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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 >> Fox Strategic Land and Property Ltd, R (on the application of) v Chorley Borough Council & Ors  EWHC 1179 (Admin) (17 April 2014)
Cite as:  EWHC 1179 (Admin)
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QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| The Queen (on the application of Fox Strategic Land and Property Limited)
|- and -
|Chorley Borough Council
|- and -
|Preston City Council
|- and -
|South Ribble Borough Council
Mr David Elvin Q.C. and Mr Graeme Keen (instructed by The Head of Legal Services, Chorley Borough Council) for the Defendant
Hearing date: 10 March 2014
Crown Copyright ©
Mr Justice Lindblom:
The issues for the court
(1) whether the examiner's approach to the evidence before him on the likely value of residential development land and, in particular, the data in reports produced by the Valuation Office Agency and the information he was given about individual transactions, was irrational (ground 1 of the claim);
(2) whether the examiner failed to understand the evidence on the size of dwellings, density, and the cost of development, and took into account an immaterial consideration the mistaken idea that cost was directly proportionate to the size of a dwelling (ground 2); and
(3) whether it was unlawful to adopt the charging schedule for dwelling-houses without allowing for the potential effects of a requirement in development plan policy, due to come into effect in January 2016, that new housing must meet Level 6 of the Code for Sustainable Homes (ground 4).
The relevant statutory provisions
Part 11 of the 2008 Act
The CIL regulations
"In setting rates in a charging schedule, a charging authority must aim to strike what appears to the charging authority to be an appropriate balance between (a) the desirability of funding from CIL (in whole or in part) the actual and expected estimated total cost of infrastructure required to support the development of its area, taking into account other actual and expected sources of funding; and(b) the potential effects (taken as a whole) of the imposition of CIL on the economic viability of development across its area".
The Government's guidance on CIL
"By providing additional infrastructure to support development of an area, the levy is expected to have a positive economic effect on development across an area. In deciding the rate(s) of the levy for inclusion in its draft charging schedule, a key consideration is the balance between securing additional investment for infrastructure to support development and the potential economic effect of imposing the levy upon development across their area. The [CIL] Regulations place this balance of considerations at the centre of the charge-setting process. In meeting the requirement of regulation 14(1), charging authorities should show and explain how their proposed levy rate (or rates) will contribute towards the implementation of their relevant Plan and support the development of their area. As set out in the National Planning Policy Framework ["the NPPF"] in England, the ability to develop viably the sites and the scale of development identified in the Local Plan should not be threatened."
"79. Charging authorities are strongly encouraged to keep their charging schedules under review. This is important to ensure that levy charges remain appropriate over time for instance, as market conditions change, and also so that they remain relevant to the gap in the funding for the infrastructure needed to support the development of their area.
80. The Act allows charging authorities to revise a part of their charging schedule. However, any revisions, in whole or in part, must follow the same process as that applied to the preparation, examination, approval and publication of the initial schedule, as specified under sections 211 to 214 of the [2008 Act] and Part 3 of the [CIL regulations]."
"Pursuing sustainable development requires careful attention to viability and costs in plan-making and decision-taking. To ensure viability, the costs of any requirements likely to be applied to development, such as requirements for affordable housing, standards, infrastructure contributions or other requirements should, when taking account of the normal cost of development and mitigation, provide competitive returns to a willing land owner and willing developer to enable the development to be deliverable."
The Central Lancashire Core Strategy
"(a) Subject to such site and development considerations as financial viability and contributions to community services, to achieve a target from market housing schemes of 30% in the urban parts of Preston, South Ribble and Chorley ."
"All new dwellings will be required to meet Level 3 (or where economically viable, Level 4) of the Code for Sustainable Homes. This minimum requirement will increase to Level 4 from January 2013 and Level 6 from January 2016. "
Explaining this policy, paragraph 12.7 of the core strategy says this:
" The Code for Sustainable Homes and the BREEAM standards apply to all schemes as set out in Policy 27 irrespective of their scale. The requirement to meet the higher than national minimum Code Level and all other provisions of Policy 27 will apply unless the applicant can demonstrate, including through the use of open book accounting, that an individual site's circumstances are such that development would not be economically viable if the policy were to be implemented."
The councils' CIL process
Consultation on the councils' preliminary draft charging schedule
The councils' background paper of October 2012
The draft regulation 123 list
Roger Tym & Partners' final draft Technical Note on Assumption Inputs October 2012
Roger Tym & Partners' Addendum viability evidence report October 2012
Consultation on the draft charging schedules
Savills' representations of November 2012
The representations of Redrow Homes Ltd.
G.L. Hearn's letter to Chorley dated 23 November 2012
"Taking an average of these schemes, the realistically achievable development density which should be incorporated into the housing appraisals would be in the region of [3,260 square metres] per hectare To analyse the impact of this variable, we have inputted [sic] Roger Tym & Partners appraisal and assumptions into Argus Developer, a widely recognized industry standard appraisal software package. We have then re-run the appraisal on the basis of a realistic development density of [3,260 square metres per hectare] with all other variables unaltered. This results in a reduction in residual margin to 14.13% on cost.
The same principle applies to the appraisals for a typical 10 hectare site. This results in a reduction in residual margin to 11.64% on cost.
Similar analysis of the other sample appraisals with the various assumed land values would have a similar substantial impact on margin. "
The revised draft charging schedule
The councils' documents for the examination
"1.2 Our reference case scenario conservatively adopts a value of £750,000, with other scenarios ranging from [£450,000] for major strategic sites, to £900,000 for a [one hectare] site in a higher value area. It should be noted that these values are the return to the land owner, net of the policy requirements.
1.3 We note the [support for] the assumptions used in respect of sales values and land values in the most recent representations from Savills on behalf of a consortium of house-builders.
1.4 In determining the proposed residential charge rates, we have sought to identify the maximum possible rates that are consistent with maintaining the viability of development, before drawing down substantially from these theoretical maxima in recommending the rates proposed that are between 50%-60% of the identified maximum charge rates. This approach provides the necessary balance between the need to maintain the viability of development with the need to fund the infrastructure that is required to enable the planned level of growth."
The examination hearing
The examiner's report
"11. The Councils commissioned CIL Viability Assessments to inform the formulation of the charging schedules. The assessments use a residual valuation approach taking standard assumptions for a range of factors such as land costs, building costs and profit levels. Both the model and the assumption inputs were discussed at workshops and meetings with developers and others. I note that there is disagreement about the views expressed at these events. The robustness of the assessments, including the key variables and assumptions made, and the degree to which the appraisals justify the CIL levy rates proposed in viability terms, are central to this examination and are explored below."
"For residential developments, the viability assessments examine a range of development type scenarios in terms of site size and value levels. To reflect the general spectrum of residential development likely, the selection considered is influenced by an analysis of schemes coming forward at the time of the assessments and by the [core strategy]."
"13. The appraisals assume land costs in the range of £450,000 to £900,000 per hectare (net). A reference case scenario is used, with a land value of £750,000. Valuation Office Agency Property Market Reports have been drawn on to inform these assumptions. I am told that the last [Valuation Office Agency] report specifically relating to Central Lancashire was that from 2009 and that the geographically closest areas covered by the [Valuation Office Agency's] 2011 report are Greater Manchester and Liverpool. The Councils do not dispute that the latter report indicates a residential land value of £1.35 million per hectare. This is clearly rather higher than the range assumed.
14. However, the difference between the land cost for Central Lancashire and that for Greater Manchester and Liverpool in 2009 has been considered in effectively arriving at a differential to apply to the 2011 figures. While it is not clear whether any alteration in the degree of divergence between Greater Manchester/Liverpool and Central Lancashire has been reflected, this is a broadly appropriate approach."
"I note the points about whether or not the [Valuation Office Agency] reports take into account the cost of meeting local policy requirements, such as the provision of affordable housing. I recognise that if they are solely based on transactions, such costs will effectively be reflected in the figures, indicating a lower base land cost than that considered in the councils' analysis. Conversely, as the Councils pointed out, the land prices in the [Valuation Office Agency] reports may well also reflect other factors which have the opposite effect, such as affordable housing grants."
"The [Valuation Office Agency] reports are not the only sources of information informing the land value assumptions. An analysis of comparative transactions current at the time the appraisal work was undertaken has also been used. The Councils conceded that the number of sites examined is limited to 'less than a handful', apparently because these were the only current transactions at the time of the evidence gathering exercise. While not ideal in scope, this evidence nonetheless introduces an element of wholly local information with a firm basis in reality. Whether it is entirely representative is questionable, given the sample size. Nevertheless, it lends a reasonable, local reality check to the more theoretically derived understanding of land costs in Central Lancashire reached through scrutiny of the [Valuation Office Agency] reports."
"It may be that the land costs appraised do not reflect the full range of prices paid in individual land deals. But this will vary considerably from one project to the next, and the amount a developer is prepared to pay will depend on a wide spectrum of factors. Furthermore, it is expected that the cost of meeting a CIL charge will ultimately come from the price of land. With this in mind, it is not unreasonable for the appraisals to consider lower land costs than may have been previously experienced. Overall, in the context of the assessments' high level, inevitably broad brush consideration of the variables affecting viability, and in the light of the Regulations and the national guidance, the evidence on land cost is sufficiently robust and appropriate."
"19. Policy 27 of the [core strategy] requires all new dwellings to meet Level 4 of the Code for Sustainable Homes from January 2013. The appraisals are based on the assumption that the [Building Costs Information Service] data includes schemes built to Code Level 4. The appraisals also add a little over £150 [per square metre] to the [Building Costs Information Service] derived base build costs. This lends confidence that the costs of meeting [core strategy] Policy 27 have been adequately accounted for. The degree to which the appraisals reflect this policy requirement should be regarded as appropriate, for the time being at least.
20. From January 2016, [core strategy] Policy 27 will demand that all new dwellings meet Code Level 6. This has not been included in the viability assessments, and the councils intend to review the CIL charge in 2015, ahead of this requirement 'kicking in'. It is clear to me that a review will be essential at that time. If it is not, the Councils will risk either development not being delivered or the Code Levels sought by [core strategy] Policy 27 not being met. While it is beyond the scope of this examination and the recommendations I am able to make, there is no reason to suppose that the Councils, as responsible public authorities, will not undertake such a review in a timely fashion."
"23. The dwelling size and density assumptions made have been criticised. An average house size of 120 square metres has been assumed. The Councils agree that this is roughly the area of a typical four bedroom house. That being so, it seems improbable that this is representative of the residential development likely to be delivered. The Strategic Housing Market Assessment 2009, which underpins the [core strategy], points to a preference/demand for two, three and four bedroom market housing.
24. That being said, the Councils say that this does reflect the average size of the homes that were being marketed at the time of the evidence gathering exercise. In this context, while this sample amounts to only 56 dwellings, it does represent appropriate, available evidence. Even if it is the case that a more comprehensive survey could have been possible, this does not render the Councils' data invalid. In any event, the viability appraisals have analysed sales values for each scenario on the psm basis. In isolation, therefore, the unit size considered has little effect on the amount of CIL payable, or viability.
25. At the hearing, the Councils clarified that the 39 dwellings per hectare density figure used is gross, and that the net figure used, which takes into account the provision of open space and other non-developable areas on sites, is 31 dwellings per hectare. On the face of it, as a discreet factor, this seems appropriate.
26. In effect, the various scenarios appraised all assume that an average of 31 dwellings (net) per hectare of 120 square metres each on average will be delivered. Some suggest that this combination is not feasible or realistic in the present market. It may be that it is not representative of what is reasonably likely to be delivered across the three local authority areas. But if it is an overestimation of the level of residential floor space, and hence sales value, it is equally an overestimation of the cost of meeting the CIL. In the context of the appraisals' methodology, particularly the use of a flat psm sales value for each scenario irrespective of unit size, these are directly proportionate factors. Consequently, the degree to which the combination of the dwelling size and density assumptions reflects the kinds of developments one could expect to take place of the [core strategy] plan period has little or no effect on the assessment of viability. Given the generic value of viability appraisals of this kind, this should not be regarded as inappropriate."
"27. It has been assumed that all schemes will be debt funded through finance. That is not always the case. This aspect is one which suggests that the viability margins for each of the scenarios considered are not presented as 'best case' illustrations.
28. Sales values have been reduced by £100 [per square metre] in the appraisals to take account of discounts offered by house builders from asking prices. This is an assumption, and I have been given no clear evidence to suggest that house builders in the area offer a discount or, if so, what level of discount might be typical. In this context, the figure used seems appropriate, if not generous.
29. The adequacy of the residual margin has been questioned. But the Councils' evidence indicates that even after the proposed CIL charge has been taken, the margin for the various scenarios ranges from 22.5% to 24.2% on cost. This strikes me as reasonably healthy, and a level at which many developers could realistically be expected to proceed."
"30. Moreover, it is clear that in setting the levy rate for dwelling houses, the Councils have not sought to 'push the boundaries' or levy the maximum level of CIL that the appraisals show to be theoretically possible. Indeed, according to the Councils, the theoretical maximum charge for the applicable scenarios analysed range from £102 to £132 [per square metre]. In striking the balance between the need to fund new infrastructure and the effects on economic viability, the approach taken in appropriately measured. Given the nature of the appraisal work undertaken, dealing as it must with a range of variables and unknown factors, and making numerous assumptions, this is a commendable path. It significantly bolsters confidence that the rate proposed will not put at serious risk the overall development of dwelling houses across the three local authority areas envisaged in the [core strategy].
31. I conclude that the levy rate for new dwelling houses (excluding apartments) is justified by appropriate available evidence and strikes an appropriate balance between helping to fund new infrastructure and its effect on the economic viability of dwelling houses (excluding apartments) across the three local authority areas."
The adoption of the charging schedules
Issue (1) irrationality
"This is because responsibility for making the relevant decision rests with another party and not with the court. It is not enough that we might, if the responsibility for making the relevant decision rests with us, make a decision different from that of the appointed decision-maker. To justify intervention by the court, the decision under challenge must fall outside the bounds of any decision open to a reasonable decision-maker."
Issue (2) immaterial consideration
Issue (3) whether the councils could lawfully adopt a charging schedule that would endure beyond 2016