18.10.2021

CIL, S.106 Agreements & Affordable Housing Relief: What happens when the housing crisis hits political reality.

On Friday, the High Court handed down a decision which, in many ways, typifies the very essence of the housing crisis. 

The case, Stonewater (2) Ltd v Wealden District Council,* involved a registered provider, seeking to bring forward a 100% affordable housing scheme, on a site which had permission for 35% affordable housing provision, and a Council refusing to grant them CIL relief for any of the affordable housing units on the site.

The case, which I strongly recommend reading in full, sheds light on a number of matters including:

• The level of discretion available to local authorities when considering applications for mandatory  CIL relief for affordable housing; 
• The interplay between s.106 agreements and the CIL regulations; 
•  The types of considerations that registered providers need to take into account when looking to overprovide affordable housing on  a site; and
• just how contentious the 'overprovision' of affordable housing can be in certain parts of the country. 

To recap the facts briefly, Stonewater had purchased a site with consent for residential development in Wealden. The description of development on the planning permission was "residential development of 169 dwellings including enhanced junction and access arrangements at Ersham Road/Coldthorn Lane, 35% affordable housing and play areas". The s.106 Agreement for the site  also made reference to 59 (or 35%) of the dwellings on site being provided as affordable housing.

Stonewater intended to bring the site forward as a 100% Affordable Housing site. It is not unusual for registered providers to do this. Indeed grants from Homes England are based on the principle that registered social housing providers provide additional affordable housing over and above the levels secured in planning obligations. 

Stonewater, who had been an affordable housing delivery partner of the Council's since 2001, applied for 100% affordable housing relief for the development. Wealden  Council refused the application. The reasons for the refusal were as follows:

"Planning permission was granted on 29 May 2020 under reference WD/2018/2543/MAJ for 169 dwellings at Ersham Road/Coldhtorn Lane ("the Permission"). The Permission included provision for 35% Affordable Housing and is subject to a Section 106 Agreement dated 29th May 2020 ("the S106"). The S106 controls the amount of affordable housing that can come forward pursuant to the Permission. Your attention is drawn to Schedule 1 of the S106 which contains planning obligations (paragraphs 1 to 4 refer) which require the submission of Phasing Plan and Affordable Housing Scheme (as defined) and it is by this mechanism that the Council's approval is required (inter alia) to establish the number and type of affordable housing units coming forward. No submissions pursuant to Schedule 1 of the S106 have been received by the Council and so in the absence of approval of these details the development pursuant to the Permission cannot lawfully commence nor has it been established that any dwellings coming forward will be "qualifying dwellings" for the purposes of the CIL Regulations. The Permission and S106 provides for the provision of affordable housing at a level of 35%. 

In determining any submissions pursuant to the S106 in relation to the provision of affordable housing which exceeds the proportion considered at the time of the grant of the Permission (being 35%), the Council can properly have regard to the extent to which the submitted level of "qualifying dwellings" would affect the provision of infrastructure.

 In view of the above, the Council hereby refuse the claim for relief as it has not been established that any dwellings coming forward would be "qualifying dwellings" for the purposes of the CIL Regulations."

Stonewater judicially reviewed the refusal to grant CIL relief and the Court upheld the Council's decision. 

The key paragraphs of the judgment are set out below. When reading them, it is important to note that in pre-action correspondence, the Council had asked Stonewater to provide a further s.106 agreement ensuring that the whole site would come forward as affordable housing and Stonewater did not do so.

It is also important to note that Stonewater's pleadings do not appear to have taken issue with the fact that the Council refused affordable housing relief for ALL of the dwellings on the site - including the 35% that were secured as affordable housing under the s.106 Agreement for the development. 

The Court held that:

1. Pursuant to Regulation 51(3)(d)(ii), an applicant for social housing relief must submit evidence that the development qualifies for social housing relief. In the case of dwellings which have yet to be constructed this will amount to evidence to demonstrate that the applicant will in fact bring forward a development which will qualify for the relief sought. The logical corollary of the requirement for an applicant to submit evidence is that the relevant decision-making authority must consider the adequacy of that evidence and may reject the application if not satisfied by it. Whether the evidence is sufficient to demonstrate that one or more of the conditions in Regulation 49 will be satisfied in the future is a matter for the decision maker, having regard to the specific facts and circumstances of the case, subject to public law principles including Wednesbury reasonableness.
2. There is nothing in the CIL regulations which mandates the exact form of evidence required to satisfy the collecting authority under Regulation 51(3)(d)(ii). There is no express requirement in either condition 2 or 3, or elsewhere in the CIL Regulations, that the use of the qualifying dwellings in accordance with the terms of those conditions must be secured by way of a planning obligation or other legal mechanism. The absence of an express requirement is a clear indication that it is not a necessary pre-requisite. Where a planning obligation is a necessary pre-requisite to the satisfaction of a condition in Regulation 49 this is expressly stated, as in the case of Regulation 49(7A) and (7B) which concerns conditions 5 and 6.
3. Nevertheless, the inclusion of a section 106 agreement, or similar legal obligation, as part of the evidence in support of an application for relief under conditions 2 or 3 may be a material factor in the decision maker's assessment of the evidence. This is because, in practice, a section 106 agreement committing the developer to the asserted level of qualifying dwellings, is an obvious way in which a developer might demonstrate, evidentially, how the use of the proposed dwellings in accordance with either condition 2 or 3 is to be secured. By the same token, the absence of a section 106 agreement may be a material matter, as for example where no other evidence is submitted beyond assertion as to a future course of conduct. Whether the presence of a section 106 agreement, or its absence, justifies the grant or refusal of a claim for relief will depend on the facts and circumstances of a particular case.
4. Subject to the satisfaction of the procedural requirements in Regulation 51, the grant of social housing relief is mandatory, not discretionary. If the conditions are met, social housing relief must be granted. There is nothing found in the regulations either expressly, or by implication, which enables the decision maker to consider the effect of granting the relief including, for example, the impact of granting the relief on CIL receipts or the question of whether there would be a perceived over-concentration of affordable housing in a particular locality. These issues are not relevant to the question of whether any condition mentioned in Regulation 49 is satisfied. It is not the expressed purpose of social housing relief to seek to control the number of qualifying dwellings delivered by a chargeable development. Instead, social housing relief, in the context of the CIL Regulations, is intended to facilitate and encourage the delivery of such qualifying dwellings by a mandated form of relief from CIL.

So, what can we draw out of this judgment? 

Firstly, local authorities are able to take the existence and wording of s.106 agreements into account when considering whether there is sufficient evidence available for them to be sure that the proposed dwellings will come forward as affordable housing. This is the crucial point in this case - in the end, it turned on the construction of the s.106 Agreement for the site.

 In fact, I strongly suspect that if:

1. The s.106 Agreement had required the provision of 'at least' 35% affordable housing on the site (i.e. the figure had been a floor and not a ceiling); and/or
2. Stonewater had entered into a second s.106 Agreement or unilateral undertaking binding the remaining  units on the site;

The outcome may well have been different. As, in that case, the evidential value of the agreements would have been very different. The Council would have had a binding legal agreement confirming that the site would come forward as a 100% affordable housing scheme - thus overcoming their sole ground for refusal. 

Secondly, It is clear from the judgment that Wealden Council is very concerned about the impact of additional affordable housing on its levels of infrastructure funding. Paragraph 33 of the Judgment quotes an email from the Chief Executive of the Council that is pretty unequivocal about this. It is equally clear from the judgment that such concerns are not relevant to whether the relief should be granted.  The Judge expressly states this in paragraph 52.

Finally, I can't help but be saddened by the dispute at the heart of this case. We are in a housing crisis, which is particularly acute in the south-east. Stonewater and Wealden Council had been delivering affordable housing together for almost twenty years. Stonewater was seeking to continue that practice by delivering additional affordable housing in an area where it is sorely needed. It is disappointing to see a local council actively opposing this extra provision.  

I happen to live very close to Wealden. It is an expensive area. In fact the Council's housing strategy, published on 1 July 2020, states:

"Homeownership is out of reach for many households with affordability in the District remaining a key issue. Wealden is the most expensive area in East Sussex. Its average property price is £377,858 compared to the East Sussex average of £317,192. Based on local earnings, a Wealden resident needs to borrow 11.5 times their income to buy a property in Wealden." 

If you have the time, I strongly recommend reading:

• the Council's housing strategy (available here), which sets out just how badly affordable housing is needed in the borough; and 
• the Council's latest Infrastructure Funding Statement (available here)

and then going back and re-reading the judgment. As these documents provide a great deal of context to the statement "that 100% CIL relief at this scale will have a major impact on our evolving infrastructure pot."  

Read together, the documents paint a picture of a Council that is weighing whether to prioritise securing infrastructure funding over much needed affordable housing. Whatever your views on the outcome of this litigation, the fact that this is a choice that needs to be made does not bode well for anyone. Particularly not if you are trying to get onto the housing ladder in Wealden.

*[2021] EWHC 2750 (Admin) 

Drawn together, the analysis of the first two issues raised by the claim produces the following key propositions by which to assess the Council's decision:

a. To benefit from the social housing relief under the CIL Regulations, it was incumbent on the Claimant to submit evidence demonstrating that it will in fact bring forward 100% affordable housing.
b. Whether the Claimant's evidence is sufficient was a matter of judgment for the Council, subject to the usual public law principles including Wednesbury reasonableness.
c. An existing section 106 agreement fixes the affordable housing requirement at 35% or 59 units. This, and the corresponding absence of a section 106 agreement locking in the 100% provision, was clearly a relevant and material factor for the Council to consider in its assessment of the evidence.”