08.11.2022

CIL side: What are the implications of the Supreme Court decision in Hillside?

"although this feature of the planning legislation means that developers may face practical hurdles, the problems should not be exaggerated" 

LORD SALES AND LORD LEGGATT 

Hillside Parks Ltd v Snowdonia National Parks Authority [2022] UKSC 30 

This post considers one of the many "practical hurdles" arising out of the Supreme Court's recent decision in Hillside. Namely, the CIL implications of having to seek a "variation" permission that covers the entirety of the site - but which is neither a s.73 or s.96a consent.

This is going to get technical, so apologies in advance for the jargon. I have, however, opted for sub-headings. Hopefully that will help a bit. 

At the risk of giving away spoilers. I think it is safe to say that the Supreme Court has just made amending some planning permissions a lot more expensive.... 

The "Hillside Solution"

By way of a reminder, the Supreme Court's solution to the need to vary large multi-unit consents (or at least unphased ones*) was to state that: 

"there is no reason why an approved development scheme cannot be modified by an appropriately framed additional planning permission which covers the whole site and includes the necessary modifications. The position then would be that the developer has two permissions in relation to the whole site, with different terms, and is entitled to proceed under the second." 

In short, to submit a replacement application, covering the whole site, which sets out the modifications being sought and includes a series of plans showing how the two developments fit together. 

This would result in a part retrospective second planning permission relating to the whole site. 

Redline Plans & Chargeable Development

The first thing to bear in mind, from a CIL perspective, about the "Hillside solution" is the fact that the resulting "variation" planning permission would include everything that had already been built on the site. 

The legal upshot is that a Developer will end up with two separate planning permissions authorising two separate chargeable developments:

1. The Original Consent, which was prospective when it was granted and has now been commenced; and
2. The Variation Consent, which will by necessity be partially retrospective, as the Original Consent has already been partially built out.

As a result, the likelihood is that a Developer will  have already applied for, and received, any applicable exemptions and be paying the CIL liability on the Original Consent before the Variation Consent has even been granted.

These might seem obvious points, but they are very important ones, for reasons that will become abundently clear very shortly. 

Deductions for Demolished Floorspace "In Lawful Use" 

The first of many nasty surprises that the CIL Regulations might have in store for a Developer attempting to use the "Hillside solution" comes when calculating the potential liability of the Variation Consent.

The CIL Regulations allow developers to discount the floorspace of buildings that are to be demolished as part of a development, if they have been 'in lawful use' for a specified period of time**.

Floorspace that is being retained can also be discounted if it has been 'in lawful use' for the relevant period; or if the use of retained building is not changing as a result of the development.

In order to qualify for the discount all or part of the building has to have been 'in lawful use' for a continuous period of at least six months out of the three years ending on the date on which the permission, for which you want to claim the discount, first permits development.

The way these discounts have been drafted into the CIL Regulations could well be problematic when applying them to a Variation Consent.

Firstly, in order to benefit from the 'lawful use' discount for demolished floorspace, the relevant building needs to still be standing on the site when the Variation Consent 'first permits development'. 

This means that the Variation Consent will lose the benefit of any deductions granted in respect of buildings that have already been demolished under the Original Consent - thus increasing the overall liability of the scheme.

If that were not enough, the qualifying period for lawful use is:

• Calculated backwards,
• From an end date that changes depending on the type of planning permission you have applied for.

I am not going to run through when each type of planning permission "first permits development" in this post, but it can vary significantly.

The pertinent point, for this article at least, is that there is a very real possibility that a building which was 'in lawful use' when the Original Consent first permitted development has ceased to qualify by the time the Variation Consent first permits development. This would also inflate the scheme's overall liability.

There will also, inevitably, be changes in indexation between the grant of the Original and Variation Consent that will need to be factored in.

In short, it is distinctly possible that the Variation Consent's CIL Liability could be significantly higher than that of the Original Consent - even if the overall amount and use of floorspace contained within them remains exactly the same.

Exemptions, Reliefs & a whole lot of headaches 

The second CIL conundrum facing a developer attempting to implement the "Hillside solution" arises out of the partially retrospective nature of the Variation Consent. 

Retrospective planning permissions are very bad news from a CIL perspective, as the vast majority of exemptions and reliefs drafted into the CIL regulations simply do not apply to retrospective consents. 

This was confirmed by the Court of Appeal*! earlier this year. In Gardiner, the Court of Appeal was asked to rule on the question of whether it was possible to claim self-build housing relief in respect of a retrospective planning permission. The Court found that it was not. 

The rationale for that decision can be summarised as follows:

1. To claim an exemption for self-build housing, you have to first assume liability for CIL. The regulations only allow for this to happen in the window of time after planning permission has been granted, but before the development commences.  
2. It is not possible to do this with retrospective consents, as the development is deemed to have commenced the moment that permission is granted - so there is no window of time within which you can assume liability. 
3. Similarly, a claim for self-build relief will lapse where the relevant development is commenced before Council has made a decision on the application. 
4. As a retrospective planning permission is deemed to commence on the day that it is granted, this means that either any claim for the exemption would lapse on the day when planning permission is granted; or the Council would have purported to grant the exemption before planning permission was in place - which it does not have the power to do. 

Almost all of the reliefs and exemptions in the CIL Regulations are structured in the same way. As such this rationale not only applies to self-build relief, but also to social housing relief and the exemption for charitable relief as well.

Unless you are making a s.73 application, there is no mechanism in the CIL Regs for transferring an exemption or relief granted in respect of a previous permission across to a later one.

As a result, not only does our Variation Consent potentially lose the benefit of any discounts for demolished or retained floorspace in lawful use; it can no longer benefit from social housing relief either. This could come as a very nasty shock to any registered providers who are already under contract on the site...

Abatement 

Thankfully, there is a partial solution to at least some of these issues in the CIL Regulations. It takes the form of the provisions surrounding abatement.

Abatement, in CIL world at least, is a process that allows you take CIL payments made in respect of one permission and credit them against another.

There are two abatement processes in the CIL Regs. The first relates to s.73 permissions. The second, which is contained in Regulation 74B, covers the situation where you start building under one permission and finish under an entirely different one. 

Reg. 74B is the only procedure available in the CIL Regs that appears to directly address the "Hillside solution" 

Reg. 74B doesn't just allow you to credit any CIL payments already made under the Original Consent against the liability of the Variation Consent. It also contains provisions that allow for the benefit of any demolition discounts to be transferred across in certain circumstances.

Whilst this is extremely helpful, however, it is far from a complete solution. The usefulness of the abatement process is limited, for the following reasons:

• The abatement process only applies to CIL payments that have already been made, and is not automatic. It has to be requested by the developer;
• That request needs to be made before development under the Variation Consent commences, which could be a problem if the Variation Consent is partially retrospective;
• It also needs to be accompanied by proof of payment in order to be valid. This means that it cannot be accessed by anyone whose original permission did not incur a CIL charge (perhaps because the demolished building was larger than its authorised replacement); and 
• In order to transfer the benefit of any demolition discounts, the abatement application needs to be made within three years of the Original Consent having been granted. This is a remarkably short period of time, when considered against the build programme of a large multi-unit development.

Whilst abatement does provide a partial solution to the question of demolition discounts, it doesn't resolve any of the issues around the availability of exemptions or reliefs.

Phasing (and a potential point on severability) 

Phasing is not a concept that appeared in the Supreme Court's decision in Hillside.  The consent they were focused on was both full and unphased, so there was no need for them to consider it.

It does, however, feature in the CIL Regulations and in a manner could potentially play into the whole Hillside debate in any number of interesting ways.

When dealing with a phased planning permission, the CIL Regulations expressly treat each phase of the development as an independent "chargeable development", that is severable from the rest of the permission.

For each phase of the development:

• The date on which the phase first permits development is calculated seperately from the rest of the scheme;
• The commencement date is calculated independently from the rest of the scheme; and
• Both the CIL liability for the phase and any relevant exemptions or reliefs are both calculated and applied for independently of the rest of the scheme.

Let's ignore the obvious parallels with the Supreme Court's comments about severability for a moment.  The key point for this post is that, given the limitations of abatement, the CIL Regulation's treatment of phased planning permissions may be the most effective tool that we have for mitigating against the worst downsides of the "Hillside solution" from a CIL perspective.

Conclusion

In short, the Supreme Court's decision in Hillside has potentially made amending some planning permissions a lot more expensive. It has certainly made it more complicated.

From a CIL perspective, the most efficient way to amend a permission will always be via a s.96a or a s.73 Application (or a combination of the two). Any other option has now become rather complicated.

Longer term, assuming LURB makes it onto the statute books, we are likely to get both:

• a statutory mechanism for amending permissions in a more flexible way*^; and
• an amendment to the CIL Regulations to respond to that new mechanism

In the meantime, however, well I guess we will have to make the best of it. 

If you need me, I will be in the corner with a strong coffee and a copy of the CIL Regs... mulling over damage limitation strategies....

* the consent that the Hillside judgment was focused on was a full, unphased, planning permission - so the Supreme Court did not consider phasing or outline planning consents in their judgment at all.

** Schedule 1, Para 1 (10) of the CIL regulations 

*! Gardiner v Hertsmere Borough Council [2022] EWCA Civ 1162 

*^Section 98 of the Levelling Up and Regeneration Bill, proposes introducing a new s.73B into the Town & Country Planning Act 1990. This provision would allow local authorities to grant new permissions for developments that are substantially the same as an existing permission, whilst only considering the variations between the two consents

But although this feature of the planning legislation means that developers may face practical hurdles, the problems should not be exaggerated. Despite the limited power to amend an existing planning permission, there is no reason why an approved development scheme cannot be modified by an appropriately framed additional planning permission which covers the whole site and includes the necessary modifications. The position then would be that the developer has two permissions in relation to the whole site, with different terms, and is entitled to proceed under the second.”