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Community Infrastructure Levy – Mandatory Social Housing relief clarified by the courts

UK Apartment Buildings Development

The recent case of Stonewater Limited v Wealden District Council and the Secretary of State [2021] EWHC 2750 Admin raised a number of interesting points in terms of the approach that Community Infrastructure Levy (CIL) collecting authorities should take when considering to grant social housing relief.

It is common practice for registered providers to purchase sites that already have a planning permission and a S106 agreement to deliver a certain amount/percentage of affordable housing. Under the planning permission the registered provider must deliver the amount of affordable housing contained in the S106, for example 35%, but there is nothing to prevent the registered provider from actually delivering 100% affordable housing on that site. If this is the case, then it allows a registered provider to secure grant funding (if available) on the non-affordable housing units, so the s106 agreement requires 35% affordable housing to be delivered but the registered provider can deliver 100% affordable housing and seek to secure funding for the 65% non-affordable housing. So far nothing out of the ordinary.

In this case Stonewater had purchased a similar site (169 units of which 35% were secured as affordable housing in the S106 agreement) but intended to deliver the whole site as affordable housing. It informed the local planning authority and after correspondence between the parties whereby the council suggested it could not grant relief from CIL without a deed of variation to the S106 agreement Stonewater made the requisite application for social housing relief on the whole development on the basis that it was delivering 100% affordable housing.

The Council as collecting authority refused the application on the affordable housing that was not to be delivered by way of the S106 agreement on the basis that Stonewater had not provided sufficient evidence to demonstrate that it would be delivered as affordable housing in perpetuity and the grant of social housing relief would have an impact of the delivery of infrastructure. There was much correspondence between the two parties and the matter ended up in Court.

As with most Court cases the matter turned on its own facts but there were some issues that all parties agreed. For example, all parties agreed that social housing relief was mandatory and whilst a S106 agreement was the usual mechanism to secure the affordable housing in perpetuity there was no legal requirement under the CIL Regs to have a S106 agreement in place.

The Court case turned very much on the wording in the S106 agreement and also the committee report.

In terms of the S106 agreement the fact that the agreement provided for a set number of affordable housing units required in each phase and as a number/percentage across the whole site convinced the Court on the drafting that no further affordable housing could be delivered on that site over and above what was secured in the S106 agreement i.e. no more or no less without a deed of variation. The Court also took a steer from the committee report which specifically referenced highways mitigation that would be required in order to deliver this development and in particular the mitigation would be delivered by the CIL receipt secured from the private residential units on the development.

On this basis, looking at the wording of the S106 agreement i.e. to deliver a specific amount of affordable housing and the committee report, the Court found that it was not a given that local planning authorities would always accept 100% affordable housing and in this case it was clear that the Council had not anticipated 100% affordable housing on this site.

Judge Thornton found
“By imposing a precise number of affordable housing, rather than a ‘floor’, the Section 106 is doing no more than giving effect to the planning application before it, which was for a scheme of 35% affordable housing, and hence to the expectations of both the developer at the time and the defendant in granting permission”

The Judge also concluded that
“Social housing relief is mandatory relief, where the relevant conditions are met. But where, as here, the conditions could only be satisfied if the council first exercised some separate and freestanding discretion (to vary the section 106 or enter into a fresh agreement) and where it was open to the council to have regard to a matter such as infrastructure provision in exercising that discretion, the council was entitled to make the point that, in exercising that discretion, it would be entitled to have regard to the impact on infrastructure”

There were good reasons for this discretion, for example delivery of the highways mitigation. On this basis if the Council was to accept further affordable housing then the S106 agreement would need to be varied.

This is a reminder that local planning authorities do not necessarily always want more affordable housing over and above other public benefits such as the delivery of highway works and therefore if developers and registered providers want the flexibility to deliver more affordable housing on the site over and above what is secured in a S106 agreement and importantly secure social housing relief for the extra affordable housing then they need to ensure that the wording in the S106 agreement is flexible enough to allow this and ensure that the committee report does not in any way undermine this position.

It has been suggested that one way to deal with this would be to include a general paragraph in the S106 agreement to make it clear that there is no restriction on the private residential units being delivered as affordable housing but whether councils will accept this will depend on how the planning balance is reported to committee. Alternatively, rather than committing to a maximum amount of affordable housing or an exact amount of affordable housing, for example 35%, there could be a reference to a minimum amount – both these options would not prevent further affordable housing being delivered over and above what is secured in a S106 agreement. However, they would require cooperation of the local planning authority to agree to such drafting and as set out in the Wealden case it may not always be something that the local planning authority wishes to agree to.

Going forward, if local planning authorities agree then applicants should try to ensure sufficient flexibility in the drafting of the S106 agreement to allow for further affordable housing to be delivered over and above that secured in the S106. It should be remembered that affordable housing and private housing are the same use class C3 so there is nothing to prevent a registered provider delivering 100% affordable housing and securing grant funding to do that. The issue is whether they can also secure CIL social housing relief.

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