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No more additional affordable housing? A recent case puts the focus on interpretation of Section 106 agreements

4 min read

By Christian Silk

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The recent Stonewater Ltd v Wealden District Council [2021] case has caused a real conundrum for developers, particularly providers of affordable housing, as to whether they can in fact deliver additional affordable housing over and above the policy requirement set out in a Section 106 agreement. This also has an implication on entitlement to social housing relief from payment of Community Infrastructure Levy.

Background to the case

The claimant, Stonewater Ltd, acquired a site which had planning permission for 169 dwellings. They intended to provide more dwellings as affordable housing than was required by the Section 106 agreement and it sought social housing relief from Community Infrastructure Levy in relation to those additional affordable housing dwellings. Wealden Council refused the application for social housing relief. Stonewater Ltd challenged this.

Dispute over the terms of the Section 106 agreement and whether social housing relief is mandatory or discretionary

The dispute centred around the Section 106 agreement for the development which stated that 35% (59) of the dwellings had to be affordable housing. Stonewater Ltd intended to increase the affordable housing to cover all 169 dwellings.  If they could not, the CIL liability for the 110 dwellings would be over £3 million and make the development unviable.

The Council refused the application for social housing relief on the basis that there was insufficient evidence that the additional 110 affordable housing dwellings would in fact be affordable housing. Stonewater Ltd argued that the Section 106 agreement merely prescribed a minimum requirement and did not place an inflexible cap on the amount of social housing.  Further, they argued reference in the Section 106 agreement to the amount of affordable housing built as part of a development is not a prerequisite for social housing relief.

Stonewater Ltd also argued that the grant of social housing relief is mandatory rather than a discretionary matter.

Social housing relief is mandatory

The Court confirmed that the grant of social housing relief is mandatory provided the applicant supplies the Council with what the Council, as collecting authority, deems to be sufficient evidence. This evidence can include, as a material factor, the terms of the Section 106 agreement. In this case, the Council's view was that the Section 106 agreement precluded the provision of the additional affordable housing units, meaning that there was not sufficient evidence that affordable housing for all dwellings would be secured.

Does a Section 106 agreement have to expressly allow for additional affordable housing?

Stonewater Ltd argued that a Section 106 agreement sets a minimum number of affordable housing units which a development must include. The judge disagreed based on a reading of the Section 106 agreement. The wording did not set a "floor" as it did not use words to the effect of "at least" or similar, and read as a whole, the terms were clear and set a cap on the number of affordable housing units. Due to the clarity of the terms there was no justification for implying any other words into the Section 106 agreement that would have the effect of making it read as setting a "floor".

How could the problem of a cap on affordable housing have been overcome?

The judge recognised that the Council could exercise its discretion to agree a variation to the terms of the Section 106 agreement to permit more than the 35% affordable housing specified in it. In considering such a request the Council was entitled to consider the impact on the amount of Community Infrastructure Levy that it would collect. However, if it agreed to a variation then the amount of Community Infrastructure Levy that would be saved by the developer through social housing relief would not be relevant for the purpose of granting social housing relief, as it would be mandatory to grant it.

What should developers and providers of affordable housing do in light of the judgement?

In light of the judgement it will be important for anyone negotiating a Section 106 agreement to ensure that its terms permit additional affordable housing over and above that required by the Section 106 agreement. It is also advisable that a developer or provider of affordable housing discusses with a local planning authority any intention it may have to provide additional affordable housing to ensure that there will be no resistance or challenge to a future application for social housing relief.

Regarding existing Section 106 agreements, it is advisable to review the terms and to understand if they could be interpreted as placing a cap on the number of affordable housing units. If so, an application for social housing relief at the earliest opportunity will flush out whether the local authority, in its capacity as a charging authority, intends to interpret the terms of a Section 106 agreement as placing a cap or not. If the local authority determines that there is a cap, it is vital to discuss varying the terms of the Section 106 agreement as soon as possible.

Those entering into contracts for the purchase of land contingent on the grant of planning permission may wish to include a condition precedent, or a mechanism for deferred consideration or a price adjustment, tied to successfully being granted social housing relief from Community Infrastructure Levy. This will help mitigate the risk of a repeat of the circumstances in the Stonewater case where a development has been rendered unviable, but the site has already been acquired.

However, this may not be straight forward drafting. Some agreements to purchase set out that price is tied to land valuations and may include obligations to maximise the number of private dwellings or price. If that is the case any increase in the number of affordable housing units above that required by policy and set out in a Section 106 agreement could create valuation arguments.  Such arguments could also spill over into any overage obligations where sums are calculated on the basis of private sales or such like. If the reason for the variation in the cap is based purely on a saving of Community Infrastructure Levy and not price, then this could be worked through in the documents.