Key takeaways
• A strong development agreement dealing positively with the steps & process to be undertaken to demonstrate viability, backed by a strong guarantor, is essential;
• Commercial confidentiality does not prevent a finding that there is enough reassurance that the development is likely to proceed (provided there are appropriate obligations on the parties to seek to overcome viability issues), nevertheless calling viability evidence is critical;
• Once planning permission has been granted, do not expect an inspector to want to look behind that permission, especially where it is rooted in the development plan; and
• Offering an alternative without a planning permission or an agreement to show how to achieve the required land assembly is unlikely to be enough to conclusively undermine the case for confirmation of the CPO on the extant scheme.
Seventeen months ago, an inspector’s decision to decline to confirm the London Borough of Barking & Dagenham’s Council (Vicarage Field and surrounding land) Compulsory Purchase Order 2021 brought into sharp focus the importance of viability of schemes for those promoting CPO public/private sector regeneration projects. In that decision, the inspector noted that the planning permission underlying the CPO had been granted despite acknowledgement that the scheme was not viable. She considered that it was unusual that no updated viability assessment had been presented and indicated that, if the scheme was viable, she could not understand why that evidence had not been presented. She therefore could not conclude that the scheme in that case was financially viable or that there was a reasonable prospect that it would proceed. This made it difficult to show conclusively that the CPO was justified in the public interest, despite the pressing need for redevelopment.
You can read more about that decision on Simon Rickett’s blog and also Raj Gupta’s commentary at Compulsory-Reading-–-Vicarage-Field-CPO.
A couple of weeks ago an inspector confirmed the London Borough of Haringey (High Road West phase A) Compulsory Purchase Order 2023 relating to Lendlease’s proposals for North Tottenham which lies in the Upper Lee Valley Opportunity Area (“the Lendlease Scheme”). The Inspector’s decision, along with the other inquiry documents, can be found here. Much of the Order lands comprised of the 312 homes on the Love Lane Estate. Regeneration through redevelopment of a residentially-led mixed use scheme was rooted in the Tottenham Area Action Plan, as was the principle of land assembly to achieve comprehensive and co-ordinated development. Outline planning permission for the scheme underlying the CPO had already been granted for the provision of 1,488 homes & significant floorspace for other uses including leisure. Existing residents and businesses would need to move twice to take advantage of the new space, which the Inspector considered was an inevitable consequence of the redevelopment of an established residential area.
A challenge to that permission by Tottenham Hotspur Limited was dismissed by the High Court shortly before the CPO inquiry began – see Tottenham Hotspur Ltd, R (On the Application Of) v London Borough of Haringey [2023] EWHC 2569 (Admin) (18 October 2023) (bailii.org).
Tottenham Hotspur Football Club (“the Club”) objected to the CPO, complaining that the planning permission lacked a substantial leisure element since planning policy, dating from when the Club worked with the Council on regeneration, envisaged development being primarily leisure-led. The Club proceeded to submit an alternative masterplan with the advantage that existing residents could be rehoused directly into their proposed scheme. The Club’s scheme did not fall within the permitted parameters plans or benefit from planning permission. Further, the Club had no support from the Council in terms of land assembly.
The Club contested the financial viability of the Lendlease Scheme on the basis that the development agreement (“the DA”) defined viable by reference to a required rate of return which was redacted for reasons of commercial confidentiality. The Club contended that there was no evidence that the Lendlease Scheme was viable within the definition in the DA, therefore, it was not open to the decision-maker to conclude that there is a reasonable prospect that the scheme would proceed. The Inspector noted that the relevant test in paragraph 106 of the guidance on compulsory purchase is set out in different terms. He also noted that the DA related to the whole of High Road West, whereas the Order lands related to phase A. The viability relating to the Order lands was a relevant consideration and both parties called viability witnesses who agreed on all but two inputs. The AA’s witness estimated an internal rate of return (“IRR”) of 10.43%. but the Club’s witness contended that, taking into account the rate of build cost inflation, the IRR is likely to be in the order of 9.65%. In response, the AA’s witness commented that a 9% IRR would probably be below a reasonable range. The Inspector noted that the Club’s viability witness acknowledged that the Lendlease Scheme would make a positive return. The DA placed obligations on both parties in the event that a phase proved not to satisfy the viability condition, which included an obligation to use reasonable endeavours to overcome any mitigation issue with provision for expert referral. The Club suggested this was materially different to using all reasonable endeavours, by reference to Brook Homes (Bicester) Lt v Portfolio Property Partners Ltd & Others, but the Inspector opined that the DA plainly required both the AA and Lendlease to pursue a positive approach and that this “encourages the resolution of any viability issues, and reduces the likelihood of the development not proceeding in any phase” (see paragraph 6.82 of the Decision). Ultimately, he concluded that the mere fact that the DA was redacted such that the IRR was not disclosed did not lead him to find that the DA was likely to be terminated with reference to any particular phase. He also noted that there were clear funding intentions, due to public grant funding being secured and the fact that the parent company of Lendlease, who are an established player in the delivery of major urban projects, were acting as guarantors. All in all, there was sufficient reassurance that the Lendlease Scheme was likely to proceed.