The Devil is in the Detail: New National Planning Guidance for Build to Rent Schemes envisages very detailed s.106 Agreements.
Last week, MHCLG updated its National Planning Policy Guidance with remarkably little fanfare.* The revised guidance covers a large number of different topics, including:
- Neighbourhood Planning
- Plan Making
- Local Plans
- Housing and economic land availability assessment; and
- Housing Need Assessments.
This post, however, is about the new guidance on Build to Rent schemes** and, in particular, about how it is likely to effect the planning obligations required for them*^.
The guidance places a great deal of emphasis on the role of the s.106 Agreement in Build to Rent schemes. In fact, it expressly states that all of the following issues should be dealt with as part of the s.106 Agreement:
- the type and tenure of the affordable housing provision forming part of the scheme. This is presumed to be affordable private rented housing, but other tenures or a commuted payment can be included if desired by the Council and the developer.
- mechanisms for detailing how the proportion of affordable private rent units, and discount offered on them, can be varied across a development over time.
- mechanisms for agreeing any trade offs between the proportion of discounted units and the level of discounted rent(s) offered on them.
- the process for managing the affordable private rented units (given that this is to be done by the same management company as the rest of the scheme - the tenure does not require the involvement of a registered provider). This is likely to comprise the bulk of the s.106 Agreement for the development, as MHCLG considers it necessary to include details of; the parameters of the lettings agreement, rent levels, the apportionment of affordable units across the whole development, the management and service agreement; and the marketing agreement, as part of the planning agreement for the development.
- a requirement for the scheme's operator to produce an annual statement confirming the approach to letting the affordable units, their ongoing status, and a report setting out how they are meeting the overall affordable housing level required for the development.
- details of covenant and claw-back provisions, which are intended to ensure that the scheme remains a rental scheme for a specified period; with the Council being compensated for the loss of any private rented and affordable private rented units within the development during the covenant period. A standard formula is suggested for the claw-back provisions which relate to any affordable private rented units within the guidance itself, but the question of how best to approach claw-back provisions for the private units is left more open; and finally
- the eligibility criteria for the affordable private rent homes in the scheme.
As you can see, it is quite a list, and one which could well result in lengthy negotiations between the operator and the local planning authority. In particular in relation to:
- the covenant and claw-back provisions - especially where the Council wants to extend the financial penalties for selling or switching the tenure of a unit to the entire development, as opposed to just the units for affordable private rent;
- the schedules governing precisely how the affordable private rented units are to be managed - this is especially likely to be problematic in situations where the developer is not the intended operator of the development, or the operator is a new entrant to the market. As in these situations, the developer/ operator will not have well established management procedures that they can reuse; and
- the eligibility criteria for the units themselves.
On this last point, the guidance does helpfully confirm that Councils should not be seeking direct nomination rights to affordable private rented units, and that disagreements over eligibility should not be a basis for refusing planning consent for a scheme. Beyond that, however, criteria for eligibility has been left relatively open, with the only firm requirement being that "Eligibility should be determined with regard to local household income levels, related to local rent levels". As such, there is plenty of scope for disagreement between the parties.*^^
Given the level of detail that is likely to be required, it would be worth starting to think about how the management and operation of the development is going to be carried out very early on (i.e. in the pre-submission stage) so that you have a worked up set of proposals for the Council to consider at the same time as the planning application. This should reduce the amount of time spent negotiating the s.106 Agreement once a resolution to grant has been achieved - as the knottier issues could be ironed out whilst the application is under active consideration by the Council. Whether this is actually possible (or indeed even vaguely realistic) will, of course, depend on the level of engagement by, and resources in, the Council's planning department, but at least there will be less uncertainty over how the operator intends to manage the development from the outset.
* it is almost as if they don't particularly want us to focus on the intricacies of planning guidance at the moment...
** Link below, but also: https://www.gov.uk/guidance/build-to-rent
*^ Spoiler Alert - they are going to be getting heavier. A fact which is probably not that great for the Government's green agenda, when you think about it.
*^^ If you were being very very cynical, you could almost view the guidance as a job creation scheme for planning lawyers, but I suspect that is more likely to be another of the 'unintended consequences' I keep bleating on about than an actual policy objective...
The process for managing affordable private rent units should also be set out in the section 106 agreement. This should set out the parameters of the lettings agreement, the rent levels, apportionment of the homes across the development, a management and service agreement, and a marketing agreement setting out how their availability is to be publicised.
The section 106 should also require build to rent scheme operators to produce an annual statement to authorities, confirming the approach to letting the affordable units, their ongoing status, and clearly identifying how the scheme is meeting the overall affordable housing level required in the planning permission.”