Is this the end of section 106 Agreements for small developments?

The Government announced significant changes to the National Planning Practice Guidance in November 2014 with the aim of reducing “disproportionate burdens on developer contributions.”

The changes follow a consultation carried out in March 2014 and the impact of these changes are summarized as follows:

  • Developments comprising 10 units or less, which do not exceed 1000 square metres of combined gross floorspace, will not attract contributions for affordable housing or tariff style planning obligations. As a result, smaller developers are more likely to consider development opportunities which suddenly look more financially attractive.
  • In designated rural areas (e.g. National Parks and Areas of Outstanding Natural Beauty), Local Planning Authorities are free to apply a lower threshold of 5 units, so that affordable housing and tariff style contributions can be sought from developments of between 6 and 10 units in the form of cash payments only, such payments to be payable after completion of the units. This news will be well received by small developers who will be able to meet their contributions via sale receipts rather than having to borrow the funds in order to meet earlier payment triggers.
  • Affordable housing contributions will not be required where developments only involve the construction of a residential annex or extension to an existing home.
  • The changes do not apply to Rural Exception Sites, except where the development only involves the construction of a residential annex or extension.

It must be noted that Local Planning Authorities can still require planning obligations for site specific infrastructure, such as highway works or the provision of open space so this certainly is not the end of section 106 Agreements for small developments. If the Local Planning Authorities cannot secure the required site specific infrastructure by way of a planning condition, section 106 Agreements may still be needed.

Vacant Building Credit

The Vacant Building Credit was also introduced at the end of 2014 as a way of helping all developers to get building regardless of the size of the development. Unlike the small development exemptions, affordable housing contributions still apply but “credit” will be given where a vacant building is either:-

  • brought back into any lawful use; or
  • demolished to be replaced by a new building.

Once the level of affordable housing contributions to be made by the developer is confirmed, a credit will be applied which is equivalent to the gross floorspace of any relevant vacant building in the scheme. The financial credit is deducted from the overall affordable housing calculation. Vacant Building Credit does not apply to abandoned buildings.

Whilst it is clear the motive for introducing these changes is to encourage regeneration to local areas both in London and across the country, the news brings with it concerns over the adverse impact this will have on the number of affordable homes being built and the financial strain this will put on local Councils. Westminster City Council has already argued it stands to lose up to £1bn in housing payments as a result of these changes and other Councils look set to put forward similar cases. This is by no means a solution for all and it remains to be seen if the larger developers have to pick up the deficit created by a lack of contributions elsewhere.

For more information on this article or other Property matters, please contact Triya Maicha.

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