no period is prescribed under paragraph (a) (and subject to section 106BB(5)), within the period of 28 days beginning with the day on which the application is received, or such longer period as is agreed in writing between the applicant and the authority.

(10)     Where an authority determine under this section that a planning obligation is to have effect subject to modifications, the obligation as modified is to be enforceable as if it had been entered into on the date on which notice of the determination was given to the applicant.

(11)     ……………………………………………..

(12)    …………………………………………………….

(13)     In this section and section 106BC—

"affordable housing requirement" means a requirement relating to the provision of housing that is or is to be made available for people whose needs are not adequately served by the commercial housing market (and it is immaterial for this purpose where or by whom the housing is or is to be provided);

"the appropriate authority" has the same meaning as in section 106A;

"the development", in relation to a planning obligation, means the development authorised by the planning permission to which the obligation relates;

"English planning obligation" means a planning obligation that—

(a)     identifies a local planning authority in England as an authority by whom the obligation is enforceable, and

(b)     does not identify a local planning authority in Wales as such an authority.

(14)     ………………………………………………………………………

(15)     ……………………………………………………………………….

(16)     ………………………………………………………………..

14. Section 106BC deals with the powers of the Secretary of State on appeal:

"(1)     Where an authority other than the Secretary of State—

(a)     fail to give notice as mentioned in section 106BA(9),

(b)     determine under section 106BA that a planning obligation is to continue to have effect without modification, or

(c)     determine under that section that a planning obligation is to be modified otherwise than in accordance with an application under that section,

the applicant may appeal to the Secretary of State.

(2)     For the purposes of an appeal under subsection (1) (a), it is to be assumed that the authority have determined that the planning obligation is to continue to have effect without modification.

(3) – (5) …………………………………………………………………………

(6)     Subsections (3) to (8), (10) and (11) of section 106BA apply in relation to an appeal under this section as they apply in relation to an application to an authority under that section, subject to subsections (7) to (15) below.

(7)     References to the affordable housing requirement or the planning obligation are to the requirement or obligation as it stood immediately before the application under section 106BA to which the appeal relates.

(8)     ……………………………………………………………………..

(9)     Section 106BA (5) (d) (discharge of affordable housing requirement) does not apply in relation to an appeal under this section.

(10)     Subsection (11) applies if, on an appeal under this section, the Secretary of State—

(a)     does not uphold the determination under section 106BA to which the appeal relates (if such a determination has been made), and

(b)     determines that the planning obligation is to be modified in accordance with section 106BA (5) (a), (b) or (c).

(11)     The Secretary of State must also determine that the planning obligation is to be modified so that it provides that, if the development has not been completed before the end of the relevant period, the obligation is treated as containing the affordable housing requirement or requirements it contained immediately before the first application under section 106BA in relation to the obligation, subject to the modifications within subsection (12).

(12)     Those modifications are—

(a)     the modifications necessary to ensure that, if the development has been commenced before the end of the relevant period, the requirement or requirements apply only in relation to the part of the development that is not commenced before the end of that period, and

(b)     such other modifications as the Secretary of State considers necessary or expedient to ensure the effectiveness of the requirement or requirements at the end of that period.

(13)     In subsections (11) and (12) "relevant period" means the period of three years beginning with the date when the applicant is notified of the determination on the appeal.

(14)     Section 106BA and this section apply in relation to a planning obligation containing a provision within subsection (11) as if—

(a)     the provision were an affordable housing requirement, and

(b)     a person against whom the obligation is enforceable were a person against whom that requirement is enforceable.

(15)     If subsection (11) applies on an appeal relating to a planning obligation that already contains a provision within that subsection—

(a)     the existing provision within subsection (11) ceases to have effect, but

(b)     that subsection applies again to the obligation.

(16)     The determination of an appeal by the Secretary of State under this section is to be final.

(17)- (18)…………………………………………………………………………"

15. It will be noted from subsections (9) – (13) that the powers of the Secretary of State on appeal differ from those of the Local Planning Authority on application to it.
16. The Department of Communities and Local Government has issued a policy statement about these provisions: "Section 106 affordable housing requirements: Review and Appeal" (April 2013). That is the guidance referred to in section 106BA (8) to which the local planning authority must have regard.
17. Two important paragraphs appear in its introduction

"2. Unrealistic Section 106 agreements negotiated in differing economic conditions can be an obstacle to house building. The Government is keen to encourage development to come forward to provide more homes to meet a growing population and to promote construction and economic growth. Stalled schemes due to economically unviable affordable housing requirements result in no development, no regeneration and no community benefit. Reviewing such agreements will result in more housing and more affordable housing than would otherwise be the case.

3. The Growth and Infrastructure Act inserts a new Section 106BA, BB and BC into the 1990 Town and Country Planning Act. These sections introduce a new application and appeal procedure for the review of planning obligations on planning permissions which relate to the provision of affordable housing. Obligations which include a "requirement relating to the provision of housing that is or is to be made available for people whose needs are not adequately served by the commercial housing market" are within scope of this new procedure."

18. In its section 2, headed "Evidence", it sets out the Viability Test it seeks to have used:

"10. The test for viability is that the evidence indicates that the current cost of building out the entire site (at today's prices) is at a level that would enable the developer to sell all the market units on the site (in today's market) at a rate of build out evidenced by the developer, and make a competitive return to a willing developer and a willing landowner.

11. The developer will need to demonstrate to the planning authority, and to the Planning Inspectorate on appeal, that the affordable housing obligation as currently agreed makes the scheme unviable in current market conditions.

12. A viable affordable housing provision should be proposed. This should deliver the maximum level of affordable housing consistent with viability and the optimum mix of provision. The proposal may consider whether adjustments should be made to the affordable housing tenure and mix and, where relevant, phasing may also be considered. Timing and level of off-site affordable housing contributions may also be considered, as may any other aspect of the affordable housing requirement.

13. The developer will need to submit clear, up-to-date and appropriate evidence. Wherever possible, this should take the form of an open book review of the original viability appraisal and should clearly demonstrate, by reference to evidence, that the proposals are not viable in current market conditions. The "original viability appraisal" is that which is the most recently agreed by the local planning authority and developer.

14. In those cases where an original viability appraisal was not prepared prior to planning permission being granted, the developer must clearly demonstrate through evidence why the existing scheme is not viable. A proposal to bring the scheme into viability should be submitted.

15. At appeal, if the developer is unwilling to proceed on an open book basis, general evidence of changes in costs and values since permission was granted can be submitted; however developers must consider whether this approach will provide sufficient evidence for the Planning Inspectorate to make a robust, impartial decision on viability."

19. The next section ("Form of Viability Evidence" paragraphs 16-21) sets out the view that the starting point for the evidence is the original viability appraisal.
20. The parties agreed that the effect of the provisions about the powers on appeal (and in particular subs 11) is that the obligation is deferred for 3 years. If the development is completed within that period, then that is the end of the matter. If not, then the obligation acquires force again. That is explained at paragraph 22 ff of the Policy Guidance, which also explain the Government's view of what the section is designed to achieve:

"22. Revised affordable housing obligations, in line with current market conditions and based on the test of viability in this Guidance, should incentivise developers to start building.

23. Section 106BC ensures that if an Inspector modifies an affordable housing obligation on appeal, that modification is valid for 3 years. If the development is not completed in that time, the original affordable housing obligation will apply to those parts of the scheme which have not been commenced. Developers are therefore incentivised to build out as much of their scheme as possible within 3 years. It will not be sufficient to commence one part of the development to secure the revised affordable housing obligation for the whole scheme. If developers are concerned about the viability of their scheme at the end of the 3 years, they can seek to modify the agreement again. This could be done through voluntary renegotiation or by making a new application under Section 106BA.

24. This 3 year period, and the need to secure as much development as possible in that period, should incentivise developers to build out. Local planning authorities may wish to make similar time-limited modifications or conditions when considering an application under Section 106BA.

25. It should be noted that Sections 106BA and 106BC prevent the outcome of the first application in relation to a planning obligation being more onerous for the applicant than the existing obligation. Care should be taken to ensure revised affordable housing requirements do not exceed the overall level of obligation required under the original agreement. Care must also be taken to ensure that any modified requirement meets the statutory and policy tests for planning obligations.

26. In the event of an appeal, the Inspector will consider all the evidence before them. Should the Inspector issue a new affordable housing obligation for a 3 year period, it will include provisions to reapply the requirements of the original agreement for the part of the site that remains uncommenced."

D THE APPLICATION IN ISSUE AND THE FACTUAL BACKGROUND

21. In June 2007 the Claimant Local Planning Authority considered an application for planning permission for a very substantial development. It consisted of 332 residential units and 5,738 sq m of commercial floorspace divided into 16 units, public open space, new and modified accesses and car parking at Chatham Quays. The Claimant Council resolved to grant permission, provided that the developers entered into a deed under sections 106 and 106A of the Act. Construction started in 2007.
22. There was an agreement entered into, which was, for the purposes of the matters relevant in these proceedings, superseded by a deed of 16^th January 2009, made between, inter alios, the Claimant Council as local planning authority and the First Interested Party, who was identified in the deed as the developer.
23. That deed defined the "development" as consisting of

"retail/restaurant/bar/gymnasium (Classes A3/A4/A1/D2) residential (Class C3) including a 17 storey and a 21 storey block of flats, public open space with associated new and modified accesses, pedestrian/cycle access and car parking……"

(The Classes refer to the relevant Use Class in the Town and Country Planning (Use Classes) Order 1987)

24. By Clause 5.1.1 the Developer covenanted to observe the restrictions and perform the obligations in the First, Second, Third and Fourth Schedules. It is not necessary to refer to them all, nor to any but the Fourth in detail. In the Second Schedule, the Developer was obliged to pay £150,000 towards the cost of community based water activities being provided by the owner of the land. By the Third Schedule the developer covenanted to design and build highway improvement works to a nearby public highway, to provide measures to improve bus services in the area, and to prepare and submit for approval a travel plan.
25. The Fourth Schedule dealt with the provision of affordable housing. It fell into two parts.

i) to pay £1,000,380 to Medway Council towards the provision of affordable housing in the Medway area, in three tranches:

a) £333,453 before the first occupation of the 75^th housing unit to be so occupied;

b) £333,453 before the first occupation of the 153^rd housing unit to be so occupied;

c) £ 333,454 before the first occupation of the 229^th housing unit to be so occupied;

ii) To nominate an approved Registered Social Landlord for management of the affordable housing units on the site, which would remain in perpetuity as such units (subject to provisions which need not concern us in this judgement);

iii) Not to allow more than 60% of the private housing units to be occupied until the relevant lease had been granted or assigned to the relevant Registered Social Landlord.

26. By Clauses 2.9 – 2.12 of the Deed, the following was agreed

"2.9 The Planning Obligations contained in paragraphs 2-9 (other than paragraphs 3 and 5) shall bind the Affordable Housing Units only.

2.10 The Planning Obligations contained in paragraph 1 of the Second Schedule and paragraphs 1 3 and 5 of the Fourth Schedule shall bind those parts of the land upon which the Housing Units will be constructed.

2.11 the Planning Obligation contained in Part 2 of the Third Schedule shall bind those parts of the Land used for retail and leisure purposes only.

2.12 the provisions contained in paragraphs 2-9 of the Fourth Schedule shall not bind or be enforceable against

2.12.1 any mortgagee of a Registered Social landlord to which the legal estate has been leased....which mortgagee is in possession thereof exercising the power of sale or against a person deriving title from such mortgage….

2.12.2 any person acquiring a shared ownership lease of an affordable housing unit……

2.12.3 (a lessee exercising rights to buy)

2.12.4 (a mortgagee exercising the power of sale after a default on the mortgage

2.12.5 a purchaser of a single private housing units and his/her successors or mortgagees"

27. Subsequently the Claimant agreed in 2010 that the payments under the Fourth Schedule should be deferred until after the occupation of the 300^th unit.
28. By 2014 the development was, to use the phrase in paragraph 12 of the original Part 8 claim "largely completed." 332 dwellings had been built, of which 214 had been sold as private residential flats. 44 units had been sold as shared ownership flats to a Registered Social Landlord and were occupied. 74 units had been built but not sold, of which the majority were being rented by occupiers. The commercial development had got under way. 6 of the 16 commercial units had been built and let to commercial tenants. 10 of the units remained. They had been constructed to shell and core stage, but still needed works to be occupied, such as floors above screed level and openings for lifts or stairs.
29. The First Interested Party applied to the Council on 19^th December 2014 that the s 106 Agreement be modified by removal of the obligation to pay the sum of £1,000,380 under the Fourth Schedule. A viability assessment from a reputable firm of surveyors (Messrs Savills) was submitted to the Council. It looked at the whole development, including the commercial elements and considered whether the scheme could afford to make payments. It concluded that it could not. I shall address the nature of the application more fully in due course.
30. The Council did not determine the application within the prescribed time period, so that an appeal could be, and was, made to the Secretary of State under s 106BC (1)(a) of the Act.
31. After the appeal had been entered, the Council resolved that they would have refused the application, on the grounds that

"in the light of the fact that the development has been completed the existence of the affordable housing obligation has not delayed the delivery of the housing. Accordingly there is no justification under section 106BA……….for modifying the Section 106 agreement…………….by permitting the removal of the obligation to make an affordable housing contribution."

32. The appeal was determined by an Inspector appointed by the Defendant Secretary of State. His decision letter was issued on 8^th September 2015, after a site visit on 17^th August 2015 and a hearing on 18^th August 2015.
33. I return now to the application put before the Claimant Council and the Defendant Secretary of State. In the financial appraisal by Messrs Savills, the value of the residential parts of the development were assessed, as were the commercial parts. In the latter case it said that most of the units were not let, and assessed the value of that part of the development. It described the scheme as "complete." It made an economic appraisal whose methodology and conclusions are undisputed. The appraisal concluded that its value on a residual valuation basis was negative. If a benchmark land value was considered (i.e. the value of the site as a development site) the loss would be even greater, being the difference between the residual value (as built) and the value if unbuilt). The total loss would add 82% to the loss calculated on a residual value basis.
34. It is important to note that the appraisal looked at the values of the whole development, including both residential and commercial parts. It concluded by advising that the scheme could not sustain payment of the sum payable under the Fourth Schedule.

E CONDUCT OF THE APPEAL

35. Once the appeal had been made, Medway Council wrote to the Planning Inspectorate on 22^nd May 2015. In that letter it contended that the application which was the subject of the appeal did not fall within the scope of section 106(BA) of the Act because, on the date of its submission, the residential development in question (the 332 units) was complete. It contended that an appeal could not therefore be entertained.
36. Messrs Rapleys, the well known firm of commercial property and planning consultants, who were acting for the Interested Parties responded on 24^th June 2015. Mr Simon Chapman BA MRTPI of that firm said inter alia that

i) An application could be made whether or not the development was complete

ii) An application could be made whether or not a development had "stalled."

37. He contended that the only requirements were that (a) there was an affordable housing requirement, and (b) that there was a person against whom it was enforceable. He then stated that the commercial parts of the development were incomplete. They still required service connections, floor screeds, internal partitioning, and installation of shopfronts and fit out, and he said that the use authorised by the planning permission had not yet commenced.
38. The Council was advised by an equally well known firm of experts in this field, Messrs GL Hearn.
39. There was a Statement of Common Ground ("SOCG") agreed between the Claimant Council and the Interested parties for the purposes of the appeal. It included the following

i) " The Development

2.6 The Scheme comprises two residential towers………..to the south of each tower…………….are lower rise buildings comprising residential or commercial accommodation.

2.7 The Scheme comprises 332 residential units, 61,767 sq ft (5,738sq m) of commercial (retail and leisure space). The scheme can be split into the following four elements

Marina Point East ……. comprising 96 residential flats……..

The Wharf ………. comprising 72 private residential flats……….. and 44 shared ownership flats…….

Marina Point West………. comprising 120 flats………

A 3-storey commercial building……………. Comprising 61,770 s ft (5,739 sq m) of accommodation for retail and leisure use.

2.8 In addition there are over 360 underground car parking spaces.

3 CURRENT STATUS

3.1 Construction of the residential element is now complete, although a proportion of the scheme remains unsold.

3.2 (the status of the 332 residential units was described: some units were unoccupied)

3.3 In terms of the 16 commercial units, at this point in time the following units are complete and let (they were identified)

3.4 This means that there are still 10 commercial units, which due to the incomplete nature of the Landlord's works, were deleted from the rating list, as they are not capable of occupation, this equates to 34,908 sq ft (3,243 sq m) – 57% of the commercial floorspace. With that said the 10 commercial units have been constructed to shell and core.

…………………………………………………………………

…………………………………………………………………

6 FINANCIAL VIABILITY

6.2 At a meeting on 3^rd July 20-15 with Medway Council's advisors (sic), their Viability Consultant (GL Hearn) advised that in respect of the viability assessment submitted with the application, they did not dispute the conclusions raised by Savills' report; however they did have a few items for clarification (listed)……………….

6.3 Subject to being comfortable with the above information, GL Hearn reiterated that they were in general agreement with the conclusions of the report.

6.4 the requested information was provided to GL Hearn on the 16^th July 2015. GL Hearn has now reviewed the additional information provided and is satisfied with the accuracy of the information."

40. At the hearing, Medway Council referred to the Report to the Planning Committee, to its letter of 22^nd May 2015, to the Statement of Common Ground and to 5 decision letters. Its evidence to this Court from Ms Vicky Nutley, a solicitor in its Legal Services Department, who represented the Council at the hearing, is that its case was always that the development had been completed.

F THE DECISION LETTER UNDER CHALLENGE

41. The parts of the Decision Letter relevant to the issues read as follows :

"1. The appeal is allowed. For a period of 3 years from the date of this decision the planning obligation…………. shall have effect subject to the modifications as set out in the Schedule at the end of this Decision.

Main Issue

3. The main issue in this appeal is whether the affordable housing requirement means that the development is not economically viable and if so, whether the obligation should be modified.

Reasons

Background

4. The appeal site is a large area of recent development at Chatham Quays. The development comprises 332 residential units and about 5,700 sq.m of commercial floorspace (retail and leisure). Construction of almost all of the development is complete and agreed figures presented in the Statement of Common Ground (SOCG) indicates that, as of July 2015, of the 332 consented flats, 229 are sold, 44 shared ownership units have been sold to a RSL, 39 are rented out and 20 remain vacant. In relation to the 16 commercial units, 6 are complete and are let and 10 remain vacant with works outstanding before they can be occupied. The SOCG records that these 10 units are deleted from the ratings list as they are not capable of occupation, although they have been constructed to shell and core.

5. The relevant schedule of the Planning Agreement relating to the affordable housing contribution was structured such that one-third of the amount would be due after occupation of the 75th unit, the 153rd unit and finally the 229th unit. The issue of viability was discussed between the developer and the Council in 2010 when it was agreed that the staged payments would be deferred until near the end of the scheme upon occupation of the 300th residential unit, in the hope that viability improved. However, payment was not made at that stage and the full amount of the contribution remains outstanding.

Is the scheme viable?

6. There is a great deal of information relating to the viability of the scheme. The short answer to this question is contained in the SOCG, wherein the Council agree with the appellants' figures and conclusion, that the scheme is not viable, with a projected loss of £12.35m. There is no evidence to contradict or cast any doubt over this figure. Therefore, I conclude that the scheme is not viable.

Has the scheme stalled?

7. The DCLG guidance 'Section 106 affordable housing requirements – review and appeal' states that "unrealistic Section 106 agreements negotiated in differing economic conditions can be an obstacle to house building. The Government is keen to encourage development to come forward, to provide more homes to meet a growing population and to promote construction and economic growth. Stalled schemes due to economically unviable housing requirements result in no development, no regeneration and no community benefit."

8. There is no definition of what constitutes a "stalled scheme". The appellants point out that they continued with the construction of this major scheme in the face of considerable financial difficulties, when recognising that the scheme had become unviable. They negotiated difficult re-financing and proceeded with the loss making scheme as the alternatives of stopping and moth-balling the construction would have had damaging effects on them professionally and financially; plus the damaging effects on the locality would have been unacceptable. The point has now arisen where the appellants state that they are unable to complete the commercial units (notwithstanding that some works of 'tenants fit-out' would be undertaken by new occupiers). This would include any structural openings and modifications; it is also stated that their current position does not allow them to offer any of the common incentives of reduced rent for initial periods or assistance with fit-outs, that would encourage reputable and desirable occupiers.

9. Whilst the scheme has obviously progressed to an advanced stage, there is no dispute that it is not complete and ready for occupation. Whilst the appellant has proceeded with this unviable scheme for some time, for reasons that I well appreciate, it cannot be argued that it is viable to proceed any further. I can understand the Council's concerns, that the scheme is significantly well-advanced and very little remains to be done in order to complete it. However, the agreed facts remain that it is not viable and it is not complete. In these circumstances, I agree that the scheme can be considered to have stalled and efforts should be made to make it more viable.

Conclusions

10. The stated aims of this provision within the Act are to not only boost housing and affordable housing, but also to promote construction and economic growth. Whilst the housing units have been provided, including 44 in shared ownership, the completion of the scheme must remain in doubt in this unviable situation.

11. I have considered the Council's concerns in relation to the fact that the relevant contribution should have been made when the 300th flat was occupied and that point has now passed. Whilst this is the case, the development is still on-going and not complete. In the circumstances of this case I do not see this as an impediment to allowing the appeal.

12. It is accepted that the modification that is applied for would not make the scheme viable as the sum involved (around £1.3M indexed to October 2014) would be insufficient to off-set the loss (around £12.3M), but I consider that it would improve the viability of the scheme and make its completion more likely.

13. As a consequence, the appeal is allowed for a period of 3 years from the date of this decision.

Schedule of Modifications to the planning obligation

PAGE 24, FOURTH SCHEDULE,

a. Delete paragraph 1."

G THE CASE FOR THE CLAIMANT AUTHORITY

42. The central point in the submissions of the Claimant Council was that no application could be made under section 106BA if the housing element of a development has been completed. Mr Coppel QC argued that the purpose of section 106BA and BC is to give the developer an incentive to complete housing development. He draws attention to the provisions in section 106BC, whereby the affordable housing requirement payment is effectively suspended for 3 years. If the development is completed by then, then the requirement falls away. He says that that was designed to deal with sites where the affordable housing provision was not coming forward as intended, and the idea was to give developers an incentive to do so.
43. In that, he is supported by the terms of the policy guidance noted above at paragraphs 22-26.
44. It was also a fundamental part of the case for Medway that the "development" for the purposes of an appeal under section 106BC is the housing development. He says that when, as here, the section 106 obligation only binds the area upon which the housing was to be constructed, it cannot be right to treat the relevant "development" as the whole, including the other areas.
45. In that regard he points to the terms of the Guidance in sections 1 and 2 (paragraphs 1-15), and its concentration on housing. It never addresses aspects of a development other than housing, nor mixed developments. He says that it is patently addressed to cases where the housing units proposed have not come forward- see for example paragraph 2.
46. He says that if one takes the whole development as the development for the purposes of s 106 BA (13) (as is argued here by the Interested Party) then the effect of the Act is to require local authorities to modify affordable housing requirements when what awaits completion is not housing but other parts of the development. He says that the procedure under section 106BA is not available if the housing part of the scheme has been completed.

Ground 1

47. He argued that the Inspector had been wrong to say at paragraph 9 that "there is no dispute that it is not complete and ready for occupation" when the Council's case had been that the relevant development was that of the housing elements, which had been completed. He drew attention to the letter referred to above of 22^nd May 2015, and to submissions made at the hearing of the appeal to the same effect.

Ground 2

48. He argued that the Inspector treated the development as the whole, when he should have looked at the housing part. He referred to the fact that the obligation only bound that part of the development (see Clause 2.10 of the s 106 Agreement).
49. He said that it could not be argued that the housing element had stalled (as addressed in the policy at paragraph 2). This was a mixed scheme, where the housing part was all built, thus meeting the policy objectives.

H THE POSITION OF THE DEFENDANT SECRETARY OF STATE

50. By letter of 4^th March 2016 the Defendant Secretary of State does not oppose the claims (whether under s 288 or by way of Judicial Review) of the Claimant Council, on the basis that it is conceded that the Inspector made a procedural error in his considering that it was common ground that the development was not completed.

I THE CASE FOR THE INTERESTED PARTY

51. Mr Turney argued as follows. He said that section 106BA(3)(a) set a single threshold, which was whether the development is economically viable. "Development" here referred to the development for which planning permission was given, which included the commercial development.
52. The SOCG was explicit that the development was incomplete, which had always been the Interested party's case. The fact that buildings had reached the stage of being a shell and core was not enough to say that the development had been completed. He referred to Sage v. Secretary of State for the Environment, Transport and the Regions & Ors [2003] UKHL 22 [2003] 1 WLR 983, [2003] 2 All ER 689 [2003] JPL 1299, [2003] 2 P & CR 26, which was decided in the context of considering when operations are "substantially complete" for the purposes of s 171(1)(B) in the context of enforcement. In that case Mr Sage had erected a building without planning permission. Having argued unsuccessfully that it was an agricultural building, it was held that it was a dwelling. There was an issue about the relevant date to take for the four year rule, which would have made the construction of a dwelling immune from enforcement. He argued that the Inspector was wrong to say that time ran from the date when the building was completed. In disagreeing with Keene LJ in the Court of Appeal, their Lordships considered that one should look at the whole development proposed, and not just at what requires planning permission as an act of development. Lord Hope, in agreeing with the speech of Lord Hobhouse, said this at paragraphs 4-7

"4. This led to the alternative argument that the notice was out of time because the operations that must be substantially completed for the purpose of section 171B(1) of the Town and Country Planning Act 1990 comprise the operations which constituted a breach of planning control, or (as it was put) the operational development, and not the whole operation of completing the dwelling house. The inspector's view was that the four year period did not begin until the whole operation of creating the dwelling house was substantially completed. He then held, treating the question as one of fact and degree, that the building in this case was not a substantially completed dwelling house. Here again the inspector's decision on the facts went against Mr Sage and the contrary is not longer arguable. The question which remains is whether the inspector was right when he said that the four year period did not begin until the whole operation of creating the dwelling house was substantially completed.

    5. Mr Sage's argument is that the reference in section 171B(1) to the date "on which the operations are substantially completed" has to be read in the light of the wording of the other relevant sections in the 1990 Act, and that by tracing the language of that subsection back through section 171A(1)(a) the reader is required to bring into account the definition of "development" in section 55(1) of the Act, those operations which section 55(2)(a) says are not to be taken to involve development and the definition of the word "building" in section 336(1). If this approach is right the position is, as Keene LJ explained in paras 27 -31 of his judgment, capable of being resolved quite simply by saying that what have to be substantially completed are those operations which amount to a breach of planning control and that operations and works which do not amount to development because they fall within section 55(2)(a) are not to be taken into account. On this approach, it does not matter that the inspector did not think that the building was a dwelling house. All one needs to find is that there is a building which has been erected in breach of planning control.

    6. I was initially attracted to this approach, as it seemed to me to be consistent with the language of the statute and to be unlikely, as Keene LJ said in para 32 of the judgment, to give rise to practical difficulties. But I have in the end been persuaded, with respect, that the language of the statute is open to a different interpretation and that it makes better sense of the legislation as a whole to adopt the holistic approach which my noble and learned friend has described. What this means, in short, is that regard should be had to the totality of the operations which the person originally contemplated and intended to carry out. That will be an easy task if the developer has applied for and obtained planning permission. It will be less easy where, as here, planning permission was not applied for at all. In such a case evidence as to what was intended may have to be gathered from various sources, having regard especially to the building's physical features and its design.

    7. If it is shown that all the developer intended to do was to erect a folly, such as a building which looks from a distance like a complete building - a mock temple or a make-believe fort, for example - but was always meant to be incomplete, then one must take the building when he has finished with it as it stands. It would be wrong to treat it as having a character which the person who erected it never intended it to have. But if it is shown that he has stopped short of what he contemplated and intended when he began the development, the building as it stands can properly be treated as an uncompleted building against which the four year period has not yet begun to run.

53. Lord Hobhouse said at paragraphs 23-27

"23. When an application for planning consent is made for permission for a single operation, it is made in respect of the whole of the building operation. There are two reasons for this. The first is the practical one that an application for permission partially to erect a building would, save in exceptional circumstances, fail. The second is that the concept of final permission requires a fully detailed building of a certain character, not a structure which is incomplete. This is one of the differences between an outline permission and a final permission: s.92 of the Act. As counsel for Mr Sage accepted, if a building operation is not carried out, both externally and internally, fully in accordance with the permission, the whole operation is unlawful. She contrasted that with a case where the building has been completed but is then altered or improved. This demonstrates the fallacy in Mr Sage's case. He comes into the first category not the second.

    24. The same holistic approach is implicit in the decisions on what an enforcement notice relating to a single operation may require. Where a lesser operation might have been carried out without permission or where an operation was started outside the four year period but not substantially completed outside that period, the notice may nevertheless require the removal of all the works including ancillary works: Ewen Developments Ltd v Secretary of State for the Environment [1980] JPL 404, CA; Howes v Secretary of State for the Environment [1984] JPL 439, Hodgson J; Somak Travel v London Borough of Brent [1987] JPL 630 Stuart-Smith J. The first of these upheld a requirement that the whole of an embankment be removed. In the second the inspector had directed himself that the removal of a hedge and the creation of an access was "a continuous operation and each step in the work prolong[ed] the period for serving the enforcement notice as regards every earlier step of the development": the judge upheld the notice. The third case involved an unauthorised change of use case from residential to commercial use. The notice not only required the cessation of the commercial use but also the removal of an internal staircase which had been put in to facilitate that use though in itself the staircase had not required permission.

    25. These decisions underline the holistic structure of planning law and contradict the basis upon which the Court of Appeal reached its decision in favour of Mr Sage.

    26. Finally, it was argued for Mr Sage that the inspector should have had express regard to an inspector's decision letter reported in [1972] JPL 385 where the facts bore some similarity to those of the present case and he had held the enforcement notice to be out of time. However that decision was based upon the finding by the inspector that "the appeal building had become a viable building more than four years before [the] service of the notice and that in the form which it then took it [was] immune from enforcement action". The inspector's finding in the present case was that the structure was best described as a dwelling in the course of construction. The inspector was right to think that the 1972 decision did not help; indeed it was adverse to Mr Sage's case.

    27. Accordingly the inspector's decision was correct. The Notice had not been served after the end of the period of four years beginning with the date on which the building operations were substantially completed. Indeed they had still not been substantially completed at the date of the Notice. The appeal should be allowed and Mr Sage's CPR Pt.8 proceedings dismissed and the orders of the judge and the Court of Appeal set aside, including the costs orders made in favour of Mr Sage."

54. Mr Turney says that Sage shows that it is not necessary to discuss whether the units were awaiting finishes or not. On the Sage approach, a building requiring finishes to suit a tenant was not complete, and in this case the buildings were patently incomplete.
55. Mr Turney referred to the description given by the Council's expert from GL Hearn, who referred to the development as being "largely complete" which is different from being "complete." Thus says Mr Turney, the Inspector was right to say that the parties were agreed that the development was incomplete, which is what the SOCG said. Once that was accepted, then there can be no complaint about the decision. The unchallenged evidence at the hearing before the Inspector was that the scheme would make a loss, and the payment of the affordable housing contribution would exacerbate that.
56. Mr Turney also submitted (although it was not necessary to his case) that the Act permitted such applications to be made even when the development had been completed.

J DISCUSSION

57. I have noted that the Defendant Secretary of State was unrepresented before me, so that the Court did not have the benefit of his argument on the serious issues which this claim raises.
58. It is perhaps necessary to start with a dash of realism about several matters:

i) in the real world of development and especially that related to regeneration such as this one, mixed use schemes are commonplace, so that one may often get housing elements and commercial elements;

ii) no developer of a mixed scheme would consider the important questions of investment, cash flow, return or valuation, without considering the scheme as a whole;

iii) the markets for different kinds of development fluctuates, and the market conditions for one kind may show a different pattern from another;

iv) a developer seeking to find commercial occupiers (be they tenants or purchasers) may well not proceed beyond shell and core stage until he is aware of the occupier's requirements. He may also decline to finish off a building when he has found no prospective occupier;

v) it is in the interest of local planning authorities, both in terms of proper planning, but also in terms of their own finances, that there is a measure of certainty about the effect of obligations to which they are a party;

vi) it is in the interest of promoting the availability of housing to those that require it that it is assisted by the provision of affordable housing;

vii) the purpose of the making of a payment towards the provision of affordable housing is that in that way the developer is able to pass on a policy obligation he would otherwise have had to fulfil by building a greater percentage of affordable units within his scheme.

59. I set those matters out, because there are aspects of this issue where a dash of realism may be required.
60. I start with the definition of "development" in s 106BA(13) :

""the development", in relation to a planning obligation, means the development authorised by the planning permission to which the obligation relates"

61. There can be no doubt that the "development" is defined as that authorised by the original planning permission. It follows that in this case the development included the commercial units.
62. I regard as unsustainable the argument of Mr Coppel QC for Medway Council that one should only look at the housing element. Not only is that impossible in the context of the statutory definition, but it does not reflect a realistic view. The developer would be bound to consider the whole scheme when determining what affordable housing requirement to accept, including as it did the financial contribution. The appraisal conducted by Savills for the appeal also did so, and its methodology and conclusions were accepted in terms by the Council.
63. I also reject his argument about the fact that only the housing area was "bound" by the obligation. That only goes to the question of enforcement of the obligation. I accept that the drafting may have resulted in an obligation to pay money calculated from across the whole scheme, but which when enforced only binds those then with an interest in the land upon which the housing was built, but that is a question of the wisdom of the draftsman of the obligation and agreement, not the meaning of the Act.
64. That being so, the next issue is whether or not that development had been completed. I have reservations about reading across the decision in Sage for the purposes of determining when development is complete in the context of a section 106BA application. The situation of a developer finishing works of building out, in a scheme with planning permission, only when an occupier has been identified, is quite different from that of the builder erecting a building without planning permission and seeking to argue that one should ignore finishing works conducted before the four year cut off point.
65. But in this case, it was not wrong to describe the commercial development as incomplete. In its state at the time of the application and hearing, it was not in a state which could generate receipts or return, so from the point of view of the developer, the development was incomplete. Some of those works, such as external finishes, would fall within Keene LJ's test of works in the Court of Appeal in Sage (but disapproved in the House of Lords) which would constitute development and require permission if not already permitted. In the real world, local planning authorities when considering the imposition of planning obligations for affordable housing in mixed use developments, must reflect on whether they should include triggers which restrict the effect of changes in the commercial market on the performance of the obligations.
66. It is true that the Council here were arguing that the development was complete. But that was not an argument about the factual state of the development, on the basis that the commercial buildings were unfinished. That was undisputed by the Council, as the SOCG said in terms. Its case that the development was incomplete was simply that the housing part was complete. Given the terms of the SOCG, the Inspector cannot be criticised for what he said in paragraph 9 of the Decision Letter. He was looking, as he had to under the Act, at the whole development. In any event I do not consider that the Council has suffered any prejudice or disadvantage on its factual case, because the facts were beyond argument, and were indeed agreed by them.
67. It could only have suffered prejudice or disadvantage by the Inspector not addressing its argument that the housing was completed if he could have accepted that argument. But that would have required him to depart from the proper interpretation of the term "development" and he would have been bound to reject it.
68. That being so, that is in reality the end of the legal challenge. Other issues were raised

i) Mr Coppel QC is right to say that the Guidance as drafted is directed to housing schemes where the houses promised have not yet been built. But that apparent omission or assumption cannot alter the statutory test. I express no view on its significance or relevance otherwise;

ii) I do not have to determine Mr Turney's submission that an application can be made after the development has been completed. The Act appears to be silent on the point. I shall not decide on his submission in the absence of argument from the Secretary of State.

K CONCLUSION

69. It follows from the above that I do not accept the Secretary of State's analysis of, or approach to, this challenge. In my judgement the Interested Party has shown that this challenge must fail. I therefore grant the Claimant permission to apply for Judicial Review, but dismiss the Claim. There will be Judgment for the Defendant. I invite submissions as to Costs from the Interested Party and the Claimant.