Section 106: Nottingham’s battle to secure community cash from developers

Nottingham city centre
Nottingham city centre
By Joe Locker, Local Democracy Reporter

Councils typically grant planning permission to developers on the proviso they contribute financially to affordable housing and local education, employment and infrastructure opportunities in a bid to reduce the impact of a scheme. However, fewer and fewer developers are being obligated to provide money under these ‘Section 106’ agreements, with assessments ruling their plans would be financially unfeasible if made to do so. It has become a contentious issue. Local Democracy Reporter Joe Locker reports.

During a Nottingham City Council Planning Committee meeting on March 20 councillors approved plans for 191 apartments in the Meadows.

Approval was only given following a feisty and lengthy debate. Warwickshire-based developer Rainier said it could not make an additional financial contribution to the local area.

Under Section 106 of the Town and Country Planning Act 1990, these contributions are designed to act as a mechanism to make a development acceptable in planning terms.

A viability assessment had been submitted by the developer claiming the development would not be possible if it had to provide Section 106 money. This was independently reviewed by a council-appointed assessor which came to the same conclusion.

Consequently council officers said “hands were tied” by legislation set by the Government. Any refusal of the scheme could result in the developer appealing, resulting in a cost to the council if it was to lose.

It is not the first time councillors and officers have clashed over the issue. In December new homes in Sneinton were approved, but again only after a debate over the developer’s inability to contribute financially to the local area.

The council’s director of planning Paul Seddon told the Local Democracy Reporting Service that developers are often able to avoid making a Section 106 contribution, due to increasing costs.

When they acquire a site, developers will look at all the costs they will incur, plus a reasonable profit.

The development site in the Meadows where 190 apartments have been given the green light
The development site in the Meadows where 190 apartments have been given the green light

“This is where there may be a difference of opinion about whether profit is reasonable or not,” Mr Seddon said.

“But reasonable in legislation terms is something between 15 to 20 per cent.

“The Nottingham situation is construction costs went through the roof in recent years. Inevitably that has an impact on how much it is to build anything.

“We will also push developers for – if it is city centre-type locations – really good quality development in terms of materials. Some of the sustainability stuff we are requiring now has an additional cost to it and while values – rental values for instance and housing sale costs – have also gone up recently, as a general statement the cost of building something has gone up faster than the value of selling something or renting something at the end of it.

“Government is clear… if an agreed viability assessment – reviewed independently – comes out with the result that it does, then if we are wanting to refuse something, we really have to demonstrate that the harm from the development is very significant.

“We have significant need for new homes in the city. Constructing an argument [for a scheme] within a regeneration site that would bring new homes…  refusing that on the basis of not providing contributions is a tall order.”

The issue has become so contentious, councillors have started to question the effectiveness of the independent reviews of developer viability assessments.

West Yorkshire-based CP Viability is the firm that independently reviews viability assessments on behalf of the council.

Director David Newham said the firm only works with local authorities, to guarantee there is no conflict of interest in its advice.

However, he says whatever advice it gives must be done so under rules set out in Planning Practice Guidance (PPG), introduced in 2018 to ensure consistency.

Mr Newham says the PPG “explicitly states that for a scheme to be deemed viable the developer profit has to be between 15 per cent and 20 per cent of revenue”.

“Any advice we provide local authorities therefore has to be on the basis of the PPG requirements. Put another way, we do not dictate the rules of viability testing; we are bound by them,” he said.

“In some cases we may feel, for example, that a profit below 15 per cent on revenue could be justifiable in the open market. Our views on this, though, are irrelevant because the PPG states the profit has to be between 15 per cent and 20 per cent on revenue.

“In these circumstances the local authority may feel aggrieved and choose to refuse the planning application on viability grounds, which is of course their prerogative. However, the applicant can appeal this decision through the Planning Inspectorate.

“We would also stress that viability claims can be legitimate. We are currently in an economic climate where build costs have risen sharply in the last two years or so and values have started to falter.

“These more challenging economic conditions mean that land prices and developer profits are tightening. Where this is the case, local authorities (like landowners and developers) may also need to reduce their expectations on what financial return can be generated through property developments.

“Equally, though, there are circumstances where developers submit viability appraisals speculatively, simply as a means of maximising profits. Where this is the case our role is to advise the local authority to retain its planning policies.”

On occasion, councils are able to negotiate a lesser sum for a developer to provide, however in doing so they risk setting precedent with a particular developer.

“That happens sometimes,” Mr Seddon continued. “It all depends on the sums in the viability assessment.

“The idea that we will just pay a bit and that will be fine flies in the face of the consistency of basing our decision on the proper process.

“I know  is a frustration for councillors. But we don’t have the ability to negotiate on-the-hoof because of that need for consistency, and the evidenced-approach for what we ask for.”

Local authorities can adopt what is known as a Community Infrastructure Levy (CIL) to ensure contributions are made.

A CIL is a charge which can be levied by local authorities on all new development in their area in a bid to help them deliver the infrastructure needed to support development.

However, Mr Seddon says Nottingham and other areas in the Midlands and the North are typically challenged in adopting a CIL.

“If you look across the country at where CILs have been introduced they are predominantly south of the country where the values and viability of development is much stronger,” he said.

“Over the years we have gone through the process of assessing whether the viability position for Nottingham development overall would support a CIL being introduced. We have concluded it would not.

“You can introduce a CIL, that is the most consistent and the best way to try and grab a contribution, the problem being if you set that everything has to pay a contribution.

“But development viability in Nottingham is really challenging, so we would lose out on development actually happening.”

Some examples of CILs include those adopted in London boroughs. Others have been adopted in the East Midlands, including in the city of Lincoln.

Debates over Section 106 contributions during Nottingham City Council planning meetings have resulted in some councillors taking further action.

Cllr Sam Lux (Lab), the deputy chair of Nottingham’s planning committee, and Cllr Graham Chapman (Lab), who also sits on the committee, have penned a letter to shadow housing minister Matthew Pennycook asking for both short-term legislative changes and larger-scale reform in the event of a future Labour Government.

Councillor Graham Chapman, former leader and deputy leader of Nottingham City Council

It comes after the Labour Party said in October a future government would strengthen rules “to prevent developers wriggling out of their responsibilities, speeding up new social and affordable housing.”

The letter says: “The current situation is iniquitous.

“Given current market conditions and particularly in areas of low value, planning committees are commonly forced to approve applications stripped of S106 contributions, sometimes to the value of millions of pounds which would otherwise have been invested in local infrastructure and housing.

“We understand this to a degree.

“However, the process fails to account for the eventuality of improved market

“Planning permissions can sometimes take many months if not years to
enact, and market conditions change. This often means that a developer can make more profit than forecast when the agreement was signed.

“Unfortunately, there is presently no way for a council to reclaim the s106 contribution foregone.

“In this scenario, developers make healthy profits while the public sector loses substantial social benefit.

“However, the converse is not the case. If the market deteriorates and developers make less profit than they expect, they have the ability to appeal their s106 contributions. This amounts to a ‘win-win’ situation for developers and a ‘lose-lose’ situation for councils and the community.”

Councillors Lux and Chapman have proposed that an uplift condition is attached to Section 106 agreements as a way to claw-back money if market conditions improve.

Mr Seddon says an uplift is possible, but only in larger, multi-stage developments.

Imposing these conditions in smaller developments would reduce certainty for financing institutions and developers could risk losing out on funding.

“A one-off development needs that certainty for funding to come through,” he said.

A Department for Levelling Up, Housing and Communities spokesperson added: “We have introduced powers so we can create a new, mandatory Infrastructure Levy, with a non-negotiable charge that’s based on Gross Development Value.

“This will reform the existing system of developer contributions – including Section 106 planning obligations – and will see communities gain more of the uplift in value if development prices rise.”

Responses received from the Government’s technical consultation to inform the design of the levy regulations, which closed in June last year, are currently being reviewed.

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